NICHOLAS V. A. SCHEBEK FUERSTENBERG v. YIP WAI SANG AND ANOTHER

HCA 221/2017

[2020] HKCFI 1696

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 221 OF 2017

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D E C I S I O N

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Application

1.  On 31 May 2017, I handed down a decision (“Earlier Decision”), refusing the plaintiff’s application for the continuation, until trial or further order, of the Mareva injunction granted against the defendants by Deputy High Court Judge Hunsworth on 26 January 2017 (“1^st Injunction Order”).^[1]  However, I continued the 1^st Injunction Order until the expiry of 14 days from the date of the Earlier Decision for the purpose of giving the plaintiff the usual period to consider what, if any, application he may wish to make arising from the Earlier Decision.  I also made an order nisi that the plaintiff should pay the defendants the costs occasioned to them by the application, to be taxed if not agreed, with a certificate for counsel for the 1^st defendant (“Costs Order”).

2.  Unless otherwise stated, in this decision, I shall continue to use the abbreviations adopted in the Earlier Decision.

3.  Prior to the expiry of the said 14 day period on 14 June 2017, on 5 June 2017, the plaintiff received from HSBC 143 pages of further documents relating to the D1 Account and the D2 Account (“Further Documents”).  In reliance on the Further Documents, by an inter partes summons issued on 12 June 2017 (“Injunction Summons”), the plaintiff applied for a fresh Mareva injunction against the 1^st and 2^nd defendants up to the respective limits of $1,700,000 and $500,000 until trial or further order.  On the same date, the plaintiff also took out another inter partes summons (“Costs Variation Summons”) to vary the Costs Order to one reserving costs.

4.  The Injunction Summons and the Costs Variation Summons (“Summonses” collectively) came before me for a 30- minute hearing on 14 June 2017.  In addition to directions for the adjournment of the Summonses for substantive hearing and the filing and service of affidavit evidence in opposition by the defendants and in reply by the plaintiff for the substantive hearing, to preserve the status quo, I granted an interim Mareva Injunction against the defendants pending the hearing and determination of the Injunction Summons.

Issue raised by the Injunction Summons

5.  I had summarised in the Earlier Decision, and I shall not repeat here, the factual background leading to the plaintiff’s claims and his first application for interlocutory injunctive relief against the defendants, the defendants’ respective grounds of defence and opposition to Mareva restraint, the requirements for the grant of a Mareva injunction, and how the arguments by the parties became focused upon the elements of “good arguable case” and “risk of dissipation of assets”.

6.  I further held that the plaintiff had passed the relative low threshold of showing a “good arguable case” but that the evidence then before the court did not support an inference of a risk of dissipation of assets by either of the defendants.

7.  By the Injunction Summons and with the use of the Further Documents, the plaintiff sought to persuade the court again that there was a real risk that both the defendants would dissipate, or remove from the jurisdiction, assets which would render the plaintiff’s judgment nugatory.

Plaintiff’s case on risk of dissipation 

8.  The plaintiff remained unable to point to any actual transactions by which the defendants had dissipated or removed assets.  In applying for fresh Mareva relief, he was still inviting the court to infer a risk of dissipation of assets from evidence that he said showed that the defendants are persons of an “unacceptably low standard of commercial morality” or “questionable integrity”.

9.  In casting the defendants in such negative light, reference was made to the Further Documents which, being documents underlying the deposits into and withdrawals from the D1 Account and the D2 Account (for instance, cheques, cashier orders, deposit/transfer/withdrawal advices, etc), enabled the plaintiff to trace more transactions between Li or her company DFT and each of the defendant through the D1 Account and D2 Account (“Further Transactions”).  In addition to the respective transfers of $1,700,000 and $500,000 from the DFT Account to the D1 Account and the D2 Account on 9 May 2013, the plaintiff’s solicitor, Mr Adam Clermont of Payne Clermont Velasco, swore an affidavit (“Clermont affidavit”) which specifically mentioned the following deposits and withdrawals:

