XIE LI XIN v. LAW KA YAN, THOMPSON AND OTHERS

HCA 1476/2017

[2022] HKCFI 1591

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1476 OF 2017

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J U D G M E N T

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TABLE OF CONTENTS

A.    INTRODUCTION

1.  This case involves a sophisticated fraudulent scheme allegedly perpetrated by the 1^st defendant (“Law”), the 2^nd defendant (“Ngai”), and the 3^rd defendant (“Tong”) (collectively the “Individuals”) against the plaintiff (“Xie”).

2.  In short, Xie’s case is that the Individuals created a purported money lender business (“Money Lender Business”) to induce Xie to invest substantial funds of money. In truth, the purported loans executed by the Money Lender Business were merely mechanisms whereby Xie’s investment would be remitted back to the Individuals or entities under their control (“Fraudulent Scheme”). The 4^th to 20^th defendants were accessories of, or vehicles used by, the Individuals to perpetrate the Fraudulent Scheme.

3.  Of the defendants, only Law appeared at the trial. His defence was that Ngai was the mastermind of the Fraudulent Scheme. He trusted Ngai, and he also was a victim of his fraud.

4.  Xie submits that the court should have no hesitation in rejecting Law’s defence. His defence is incredible, self-contradictory, and inconsistent with the contemporaneous and documentary evidence. Also, there were various important factual aspects that Law simply had no answer, and when confronted in cross-examination, claimed privilege against self-incrimination. As will be explained below, this means that the evidence against him in these important aspects remain wholly unanswered.

5.  The 5^th to 15^th defendants were legally represented up to the stage of the pre-trial review but were absent from the trial. Ngai, Tong, the 4^th and 16^th to 20^th defendants have never entered any appearance. There can be little doubt that judgment or default judgment should be entered against these entities.

B.    THE WITNESSES

6.  The court’s approach to the credibility of witnesses is well established. In particular, the court assesses credibility by reference to the contemporaneous documentary evidence.

7.  Only two witnesses were called at trial. Xie and Law both gave evidence in support of their own case.

8.  Xie’s evidence was not crossed-examined by Law. His evidence must be considered as unchallenged.

9.  Xie submits that Law’s evidence is a pack of lies and should be rejected. The specific incidences where his evidence was proven to be false at trial are discussed in further detail in Section C below. However, by way of overview, Xie points out that:

(1)  First, Law’s evidence was flatly contradicted by contemporaneous documents, especially the Wechat messages between Xie and the Individuals.

(2)  Second, in particular, in respect of the Personal Loan Agreement (defined below) between Xie and Law, Law accepted that he lied in his pleadings and made false accusations about Xie. As to why he lied, he said under cross-examination that an “evil voice” caused him to do so. He said the “evil voice” was his sister Aries Law Ka Yee. He later sought to retract that evidence and said that the evil voice was Ngai, which is plainly incredible. This evidence is important in a number of respects, as will be further discussed below.

(3)  Third, Law admitted that he was someone who was of extremely low morality at the material time. He compared a fraud that Ngai perpetrated involving HK$10 million to running a red light (衝紅燈).

(4)  Fourth, when it was pointed out to Law in cross-examination that any reasonable person would have voiced concerns about suspicious features of Ngai’s dealings, Law simply said he trusted Ngai, while accepting that he knew that Ngai was someone of no integrity. It is obvious that Law was a co-conspirator of Ngai.

(5)  Fifth, when Law was questioned as to why he took no steps to recover his losses if he was a victim of fraud, he said that was just his personality and he decided to run away (逃避). That is unbelievable and the plain truth is that he was also a co-conspirator and hence he did not take any action against Ngai.

(6)  Sixth, when Law was asked why he did not take steps to adduce easily available evidence to prove his innocence, he simply said he did not think about that.

(7)  Seventh, Law invoked the privilege against self-incrimination on multiple occasions, especially when it was pointed out to him that he was closely connected with various persons/entities involved in the Fraudulent Scheme. Such evidence therefore remains wholly unanswered.

10.  Two legal points were pointed out by Xie at the outset. First, the court can draw adverse inferences from Law’s failure to adduce contradictory evidence which he can be expected to provide: Hua Tyan Development Limited v Zurich Insurance Company Limited (2014) 17 HKCFAR 493, at §46.

11.  In this regard, I agree Law’s failure to adduce his contemporaneous text communications with Ngai is extremely telling. In cross-examination Law said that he had lost those messages. He suggested that he had changed his phone and lost his messages. A day later, he said that the messages were lost because his phone was confiscated by the police. Law’s excuses are inconsistent and incredible.

12.  In any event, Law was represented by counsel until pre-trial review. The importance of those messages would not have escaped him. Yet no explanation for the absence of these messages had ever been given in the written evidence. The clear inference is that Law intentionally suppressed his messages with Ngai, because those messages would show that he was acting in concert with Ngai to further the Fraudulent Scheme.

13.  Second, some English authorities suggest the court can draw adverse inferences when a witness relies on the privilege against self-incrimination to remain silent.

14.  Without delving into the question of whether an adverse inference can be drawn from the reliance on the privilege in this jurisdiction, the English cases make clear that the court is at the very least entitled to hold that whenever a defendant relies on the privilege to remain silent, he creates a vacuum of evidence on his part. Consequently, the plaintiff’s evidence goes unanswered, and the court may liberally draw conclusions and inferences from the plaintiff’s one-sided evidence (as opposed from the defendant’s reliance on the privilege): see V v C [2001] EWCA Civ 1509 per Waller LJ at §40.

15.  During cross-examination, Law relied on the privilege against self-incrimination on a number of occasions, especially when it was put to him that he was closely connected with persons that are implicated in the Fraudulent Scheme (ie Yeung Ngai Yin and Mei Hua - see paragraphs 98 and 178 below). The court should at the very least have no difficulty in coming to the view that the evidence against him, showing persons associated with him played critical parts in the conspiracy that he claimed to have no part in, remains unanswered and should be accepted.

16.  All in all, for the reasons further elaborated below, I accept the plaintiff’s invitation to reject Law’s evidence, and to find that he was a co-conspirator with Ngai in furtherance of the Fraudulent Scheme.

C.    THE FRAUDULENT SCHEME AND LAW’S INVOLVEMENT

17.  The Fraudulent Scheme began in around January and February 2016, when the Individuals induced Xie to invest in the Money Lender Business; to August 2016, when the Individuals abruptly disappeared and the value in the business was transferred to unknown corporate entities.

18.  By way of overview, the Fraudulent Scheme took place in stages:

(1)  First, the Individuals targeted and induced Xie to invest in the Money Lender Business by fraudulent misrepresentations.

(2)  Second, the Individuals caused the business to enter into two sets of purported loans - ie the Sai Kung Mortgage Loan and the Tin Shui Wai Mortgage Loans (both defined below). Both sets of loans were in fact self-dealing transactions whereby funds were remitted back to the Individuals or entities under their control.

(3)  Third, when Xie refused to invest more money in the business, Law fraudulently mispresented to Xie that he was in financial trouble because he had contributed to the Money Lender Business. Law sought to induce Xie to lend the Money Lender Business a further HK$8,000,000. However, as Xie insisted to lend to Law personally, the Personal Loan Agreement was entered into. When Xie pursued Law under the Personal Loan Agreement, Law just put forth wholly false allegations to attempt to avoid liability.

(4)  Fourth, when Xie discovered the Fraudulent Scheme, the Individuals abruptly disappeared, and took various steps to dissipate the assets of the Money Lender Business so that they would be beyond the reach of Xie.

19.  As the evidence shows, Law was clearly part of the Fraudulent Scheme. He was not, as he claimed, an innocent victim of Ngai’s fraud.

C1.    Prologue - first attempt at fraud by Ngai

20.  Prior to the matters in this Action, Ngai had in fact attempted to perpetrate fraud by trying to make a secret profit (食價) out of a confirmor sale in respect of Shop No C68 on 1/F, Commercial Development of Locwood Court, Kingswood Villas, No 1 Tin Wu Road, Tin Shui Wai, Hong Kong (“Tin Shui Wai Shop”).

21.  This fraud was described in the Judgment of Law Ka Yan Thompson v Ho Kang Wing [2020] HKCFI 513 (“Ho Action”) and the Judgment of Coleman J in Take Point Investment Holdings Limited v Ngai Lok Kei [2020] HKCFI 1709 (“Take Point Action”).

22.  Although Xie is not a party to these Judgments and hence cannot take advantage of any res judicata, Xie is entitled to rely on the fact that there were evidence and facts adduced in those other proceedings supporting his narrative: Capital Century Textile Co Ltd v Li Dianxiao [2018] HKCFI 729, §§28-29 (Lisa Wong J).

23.  In any case, the germane facts described in these two earlier Judgments were put to Law in cross-examination, and he admitted that they were true.

24.  In short:

(1)  In 2014, Ngai found that the owners of the Tin Shui Wai Shop (Chi Wing and Law Oi Ying, “Vendors”) were willing to sell the Tin Shui Wai Shop for HK$19,000,000.

(2)  In October 2014, Ngai (being a real estate agent) introduced the opportunity to purchase the Tin Shui Wai Shop to a Mr Ho Kang Wing (“Mr Ho”) and his wife, telling them any price below HK$30,000,000 would be a good buy. Mr Ho and his wife were family friends of Law, and it was Law who introduced Ngai to Mr Ho.

(3)  Mr Ho and his wife therefore caused their company Take Point Investment Holding Limited (“Take Point”) to purchase the Tin Shui Wai Shop at HK$28,560,000, with the preliminary sale and purchase agreement being signed on 29 October 2014.

(4)  Ngai attempted to make a secret profit (食價) by inserting a confirmor - one Cheerful Joy Limited (“Cheerful Joy”) in between the Vendors and Take Point. Cheerful Joy would buy the Tin Shui Wai Shop at HK19,000,000, and resell to the purchaser at HK$28,560,000, thereby making a handsome profit of nearly HK$10 million.

(5)  Cheerful Joy’s sole shareholder and director was a Madam Poon Lai Shan (“Madam Poon”), who was Law’s mistress. Law entrusted Madam Poon to Ngai’s care by moving Madam Poon to the neighbourhood where Ngai lived, and Ngai was even the godfather of the son of Law and Madam Poon.

25.  Ngai’s attempt at fraud failed. Mr Ho and his wife discovered Ngai’s plan and refused to complete the purchase. Law admitted that he then intervened and brokered a settlement between Ngai and Mr and Mrs Ho in March 2015.

26.  Law accepted in cross-examination that, by that time, he knew of Ngai’s attempt at fraud on family friends that Law introduced to Ngai, and that Ngai had even utilised Madam Poon, Law’s mistress, as part of the fraud. Law accepted that this led him to think that Ngai was of questionable integrity, but he did not think it was a problem.

27.  Law claimed that at the time, he thought that Ngai was intelligent and had infinite energy. He did not see integrity as an important quality. In his own words his philosophy at the time was winner takes all, and ability was all that matters (成王敗寇，能者居之). This is utterly incredible, and in any case, even if this is accepted, this shows that Law is a person of highly questionable integrity himself.

C2.    Inducing Xie to join the Money Lender Business

28.  Xie is a businessman carrying on businesses related to information technology, e-commerce and real estate investment.

29.  Xie met Law on 30 August 2014 because their daughters (Law’s daughter was with his wife, not Madam Poon) were classmates at the same school. Since then, the two families developed a close relationship.

30.  Xie got acquainted with Ngai and Tong through Law in 2015 during a holiday trip to South Korea. However, Xie had a much closer relationship with Law, and only met Ngai and Tong when Law was present.

31.  Xie and the Individuals mainly communicated through a WeChat Group called “廣州飯聚集團” (“Wechat Group”).

32.  As their personal relationship developed, the Individuals learned about Xie’s background and his successful businesses.

33.  According to Xie’s unchallenged evidence, on a day between late 2015 and 8 February 2016, Xie and the Individuals had a dinner at Xie’s home at Shatin Lookout. During the dinner, the idea of the Money Lender Business was floated.

(1)  The Individuals said that they had been conducting a wide range of business activities, including a money lender business. They represented that their businesses had been very successful. In response to that, Xie represented that he was interested in good investment opportunities.

(2)  The Individuals then persuaded Xie to join the Money Lender Business by making the following representations:

(a)  Law and Ngai orally represented to Xie that they were planning to set up a new money lender company, focusing on mortgage related business in Hong Kong.

