DINGWAY INVESTMENT LTD (Provisional Liquidators Appointed) v. CHINA CITY CONSTRUCTION & DEVELOPMENT CO.,(HONG KONG) LTD AND OTHERS

CAMP 467 CAMP 470 /2022 (Heard together)

[2023] HKCA 458

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NOS 467 AND 470 OF 2022

(ON AN INTENDED APPEAL FROM HCA NO 309 OF 2022)

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J U D G M E N T

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

1.  This is a renewed application for leave to appeal brought by Golden Gate International Investment Co Ltd (“D6”), Rega Holdings Limited (“D7”)  and Mei Li (“D9”)  against the order of Anthony Chan J dated 29 July 2022 (“Order”), having been refused leave by the judge on 26 October 2022[1] (“Leave Decision”).

Background

2.  The underlying facts of this dispute are complex. They have been summarised by the judge in his decision dated 29 July 2022[2] (“Decision”)  at §§3-34:

“3. The central dispute here concerns the transfers of the shares in a corporate vehicle and the sale of a valuable piece of land in Miami, USA, which was held by this vehicle via 3 layers of subsidiaries. I shall firstly set out the undisputed or indisputable facts (unless stated otherwise)  succinctly whilst endeavouring to do justice to the complexity of the facts.

Background

4. The Plaintiff (a BVI company)  in HCA[3] (“Dingway”)  was (until 15 October 2019)  the holding company, through 3 Delaware subsidiaries (“Company A to C”), of a piece of land in Miami (“Land”). Company C was the titleholder of the Land. On 15 October 2019, Dingway was itself owned by the Petitioner in HCCW[4] (“CCCI”)  (55%)  and the 1^st Respondent (“Champ Prestige”)  (45%). Dingway is the 2^nd Respondent in HCCW.

5. Dingway only served as the holding company for the Land. It had no other valuable asset save for the Land, which was acquired in December 2014 at US$86.7 million. The purchase price was accounted for as a shareholder’s loan from CCCI to Dingway. CCCI was at that time the sole owner of Dingway.

6. In about February 2016, CCCI sold 45% of the shareholding in Dingway as well as 45% of its shareholder’s loan to Champ Prestige for US$40.5 million. In 2017 and 2018, actions were brought by Champ Prestige against CCCI for alleged breach of agreement in respect of the development of the Land.

7.  Up until 22 April 2016, CCCI and the 1^st Defendant in HCA (“D1”)  (the rest of the Defendants in HCA are referred to in similar manner)  were both indirectly wholly-owned subsidiaries of China City Development Academy Co Ltd (“CCDA”).

8.  Beginning from 2016, CCCI was in financial difficulties. It defaulted on bonds issued by it with a face value of RMB 2.5 billion. In June 2018, a creditor’s winding up petition was presented against it.

9.  On 5 October 2018, D1 commenced HCA 2343/2018 against CCCI, asserting that CCCI had been holding the shares in Dingway on trust for it since the incorporation of Dingway (“Trust Arrangement”). Accordingly, D1 claimed that CCCI’s 55% shareholding in Dingway and the consideration received by CCCI from Champ Prestige for 45% of Dingway should be held on trust by CCCI for its benefit.

10.  In January 2019, CCCI went into voluntary liquidation, and liquidators were appointed (“Liquidators (C)”).

11.  Both Champ Prestige and CCCI (through its Liquidators)  filed Defence in respectively 30 May and 11 July 2019 in HCA 2343/2018 denying the Trust Arrangement.

12.  On 18 June 2019, Champ Prestige started an action in Miami (“Miami Action”), seeking an order that CCCI be dissolved and the Land be sold, with payment of HK$148 million out of the sale proceeds to be paid first to Champ Prestige.[5]

13.  On 15 October 2019, D2 (then a director of CCCI and Dingway, and a former director of D1)  on behalf of Dingway transferred its entire shareholding in Company A (“Shares”)  to D1 for no consideration (“Transfer (1)”). The transfer agreement was signed by D2 on behalf of Dingway and by D3 on behalf of D1.

14.  Within weeks (in November 2019), D1 transferred the Shares to a Californian company, D4, for a stated consideration of US$70 million (“Transfer (2)”). The genuineness of this Transfer or sale is under dispute.