D1 Account

HKD Savings				HKD Current
Date	Deposit	Withdrawal		Deposit	Withdrawal
13.5.13	11,667
21.5.13					375,000
8.7.13	420,000
31.7.13	20,000
8.10.13	445,000
9.10.13	780,000	445,000[2]
22.10.13	500,000
24.10.13	250,000
25.10.13	250,000
10.12.13	422,500
	37,550
11.12.13		422,500[3]
		37,500[4]
	90,000.00
30.1.14	60,000
	380,000
4.2.14		60,000[5]
		380,000[6]
	200,000
14.3.14	780,000
17.3.14		780,000[7]

 

D2 Account

HKD Savings				HKD Current
Date	Deposit	Withdrawal		Deposit	Withdrawal
24.7.13	50,000
25.7.13	28,500
31.8.13	140,000
31.10.13	140,000
30.11.13	160,000
9.4.14	389,500
28.5.14		550,000

10.  The Clermont affidavit contended that these frequent deposits from Li, a known fraudster, or her company DFT to the D1 Account and the D2 Account or the majority of them were suspicious and appeared entirely unrelated to the defendants’ ordinary living or business expenses. 

11.  With regard to the D1 Account, the plaintiff also found a Mr Jonathan Richard Veitch (“Veitch”) who believed that he and his wife had been defrauded by Li of the respective sums of $600,000 and $500,000 on 17 and 22 October 2013 under the guise of investing in the development of a piece of land in Tai Chung Hau, Sai Kung.  The Clermont affidavit deposed to suspicion that such alleged proceeds of fraud may have ended up in the D1 Account.  In support, the Clermont affidavit pointed to the transfer of $500,000 dated 22 October 2013 by DFT to the D1 Account.

12.  In relation to both defendants, the plaintiff went so far as suggesting, with reference to an article published on the webpage of the Joint Financial Intelligence Unit of the HKSAR Government and entitled “Screen the account for suspicious indicators: Recognition of a Suspicious Activity Indicator or Indicators” which appeared to be intended for financial institutions, that the following suspicious activity indicators most commonly associated with money laundering in Hong Kong were present with respect to both the defendants and both the D1 Account and the D2 Account:

(1)  Large or frequent cash transactions, either deposits or withdrawals: See the multiple, frequent and sizable deposits into, and withdrawals from, the D1 Account and the D2 Account since 9 May 2013, which had been summarised in the schedules to the Earlier Decision based on the earlier batches of documents disclosed by HSBC and;

(2)  Suspicious activity based on transaction pattern, i.e.

(a)  Account used as temporary repository for funds:  Li and DFT transferred or attempted to transfer more than $6 million to the D1 Account in less than a year from 9 May 2013 to 14 March 2014.  Such deposits were often withdrawn on the same day or within a short time.  See, e.g. the deposit of $300,000 on 11 November 2013 which was withdrawn on the same day.  Li and DFT also transferred close to $2 million to the D2 Account in about 10 months from 24 July 2013 to 28 May 2014.  Such deposits were often withdrawn on the same day or within a short time.  See e.g. the deposit of $450,000 on 28 May 2014 which was withdrawn on the next day.

(b)  “U-turn” transactions, i.e. money passes from one person or company to another, and then back to the original person or company: For example, the cheque withdrawal of $375,000 by the 1^st defendant in favour of Li on 21 May 2013 was deduced to have stemmed from DFT’s deposit of $1,700,000 into the D1 Account on 9 May 2013;

(3)  refusal, unwillingness, to provide explanation of financial activity, or provision of explanation assessed to be untrue: 

(a)  The court was reminded that the defendants, when previously given the opportunity, declined to provide any information that would establish these deposits (which indicated a closer association between each of the defendants and the known fraudster Li) were legitimate transactions. Indeed, the 1^st defendant described them as “irrelevant”. 