(b)  Ngai said that he had experience in the real estate agency industry and accumulated a considerable client base, and that he had experience in running a money lender business.

(c)  Ngai and Law said that they were confident that the annual profit of the new business would reach at least HK$10,000,000 in three years, and that the holding company of the business venture would be on track to be listed on the Growth Enterprise Market (“GEM”) board on the Hong Kong Stock Exchange in three years.

34.  After Xie expressed his interest in the Money Lender Business. Law and Ngai suggested that:

(1)  Once a new company was set up for the business, Xie and the Individuals should become its shareholders and directors, and each of them should pay up the share capital in proportion to their respective shareholdings.

(2)  If the new company required more funds, Law and Xie should be willing to each advance HK$15,000,000 in the form of shareholders’ loans.

(3)  Ngai should run the business activities of the Money Lender Business.

35.  Xie, Law, and Ngai subsequently had a meeting on 9 February 2016 at Xie’s Shatin Lookout residence to discuss the proposed Money Lender Business. On that occasion Ngai said:

(1)  For the Money Lender Business to generate stable returns on a long-term basis, loans should be made to low-risk borrowers who could offer sufficient security for the loans.

(2)  The Money Lender Business should set aside around HK$50,000,000 as a start to fund the loans.

(3)  The Money Lender Business was to develop in stages. While initially the primary source of principal for lending was to come from the shareholders by way of shareholders’ loans, further principal should be raised by other methods.

36.  Law’s evidence was that:

(1)  It was Xie who was persistent in convincing the Individuals to participate in the Money Lender Business. Xie had represented that his business was doing very well. He had a lot of cash and could contribute HK$1 billion - and if that would make Ngai uncomfortable he could contribute HK$200 million - into the new business.

(2)  Law also said that Ngai turned down Xie’s offer to start the business at first, since Ngai did not want to be Xie’s employee.

(3)  Law never promised to contribute HK$15,000,000. Instead, Xie had offered to contribute more funds into the Money Lender Business by way of a shareholder’s loan, provided that he would have an equal shareholding with Law (“Alleged P’s Offer”).

37.  It can be immediately seen that Law’s account is highly unlikely:

(1)  Xie had no experience in a money lender business at all. Law’s evidence is also that none of the Individuals had experience in a money lender business. There was no reason why he should be so eager with the business, but for the Individuals’ representations, including that Ngai had money lending experience and Law and Ngai were planning on starting such a business.

(2)  It does not make business common sense for Xie to make the Alleged P’s Offer and volunteered to contribute significantly more in terms of capital, without asking for a greater share in the Money Lender Business.

(3)  It is also difficult to imagine that a reasonable businessman would take the initiative to propose investing HK$1 billion in something that he knew little about.

38.  More importantly, Law’s account given in this action is flatly contradicted by what he said in the Ho Action. In the Ho Action, Law said that after Ngai’s attempt to defraud Mr Ho had failed, Ngai was afraid that he would lose his estate agent license: Ho Action §53. He therefore begged Law to start a money lending business. In cross-examination, what Law had said in the Ho Action was put to him, and he accepted that this was the truth.

39.  It was therefore Ngai who was desperate to start the Money Lender Business. It simply made no sense that Ngai would reject Xie’s offer because he would have to be Xie’s employee. The truth is that Law and Ngai together made the various representations to induce Xie to invest in the Money Lender Business.

40.  As to the Alleged P’s Offer, it was put to Law in cross-examination that, as per what was said in Xie’s witness statement, Law and Xie initially agreed to contribute HK$15 million. Law said that he did not remember what happened. He was in no position to disagree with Xie’s evidence in this regard.

C3.    The Shareholders Agreement

41.  On 12 February 2016, the Individuals and Xie met at Xie’s office. Ngai presented to Xie a draft shareholders agreement (“Shareholders Agreement”) to be entered between Xie and the Individuals for the Money Lender Business. Its salient terms provide that:

(1)  The 18^th defendant (“Polly Wealth”) would be incorporated in Seychelles. Xie, Law, Ngai and Tong would respectively hold 35%, 35%, 20% and 10% shareholding in Polly Wealth and shall contribute to the share capital of US$10,000 according to the proportion of their shareholdings.

(2)  Polly Wealth shall have 4 directors, and each of the 4 shareholders can nominate 1 person to the board. The first directors of Polly Wealth would be Xie, Law, Ngai and Tong. Xie and Law would be co-chairmen, whereas Ngai would be the CEO.

(3)  Xie, Law, Ngai and Tong shall provide interest-free shareholders’ loans to Polly Wealth in the sums of HK$3,472,700, HK$3,472,700, HK$1,984,400 and HK$992,000 respectively (“First Tranche Shareholders’ Loan”). These contributions are proportional to the shareholding percentages.

(4)  In order to meet the funding needs pertaining to business development, Law and Xie undertake to provide shareholders’ loans to Polly Wealth in the sums of HK$5,000,000 and HK$25,000,000 respectively at an interest rate of 6% p a (“Second Tranche Shareholders’ Loan”). These contributions, in contrast to the First Tranche Shareholders’ Loan, are not proportional to the shareholding percentages.

(5)  The 19^th defendant (“Superlative”), a company to be incorporated in Seychelles, shall be the wholly-owned subsidiary of Polly Wealth.

(6)  The 20^th defendant (“Future Profit”), a company to be incorporated in Hong Kong, shall be the wholly-owned subsidiary of Superlative. Ngai shall be responsible for the day-to-day operations of Future Profit in approving and making loans to customers.

(Polly Wealth, Superlative and Future Profit are collectively referred to as the “Group” hereinbelow)

42.  Prior to the disappearance of the Individuals in August 2016, the sole director of Superlative was Polly Wealth, and the sole director of Future Profit was Madam Chan Man Wai, being Tong’s wife (“Madam Chan”).

43.  During the meeting on 12 February 2016:

(1)  Ngai produced a diagram (“Post-IPO Structure Chart”) to Xie envisaging the corporate structure of the Group after the proposed listing on the GEM board.

(2)  Law told Xie that he had difficulty in advancing HK$15,000,000 to Polly Wealth. He therefore proposed advancing HK$5,000,000 instead, and Xie would be responsible for the rest of the Second Tranche Shareholders’ Loan, ie HK$25,000,000.

(3)  Xie also proposed that any loan agreement shall be tabled for the directors’ discussion and consideration before it was to be approved, and his accounting staff and personal assistant shall be involved in the daily operations of Future Profit. However, the Individuals did not indicate their agreement to Xie’s proposal.

44.  Xie agreed to the draft Shareholders Agreement, which he executed on 14 February 2016. Afterwards, 3,500 shares of US$1.00 each in Polly Wealth were allotted to Xie (“Allotment”).

45.  On the other hand, Law alleges that:

(1)  The draft Shareholders Agreement was only discussed on 17 February 2016 when Xie and the Individuals met in Guangzhou.

(2)  He never said that he had difficulty advancing HK$15,000,000 to Polly Wealth, as he never agreed to advance such sum by way of shareholders’ loan in the first place.

(3)  In the meeting on 17 February 2016, it was agreed by Xie and the Individuals that (“Alleged 17 Feb Agreement”):

(a)  Ngai would have full authority to make loans which satisfied the following requirement (“Threshold Requirement”): (i) the loans were made to low-risk borrowers which were able to offer sufficient security by way of property, with an annual interest rate over 7%; (ii) “Sufficient security” meant a loan-to-asset ratio of about 80%.

(b)  Upon reaching the agreement on the Threshold Requirement, Xie suggested as long as he could make a steady return of around 6% per annum by way of a shareholder’s loan, he did not mind what the exact source of borrowing was. Even if any of the Individuals would like to borrow from the Money Lender Business for whatever purpose, they should be allowed to do so provided that the loan was made in accordance with the Threshold Requirement. The Individuals agreed to this suggestion.

46.  I agree that Law’s account should be rejected.

47.  First, insofar as the Threshold Requirement is concerned:

(1)  It was never discussed or mentioned in the Wechat messages, or any of the contemporaneous documents.

(2)  A loan-to-asset ratio meant that there must be a proper valuation of the property as security before the Group advanced loans to borrowers. However, as accepted by Law, none of the two purported loans which the Group made in the course of the Fraudulent Scheme was subjected to any valuation exercises.

48.  Law’s answer in cross-examination was that Ngai would be responsible for the valuation exercise himself, and that he (Ngai) would have the authority to approve the loans too. Law also insisted that it was agreed that even shareholders can borrow from the Group.

49.  This arrangement does not make commercial sense. If Ngai arranged for himself (or his nominees) to borrow money from the Group (which he did in respect of the Tin Shui Wai Mortgage Loans), and he had a free hand in valuing the security provided, there would be an obvious conflict of interest. Ngai could value the security as he wished so that he can borrow as much as he wanted from the Group. It is unbelievable that no one raised issues about such alleged arrangement.

50.  Law’s answer in cross-examination was that he trusted Ngai, so he did not question this arrangement. This is unbelievable given that Law had already concluded in 2015 that Ngai was of questionable scruples. In any case, clearly Xie, as an experienced businessman, would not have stayed silent.

51.  Moreover, when Ngai did execute two loans on behalf of the Group (ie the Sai Kung Mortgage Loan and the Tin Shui Wai Mortgage Loans), Xie expressed shock and surprise that Ngai did not seek shareholders’ approval before doing so. Despite that, no one (including Law and Ngai) sought to remind Xie that Ngai was authorised to make loans that satisfied the Threshold Requirement. The simple reason for that is that the Alleged 17 Feb Agreement never existed.

52.  On 19 February 2016, Xie, the Individuals and Madam Chan (Tong’s wife) met at the Hoi Yuen Road Branch of Hang Seng Bank to set up the bank accounts for Polly Wealth, Superlative, and Future Profit.

C4.    The discussion of the Sai Kung Mortgage Loan

53.  On 5 March 2016 at about 11am, at a meeting between Xie and the Individuals at Xie’s office, Ngai said that he had found potential customers for the Money Lender Business, who wished to obtain a mortgage loan of approximately HK$25,000,000 (“Sai Kung Mortgage Loan”).

54.  Later documents show that the intended borrowers were Tam Chi Fai (“Tam”) and Target Way Property Development Limited (“Target Way”) (collectively the “Sai Kung Borrowers”). The properties which were proposed to serve as security for this loan were:

(1)  No 56 Pak Kong Au, Sai Kung;

(2)  No 62 Pak Kong Au, Sai Kung; and

(3)  No 63 Pak Kong Au, Sai Kung

(collectively the “Sai Kung Properties”).

55.  Later on the same day, Xie and the Individuals performed a site visit of the Sai Kung Properties. Although Xie felt that the properties were not quite decent, Ngai persisted that the Group should explore the business opportunity.

56.  There is some dispute between Xie and Law as to whether the Sai Kung Borrowers were borrowing money to finance the purchase of the Sai Kung Properties, or whether they were mortgaging the Sai Kung Properties to fund their other projects. This is not material as Xie’s complaint is that the Sai Kung Mortgage Loan later transpired to be a self-dealing transaction, and the relevant mortgage was not even registered, as explained in Section C9 below.

57.  In the evening of 5 March 2016, from about 9:57 pm to 10:02 pm, Ngai reported through voice messages in the Wechat Group that he had concluded negotiations with the Sai Kung Borrowers on the terms of the Sai Kung Mortgage Loan. Law also sent voice messages in the Wechat Group reassuring everyone in the group (including Xie) on the feasibility and the prospects of the Sai Kung Mortgage Loan.

58.  Ngai visited Xie at about 10 pm on 5 March 2016. He proposed that a loan agreement be entered into by Future Profit with the Sai Kung Borrowers, and that Polly Wealth should raise a further sum of HK$25,000,000 to fund the proposed loan. In light of the Individuals’ earlier representations about the prospects of the Group, Xie believed that the Sai Kung Mortgage Loan would be a boost to the Money Lender Business and agreed in principle to the fundraising exercise.

59.  Pausing here, it is worth noting that the Sai Kung Mortgage Loan was subject to extensive discussion before it was advanced. There was a site visit, and there was further discussion in the Wechat Group as to whether the Sai Kung Properties were adequate security. In fact, after all the discussion, Ngai specifically visited Xie to seek his approval to go ahead with the Sai Kung Mortgage Loan. This contradicts any suggestion that Ngai was authorised to execute loans without shareholders’ approval. This is also in marked contrast with how the Tin Shui Wai Mortgage Loans (a key part of the Fraudulent Scheme) were executed, as discussed in Section C7 below.