15.  On 17 December 2019, Liquidators (C)  learned about Transfer (2). This part of the evidence is disputed. The case of D1 and D3 is that one of the Liquidators, Ms Tiffany Wong of KPMG, and Mr Gilbert Ho of KPMG knew about the Transfer (in the case of Ms Wong the intention to do so)  in respectively February and November 2019.

16.  On 17 December 2019, Liquidators (C)  took steps to remove the 3 (out of a total of 5)  directors of Dingway originally nominated by CCCI (including D1), and appointed themselves and their colleague as the CCCI-nominated directors.

17.  Upon discovery of Transfer (2), on 19 December 2019, Champ Prestige filed an Emergency Motion in the Miami Action. On 26 December 2019, Champ Prestige obtained temporary injunctive relief against D4. The injunction order was also sent to CCCI as party to the Miami Action.

18.  As part of the Miami Action, subpoenas were issued by which D4 was required to deliver up certain documents.

19.  HCA 2343/2018 (see para 9 above)  was discontinued by D1 on 17 December 2019. At that time, the Shares had been transferred from Dingway.

20.  According to Liquidators (C), they only came to know of Transfer (1)  on about 8 February 2020 (which is in dispute). The knowledge came from the documents disclosed by D4 in the Miami Action.

21.  With knowledge of Transfer (1), Champ Prestige took action in Hong Kong against D1 in February 2020. On 13 February 2020, it obtained an ex parte Mareva injunction from DHCJ Liu against D1 to D3 up to the value of US$54 million. The parties were unable to assist the court as to the monetary limit of that injunction.

22.  On 5 March 2020, one day before the return day for the Mareva injunction, Asia Allied Infrastructure Holdings Ltd (the former sole shareholder of Champ Prestige)  announced that it had sold its entire interest in Champ Prestige to D1 for US$44 million. Thereafter, Champ Prestige ceased all its legal actions in Hong Kong and the US with respect to Transfer (1)  and Transfer (2).

23.  On 2 April 2020, Champ Prestige (under D1’s control)  appointed 2 new individuals to be the Champ Prestige-nominated directors of Dingway.

24.  In March 2021, Company C (the titleholder of the Land), whose name had been changed to that of D5, sold the Land to Mast Capital (a local developer)  for US$103 million. The sale was completed on or around 22 December 2021 (“Sale”).

25.  Liquidators (C)  found out about the Sale on 30 December 2021. A financing arrangement which enabled them to take legal action was put in place in December 2021 after prolonged negotiations.

26.  HCCW was brought by CCCI (through Liquidators (C))  on 24 January 2022 to wind up Dingway (in March 2022, Dingway was wound up by the BVI court). The complaints by CCCI in those proceedings concerned Transfer (1), Transfer (2)  and the Sale. CCCI sought to have Dingway wound up on (a)  insolvency ground and (b)  just and equitable ground. On ground (a), based on the wrongful Transfer (1), Dingway had no means to repay the shareholder’s loan of HK$403 million owed to CCCI. The details of ground (b)  are not important for the present purpose.

27.  On 25 January 2022, upon the ex parte application of CCCI in HCCW, Ng J granted an interim order (“Injunction (1)”)  under the court’s Chabra jurisdiction as follows:

(1)  A worldwide proprietary injunction against D1 in respect of the sum of US$70 million (the proceeds of Transfer (2))  and the traceable substitutes thereof, topped up by a worldwide Mareva injunction up to US$103 million;

(2)  A worldwide Mareva injunction against both D2 and D3 up to US$103 million; and

(3)  The appointment of provisional liquidators to Dingway.

28.  The application for appointment of provisional liquidators was made with the intention that the injunction granted would enable such liquidators to conduct the necessary investigation for commencement of appropriate legal proceedings in the name of Dingway. HCA was the result of such investigation.

29.  After their appointment in early 2022, the provisional liquidators of Dingway (“Liquidators (D)”)  (they were subsequently appointed by the BVI court as Liquidators of Dingway)  issued subpoenas in the US for information and documents. These steps led them to discover that a substantial portion of the proceeds of sale of the Land (“Sale Proceeds”)  were transferred from D5 to various entities which Dingway had reasons to believe were conduits or nominees of D1 (or those controlling D1). The known transfers were as follows:

(1)  On 22 December 2021, US$1,300,000 was transferred to D1 purportedly as reimbursement of its payment to American Da Tang (“ADT”)  which was involved in arranging the Sale;

