BANK OF HULUDAO CO LTD v. ZHONGYING INT’L HOLDING GROUP LTD

HCA 1656/2022

[2025] HKCFI 729

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1656 OF 2022

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D E C I S I O N

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Introduction and Brief Background

1.  This is an appeal by the Defendant (“D”) against the order of Master Lewis Law (“the Master”) dated 13 August 2024 dismissing the application made by D to debar the Plaintiff (“P”) from adducing a PRC criminal judgment dated 22 August 2023 (“the PRC Judgment”) as evidence in this action, whether by way of discovery of documents, affidavit evidence, witness statements or any other mode or manner.

2.  The PRC Judgment was referred to in one paragraph of, and exhibited to, an affirmation made in relation to an application for security for costs against P. It is also listed in P’s List of Documents.

3.  This action and another action (HCA1903/2021) have been ordered to be tried together before the same judge and the evidence in both actions to be used interchangeably. The two actions have been set down for trial in October 2025.

4.  P, in the present action, is a bank established and carrying on business in the PRC. According to P, Duan Hongtao (“Duan HT”) was the chairman and sole beneficial shareholder of the largest shareholder of P, Zhongying Holdings Group Limited (“Zhongying”). Duan HT was also a director of P and a member of P’s Compliance and Risk Management Committee whose function was to oversee and approve large amount credit and investment plans of P.

5.  Duan Chunchao (“Duan CC”), the paternal uncle of Duan HT, was the legal representative of Zhongying.

6.  According to P, it was the victim of a fraudulent scheme masterminded by Duan HT and Zhao Zhilong (“Zhao”) and their associates. In July to September 2020, Duan HT and Zhao (through themselves or their associates) represented to P’s executives that Duan HT would assist P to resolve its problem of non-performing loans if RMB2.6B was transferred from P to Duan HT to invest and acquire shares of Hana Bank China (“Hana Bank”). The requisite funds would first be transferred from P to Guotai Yuanxin Asset Management Co Ltd (“Guotai”) for asset management and then transferred to Ningxia Shunyi Asset Management Co Ltd (“Shunyi”), a company owned and controlled by Zhao, to acquire and invest in the shares of Hana Bank.

7.  Relying on the representations made to P, P’s executives were induced and agreed to transfer RMB 2.6B to Guotai on 25 September 2020. On 29 September 2020, RMB2.55B out of RMB2.6B was transferred to Shunyi.

8.  However, in about September 2021, P discovered the fraud and that RMB2.6B had not been used to acquire the shares of Hana Bank. Nor had Guotai provided any assets management services to P. Instead the sums transferred by P were dissipated for the personal use and benefit of Zhao and Duan HT.

9.  D is a company incorporated in Hong Kong. Duan CC and Duan HT were the shareholders of D. Duan CC was the sole director of D. According to P, D was used to receive part of the proceeds from the fraudulent scheme and/or fraudulent misrepresentation of which USD87,000,000 (“the Sum”) was transferred to Zinda Hong Kong Co Ltd (“Zinda”), a company authorized by P to retrieve and retain the misappropriated funds on behalf of P, on 16 December 2021.

10.  D’s defence is that neither it, nor Duan CC and Duan HT had any knowledge of or participated in, consented to, approved or acquiesced to the alleged fraud or fraudulent misrepresentation.

11.  As for the transfer of the Sum from D to Zinda, this was done when Madam Liu, D’s financial controller, was physically detained and under extreme stress and pressure from persons claiming to be local police officers. By HCA 1903/2021, D commenced proceedings against Zinda for the Sum.

Applicable principles

12.  It is trite and not disputed that a judgment and factual finding of another court or tribunal in earlier proceedings, whether civil or criminal, is inadmissible in subsequent proceedings, unless the party against whom the party is sought to be deployed is bound by it by reason of estoppel per rem judicatam: see Hollington v F Hewthorn & Co Ltd [1943] KB 587 applied in Capital Century Textile Company Limited v Li Dianxiao & Anor [2018] HKCFI 729, per Lisa Wong J at §23.

13.  In Jin Jiang Investment Limited & Anor v 深圳市威廉金融控股有限公司 & Ors [2022] HKCFI 378 at §44, Coleman J set out the rationale for that principle as follows:

(1)  A central part of a judge’s task in a civil case is to evaluate the evidence adduced by the parties, and to decide what conclusions may properly be drawn from that evidence;

(2)  In performing that task, consistently with the parties’ right to a fair trial before an impartial and independent tribunal, the judge must make his or her own evaluation of the evidence, and not defer to the opinion of anyone else;

(3)  Therefore, it is not proper for a judge to be influenced by the opinion of a previous court;

(4)  If the evidence before the judge is the same as that before the earlier court, the judge is in as good a position to draw inferences and conclusions from the evidence;

(5)  If the evidence before the judge is different from that before the earlier court, the opinion of the earlier court does not assist the judge’s task; and

(6)  Indeed, and in any event – except as regards that of the relevant decision maker or an expert in a relevant discipline – the opinion of someone who is not the trial judge is, as a matter of law, irrelevant and should not be taken into account.

14.  On the other hand, statements or reported statements of the factual evidence before the previous court are not excluded by the Hollington principle. See ibid at §45 and Capital Century Textile Company Limited at §§29-31.

Discussion and Disposition

15.  Counsel for P and D accepts the only issue I need to decide today is whether the PRC Judgment is not excluded by the Hollington principle because they contain statements or reported statements of the factual evidence before that court and not factual findings.

16.  Mr Wong, counsel on behalf of D confirmed that the basis of D’s application and this appeal is based on the Hollington principle. He submitted that it is clear that P is seeking to rely on the PRC Judgment for its factual findings against Duan HT and Zhao which appears at the first complete paragraph at p.4 of the PRC Judgment. Although he accepted that the paragraphs following “经审理查明” up to the paragraph before the words “上述事实” at p.5, recited the evidence which was not contested and thereafter set out the source of the evidence, he submitted that there were also factual findings of the alleged fraud which was the basis of the conviction and sentencing of the defendants by the PRC court.

17.  From a plain reading of the PRC Judgment as a whole, I agree with Mr Cheung, counsel for P, that those paragraphs merely recited the uncontested evidence before the court before proceeding to sentence the defendants for the convicted crimes of inter alia money laundering. It did not make any finding one way or the other on the evidence recited.

18.  Although it was mentioned at p.4 to the effect that Duan HT, Zhao and others purportedly on the ground of resolving the non-performing loans of P used P’s funds totaling RMB2.6B which the defendants illegally exchanged into foreign currency and transferred to a Hong Kong company account controlled by Duan HT, this was only a summary of the evidence. It was expressly stated that there were other proceedings against Duan HT and Zhao (“另案处理”). Plainly, the PRC Judgment could not and did not make any factual findings on their alleged involvement in the fraud. They were not defendants in the PRC Judgment.

19.  I will therefore dismiss the appeal against the Master’s order.

20.  [Discussion on costs]

21.  Counsel agreed and I so ordered that D should pay to P its costs of this appeal including the costs below. I have summarily assessed P’s cost of and occasioned by this appeal at HK$120,000. P’s costs below shall be taxed if not agreed.