60.  On 5 March 2016 at 10:34 pm, Ngai sent a Wechat message to the Wechat Group, proposing the following sums be raised to finance the Sai Kung Mortgage Loan (“Third Tranche Shareholders’ Loan”):

(1)  HK$19,000,000 from Xie;

(2)  HK$5,000,000 from Law; and

(3)  HK$1,000,000 from Ngai.

61.  It is worth noting that this round of fund raising was not canvassed in the Shareholders Agreement. Further, the contributions under the Third Tranche Shareholders’ Loan were not proportional to the shareholding percentages of Xie and the Individuals in Polly Wealth.

62.  Moreover, at this stage, there was no need for the Group to raise the Third Tranche Shareholders’ Loan. HK$40,000,000 was going to be raised under the capital injection and the First and Second Tranche Shareholders’ Loan, and that was ample to cover the HK$25,000,000 Sai Kung Mortgage Loan. Clearly, Ngai already harboured plans to advance money to undisclosed borrowers, namely the borrowers of the Tin Shui Wai Mortgage Loans (see Section C7 below).

63.  On 8 March 2016, Xie made queries in the Wechat Group as to whether the Sai Kung Mortgage Loan had been executed. He noted that he had to carefully calculate his cashflow since he would have to pay the balance purchase price for his office in late June. He said that the sale of his company was taking longer than expected, and he was uncertain about his cashflow; the Third Tranche Shareholders’ Loan was not “part of his plan”. Xie also asked in the Wechat Group whether Law could contribute more - but Law did not reply.

64.  It is Law’s case that Xie had agreed to invest the HK$19,000,000 pursuant to the Third Tranche Shareholders’ Loan, but failed to do so when the Group was in need of funds. That could not be true. Xie’s messages on 8 March 2016 clearly showed that he did not agree to the Third Tranche Shareholders’ Loan. Everyone was cognisant of that and no one objected.

C5.    The 19 March 2016 Meeting and the Purported Restructuring

65.  On 19 March 2016, Xie and the Individuals had a meeting at Xie’s office. During the meeting:

(1)  It was mentioned that certain loans carrying an annual interest of 8% were to be made to certain borrowers. The details of the transactions were however not discussed.

(2)  It was mentioned that the Sai Kung Mortgage Loan was being negotiated.

(3)  Ngai produced a diagram and said that the Group had been restructured (“Purported Restructuring”) for tax and asset protection purposes.

(a)  A new entity, Win Top Investment Holdings Limited (“Win Top”), had been incorporated as Polly Wealth’s subsidiary.

(b)  Another entity, Central Impulse Limited (“Central Impulse”), had been incorporated as Win Top’s subsidiary.

(c)  Instead of advancing money to Polly Wealth, the Second and Third Tranche Shareholders’ Loan could be lent to Central Impulse. Central Impulse would then lend the money to Future Profit (“Internal Loan Agreements”). In return, Future Profit could then execute a first floating charge in favour of Central Impulse, and a second floating Charge in favour of Superlative (“Asset Protection Charges”).

66.  The Purported Restructuring was carried out without Xie’s knowledge and approval. It was never tabled for consideration by the board of Polly Wealth.

67.  There is disagreement as to when the Purported Restructuring took place. Xie says that by the time of the 19 March 2016 meeting, the Purported Restructuring had already been completed without his consent, and Ngai merely produced the diagram at the meeting to show the result. By contrast, Law says that the Purported Restructuring was discussed at the 19 March 2016 meeting, and Xie agreed for it to go ahead.

68.  Law’s version of events is clearly incorrect. The corporate documents of Win Top and Central Impulse show that they had resolved to issue shares to Polly Wealth on 17 March 2016, 2 days before the 19 March 2016 meeting.

69.  The Purported Restructuring is wholly inexplicable:

(1)  First, the so-called tax reasons for the restructuring had never been explained or justified. There is no evidence how this was going to save tax for the Money Lender Business. There is also no evidence that tax professionals had been consulted before the Purported Restructuring.

(2)  Second, the “asset protection purposes” are difficult to understand. The only creditors of the Group were the shareholders, and there is no need to create any “protection” against them. In any event, it is not clear how a charge of Future Profit’s assets can offer protection.

(3)  Third, there is simply no reason why the Purported Restructuring was carried out without Xie’s knowledge or consent.

70.  Quite plainly, the Purported Restructuring only served to complicate the corporate structure, so that it would be more difficult for Xie to recover his investment. In particular, Xie had no control of Central Impulse, the first chargee under the Asset Protection Charges.

71.  Law further suggested in his witness statement that the Tin Shui Wai Mortgage Loans were specifically discussed. However, in cross-examination, when it was put to him that it is Xie’s case that the details of the Tin Shui Wai Mortgage Loans were not discussed at the meeting, Law simply said he did not remember what happened. Clearly, Xie’s unchallenged evidence in respect of the 19 March 2016 meeting should be accepted.

C6.    Xie’s first investment and the 26 March 2016 Messages

72.  On 19 March 2016, after the aforementioned meeting, Ngai issued written instructions (as the CEO of Polly Wealth) to Xie and the Individuals requesting them to remit their respective share of capital contributions to Polly Wealth. Xie was instructed to pay:

(1)  HK$27,300 as share capital (ie 35% of US$10,000) on or before 21 March 2016;

(2)  HK$3,472,700 as part of the First Tranche Shareholders’ Loan on or before 21 March 2016;

(3)  HK$25,000,000 as part of the Second Tranche Shareholders’ Loan on or before 30 March 2016; and

(4)  HK$19,000,000 as part of the Third Tranche Shareholders’ Loan on or before 6 April 2016.

Xie understood that the Second and Third Tranche Shareholders’ Loan were supposed to carry interest at 6% per annum.

73.  On 21 March 2016, Xie transferred HK$27,300 and HK$3,472,700 to Polly Wealth's bank account.

74.  Prior to committing the HK$25,000,000 under the Second Tranche Shareholders Loan, Xie was very concerned about the safety of his investment.

75.  At 6:56 pm on 26 March 2016, Xie sent messages to the Wechat Group enquiring the details of the Second Tranche Shareholders’ Loan. Xie was particularly concerned with whether the Second Tranche Shareholders’ Loan would be secured by any asset.

76.  In reply to Xie’s query, Ngai reassured Xie in the Wechat Group that his right as creditor would be adequately protected since Xie was a creditor with first priority (第一債權人). He said Xie was a director of the company and hence he was “double-protected”. He further said that the structure of the Group was set up as advised by lawyers so that Polly Wealth could capitalise its debts in the simplest and fastest way when it gets listed.

77.  Later, Ngai also said in the Wechat Group that Polly Wealth would only need to raise another HK$30,000,000 to HK$40,000,000 before it could meet the listing requirement for the GEM board.

78.  Pausing here, Ngai’s reassurance to Xie was clearly bogus. There is no such thing as “creditor with first priority” (第一債權人), and there is no reason (and none has ever been suggested) why complicating the corporate structure of the Group would somehow make the listing faster or easier, or somehow facilitate Polly Wealth in capitalising its debts.

79.  Xie was not satisfied with Ngai’s reassurances. He privately messaged Law on Wechat to express his concerns over the Money Lender Business.

80.  Law replied by reassuring Xie as to the feasibility and prospect of the Money Lender Business. In particular, Law stressed that Ngai was trustworthy, and they should believe in Ngai to carry out the Money Lender Business.

81.  Law admitted in cross-examination that, as of 26 March 2016, he was already aware of the incident in the Ho Action, and how Ngai had tried to make a secret profit (食價) of almost HK$10 million by taking advantage of a confirmor sale in respect of the Tin Shui Wai Shop. Nevertheless, he asked Xie to repose trust and confidence in Ngai.

82.  Law said in cross-examination that he never painted a rosy picture of the Money Lender Business. Instead, he repeatedly emphasised the importance of safety in the investment. But his assurance to Xie was simply they should both trust and rely on Ngai, someone he knew was of no integrity (yet Law never alerted Xie to this).

83.  Law’s repeatedly emphasised that he did not care about integrity at the time. He thought that Ngai was intelligent and full of energy. He believed that some integrity problems are less severe than others, and Ngai’s fraud against Mr Ho was not serious, and was comparable to something minor such as running a red light. I agree that this borders on the absurd. Defrauding HK$10 million from family friends introduced by Law himself, using his mistress as the person behind the confirmor, is not comparable to running a red light. No sensible honest person would have done what Law did, and no sensible honest person would have thought as Law supposedly did. He was clearly part of the scheme.

84.  The irresistible inference is that Law and Ngai were in it together, and that Law stood to benefit from the Fraudulent Scheme.

85.  Shortly after his conversation with Law, Xie drew a HK$25,000,000 cheque in favour of Polly Wealth, which was cleared on 29 March 2016. It is plain that Xie relied on Law and it was because of Law’s assurances that he paid over the HK$25,000,000. That is also his unchallenged evidence.

86.  On 31 March 2016, Xie messaged Ngai suggesting that he should give the shareholders the company incorporation and bank opening documents. Xie also suggested that his assistant, Ms Jane Kong (“Ms Kong”) can assist in the Money Lender Business. Ngai agreed to provide the documents and said he would involve Ms Kong if he needed assistance. He never did so.

C7.    The Tin Shui Wai Mortgage Loans

87.  At around the same time in late March 2016, Ngai advanced loans on behalf of the Group to the 4^th to 14^th defendants (“Tin Shui Wai Borrowers”), to fund the purchase of sub-divided units of the Tin Shui Wai Shop (“Tin Shui Wai Properties”) from Profit Trillion Limited (“Profit Trillion”) (“Tin Shui Wai Mortgage Loans”).

88.  The details of the Tin Shui Wai Mortgage Loans were unknown to Xie at the time. It was only after the Fraudulent Scheme was uncovered that Xie was able to piece together the true picture.

89.  The Tin Shui Wai Mortgage Loans were advanced by Future Profit to the Tin Shui Wai Borrowers in the following circumstances:

(1)  On 8 April 2015, the Vendors sold the Tin Shui Wai Shop to Profit Trillion. The consideration for the sale was HK$18,970,000. HK$1,897,000 was paid to the Vendors as initial deposit and further deposit. Completion was to take place on 1 April 2016, when the balance of the purchase price of HK$17,073,000 became payable.

(2)  The confirmor was Profit Trillion, a nominee arranged by Ngai (and on Xie’s case together with Law) to have a second go at making a secret profit out of the sale of the Tin Shui Wai Shop.

(3)  The estate agent for the sale was Wealth Trustful Property Agency Limited (盈信置業地產代理有限公司, “Wealth Trustful”), an entity closely connected with Law and Ngai. Law’s wife, Madam Lau Yuk Hing, was a 50% shareholder of Wealth Trustful until 2013. Ngai later became the sole director of Wealth Trustful. Ngai admitted that he was the beneficial owner of Wealth Trustful in the Take Point Action (at §71).

(4)  Between 21 March 2016 and 26 March 2016, the Tin Shui Wai Borrowers entered into mortgage loan agreements (the total loan amount being HK$33,029,978) with Future Profit. The Tin Shui Wai Borrowers were purportedly borrowing money to finance their purchase of sub-divided units of the Tin Shui Wai Shop from Profit Trillion (as confirmor).

(5)  On 31 March 2016, Future Profit advanced a total sum of HK$33,029,978 to the solicitors’ account of Hoosenally & Neo (“HN”), the handling solicitors for the Sai Kung Mortgage Loan Transaction, supposedly as mortgage loans to the 4^th to 14^th defendants.

(6)  Out of that sum, sums of HK$17,410,790 and HK$40,779.46 were paid to the Vendors to complete Profit Trillion’s purchase. And a sum of HK$16,514,190.54 was remitted to SK Lam, Alfred Chan & Co on 1 April 2016.

(7)  On 1 April 2016:

(a)  The Tin Shui Wai Shop was subdivided into 20 units (collectively, the “Tin Shui Wai Properties”).

(b)  The Tin Shui Wai Borrowers entered into assignments with the Vendors and Profit Trillion acquiring the Tin Shui Wai Properties. The total stated consideration on the assignments was HK$47,656,000.