(2)  On 27 December 2021, US$33,213,698.63 was transferred to D8 (“D8 Receipt”);

(3)  On 30 December 2021, US$45,076,164.38 was transferred to a Bank of China account in Hong Kong held by D6 (which account was subsequently closed);

(4)  On 30 December, US$13,340,000 was transferred to a Bank of Communication account in Hong Kong held by D7;

(5)  Between 18 January 2022 and 26 January 2022, a total sum of US$200,000 was remitted to CCCC US International Corp (“CCCC US International”), a company involved in the original purchase of the Land;

(6)  On 10 February 2022, D9 received into her personal bank account in Hong Kong US$33,000,000, being almost the entire amount of the D8 Receipt;

(7)  On 11 April 2022, Mr Sunny Ea (“Ea”), who was at all material times the sole shareholder and director of D6, transferred US$27,000,000 to D8.

30.  It should be noted that there is no direct evidence linking transfer (7)  with the Sale Proceeds.

31.  Upon discovery of the transfers of Sale Proceeds, on 31 March 2022 Dingway made an ex parte application against D6 and D7. Worldwide proprietary and Mareva injunctions were granted against them by Cheng J up to US$103 million (“Injunction (2)”), which was subsequently continued by this court pending the substantive determination of the continuation summons.

32.  HCA was issued on 1 April 2022. It was emphasised by D7 and D9 that in this action Dingway does not claim rescission of any of Transfer (1), Transfer (2)  or the Sale. Mast Capital is not sued. Dingway’s claim is for damages and equitable compensation.

33.  Further information received by Liquidators (D)  on 26 April 2022 revealed that D9 also received a substantial portion of the Sale Proceeds. On 28 April 2022, upon the ex parte application of Dingway, this court granted local proprietary injunction (for US$33 million)  and top up Mareva injunction (up to US$103 million)  against D9 (“Injunction (3)”). On the return date, only the Mareva injunction was continued, pending substantive determination of the continuation summons.

34.  Dingway also made applications for Norwich Pharmacal/Bankers Trust relief for disclosure of records held by Bank of China and Bank of Communications in respect of the accounts of D1, D6 and D7. By a Decision dated 6 May 2022 (“Disclosure Decision”), DHCJ Paul Lam SC refused the application. By a Summons dated 20 May 2022, Dingway had applied for leave to appeal against the Disclosure Decision.”

3.  Additionally, the judge helpfully summarised the plaintiff’s case as pleaded in its statement of claim[6]:

“(1)  In breach of his fiduciary duties to Dingway, which also constituted breach of trust, D2 caused Transfer (1)  to be made;

(2)  D1, who received the Shares (trust property), and D3, who signed the transfer document on D1’s behalf, dishonestly assisted D2’s breach of duties;

(3)  D1 knowingly received the trust property transferred in breach of D2’s duties;

(4)  Transfer (2)  was not a genuine sale. D4 was a nominee or corporate vehicle of D1 (or those controlling it). If D1 had received US$70 million from D4 under the Transfer, such proceeds are the traceable substitute of the Shares and recoverable by Dingway;

(5)  D1 to D3 and other Defendants combined together to wrongfully deprive Dingway of its interest in the Land and dissipate the Sale Proceeds through a series of unlawful conduct;

(6)  D4, D6, D7 and D9 were mere vehicles or proxies of D1 (or those controlling D1)  for stripping away Dingway’s interest in the Land;

(7)  Against D6, D7 and D9, Dingway has:

(a)  A proprietary claim for the Share Proceeds which they had received, respectively, US$45 million, US$13.3 million and US$33 million;

(b)  A claim for dishonest assistance, based on their assistance in D4’s breach of duty as constructive trustee holding the Shares for Dingway, by dissipating the economic value of the Shares;

(c)  A claim in knowing receipt for the Sale Proceeds received;

(d)  A claim in conspiracy based on their combination with other Defendants to wrongfully deprive Dingway of its interest in the Land;

(e)  A claim in unjust enrichment based on their receipt of Sale Proceeds, which represented the value of the Shares, at the expense of Dingway.” (Emphasis added.)

The applications before the judge

4.  The judge had 8 summonses before him at the hearing (see Decision §1, §35).  The summonses relevant to the intended appeals are:

(1)  The summons filed by D6 on 6 June 2022 to strike out the writ of summons against it;

(2)  The summons filed by D7 on 19 April 2022 to strike out the writ of summons against it and for the discharge of Injunction (2)  against it;

(3)  The summons filed by D9 on 3 May 2022 for the discharge of Injunction (3)  against her.