(b)  Moreover, insofar as the 1^st defendant was concerned, the so called investment transactions were in effect short term loans by the Investors to Li in view of the fact that Li guaranteed the repayment, by an agreed date, of capital plus a fixed profit (which, if viewed as interest, would fall foul of s 24 of the Money Lenders Ordinance (cap 163)).  See the summaries under the heading “The defendants’ explanations of the Further Transactions”.

(c)  As for the 2^nd defendant, the Loan appeared to be interest-free which was odd given that the borrower and the lender did not know each other so that they had to act through the 2^nd defendant. 

(d)  The fact that, in all instances, the 2^nd defendant kept certain portions out of the repayments to Lam made by Li was suspicious.

(e)  Li put up 2 marine fish culture licences as security for a $990,000 loan advanced by Lam to her on 28 May 2014.  Yet Li was neither the shareholder nor director of the company holding either of the licences.

(f)  It was questionable that whenever there was a discrepancy in the figures with no documentary proof, the 2^nd defendant would say that the payment was made in cash.

(g)  The court should not ignore the possibility of a sheer coincidence even when the figures matched.

Defendants’ explanation of the Further Transactions

1^st defendant

13.  First, the deposit of $11,667 on 13 May 2013 was to fully compensate the Investors (namely, the 1^st defendant, Mr Stephen Waldo Ho and Miss Yeung Suk Man) for interest for late payment under the Guarantee (dated 9 April 2013).  The rounded up sum of $1.7 million was not sufficient to cover interest from 2 to 9 May 2013. 

14.  Second, to explain the other deposits shown in the first table under [9] above, the 1^st defendant referred to, and produced documents relating to, 4 more guaranteed investments involving Li and the Investors.

15.  First, the Investors entered into an “agreement and guarantee” dated 21 May 2013 (“May 2013 Agreement and Guarantee”) with Li to invest a total sum of $1.5 million in the purchase and resale of culture raft(s) at the Kai Lung Wan Fish Culture Zone at a profit of $180,000 guaranteed by Li and payable before 5 July 2013 as follows:

Investor	Amount Invested	Amount guaranteed to be returned
1st defendant	$375,000	$420,000
Miss Yeung	$375,000	$420,000
Mr Ho	$750,000	$840,000
	$1,500,000	$1,680,000

16.  In support of such explanation, the 1^st defendant has produced copies of (1) the May 2013 Agreement and Guarantee; and (2) the cheque drawn by each of the Investors in favour of Li in the amount committed by him/her.  Insofar as the 1^st defendant is concerned, the $375,000 withdrawal by cheque from the D1 account on 21 May 2013 was to pay his share of investment under the May 2013 Agreement and Guarantee whereas the deposit of $420,000 into the D1 Account on 8 July 2013 was the return of the 1^st defendant’s investment plus profit.

17.  Second, the Investors entered into an “agreement and guarantee” dated 31 July 2013 (“July 2013 Agreement and Guarantee”) with Li to invest a total sum of $1.6 million in the purchase and resale of culture raft(s) at the Kai Lung Wan Fish Culture Zone at a profit of $180,000 guaranteed by Li and payable before 18 September 2013 as follows:

Investor	Amount Invested	Amount guaranteed to be returned
1st defendant	$400,000	$445,000
Miss Yeung	$400,000	$445,000
Mr Ho	$800,000	$890,000
	$1,600,000	$1,780,000

As Li guaranteed return of capital and profit to the Investors by 18 September 2013, she issued post-dated cheques to the Investors.  Such cheques were all bounced on presentation for payment.  Li eventually paid and caused DFT to pay to the D1 Account $1.78 million by 4 sums: $780,000 on 9 October 2013, $500,000 on 22 October 2013, $250,000 on 24 October 2013 and $250,000 on 25 October 2013, which sums the 1^st defendant then disbursed between the Investors as set out in the third column of the above table.