(c)  The Tin Shui Wai Borrowers mortgaged the Tin Shui Wai Properties purportedly as security for the Tin Shui Wai Mortgage Loans (“Tin Shui Wai Mortgages”).

(8)  A few days later on 6 April 2016, SK Lam, Alfred Chan & Co transferred the sum of HK$16,514,190.54 to the 17^th defendant (“I-Luck”).

90.  As submitted by Xie, the Tin Shui Wai Mortgage Loans were clearly artificial and self-dealing transactions designed to benefit Ngai and Law.

91.  First, I-Luck (ie the 17^th defendant, dissolved on 14 May 2021), the entity which indirectly received HK$16,514,190.54 from the Tin Shui Wai Mortgage Loans proceeds, was controlled by Ngai and Law, as evidenced by the following:

(1)  Ngai was I-Luck’s sole director prior to 7 November 2016.

(2)  Apex Vision Consulting Limited (“Apex Vision”) - a company closely connected to Law[1] was its company secretary since 27 October 2015.

(3)  Both Law and Ngai were the authorised signatories of I-Luck’s bank accounts with China CITIC Bank[2] which received the sum of HK$16,514,190.54.

92.  Law’s case was that I-Luck was Ngai’s company. When questioned why he was a bank signatory of I-Luck, Law’s explanation was that Ngai opened a number of companies for business purposes just in case and just told him to join as bank signatories. I-Luck was one such company.

93.  I agree that Law’s explanation is wholly incredible. Law was someone who had done business for over 20 years. It made no sense for him to agree to be a signatory of a company which had nothing to do with him. Nor is there any sense in Ngai having Law occupy such an important position unless Law was interested in I-Luck.

94.  Second, the details of the 5^th to 14^th defendants - ie the corporate borrowers of the Tin Shui Wai Mortgage Loans - are highly illuminating.

(1)  All of the 5^th to 14^th defendants were set up between 1 January 2016 and 12 February 2016 at around the time when the Individuals induced Xie to participate in the Money Lender Business.

(2)  They had the same registered office, founding member, founding director, and company secretary.

(3)  On 29 February 2016, the 5^th to 14^th defendants:

(a)  changed their registered offices to the addresses at No 131 or 131-132, Connaught Road West, ie the same or similar address used by Polly Wealth, Superlative and Madam Chan;

(b)  appointed Apex Vision as their company secretary; and

(c)  appointed their respective sole directors whose addresses were also at No 131 or 131-132, Connaught Road West.

(4)  The 5^th to 14^th defendants have had their respective present registered offices at 9/F, Won Hing Building, 74-78 Stanley Street, Central, Hong Kong since at least March 2017.

95.  Third, three individuals relating to the Tin Shui Wai Borrowers are of note, as they were closely connected with the Individuals.

96.  The first is Pang Hoi Pan (“Pang”), sole director of the 8^th defendant since 29 February 2016.

(1)  Pang was the sole director of Wealth Trustful, from 18 February 2011 to 7 November 2011.

(2)  Pang also had monetary dealings with Ngai. On 13 October 2016, Pang received HK$1,300,000 from Man Pak Yin, Ngai’s wife[3].

97.  The second is Cheng Nga Man (“Cheng”), sole director of the 9^th defendant since 29 February 2016.

(1)  Cheng received regular monthly payments from Ngai, Apex Goodwill Finance Limited (“Apex Goodwill”) (an entity controlled by Ngai[4]) or I-Luck from March 2016 to June 2017 (except for January 2017 and May 2017). She also received HK$480,000 from I-Luck on 14 April 2016.

(2)  More importantly, Cheng appears to in an intimate relationship with Ngai, and there is evidence of intimate photographs of the two.

98.  The third and most important individual (insofar as the case against Law is concerned) is Yeung Ngai Yin (“Yeung”).

(1)  Yeung was the director of the 7^th defendant when the Tin Shui Wai Mortgages were executed. Yeung signed the assignment of the sub-divided unit of the Tin Shui Wai Shop for the 7^th defendant as director.

(2)  In the Judgment of the Ho Action, it was noted at §55 that Yeung Ngai Yin is “said to be Plaintiff’s (ie Law’s) staff and also works for Tong Ka Ho”. This was put to Law in cross-examination and he admitted that Yeung had worked for him before.

(3)  Yeung was a director of a company known as On-Link Corporation Limited (“On-Link”) up until 20 April 2016. Law accepted in cross-examination that On-Link was a property holding company holding at least 2 properties that belonged to him. In other words, Yeung was working for Law and occupied a position of trust such that Law entrusted 2 properties to his control.

(4)  When asked at what point in time did he discover that Yeung was the director of one of the Tin Shui Wai Borrowers, he said he did not remember, but that it was some time close to 2016. When further pressed on this subject, Law refused to answer, claiming privilege against self-incrimination.

99.  The connection between Yeung and Law is crucial. Law accepted at the outset of his cross-examination that the Tin Shui Wai Mortgage Loans were not genuine. But it turns out that Yeung, who worked for Law, was involved in this very transaction. The only reasonable inference is that Law was in it with Ngai in arranging the Tin Shui Wai Mortgage Loans to defraud Xie. Xie’s unanswered evidence of Yeung’s involvement enables the court to find that Law was indeed involved in the Tin Shui Wai Mortgage Loans.

100.  Fourth, the Tin Shui Wai Mortgage Loans were wholly uncommercial and artificial, and bears striking resemblance to Ngai’s first attempt to profit from the Tin Shui Wai Shop by defrauding Mr Ho and his wife. Law must have known the uncommercial nature of the transaction.

(1)  When the Tin Shui Wai Shop was first sold to Profit Trillion (which was clearly controlled by Ngai and/or Law) on 8 April 2015, the purchase price was only around HK$18,970,000. Law accepted in cross-examination that he knew that this was the case in 2015.

(2)  Just a year later, when the Tin Shui Wai Shop was split and sold to the Tin Shui Wai Borrowers, the total stated consideration on the assignments was HK$47,656,000. The price was plainly grossly inflated. The inflated price was clearly to allow I-Luck to benefit from the surplus. In fact, the HK$47 million sale price was even more outrageous than the HK28,500,000 suggested by Ngai in the Ho Action.

(3)  As Law accepted in cross-examination, no valuation was conducted in respect of the Tin Shui Wai Properties at the material time. This in itself is highly unusual for a secured lending business. The post-the-event valuation report obtained by Xie (for the purpose of giving full and frank disclosure in his Mareva injunction application) suggested that the total market value of the Tin Shui Wai Properties (upon sub-division) was HK$42,560,000. But that report is of no value as it heavily relied on the prices contained in the assignments dated 1 April 2016 (ie the very transactions the legitimacy of which were questionable) as comparables.

(4)  After the Tin Shui Wai Shop (with total saleable areas being 482 square feet) was divided into 20 units, each unit was only around 20 odd square feet in size. It is highly doubtful whether such units are commercially viable as shops.

(5)  Based on his involvement in Ngai’s first attempt to defraud Mr Ho and his wife, Law must have realised the sale price to the Tin Shui Wai Borrowers was grossly inflated and at least warranted some inquiries, and yet he never raised any issue with Ngai. In cross-examination Law alleged that he believed that when the shop was divided, the market value would go up. However, if Law were truly innocent, he clearly would at least have made inquiries with Ngai when the very same Tin Shui Wai Shop somehow became worth 2.5 times more than before (ie from HK$19,000,000 to HK$47,656,000) in around one year’s time upon partition, and bearing in mind Ngai previously attempted to make a secret profit out of the Tin Shui Wai Shop.

101.  By reason of the aforesaid, the truth is that Law was clearly lying when he said that he had nothing to do with the Tin Shui Wai Mortgage Loans. I find that both Ngai and himself arranged the Tin Shui Wai Mortgage Loans to make a secret profit out of the Tin Shui Wai Shop.

102.  This also disposes of Law’s remonstrances that he also invested money in the Money Lender Business and had lost money to Ngai’s fraud. The money had found its way back to I-Luck for his benefit. Law suffered no loss at all. He was a co-conspirator.

103.  Xie never knew that the Tin Shui Wai Mortgage Loans had been advanced. He only found out on 8 April 2016 that over HK$33 million of the HK$40 million raised pursuant to the capital injections and the First and Second Tranche Shareholders’ Loans had been lent, whereupon Xie and the Individuals had to scramble for funds for the Sai Kung Mortgage Loan (see Section C8 below).

C8.    The events in early April 2016

104.  The Sai Kung Mortgage Loan was an opportunity that was introduced by Ngai on 5 March 2016. The loan was discussed at the 19 March 2016 meeting, but no documents were signed as of that date.

105.  On 1 April 2016, Xie messaged Ngai saying that he had difficulty raising HK$19,000,000 for the Third Tranche Shareholders’ Loan. He proposed that he would inject HK$5,000,000 instead.

106.  On 2 April 2016, a board meeting was held at Xie’s office. Only Xie, Law, and Ngai attended. During the meeting, Ngai sent a number of photographs to the Wechat Group which were screenshots of a “Loan Confirmation Letter” (貸款確認書) signed between Future Profit and the Sai Kung Borrowers. Ngai therefore pressed Xie to transfer to Polly Wealth the HK$19,000,000 for the Third Tranche Shareholders’ Loan.

107.  This was the first time that Xie learnt that the Group had already entered into binding agreements with the Sai Kung Borrowers. It is his unchallenged evidence that he was “shocked” to be informed of that.

108.  On 7 April 2016:

(1)  At 5:35 pm, Ngai sent a message to the Wechat Group saying that the Sai Kung Borrowers were supposed to sign the loan agreement a while ago. But as they were asked by the Group to change the drawdown date from 8 April 2016 to 13 April 2016, they refused to sign the loan agreement because they had signed a sale & purchase agreement and issued a promissory note dated 9 April 2016 to some others.

(2)  Ngai asked in the Wechat Group if the shareholders were able to raise the necessary funds by 8 April 2016 in the worst case scenario.

(3)  At 5:42 pm, Xie messaged the Wechat Group asking whether he should transfer HK$5,000,000 to Polly Wealth. Ngai replied by saying that if they could not raise the HK$25,000,000, the HK$5,000,000 would not make a difference.

109.  It is worth noting at this juncture that none of the Individuals objected to Xie contributing only HK$5,000,000, instead of HK$19,000,000, under the Third Tranche Shareholders’ Loan.

110.  At 3:38 am on 8 April 2016, Xie sent a message to the Wechat Group suggesting that out of the HK$40,000,000 already raised for the Group (under the share capital injection, the First Tranche Shareholders’ Loan and the Second Tranche Shareholders’ Loan), HK$25,000,000 could be utilised on the Sai Kung Mortgage Loan to avoid the Group being in breach of contract.

111.  Pausing here, Xie’s suggestion of utilising the earlier funds clearly shows that he genuinely believed that those funds were still available.

112.  At 8:24 am on 8 April 2016, Law sent messages to the Wechat Group suggesting as follows (“Law’s Suggestion”):

(1)  Ngai had told him that the Group only had around HK$6,000,000 left, since more than HK$30,000,000 had already been lent to customers.

(2)  The Sai Kung Mortgage Loan required the Group to advance HK$25,000,000. If he, Xie, and Ngai contribute HK$5,000,000, HK$5,000,000 and HK$1,000,000 respectively, there would still be a HK$8,000,000 shortfall.

(3)  Law said that he was able to procure a HK$8,000,000 loan from his family company to fund the Sai Kung Mortgage Loan. However, he would have to be repaid in two weeks, otherwise he would be in trouble.

113.  It was the first time that Xie learnt that substantial amount of loans had already been extended by the Group to customers. He complained in the Wechat Group that the earlier funds had been applied too abruptly, and that even the shareholders had not had a chance to see the relevant contracts. As illustrated above, the earlier funds were actually purportedly applied towards the Tin Shui Wai Mortgage Loans, as part of the Fraudulent Scheme to benefit Law and Ngai.

114.  This was also the first time that the shortfall of HK$8,000,000 was calculated and explained to Xie and the Individuals. This calculation was dependent on there being only HK$6,000,000 within the business, because around HK$30,000,000 had been lent (which as Law accepted was only revealed to Xie for the first time in the message at 8:24 am on 8 April 2016). This is a significant fact in relation to the personal loan between Xie and Law, as will be discussed in further detail in Section C10 below.

115.  Between 8:31 am to 9:13 am on 8 April 2016, Ngai sent messages in the Wechat Group saying inter alia that:

(1)  About 20 loans had been made to customers in the total amount of about HK$33 million with an interest rate of 8% and the Group could earn more than HK$2.6 million per year.

(2)  The interest rate for the Sai Kung Mortgage Loan was 8% and the Group could earn HK$2 million per year.

(3)  The Group should be on track to meet the listing requirement of the GEM board in 3 years.

116.  Under Law’s Suggestion, Law would advance HK$13,000,000 (ie HK$5,000,000 + 8,000,000) to the Group. It is clear from the Wechat messages that Law’s Suggestion was voluntary and not under any compulsion or duress by Xie. There is no indication that he was merely advancing the sum on behalf of Xie, or that there was to be any implied obligation by Xie to pay him back. Again, I shall return to this point in respect of the personal loan between Law and Xie.

117.  In response to Law’s Suggestion, at about 9:58 am on 8 April 2016, Ngai sent Wechat messages to the Wechat Group and suggested that funds could be directly transferred to Future Profit’s client account with HN, in order to save time.

118.  Throughout that morning, Law gave the impression in the Wechat Group that he was arranging for funds to be transferred from his family company. For example, Law said that he had notified his company to remit the HK$13 million immediately (我通知左公司馬上轉數！...我這邊1300萬！).

119.  However, in truth, the HK$14,000,000 which Law and Ngai advanced that day all came from I-Luck (the 17^th defendant, a company controlled by Law and Ngai). The HK$14,000,000 of I-Luck, in turn, came from the proceeds of the Tin Shui Wai Mortgage Loans (in the sum of HK$16,514.190.54) that were transferred to I-Luck’s account 2 days ago on 6 April 2016. Law’s family companies never paid anything.

120.  Law’s evidence at trial was that he had gone to the bank in Central with Ngai to arrange the transfer from his family companies. However, when he got to the bank he discovered that he did not bring the family company chop. At the time Ngai owed him or his family company around HK$10 million. Ngai agreed to advance HK$13 million on his behalf first. They would settle their debts later.

121.  I find that Law’s account of events is wholly incredible:

(1)  Law said that he had contacted his family accountant, Mensy Leung, to arrange for the transfer; and Mensy Leung would take care of the transfer. On that basis, there was no cause for him to go to Central to handle the transfer of his contributions of HK$5 million plus HK$8 million. Whether he had left behind any chop or not would also be totally irrelevant. There was simply no reason why Ngai or I-Luck would have paid for Law.

(2)  Law said in the message at 8:24 am on 8 April 2016 that if he did not get HK$8,000,000 back in two weeks, he would be in trouble since his family companies needed to fulfil some capital verification requirement in the Mainland. However, he did not know which company was under such regulatory requirement, nor did he take any steps to find out after all these years. His purported excuse was that his sister, Aries Law Ka Yee, might well have been lying to him, just to get him to pay the family companies back. But if that is the case, why did his family agree to advance the HK$8,000,000 in the first place?

(3)  It was clear on 8 April 2016 that by virtue of what Ngai and Law said in the group, Xie and the Individuals were scrambling for money to fund the Sai Kung Mortgage Loan. In fact, it now transpires that Ngai had no problem supplying HK$14,000,000 in cash, and he had ample cash to invest into the Group or to repay Law/Law’s family. However, if Law was telling the truth, instead of asking Ngai to provide the funds, he went to beg his family to help him out, even though on his own case he was not on good terms with his family.

(4)  Law is wholly unable to adduce any evidence that any of his family companies (or any combination thereof) in fact had HK$5 million plus HK$8 million cash available as of 8 April 2016. This is information that, if he was indeed innocent, he would have been keen to find out from Mensy Leung or his family companies’ records since mid-2017 when he was sued by Xie.

122.  During cross-examination, Law tried to blame the lack of evidence on his lawyers. He emphasised that he was acting in person. He says that right before the trial, he realised that there was no evidence substantiating his case as to why I-Luck paid his share from the proceeds harvested from the Tin Shui Wai Loan. He then contacted his previous solicitors, who told him that they had only just retrieved the documents from a barrister who had previously acted for Law in this Action.

123.  Law even went as far as to say that his previous lawyers were negligent in failing to provide those documents. However, when asked to clarify what those missing documents showed, Law said that it showed the genuineness of Ngai’s indebtedness to him or his family.

(1)  That does not change the reality that there is no evidence substantiating the allegations as to his (or his family’s) monetary dealings with Ngai as outlined in his witness statement.

(2)  In any case, even if there is evidence that Ngai owed money to Law’s family, it still does not explain why Law planned to draw the HK$8,000,000 from his family companies, which was the impression he gave to Xie at the time, when he could just ask Ngai to pay up.

124.  The truth as I find it is that Law never asked his family companies for the HK$8,000,000. The funds were to come from I-Luck all along. That was why Law and Ngai went to Central to arrange the transfer from I-Luck (Law and Ngai both being its account signatories). Law lied to Xie because he wanted to give the impression that he had gone to great lengths to secure the HK$8,000,000 for the Money Lender Business, and that he would be in dire need of funds in 2 weeks. That was all done to take advantage of Xie’s sympathy so that he would advance further funds to the Group or Law, which he did so in the events detailed in Section C10 below.

125.  On 8 April 2016, Xie advanced HK$5,000,000 as the Third Tranche Shareholders’ Loan (see: Law’s Suggestion at paragraph 112 above).

C9.    The Sai Kung Mortgage Loan

126.  The agreement for the Sai Kung Mortgage Loan was executed by Madam Chan (Tong’s wife) on behalf of Future Profit on 8 April 2016. The Sai Kung Properties were supposedly executed as the security for the Sai Kung Mortgage Loan under the agreement (“Sai Kung Mortgage”).

127.  The evidence shows that the Sai Kung Mortgage Loan was not a genuine commercial transaction, or at the very least was a self-dealing transaction whereby money was actually advanced to entities connected to or controlled by the Individuals.

128.  First, the mortgage over the Sai Kung Mortgage (which Xie only obtained from the solicitors for the 5^th to 15^th defendants in the course of these proceedings) was undated. It had also never been registered according to land search results. A genuine mortgage would not have been undated and unregistered.

129.  Second, only part of the HK$25,000,000 to be advanced under the Sai Kung Mortgage Loan was actually remitted to the Sai Kung Borrowers:

(1)  On 8 April 2016, HK$16,750,000 was transferred to Target Way’s account;

(2)  On 11 April 2016, HK$2,000,000 was transferred to Apex Goodwill (ie Ngai’s company);

(3)  On 11 April 2016 and 12 April 2016, a total of HK$6,250,000 was transferred to Pang, a director of the 8^th defendant. Two days later, on 14 April 2016, Pang transferred a sum of HK$5,955,000 to Ngai.

130.  Subsequent Investigations also show that even the Sai Kung Borrowers were in fact connected with the Individuals:

(1)  First, Target Way only received HK$16,750,000 from the Sai Kung Mortgage Loan. There was no commercial reason why it would be willing to forgo HK$8,250,000 to which it was entitled.

(2)  Second, there were various monetary transactions between Pang (director of the 8^th defendant) and Target Way. On 29 April 2016, Target Way transferred HK$1,000,000 to Pang; and on 19 September 2016 again transferred a sum of HK$167,000 to Pang.

(3)  Third, on 8 August 2016, when Tam sought to make an interest payment of HK$166,666.67 for the Sai Kung Mortgage Loan, his cheque was returned; it was Pang who then made a cash payment on 9 August 2016 in respect of that same interest payment on behalf of the Sai Kung Borrowers.

(4)  Fourth, Target Way also had dealings with Apex Goodwill. On 29 and 30 April 2016, Apex Goodwill transferred HK$8,000,000 to Target Way. Apex Goodwill transferred another HK$1,000,000 to Target Way on 8 July 2016.

C10.    The Personal Loan Agreement

131.  As of 8 April 2016, Law gave Xie the impression that he had just withdrawn HK$8,000,000 from his family companies to fund the Sai Kung Mortgage Loan. He also gave the impression that he needed the HK$8,000,000 back in 2 weeks otherwise he would be in trouble.

132.  At 9:39 pm on 25 April 2016, Law messaged Xie via Wechat saying that he needed Xie’s help to solve his imminent problem, which Xie understood to be his need to repay the sum of HK$8,000,000 to his company. Xie replied that he would talk to other directors of his own company. In cross-examination Law accepted that the impression he gave was that his needs were due to his contributions to the Sai Kung Mortgage Loan.

133.  On 26 April 2016 and 27 April 2016, Xie messaged Law via Wechat offering that he could borrow HK$8,000,000 from other directors of his own company at an interest rate of 6% per annum, and then lend that sum to Law. Xie did so as a gesture of goodwill, since Law’s cashflow problem was apparently caused by the need to fund the Sai Kung Mortgage Loan.

134.  Law suggested that Xie could inject the funds into the Group instead, and the Group can repay Law. Xie refused, and said that he would execute a personal loan to Law instead.

135.  On 28 April 2016, Ngai sent (via WeChat) Xie a screenshot of a draft copy of the proposed personal loan between Xie and Law. Ngai stated that it was Law who asked Ngai to help him prepare a draft loan agreement.

136.  Law and Xie signed the personal loan agreement between them on 29 April 2016 (“Personal Loan Agreement”). Under the Personal Loan Agreement, Xie agreed to lend Law HK$8,000,000 repayable on 31 October 2017 with an interest rate of 6% per annum. On the same day, Xie remitted HK$8,000,000 to Law.

137.  Law’s version of events regarding the Personal Loan Agreement in his witness statement was this: he had a phone call with Xie between 6:06 pm on 7 April 2016 and 8:24 am on 8 April 2016, in which Xie offered that if Law paid the HK$8,000,000 on his behalf for the Third Tranche Shareholders’ Loan, he would repay Law within weeks. Law said that he could get his family companies to make a temporary loan of HK$8,000,000 to Xie, provided that:

(1)  Xie would inject HK$8,000,000 into the Money Lender Business by way of a loan within 2 weeks; and

(2)  The Money Lender Business would then repay Law the HK$8,000,000.

138.  Law says it was on the above basis that he agreed to arrange HK$8,000,000 to fund the Sai Kung Mortgage Loan. As a result, a few weeks later, his family companies were in need of the HK$8,000,000 to fulfil capital verification requirements in China.

139.  However, instead of repaying Law, Xie made an “implied and unlawful threat” that he would not repay HK$8,000,000 to Law, by offering to make a personal loan of HK$8,000,000 to Law instead; and Law entered into the Personal Loan Agreement under such “illegitimate pressure”: the 1^st defendant’s Amended Defence §§20, 46.

140.  This court has no hesitation in rejecting Law’s account in relation to the Personal Loan Agreement.

141.  First, the alleged call between Law and Xie in the evening of 7 April 2016 could not have taken place:

(1)  First, there is no contemporaneous evidence of the call.

(2)  Second, when Law asked Xie for help in late April 2016, he never made reference to Xie’s alleged offer of paying him back, nor did he remind Xie of the 7 April 2016 phone call. The tone of the Wechat messages showed that Law was begging for help, and not demanding the repayment of a loan to which he was entitled.

(3)  Third, it was in Law’s 8:24 am message on 8 April 2016 that the HK$8 million shortfall for the Sai Kung Mortgage Loan was first calculated and explained to Xie. Xie expressed surprised at that since he believed that the Group still had HK$40,000,000 available. If Law had really told Xie about the HK$8,000,000 shortfall the night earlier, Xie’s reaction would have been completely different.

142.  Second, the purported need to comply with capital verification requirements was clearly false:

(1)  First, the HK$8,000,000 never came from Law’s family companies. It came from I-Luck.

(2)  Second, when this was pointed out to Law in cross-examination, Law shifted his case to say that his family companies really needed, for capital verification, HK$8,000,000 separately by coincidence. However, when asked which family company had capital verification needs, Law could not remember, nor did he take steps to find out.

(3)  Third, when Law realised that there was no proof of the need for a verification report, Law again shifted his case to say that his sister would just lie if he asked her to clarify which company was under capital verification requirements. He said that his family would just lie if they wanted him to pay them back.