18.  In support of such explanation, the 1^st defendant has produced copies of, inter alia, (1) the July 2013 Agreement and Guarantee; (2) the cheques drawn by the Investors in favour of Li in the respective amounts committed by them^[8]; (3) the 3 cheques post-dated 18 September 2013 drawn by Li in favour of the Investors for the respective amounts guaranteed to be returned to them; (4) the transaction advice dated 8 October 2013 evidencing the deposit of the cheque in favour of the 1^st defendant into the D1 Account; and (5) the inward returned cheque advice dated 9 October 2013 issued by HSBC upon the dishonour of cheque in favour of the 1^st defendant for reason “Refer to Drawer”.

19.  Third, the 1^st defendant alone entered into an “agreement and guarantee” dated 19 November 2013 (“November 2013 Agreement and Guarantee”) with Li to invest $380,000 in the purchase and resale of culture raft(s) at the Kai Lung Wan Fish Culture Zone at a profit of $80,000 guaranteed by Li and payable before 10 December 2013.  As she guaranteed return to the 1^st defendant, Li issued post-dated cheques of $37,500 dated 19 November 2013 and of $422,500 dated 10 December 2013 to the 1^st defendant.  Both cheques were dishonoured on presentation for payment.  Li eventually paid the 1^st defendant $460,000 by 3 sums: $90,000 on 12 December 2013, $200,000 and $170,000 on 12 December 2013.  It can be noted from [9] above that there was a deposit of $90,000 into the D1 Account on 12 December 2013.

20.  In support of such explanation, the 1^st defendant has produced copies of (1) the November 2013 Agreement and Guarantee; (2) the 2 dishonoured cheques drawn by Li in his favour; (3) the inward returned cheque advice dated 11 December 2013 issued by HSBC upon the dishonour of such cheques for reason “Refer to Drawer”.

21.  Fourth, the Investors entered into an “agreement and guarantee” dated 17 December 2013 (“December 2013 Agreement and Guarantee”) with Li to invest a total sum of $1.38 million in the purchase and resale of culture raft(s) at some unidentified Fish Culture Zone at a profit of $140,000 guaranteed by Li and payable before 30 January 2014 as follows:

Investor	Amount Invested	Amount guaranteed to be returned
1st defendant	$345,000	$380,000
Miss Yeung	$345,000	$380,000
Mr Ho	$690,000	$760,000
	$1,380,000	$1,520,000

22.  In support of such explanation, the 1^st defendant has produced copies of, inter alia, (1) the December 2013 Agreement and Guarantee; (2) a transaction advice showing transfer of $1.32 million to Li (with the $60,000 difference being treated as having been paid by the 1^st defendant by setting off a personal debt of that amount owed by Li to the 1^st defendant); (3) the 3 cheques post-dated 29 January 2014 drawn by Li in favour of the Investors for the respective amounts guaranteed to be returned to them; (4) the corresponding cheque deposit advices; (5) the inward returned cheque advice dated 4 February 2014 issued by HSBC upon the dishonour of the cheque of $380,000 in favour of the 1^st defendant for reason “Account Closed”; and (6) the inward returned cheque advices of various dates issued by HSBC upon the dishonour of a number of cheques of $780,000 drawn by Li in favour of the 1^st defendant to make payment under the December 2013 Agreement and Guarantee for reasons “Payment Countermanded by the Drawer” or “Refer to Drawer”.

23.  Lastly, the 1^st defendant did not know Veitch or his family and had no reason to question the origin of the sum of $500,000 deposited into the D1 Account on 22 October 2013.

2^nd defendant

24.  As noted in [17] of the Earlier Decision, the 2^nd defendant alluded to (1) the Loan (of $2,230,000) from Lam to Li through him on 8 April 2013; (2) the part repayment of $500,000 (which sum is the subject matter of the plaintiff’s claim against the 2^nd defendant) by Li to Lam on 9 May 2013 also through the 2^nd defendant; (3) his onward payment of $480,000 to Wong Sim Luen (“Wong”) from whom part of the Loan ($500,000) had originated; and (4) the retention of the difference of $20,000 by the 2^nd defendant as part repayment by Li of what she owed him.