143.  The truth is that Law’s family companies did not need the HK$8,000,000 for capital verification purposes, and they had never paid the HK$8,000,000 on 8 April 2016. I-Luck did. Law made up a need for money by his family companies so as to give Xie the impression that he was in desperate need of money because he had forked out his family’s money on 8 April 2016 (when he did not), in an attempt to induce Xie to invest more money into the Group. Law plainly lied to Xie to deceive Xie to lend HK$8,000,000 to him.

144.  As to Law’s case that Xie forced him to sign the Personal Loan Agreement under duress, Law expressly acknowledged that those allegations were false in cross-examination.

145.  When asked why he lied in his Defence and Amended Defence (for which he signed a statement of truth in 2017 and 2019), he said that some “evil voices” told him to do so. As to who those voices were, he said it was his sister Aries Law Ka Yee. After evidence was concluded, and after Law learnt that Xie was applying for a transcript of the trial for proceedings relating to his family (including his sister Aries Law Ka Yee), Law immediately asked to change his evidence, and said that the “evil voice” was in fact Ngai. That is another lie, for Law had accepted in cross-examination that he no longer contacted Ngai by mid-2017, well before he filed his Defence. The involvement of Law’s family will be further explored in Section C13 below.

146.  Law’s lies and the fraud he perpetrated in relation to the Personal Loan Agreement are significant. Throughout the trial, Law had insisted that he was an innocent victim of Ngai’s fraud. But this Personal Loan Agreement (or the original plan to induce Xie to lend the HK$8 million to the Group - see paragraph 134 above) was machinated by Law. It dispels any doubt as to whether Law was one of the conspirators of the Fraudulent Scheme.

C11.    The meetings in May and June 2016

147.  At Polly Wealth’s board meeting on 7 May 2016 at Xie’s office:

(1)  Ngai produced 2 diagrams and proposed another new business opportunity for the Group which would require a further HK$60,000,000 to be injected into Polly Wealth. He mentioned that Markway (HK) Limited (to be held under Polly Wealth via a Seychelles company, Win Glory International Development Limited) could be used as a corporate vehicle for pursuing the business opportunity.

(2)  The Individuals proposed that Xie alone should provide the necessary capital of HK$60,000,000.

(3)  Ngai further said that the new business opportunity would generate an interest income of 12% per annum for the Group, and should Xie agree to provide the capital by way of shareholders’ loan, Polly Wealth would pay Xie an interest of 9% per annum.

148.  On 16 May 2016, Xie indicated in the Wechat Group that he had no means to fund the new business opportunity.

149.  This was clearly yet another attempt of the Individuals to dupe Xie into investing even more in the Money Lender Business.

150.  By then, Xie had become concerned about the various aspects of the Money Lender Business, including the incorporation of new companies as Polly Wealth’s subsidiaries and the extension of 20 loans to customers without his knowledge or approval. Xie indicated his concerns to Law, and gave some suggestions on the future operation of the Money Lender Business, via voice messages to Law on 10 June 2016.

151.  On 11 June 2016:

(1)  Shortly before Polly Wealth’s board meeting on that day, Xie presented to Law:

(a)  a Directors’ Undertaking (to be signed by the Individuals and Xie) which provides inter alia that the directors shall not apply the funds of the Group for purposes other than the Money Lender Business and incorporate any new subsidiaries; and

(b)  a Receipt (to be signed by Ngai) which serves as (i) Ngai’s confirmation of receipt of funds advanced by Xie to Future Profit whether directly or indirectly; and (ii) Ngai’s personal guarantee for the default of the Money Lender Business in repaying the shareholders’ loans advanced by Xie.

(2)  Xie asked Law to pass the Receipt to Ngai for his signature as Ngai was responsible for the operation of Future Profit and the Money Lender Business.

(3)  During the board meeting, Xie requested the Individuals to sign the Directors’ Undertaking and they did sign. But Ngai never signed or returned the Receipt to Xie.

152.  In around July 2016, as Xie was increasingly concerned about his investment in the Money Lender Business, he requested the Individuals to provide him details of the business operations and the financial records of the Money Lender Business. Eventually, Ngai sent Xie a number of corporate documents, 20 mortgage loan agreements in relation to the Tin Shui Wai Mortgage Loans, and the mortgage loan agreement in relation to the Sai Kung Mortgage Loan.

C12.    The abrupt disappearance of the Individuals

153.  On 3 August 2016, Xie suggested in the Wechat Group that the English Internal Loan Agreements and Asset Protection Charges were too complicated. Xie also suggested that the shareholders of Polly Wealth should enter into an agreement to jointly guarantee the shareholders’ loans advanced to Polly Wealth.

154.  In response, Ngai said that the arrangement proposed by Xie could not secure the interests of the shareholders, and only the Asset Protection Charges would do so. At this point Law sought to mediate, and suggested that he understood Xie’s concerns. Xie and the Individuals agreed to arrange a meeting on 6 August 2016 to discuss the matter.

155.  On 5 August 2016, Xie shared a news article with the Individuals in the Wechat Group about scams involving loan intermediaries, because he thought that the news article could be relevant to the Money Lenders Business. Then the behaviour of the Individuals underwent a fundamental change. The Individuals did not respond to Xie’s message.

156.  On 6 August 2016, none of the Individuals came to Xie’s office despite Xie’s messages and follow-up phone calls.

157.  In his witness statement, Law’s case was that what transpired on 3 August 2016 was the “breaking point” which led him to decide that he could no longer stay in the Money Lender Business.

158.  It was pointed out to Law in cross-examination that the discussion on 3 August 2016 was nothing but cordial. In fact, Law said himself that he understood the concerns of Xie. Law agreed in cross-examination that there was nothing provocative in Xie’s messages that would have caused him to break off with Xie. Despite what he had said in the witness statement, he simply could not bring himself to say in court that what Xie said on 3 August 2016 could have been a turning point for his relationship with Xie.

159.  Law then shifted his evidence by saying that it was Ngai who persuaded him to sell his interest in the Money Lender Business. When asked why he had made false accusations against Xie in his witness statement, Law said that he misremembered what happened at the material time.

160.  The court has no hesitation in rejecting Law’s explanation, as yet another example of Law departing from his earlier evidence, when his position became untenable in light of the contemporaneous Wechat evidence.

161.  The truth is, when Xie shared the news article in the Wechat Group on 5 August 2016 which mentioned money lending fraud, the Individuals thought that the game was up. That was why they began to contemplate their exit plan (as described below). That was also why none of the Individuals showed up on the 6 August 2016 meeting.

162.  On 9 August 2016:

(1)  At 10:57 am, Xie messaged the Wechat Group proposing a board meeting at 10 am on 12 August 2016 at Xie’s office.

(2)  At 2:36 pm, Xie messaged Law and asked Law to reply to the messages.

(3)  At 2:44 pm, Xie messaged Law saying that his lawyer had advised him to report the matter to the police.

(4)  Later at around 6:57 pm, Xie sent a number of voice messages to Law saying that they should sit down and chat over the matter.

163.  It was only after the threat to report the matter to the police that the Individuals started to respond to Xie’s Wechat messages again. It was agreed that a board meeting would be convened on 14 August 2016 at 5:30 pm.

164.  None of the Individuals showed up at Xie’s office at the 14 August 2016 board meeting. Instead, two unidentified strangers, who purported to be a Mr Lam Tze Chun and a Mr Chan Ka Yu, showed up. They produced:

(1)  A resignation letter of Tong as director of Polly Wealth;

(2)  Powers of Attorney authorising Lam Tze Chun and Chan Ka Yu to attend the board meeting on behalf of Law and Ngai, and Chan Ka Yu to attend the board meeting on behalf of Bridgeway Leader Limited, Cordial Billion Limited and Crucial Success Limited (the relevance of these 3 companies will become apparent in the next sub-paragraph); and

(3)  Board minutes of Polly Wealth dated 14 August 2016, pursuant to which the directors of Polly Wealth had purportedly considered and resolved the following:

(a)  The resignation letter of Tong as director of Polly Wealth had been received prior to the meeting and should take effect immediately;

(b)  The following Seychelles companies be appointed as directors of Polly Wealth: (i) Bridgeway Leader Limited; (ii) Cordial Billion Limited; and (iii) Crucial Success Limited;

(c)  The following transfers of shares of Polly Wealth be approved: (i) Law transferring his 35% shareholding to Active Converge Limited; (ii) Ngai transferring his 20% shareholding to Adequate Gold Limited; and (iii) Tong transferring his 10% shareholding to Brave Gladiator Limited, all Seychelles companies; and

(d)  The resignation letters of Law and Ngai as directors of Polly Wealth had now been received and should take effect immediately.

165.  Xie never received notice of the matters set out in the board minutes, and certainly never approved them.

166.  After the events unfolded on 14 August 2016, Xie tried to contact Law by sending 5 voice messages to him. Law never replied. The Wechat Group have gone totally silent since then.[5]

167.  Law’s case was that, prior to the 14 August 2016 meeting, he was persuaded by Ngai to sell his interest in the Money Lender Business. The court has no hesitation in rejecting Law’s evidence:

(1)  First, there is no documentary evidence that the sale ever took place. Law’s explanation was that the documents were all with Ngai. But he never bothered to retrieve them.

(2)  Second, Law said he did not know who was the buyer of his shares, there were no negotiations, and he never spoke to the purported buyer. Law also cannot recall when the sale took place.

(3)  Third, on Law’s own case, he never received any money for the sale, even though the purported consideration for the sale was over HK$10 million.

(4)  Fourth, Law never attempted to take steps to recover the shares or the unpaid consideration from the purported buyer. No sensible explanation was offered on this by Law in cross-examination.

(5)  Fifth, when it was pointed out that that it was absurd that Law, as an experienced businessman who had done business for over 20 years, had signed away his shares without making sure that he would receive the money, he simply repeated that he trusted Ngai.

(6)  Sixth, given Law’s acceptance in court that Xie did not say anything offensive on 3 August 2016, there is simply no honest explanation as to why, whatever Ngai said to him, Law would have departed from the business in such a dramatic, hurried and abrupt way, at a loss of some HK$3,000,000.

168.  Further on 4:30 pm on 14 August 2016, one hour before the meeting was supposed to take place, Xie messaged the Wechat Group saying that he had arrived. Law replied “sure” (好的), giving the impression that he was going to show up. However, Law accepted in cross-examination that he had already sold his shares by then. He was therefore lying when he gave the impression that he was going to show up in the 14 August 2016 meeting.

169.  The truth is, after their no-show to the 6 August 2016 meeting, Law and Ngai gave the impression that they would go to the 14 August 2016 meeting to buy time for them to arrange for their withdrawal from and dissipation of assets of the Group.

C13.    Dissipation of the Group’s assets

170.  Subsequent investigations revealed that Law and Ngai took various steps to dissipate the Group’s assets, and to put them beyond Xie’s reach.

171.  First, on 8-13 August 2016, right before the scheduled 14 August 2016 meeting, Ngai made 16 cash withdrawals (for HK$50,000 each) from Future Profit’s bank account. 6 of these withdrawals were notified to Law. The remaining balance of HK$844,635.96 in Future Profit’s bank account was withdrawn by Ngai and Law in cash on 24 August 2016. The account was subsequently closed on 26 August 2016.

172.  When asked why he made no objection to the 16 withdrawals made by Ngai between 8-13 August 2016, Law merely said that he did not remember.

173.  As to Law’s evidence in respect of the 24 August 2016 withdrawal, Law’s evidence is wholly incredible and self-contradictory:

(1)  At the hearing on the Mareva injunction before DHCJ Ismail SC in relation to Xie’s injunction application against Law, Law, who was represented by Senior Counsel at the time, conceded that there was nothing he could say. That was indeed a fair concession in light of the evidence filed.

(2)  Later, in the Ho Action, Law claimed the privilege against self-incrimination in respect of the withdrawal.

(3)  In his witness statement for this Action, Law stated that he withdrew the money to pay the purchasers of the Money Lender Business (§90).

(4)  However, when cross-examined about the withdrawal in this Action, he once again claimed the privilege against self-incrimination and disclaimed the relevant paragraph of his witness statement, although the explanation in his witness statement appears to be wholly innocent.

174.  All this amply shows that Law does not have any honest explanation about the withdrawal. He knew that the withdrawal on 24 August 2016 were dishonestly made, and that he was acting in concert with Ngai to misappropriated funds from the Group.

175.  Second, on 15 August 2016:

(1)  Future Profit executed two Transfers of Mortgages transferring its interest in the Tin Shui Wai Mortgages and the Sai Kung Mortgage (“Transfer of Sai Kung Mortgage”) to the 15^th defendant (“On Dragon”), an unknown Seychelles company.

(2)  Future Profit executed an all-monies Floating Charge (“Floating Charge”) charging its entire assets in favour of the 16^th defendant (“Superhero”), another unknown Seychelles company.

(3)  Future Profit received no consideration for these transactions as no money came into its bank account after 15 August 2016. There is also no suggestion from the witness statement filed on behalf of the 15^th defendant that consideration was provided by On Dragon for the Transfers of Mortgages.

176.  On Dragon later acquired the shares of the 5^th to 15^th defendants, the corporate borrowers of the Tin Shui Wai Mortgage Loans, on or around 1 March 2017: witness statement of Long Ziming §5.

177.  On Dragon and Superhero were clearly entities controlled by the Individuals to siphon away the Group’s assets and avoid recovery by Xie:

(1)  First, the Transfers of Mortgages and Floating Charge were not supported by any consideration.

(2)  Second, On Dragon and Superhero share the same registered address in Seychelles as Polly Wealth and Superlative (ie 306 Victoria House, Victoria, Mahe, Seychelles).

(3)  Third, the timing of the Transfers of Mortgages and Floating Charge is telling. It was right after the scheduled 14 August 2016 meeting, when the Individuals disappeared and the Fraudulent Scheme was uncovered. The purpose of the instruments was obviously to frustrate Xie’s claims.

178.  More importantly, in this Action, an individual known as Mei Hua filed a witness statement on behalf of On Dragon. Mei Hua is somebody closely connected with Law, and his family:

(1)  Mei Hua was 監事 of 亞高奇幻世界娱乐（阳江）有限公司. Law was its legal representative/executive director.

(2)  Mei Hua was 監事 of來來利旅游管理（陽江）有限公司, which appears to be one of Law’s family companies. Its legal representative is Law’s sister, Aries Law Ka Yee.

(3)  Mei Hua’s address is “Room 201, Building A, 22/F, Bi Tao Yuan, Hailing Island Experimental Area, Sunshine City, China”. 來來利旅游管理（陽江）有限公司’s address is 陽江市閘波鎮碧濤園20號樓A座202房. The two addresses are similar.

(4)  Mei Hua was the 清算組負責人/債權申報聯繫人of 亞高水產生物科技（陽江）有限公司, a company wholly owned by Eco Fish Aqua Bio-Tech (HK) Ltd in which Law had 23% shareholding. In fact, Law signed the documentation for the deregistration of 亞高水產生物科技（陽江）有限公司.

179.  When Law was confronted with questions about Mei Hua in cross-examination, he again relied on the privilege against self-incrimination. The aforesaid evidence against him therefore remains wholly unanswered. It is obvious that he played a major part in the Fraudulent Scheme.

180.  The truth is that On Dragon, the company which received the interest in the Tin Shui Wai Mortgages and the Sai Kung Mortgage for no consideration, is a company that is closely connected to Law and his family. This puts paid to any suggestion that Law was merely a victim of Ngai’s fraud.

181.  Notably, throughout the trial, Law had constantly stressed that he was on bad terms with his family. He complained that his sister - Aries Law Ka Yee - had always thought him as someone who never took things seriously. This is but another attempt to pull wool over the eyes of the court:

(1)  First, the fact is that Mei Hua, who appears to work for Law’s family, was able to provide a witness statement in this Action. But the 15^th defendant and Mei Hua did not turn up at the trial - which would be a very odd thing indeed if the 15^th defendant’s acquisition of the mortgages and the Tin Shui Wai corporate borrowers are at all honest.

(2)  Second, Law had himself admitted that his sister was an “evil voice” that told him to make false accusations about Xie in his Defence.

(3)  Third, Law’s family had been filing various actions against Law allegedly for the repayment of debt. Law allowed all those claims to be entered in default.[6] And now Law’s family are seeking charging orders over Law’s assets, in a blatant attempt to obtain unjustified priority over Xie.

C14.    Conclusion on the Fraudulent Scheme

182.  Based on the foregoing, there can be no doubt that Law’s evidence cannot be relied upon at all. His denial that he was a co-conspirator must be rejected. The truth is that Law has abused the trust of Xie, a father of his daughter’s classmate. Law is plainly a co-conspirator in the Fraudulent Scheme.

D.    XIE’S PERSONAL AND PROPRIETARY CLAIMS

D1.    Fraudulent misrepresentation/tort of deceit

183.  The elements for fraudulent misrepresentation, or the tort of deceit, are set out in Haifa International Finance Co Limited v Concord Strategic Investments Limited [2009] 4 HKLRD 29 at §15:

(1)  There must be a representation of fact made by words or conduct.

(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.

(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.

(4)  It must be proved that the claimant has acted upon the false statement.

(5)  It must be proved that the claimant suffered damage by so doing.

184.  Representations are not limited to express words. As Toulson J (as he then was) explained in IFE Fund SA v Goldman Sachs International [2006] EWHC 2887 (Comm) at §50:

“50. In determining whether there has been an express representation, and to what effect, the court has to consider what a reasonable person would have understood from the words used in the context in which they were used. In determining what, if any, implied representation has been made, the court has to perform a similar task, except that it has to consider what a reasonable person would have inferred was being implicitly represented by the representor’s words and conduct in their context.” (emphasis added)

185.  Further, a representation as to belief or intention can also be a statement of fact: Edgington v Fitzmaurice (1885) 29 Ch D 459 at 483. If the representor did not in fact harbour such a belief or intention, that statement would be false.

186.  The representations on which Xie relies are set out in the Amended Statement of Claim[7]. They are as follows:

(1)  First, in Xie’s meeting with the Individuals in late 2015 to 8 February 2016, by virtue of what they said (see paragraph 33 above and it is notable that Law had made positive oral representations), Ngai and Law clearly indicated that they honestly believed, and had reasonable grounds to so believe, that the goals which they proposed were viable, and that they genuinely intended to achieve those goals.

(2)  It is significant that Law accepted in cross-examination that he had given that impression to Xie at all material times.

(3)  Second, in the 9 February 2016 meeting, by virtue of what he said (see paragraph 35 above) Ngai represented to Xie that he intended to carry on a genuine money lender business. This was furthered by Law’s silence, which, coupled with what he represented in the past and his conduct, indicated that he knew of nothing which would cast doubt on the same.

(4)  Third, in the 12 February 2016 meeting, by virtue of what he said and presented (see paragraph 43 above), there was a representation by Ngai of an honest belief that a listing with the structure he proposed was viable, that Ngai had reasonable grounds for such belief, and that he genuinely intended to cause this structure to be set up. By remaining silent, which, coupled with what he represented in the past and his conduct, Law indicated that he knew of nothing which would cast doubt on the foregoing representations.

(5)  Fourth, by Ngai and Law’s conduct and messages on 5 March 2015 in relation to the Sai Kung Mortgage Loan (see paragraphs 53 and 57 above), they represented to Xie that they honestly believed, and had reasonable grounds to so believe, that the Sai Kung Mortgage Loan was a genuine arms-length transaction with the Group, and the Individuals were not interested in the transaction.

(6)  Fifth, on 26 March 2016, when Xie expressed doubts as to the viability of the Money Lender Business, Ngai and Law both expressly assured Xie that his investment would be protected. Law assured Xie privately that Ngai was someone on whom Xie can rely (see paragraphs 76, 77 and 80 above). Law plainly made various positive representations to Xie as to the honesty of the whole business. As discussed above, this was critical to Xie’s payment of HK$25,000,000.

(7)  Sixth, on 7 April 2016, when Ngai messaged the Wechat Group providing updates on the Sai Kung Mortgage Loan (see paragraph 108 above), he clearly indicated that the Sai Kung Mortgage Loan was a genuine arms-length transaction and not one in which the Individuals were personally interested. Such representation was furthered by Law’s silence, which, coupled with what he represented in the past and his conduct, indicated that he knew nothing which could cast doubt on the same.

(8)  Seventh, in the morning on 8 April 2016, Ngai made various representations as to the Tin Shui Wai Mortgage Loans, the Sai Kung Mortgage Loan and the prospects of the Money Lender Business (see paragraph 115 above). Again, such representation was furthered by the Law’s silence, which, coupled with what he represented in the past and his conduct, indicated that he knew nothing which could cast doubt on the same.

(9)  Eighth, the plain reality is that at all material times the Individuals (including Law, whom Xie trusted the most) all gave the impression to Xie that they were honestly taking part in the Money Lender Business. They attended meetings and/or board meetings of Polly Wealth to discuss the Money Lenders Business, and discussed matters in relation to the business in the Wechat Group. They set up the bank accounts of the Group on 19 February 2016. They went to Sai Kung to carry out site visit for the Sai Kung Mortgage Loan on 5 March 2016.

187.  What would a reasonable person in Xie’s position have inferred from the words and conduct of the Individuals throughout the course of the Fraudulent Scheme? At the very least, the Individuals were representing that the Money Lender Business was a genuine and honest business, and they intended to carry on such business through the Group. As noted above, Law admitted in cross-examination that he was giving Xie the impression that the Money Lender Business was genuine.

188.  The aforesaid representations were false and made fraudulently. On the facts which the court has found pursuant to Section C above:

(1)  The Individuals had no intention to carry on genuine money lender business from the start. This is particularly illustrated from the fact that the Tin Shui Wai Mortgage Loans, which were the major transactions carried out by the Money Lender Business, were completely bogus. Ngai and Law were clearly involved in arranging the bogus Tin Shui Wai Mortgage Loans. Insofar as Law is concerned, his connection with Yeung (director of the 7^th defendant) and I-Luck are most telling. Further, the evidence indicates that Law or Law’s family is now in control of the Tin Shui Wai Properties through On Dragon (see Section C13 above).

(2)  As to the Sai Kung Mortgage Loan, it is also plainly not a genuine commercial transaction, where even the mortgages themselves are not even dated or registered and payments were made to entities plainly related to the Individuals (see Section C9 above).

(3)  Xie also relies on the coordinated effort of the Individuals to cut all apparent ties with the Group at the same time in August 2016, and to empty the assets of the Group. No honest business partners would have done what they did.

189.  The fraudulent misrepresentations induced Xie to advance a total of HK$41,500,000 to the Money Lender Business or Law (the reason why Xie lent HK$8,000,000 to Law was because Xie was misled by Law to believe that Law drew HK8,000,000 from his family company for the business). In particular, on 26 March 2016, right before Xie was about to commit his funds in respect of the Second Tranche Shareholders’ Loan (in the sum of HK$25,000,000), it was Law who took pains to appease Xie’s concerns about the viability of the Money Lender Business, and to stress that Ngai was a trustworthy person. These beliefs could not be genuinely held as discussed above.

190.  Indeed, Law does not dispute Xie’s reliance on the misrepresentations. His sole defence was that he was not part of the Fraudulent Scheme. It has now been shown that this defence is wholly unmerited: see Section C above.

D2.    Unlawful Means conspiracy

191.  The elements of an unlawful means conspiracy have been set out by DHCJ MK Liu in China Metal Recycling (Holdings) Limited [2021] HKCFI 378 at §93:

(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;

(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;

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

(4)  use of unlawful means as part of the concerted action; and

(5)  loss being caused to the target of the conspiracy.

192.  Requirements (1) to (3) and (5) are clearly satisfied. The Fraudulent Scheme is an archetypal arrangement whereby the Individuals took concerted action to induce Xie to invest substantial sums into the Money Lender Business, thereby causing substantial losses to Xie. In light of the matters highlighted above, Law was clearly part of the conspiracy. The 4^th to 17^th defendants were accessories of or vehicles used by the Individuals to perpetrate the Fraudulent Scheme, in that they assisted in dissipating the proceeds of the fraud and concealing the fraud.

193.  As to requirement (4), it is well established that unlawful means could be a separate actionable tort: Clerk and Lindsell on Torts (23^rd ed), at §23-108. It could also be criminal conduct: Her Majesty’s Revenue & Customs v Hanshu Dhalomal Shahdadpuri [2012] 1 HKLRD 223 at §31-33 (Tang VP (as he then was)). The unlawful means relied by Xie is the tort of deceit committed by the Individuals (see Section D1 above).