25.  According to the 2^nd defendant’s 2^nd affirmation, the 6 deposits totalling $908,000 into the D2 Account from 24 July 2013 to 9 April 2014 specifically identified in paragraphs 39 to 44 of the Clermont Affidavit (see second table under [9] above) were further repayments of the Loan by Li to Lam through the 2^nd defendant.  In fact, the Clermont Affidavit has not picked out from the Further Documents concerning the D2 Account all the deposits into the D2 Account that are traceable to Li or her company DFT.  Indeed, the Further Documents did not show all the repayments made by Li to Lam through the 2^nd defendants.  See the table under [26] below for further details.

26.  Upon the receipt of each such deposits, the 2^nd defendant would issue a cheque drawn on the D2 Account to pass the money to Lam or Wong as instructed by Lam but always, with Li and Lam’s permission, keeping a portion towards the settlement of the debts owed by Li to him.  The repayment by Li, the transfer to Lam/Wong and the retention by the 2^nd defendant are as follows:

Date	Amount repaid by Li	Amount returned to Lam	Amount retained by D2
24.7.13	50,000)
25.7.13	28,500)	58,500[9]	20,000
31.8.13	140,000
2.9.13		108,000	32,000
31.10.13	140,000	108,000	32,000
30.11.13	160,000)
2.12.13	160,000)	256,500[10]	63,500
31.12.13	300,000
2.1.14		256,500	43,500
30.1.14	300,000
4.2.14		256,000	43,500
6.3.14		256,500[11]	44,500
9.4.14	389,500	256,500	133,000

27.  The 2^nd defendant further volunteered that:

(1)  On about 28 May 2014, Li asked Lam for another loan. On the same date, Lam instructed Wong to issue to the 2^nd defendant a cheque of $615,000, which the 2^nd defendant then deposited into the D2 Account.  See the $615,000 deposit entry dated 28 May 2014 in Schedule 2 to the Earlier Decision.

(2)  After negotiation, Lam agreed to lend Li $990,000 on the condition that Lam could withhold a sum of $240,000 as initial part repayment so that the net amount to be advanced should just be $750,000 (“2^nd Loan”). 

(3)  The 2^nd Loan was paid to Li, firstly, by a transfer of $550,000 from the D2 Account to Li’s account and, secondly, by cash in the sum of $200,000 given by Lam to the 2^nd defendant and then by the 2^nd defendant to Li.  See the $550,000 withdrawal entry dated 28 May 2014 in Schedule 2 to the Earlier Decision and in the 2^nd table under [9] above.

28.  To prove the 2^nd Loan, the 2^nd defendant has produced copies of (1) a Chinese IOU cum acknowledgment of receipt dated 28 May 2014 signed by Li with the 2^nd defendant’s signature as witness; (2) 2 licences to culture marine fish held by one Harrison Limited and one Sonho Trading (HK) Co Ltd tendered by Li as security; and (3) Li’s cheque of $990,000 post-dated 30 June 2014 in favour of Lam.

Principles for assessment of risk of dissipation of assets – an update

29.  At [28], [29] and [31] of the Earlier Decision, I set out the test for and approach to the assessment of a risk of dissipation of assets.

30.  By way of an update, in Fundo Soberano de Angola v dos Santos [2018] EWHC 2199 (Comm), in which the Angolan sovereign fund claimed against the defendants for dishonest conspiracy and an application for a Mareva injunction failed for, among other reasons, lack of risk of dissipation.  Popplewell J (as Popplewell LJ then was) summarised, at [86], the following 7 aspects of the principles that were of particular relevance to the application before him:

“(1) The claimant must show a real risk, judged objectively, that a future judgment would not be met because of an unjustified dissipation of assets. In this context dissipation means putting the assets out of reach of a judgment whether by concealment or transfer.