D3.    Proprietary claims

194.  Xie is entitled to rescind the Allotment, and the First, Second and Third Tranches Shareholders’ Loan vis-à-vis Polly Wealth in reliance of the Individuals’ fraudulent misrepresentations. The total sum advanced under these advancements was HK$33,500,000.[8] The various corporate entities within the Group (to which the Individuals’ knowledge were attributed) which received the traceable or followable proceeds of this sum hold them on constructive trust for Xie by reason of the fraud, and Xie is entitled to follow and trace into the substitutes of said trust funds: Lewin on Trusts (20^th edn), at §§8-029 to 8-030.

195.  There is no bar to rescission in this case. None of the defendants that may be affected by rescission are innocent third parties: Snell’s Equity (34^th edn), §15-015.

196.  Following is the process of following the same asset as it moves from hand to hand. On the other hand, tracing is the process of identifying a new asset as the substitute for the old asset. Where one asset is exchanged for another, a claimant can elect whether to follow the original asset into the hands of the new owner or to trace its value into the new asset in the hands of the same owner: Foskett v McKeown [2001] 1 AC 102, at 127 (Lord Millett). The question is one of attribution: Foskett at 137.

197.  Where the plaintiff’s funds are mixed with the funds of wrongdoers, he is entitled to elect, at the juncture of each transaction where funds are paid out from the mixed pot, whether to disown or adopt that transaction. In other words, the plaintiff is entitled to choose whether to treat that it was his money that was applied to the transaction, or whether it was the wrongdoer’s money: Snell (supra) at §30-057.

198.  When Future Profit advanced its funds (HK$33,029,978) in respect of the Tin Shui Wai Mortgage Loans on 31 March 2016, there was around HK$40,000,000 in Future Profit’s account by reason of the contribution from Xie (HK$28,500,000) and the Individuals (who were wrongdoers). Following Xie’s rescissions, Xie is entitled to treat the sum of HK$28,500,000 as part of the sum of HK$33,029,978 advanced to the Tin Shui Wai Borrowers (to which the Individuals’ knowledge were attributed) as money beneficially owned by him.

199.  Out of the sum of HK$33,029,978, HK$17,410,790 and HK$40,779.46 were paid to the Vendors for acquiring the Tin Shui Wai Properties. They can be traced into the Tin Shui Wai Properties. Further, HK$16,514,190.54 was paid to I-Luck, the entity owned by Ngai and Law. That more than sufficiently reimbursed the deposits in the sum of HK$1,897,000 paid by Profit Trillion (entity of Ngai/Law) to the Vendors. The monies of Xie paid to I-Luck which financed the deposits can also be traced into the Tin Shui Wai Properties too, as there was a close causal and transactional link between the incurring of the liability to pay the deposits and the use of Xie’s money to discharge it: Federal Republic of Brazil v Durant International Corp [2016] AC 297, at §§34-40 (Lord Toulson).

200.  In short, Xie’s monies were, in substance, used by the Individuals to purchase the Tin Shui Wai Properties. Accordingly, the value of the funds is reflected in the unencumbered Tin Shui Wai Properties.

201.  The Tin Shui Wai Mortgages were transferred to On Dragon on 15 August 2016 for no consideration, and in furtherance of the Fraudulent Scheme. Xie is therefore entitled to follow the Tin Shui Wai Mortgages into the hands of On Dragon.

202.  In summary, Xie is entitled to assert a proprietary claim in the Tin Shui Wai Properties (against the 4^th to 14^th defendants), and a proprietary claim in the rights and interests in the Tin Shui Wai Mortgages (against On Dragon).[9]

D4.    Damages against the 1^st to 16^th defendants[10]

203.  Damages for the tort of deceit or unlawful means conspiracy should put the innocent party back in the financial position he was in before he sustained the wrong: Clerk & Lindsell (supra), §27-07.

204.  Xie would not have lent money to Polly Wealth and Law had he not been defrauded. Hence he would be entitled to claim the entirety of the sums lent as damages.

205.  Meanwhile, out of the total sum lent, HK$18,970,000 was used to acquire the Tin Shui Wai Properties, an unauthorised transaction which Xie is entitled to adopt or falsify under the constructive trust.

206.  Thus, if Xie elects to falsify the purchase of the Tin Shui Wai Properties with the value of his monies (ie not adopt them as his own), the 1^st to 16^th defendants are all liable to Xie for damages in the sum of (HK$41,500,000 - HK$970,000) = HK$40,530,000, which represented the total sum lent by Xie minus the interest payments he received. He is of course also entitled to interests on the monies due to him.

207.  However, if Xie elects to adopt the purchase of the Tin Shui Wai Properties with the value of his monies, then HK$18,970,000 out of the sums he lent would have become the proprietary interests in the Tin Shui Wai Properties. The amount of damages due to Xie would be correspondingly reduced by HK$18,970,000, meaning that Xie would only be entitled to damages in the sum of (HK$40,530,000 - HK$18,970,000 = HK$21,560,000) (plus interests).

208.  Xie is entitled to make election only at judgment (see Tang Man Sit v Capacious Investment Limited [1996] 1 HKLR 16 at 20C-D (Lord Nicholls)). He now elects to adopt the purchase of the Tin Shui Wai Properties with the value of his monies.

209.  Detailed orders prepared on the basis of the foregoing are set out in Section F below.

D5.    No reflective loss

210.  I accept that the principle against reflective loss is inapplicable in respect of the aforesaid personal claims of Xie. Xie is not bringing his personal claims in the capacity of the shareholder of Polly Wealth. He is suing on the wrongs committed against him personally based on the law of tort. On the principles clarified by the English Supreme Court in Marex Financial Ltd v Sevilleja [2020] 3 WLR 255 at §§63, 79-89 (Lord Reid) and §§99-100 (Lord Hodge), the reflective loss principle has no application.

E.    DEFAULT JUDGMENT

211.  Ngai, Tong, the 4^th defendant, and the 16^th to 20^th defendants did not file any notice of intention to defend in this Action. As the claims against them fall within Order 13, rule 6 of the Rules of the High Court, Xie proceeded with the Action as if they had given such notice. Then, pursuant to Order 19, Xie took out a Default Judgment Summons in respect of these parties on 19 November 2018 for their default in filing defence (“Default Judgment Summons”).

212.  By the Order of Madam Recorder Yvonne Cheng SC (as she then was) dated 9 May 2019, the Default Judgment Summons was adjourned to be dealt with at this trial.

213.  The court’s power to grant default judgment under Order 19, rule 7 is discretionary. The task is to examine the Statement of Claim to see if it appears that the plaintiff is entitled to judgment. In approaching such an application, it is not necessary that the court should be satisfied by evidence adduced by the plaintiff to prove his case: China Construction Realty Limited v Sino Business Services Proprietary Limited & Ors, HCA 1294/2005 (unrep, 24 March 2006) at §6 per Mr Recorder Edward Chan SC.

214.  The basis upon which default judgment can be obtained, in circumstances where no Defence is filed, is that of implied admission, ie the court will assume that the Statement of Claim has been impliedly admitted. This explains why in an application for judgment in default of Defence, the court will only consider the Statement of Claim without admitting any evidence: Wu Ka v Wu Kuo Cheng [2003] 3 HKLRD 658 at §6 (DHCJ Wong SC).

215.  Xie’s case is that the Individuals were the masterminds of the Fraudulent Scheme. The 4^th to 20^th defendants were accessories which furthered the fraud. Their involvement has been set out in Section C above. Based on Xie’s pleaded case, it is plain that default judgment should be entered against Ngai, Tong, the 4^th defendant, Superhero, and the 18^th to 20^th defendants (no order is sought against I-Luck as it has dissolved and ceased to exist).

F.    RELIEF

216.  For the reasons stated above, I would allow Xie’s claims and grant the following reliefs:

(1)  A declaration that the Shareholders’ Agreement, the Personal Loan Agreement, the First Tranche Shareholders’ Loan, the Second Tranche Shareholders’ Loan and the Third Tranche Shareholders’ Loan have been rescinded.

(2)  A declaration that the 4^th to 14^th defendants are constructive trustees in respect of the Tin Shui Wai Properties for the plaintiff.

(3)  A declaration that the 15^th defendant is the constructive trustee in respect of the rights, title and interests in the Tin Shui Wai Mortgages for the plaintiff.

(4)  An order that the 4^th to 14^th defendants do execute a conveyance to assign the Tin Shui Wai Properties to the plaintiff or his nominee within 14 days.

(5)  An order that the 15^th defendant do execute a conveyance to assign the rights, title and interests in the Tin Shui Wai Mortgages to the plaintiff or his nominee within 14 days.

(6)  In default of assignments of the Tin Shui Wai Properties and Tin Shui Wai Mortgages as aforesaid, a partner of the solicitors for the plaintiff may be named and empowered to execute the necessary documents for the assignments.[11]

(7)  An order that the 4^th to 14^th defendants give an account of any profits derived from the Tin Shui Wai Properties to the plaintiff, and pay such sum as may be found due upon taking of such account.

(8)  An order that the 1^st to 16^th defendants do pay damages in the sum of HK$21,560,000 to the plaintiff, together with interest on such sum from 22 June 2017 until judgment at the interest rate of 6% (ie HSBC’s best lending rate + 1%) per annum.

G.    COSTS AND POSTSCRIPT

217.  In the Take Point Action, Coleman J considered that the defendants in that case, including Ngai, should pay costs on an indemnity basis. Coleman J noted that in the face of serious allegations relating to fraudulent activity, the defendants have met those allegations with poor, ambiguous and/or contradictory pleadings and evidence, and have failed to attend trial at all: Take Point at §137. Coleman J also noted that various defendants, which was controlled by Ngai, had ceased to participate in the proceedings: Take Point at §§138-139.

218.  I agree that the same applies to the present case. The 1^st defendant’s defence was poor, incredible, and contradictory. The 5^th to 15^th defendants (which are closely connected if not controlled by Law) filed pleadings and witness statements, but failed to attend trial.

219.  As was the case in the Take Point Action, Law and the 5^th to 15^th defendants had conducted this Action in an unattractive way, raising various issues (hence the 15-day estimate for trial), but failed to meaningfully participate in the trial. This has wasted considerable time and costs.

220.  In the circumstances, I order that the 1^st to 20^th defendants do pay the plaintiff’s costs of these proceedings (including all costs reserved, if any), such costs are to be taxed if not agreed on the indemnity basis (with a certificate for two counsel).

221.  Further, I make an indemnity costs order in favour of the plaintiff in respect of the reserved costs in Xie’s three Norwich Pharmacal applications (including reserved costs in applying for gagging orders) taken out to investigate the Fraudulent Scheme in HCMP 289/2017, HCMP 891/2017, and HCMP 1088/2018 (“NP Costs”). Those costs orders are:

HCMP 289/2017

(1)  Order of Sir Brian Keith (sitting as Deputy Judge in the High Court) dated 7 February 2017;

(2)  Order of DHCJ Burrell dated 2 March 2017;

HCMP 891/2017

(3)  Order of Wilson Chan J dated 13 April 2017;

(4)  Order of Wilson Chan J dated 18 May 2017;

HCMP 1088/2018

(5)  Order of Deputy High Court Judge Saunders dated 16 July 2018 (as amended by the Order of Deputy High Court Judge Saunders dated 31 July 2018); and

(6)  Order of Deputy High Court Judge Leung dated 6 September 2018.

222.  This court is entitled to order the 1^st to 16^th defendants to bear the plaintiff’s NP Costs which were properly incurred to investigate the Fraudulent Scheme for the purpose of this Action: see Sanctuary Systems Limited v Orient International Holdings Hong Kong Co, Limited, HCA 479/2010 (unrep, 16 June 2015) at §§13-20 (Au-Yeung J).

223.  Finally, it is not uncommon, in civil cases involving serious fraud, for the court to suggest that the case may be referred to the Department of Justice for criminal investigations: see, for example, Pathak Ravi Dutt v Sanjeev Maheshwari, HCA 1935/2011 (unrep, 23 May 2014), at §66 (Mimmie Chan J). This court would make a similar recommendation in this case in light of the egregious fraud that was perpetrated by the Individuals on Xie (and their objectionable conduct thereafter).

224.  Lastly, I express my gratitude to counsel for their very helpful assistance in this matter.