(2) The risk of dissipation must be established by solid evidence; mere inference or generalised assertion is not sufficient.

(3) The risk of dissipation must be established separately against each respondent.

(4) It is not enough to establish a sufficient risk of dissipation merely to establish a good arguable case that the defendant has been guilty of dishonesty; it is necessary to scrutinise the evidence to see whether the dishonesty in question points to the conclusion that assets are likely to be dissipated. It is also necessary to take account of whether there appear at the interlocutory stage to be properly arguable answers to the allegations of dishonesty.

(5) The respondent’s former use of offshore structures is relevant but does not itself equate to a risk of dissipation. Businesses and individuals often use offshore structures as part of the normal and legitimate way in which they deal with their assets. Such legitimate reasons may properly include tax planning privacy and the use of limited liability structures.

(6) What must be threatened is unjustified dissipation. The purpose of a freezing order is not to provide the claimant with security; it is to restrain the defendant from evading justice by disposing of, or concealing, assets otherwise than in the normal course of business in a way which will have the effect of making it judgment proof. The freezing order is not intended to stop a corporate defendant from dealing with its assets in the normal course of its business. Similarly, it is not intended to constrain an individual defendant from conducting his personal affairs in the way he has always conducted them, providing of course that such conduct is legitimate. If the defendant is not threatening to change the existing way of handling assets, it will not be sufficient to show that such continued conduct would prejudice the claimant’s ability to enforce a judgment. That would be contrary to the purpose of the freezing order jurisdiction because it would require defendants to change their legitimate behaviour in order to provide preferential security for the claim which the claimant would not otherwise enjoy.

(7) Each case is fact specific and relevant factors must be looked at cumulatively.” (emphasis added)

31.  Popplewell J’s summary was adopted by Haddon-Cave LJ in Lakatamia Shipping Co Ltd v Toshiko Morimoto [2019] EWCA Civ 2203 at [34] subject to the replacement of the words “are likely to be” in point 4 with “may be”.

32.  In Hong Kong, these principles were held in Convoy Collateral Ltd v Cho Kwai Chee [2020] HKCA 537 (3 July 2020) at [36] to be applicable, subject to the following elaborations ([37]-[54]:

(1)  The onus borne by a party seeking Mareva relief is to establish a solid basis for concluding that there is a real risk of dissipation (citing Mustill J in Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft [1983] 2 Ll Rep 600 at 606-607;Gloster LJ in Holyoake v Candy, supra, at [34] and Stock and Le Pichon JJA in Grand Trade Development Ltd v Bonance International Ltd CACV 776/2000, 3 November 2000, [18] to [19]^[12]).

(2)  Solid evidence may take different forms.  It may consist of direct evidence that the defendant has previously acted in a way which shows that his probity is not to be relied upon.  Or it may be shown what type of company the defendant is (where it is incorporated, what are its corporate structure and assets, etc) so as to raise an inference that the company is not to be relied upon.  Or a case may be found upon the fact that enquiries about the characteristics of the defendant have led to a blank wall. Precisely what form the evidence may take will depend upon the particular circumstances of the case.  But the evidence must always be there.  Mere proof that the company is incorporated abroad, accompanied by the allegation that there are no reachable assets in the jurisdiction apart from those which it is sought to enjoin, will not be enough (citing Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft, supra, per Mustill J at 606-607).

(3)  Most factors are not direct evidence on dissipation as such.  Matters like the nature of assets held by the defendant, nature and financial standing of the defendant, past or existing credit history, the defendant’s behaviour in respect of the claim can be indicative of the risk of dissipation (citing Gee on Commercial Injunction, 6^th Edition, para 12-033).  

(4) Since the assessment of the risk of dissipation necessarily involves an evaluative and predictive judgment, the evidential burden can be satisfied by drawing proper inferences from a holistic consideration of all the circumstantial materials that are indicative of risk, including matters which point against such risk (citing Kerr LJ in Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft [1983] 1 WLR 1412 at 1422H and Mortimer V-P in CAC Brake Co v Bene Manufacturing Co Ltd, CACV 94/1998, unreported, 30 April 1998 at [18]).

(5) A solid basis to support an inference of risk of dissipation is to be contrasted with unsupported or bare statements of fear which would carry little weight (citing Sir Peter Pain in O’Regan v Iambic Productions (1989) 139 NLJ 1378 at 1379).

(6) A good arguable case on the underlying substantive claims could in an appropriate case be regarded as supporting a case of real risk of dissipation (citing Peter Gibson LJ in Thane Investments Ltd v Tomlinson [2003] EWCA Civ 1272 at [28]).

(7) The court must examine with care allegations of dishonesty before inferring therefrom a real risk of dissipation (citing Chu J (as she then was) in Hornor Resources v Savvy Resources [2010] 4 HKC 50).

(8) Wrongdoing relevant to the issue of dissipation can be some dishonest or wrongful acts which were not themselves acts of dissipation, for example, the procurement of a loan by fraudulent misrepresentation as to the value of the assets of the borrower and the disappearance of the proceeds in a complex web of corporate entities, as in VTB Capital v Nutritek International [2012] 2 CLC 431.

33.  The Hong Kong Court of Appeal also considered the following approach set out by Haddon-Cave LJ in Lakatamia Shipping Co Ltd v Toshiko Morimoto, supra at [51] as providing good guidance:

“(1) Where the court accepts that there is a good arguable case that a respondent engaged in wrongdoing against the applicant relevant to the issue of dissipation, that holding will point powerfully in favour of a risk of dissipation.

(2)  In such circumstances, it may not be necessary to adduce any significant further evidence in support of a real risk of dissipation; but each case will depend upon its own particular facts and evidence.”

See Convoy [53].

Discussion

34.  The evidence upon which the plaintiff asked for fresh Mareva relief is (1) the Further Documents, (2) the article “Screen the account for suspicious indicators: Recognition of a Suspicious Activity Indicator or Indicators”, and (3) the Veitch case.

35.  As I see it, such new evidence does not, on proper analysis, improve the plaintiff’s case on risk of dissipation which, I note with emphasis, remained couched in terms of mere suspicion.

36.  All that the Further Documents show is that, other than the transfers that are the subject matter of the plaintiff’s claims against the defendants, both defendants had had other financial transactions with Li and DFT, a company appeared to be under Li’s control.  However, as set out above, the deposits into and the withdrawals from the D1 Account and the D2 Accounts that were of interest to the plaintiff had been explained by the defendants. 

37.  I have not overlooked the plaintiff’s attempt to attack the authenticity, true nature and/or legal validity of the transactions put forward by the defendants as underlying the deposits and withdrawal traceable to Li and DFT.  However, the defendants’ explanations were not just bare assertions.  Supporting documents that tally or broadly tally with the amounts of the deposits and withdrawals in question as well as the explanations given were produced.  On the 1^st defendant’s part, they were the investment agreements and guarantees, cheques drawn by the Investors in payment of their shares of the capitals, the cheques drawn by Li for settlement of the returns that she had promised, etc.  On the 2^nd defendant’s they were the IOUs and acknowledgments of receipt signed by Li, the cheques drew by him for onward payments to Lam and Wong, etc.  While I note that Ms Athena Wong, counsel for the plaintiff, did not accept the authenticity of the supporting documents produced by the defendants, she was unable to challenge or credibly challenge the same at this stage.

38.  While the features that were said to be suspicious about the transactions between Li and either defendant may provide some material for the cross-examination of the defendants at trial, they were not, in my view, sufficient to ground an inference of such dishonesty as to point to a risk of dissipation.  Take the suggestion that the Investors were in effect lending money to Li at interest rates that fell foul of the legal limit under the Money Lender Ordinance.  One can observe that apart from his investment in the Development, according to his solicitors’ letter dated 27 April 2014 to Li, on about 26 November 2013, the plaintiff advanced to Li $1,072,500 in return for Li’s promise to repay him $1,282,500 by the end of January 2014.  The return was $210,000 in just over 2 months.  In terms of percentage, it was 20%, which translates to 120% per annum.  The wish to make a quick profit when opportunity arises is probably common and cannot be equated with dishonesty, at least not dishonesty that points to a risk of dissipation of assets that would make one judgment proof.

39.  Insofar as the plaintiff tried to make some mileage out of the fact that the defendants were dealing with Li and the characterization of Li as a known fraudster, he should be reminded that on his own case, in 2013 and 2014, Li was a well-known social and business figure in the Sai Kung area.  The plaintiff even described Li as his and his wife’s then close friend, with whom they had gone into some investment and loan transactions.  The plaintiff had not adduced any evidence to show that the defendants knew or should have known Li in a different light at the material time.

40.  Turning to the article, it was meant for the guidance of financial institutions in spotting money laundering customers and accounts.  They were mere guidelines.  As such, it does not follow from the fact that the activities in an account may exhibit one or more of the indicators that the account is being used to launder proceeds of crime or nefarious activities.  Take the D1 Account, many of the deposits referable to Li’s cheques had to be reversed due to the dishonour of the cheques on presentation for payment for reasons “Refer to Drawer”, “Payment Countermanded by Drawer” and even “Account Closed”.  Why would Li launder money that she did not appear to have?  In repeatedly giving cheques to the 1^st defendant that she probably knew would not be honoured, Li’s conduct was more consistent with that of an obligor trying to buy more time from the Investors.

41.  Whether or not an account exhibiting one or more of the indicators is really being used for money laundering would depend on the nature of the accountholder’s personal or business affairs.  Much has been said about the fact that the defendants had not taken the opportunity previously given to them to explain the deposits and withdrawals that the plaintiff identified from the Further Documents.  I assume the plaintiff was referring to the defendants’ affirmations filed before the Earlier Decision. With respect, the present context was opposing the continuation of a Mareva injunction, not answering a banker’s queries about one’s use of a bank account.  The defendants’ earlier affirmations were made to meet the case then presented against them.  And the case that the defendants had to meet previously was the transfers by DFT to their respective accounts on 9 May 2013 and their subsequent disbursements of the money so transferred.  The evidence previously filed by the defendants answered such a case.

42.  As for the Veitch case, there is no evidence that the 1^st defendant knew of or had reason to suspect the origin of the deposit of $500,000 on 22 October 2013.  This matter is in any event irrelevant to the issue of risk of dissipation.

43.  For these reasons, there is no or no solid evidence before this court to ground an inference against either defendants of dishonesty that points to a risk of dissipation of assets.  The 2^nd Injunction Order should not be continued and the Injunction Summons should be dismissed.  I also make an order nisi that the plaintiff should pay the defendants the costs occasioned to them by the Injunction Summons, to be taxed on a party and party basis if not agreed, with a certificate for counsel for the 1^st defendant.

Costs Variation Summons

44.  Although the principle that costs should follow the event is no longer the prescribed usual order in interlocutory application, in my view, in light of the reasons given in the Earlier Decision, the application of such principle was the fairest option.  In seeking to have costs reserved, the plaintiff relied on the so-called “evasive” conduct of the defendants.  I have already reasoned above that the defendants simply chose to meet the case made against them, no more and no less.  I do not see why such strategy should prejudice the defendants as to costs.

45.  I dismiss the Cost Variation Summons.  I also make an order nisi that the plaintiff should pay the defendants the costs occasioned to them by such summons, to be taxed on a party and party basis if not agreed.