5.  All the defendants, including D6, D7 and D9, took issue with the grant of the Injunctions on the basis there had been material non-disclosure (“MND”)[7].

6.  In determining the applications before him, the judge ruled, among other matters, that he did not believe Dingway has a viable proprietary claim on the Sale Proceeds[8]. It was on this basis that he ordered Dingway’s proprietary claims to the Sale Proceeds be struck out from the pleadings[9]. As a result of this determination, the judge also discharged the proprietary injunctions against D6 and D7, but allowed the Mareva injunctions to remain in place. 

7.  This ruling has not been challenged on the intended appeal of any party.

8.  This brings us to the judge’s reasons in determining D6, D7 and D9’s applications.

The judge’s reasons for his Decision

D6’s strike out application

9.  At the hearing D6 contended that Dingway had no reasonable cause of action for any proprietary claim, as it was not viable (as mentioned above).

10.  D6 further argued that Dingway had no reasonable cause of action for (i)  unlawful means conspiracy and/or (ii)  dishonest assistance[10] because Dingway failed to plead and provide sufficient particulars to support a case that D6, being a corporate defendant, had the requisite state of mind and knowledge of the agreement and the intention to injure (for unlawful means conspiracy)  or had the dishonest state of mind (for dishonest assistance)[11].

11.  The judge held that while “there are merits in the complaints over the deficiencies in the pleading requirements for both unlawful means conspiracy and dishonest assistance”[12], this is not a plain and obvious case for striking out Dingway’s pleading against D6 on conspiracy or dishonest assistance.  His reasons were as follows[13]:

“98. As regards unlawful means conspiracy and dishonest assistance, in summary the complaint is that Dingway has failed to plead and provide sufficient particulars to support a case that D6, being a corporate defendant, had the requisite state of mind and knowledge of the agreement and the intention to injure (for unlawful means conspiracy)  or had the dishonest state of mind (for dishonest assistance).

99.  It is necessary for a party who asserts a conspiracy claim against a corporate defendant to plead his case as to whose state of mind and knowledge should be attributed to that corporate defendant. Such attribution of knowledge must be specifically pleaded: Kwong Yi Ling v Lau Kwun Leung [2021] HKCFI 2303, §28(1), per Linda Chan J.

100.  In the Statement of Claim, apart from identifying Ea as the sole director and shareholder of D6, Dingway had failed to plead anything about Ea’s knowledge or state of mind. Further, there is no plea that Ea had any knowledge of the breaches of duties on the part of D2, D1 and D4 which is the foundation of Dingway’s claims.

101.  In light of the court’s acceptance that Dingway has a good arguable case on the facts, I propose to deal with this strike out application (and the one made by D7)  succinctly. Firstly, there are merits in the complaints over the deficiencies in the pleading requirements for both unlawful means conspiracy and dishonest assistance.

102.  On the other hand, it is abundantly clear that Dingway’s case is based on circumstantial evidence and inferences, eg, the receipt by D6 of a very substantial portion of the Sale Proceeds can speak volumes.

103.  The following dicta[14] was cited with approval in Ubiquiti Networks International Ltd v Chan Kim Chuen, unrep, HCA 1606/2016, 26 May 2017, §81, per B Chu J: ‘… fraud and/or conspiracy by their very nature are clandestine and difficult to uncover, so quite often proof is not readily obtained. Hence, the averments of fraud and/or conspiracy cannot be too precise. In an application to strike out a fraud and/or conspiracy claim, the court will look upon such application with care to the above considerations, but at the same time will bear in mind that loose allegations that are not properly particularised will be oppressive as regards the defendants when the action goes to trial. The broad question for the court is whether from the facts as pleaded it can be argued that [the defendants] sufficiently know [the plaintiff]’s case on the conspiratorial combination(s)  or agreement(s)  that they have to meet.’

104.  Further, the principles on strike out are well-established: see Hong Kong Civil Procedure 2022, Vol 1, [18/19/4]. The court will only strike out a pleading when the applicant has shown that it is plain and obvious that the other party’s claim is bound to fail. Where the complaint is about lack of particulars, the proper procedure is to apply for particulars and not an order for strike out: HKCP2022, Vol 1, [18/19/5].

105.  In light of the above principles, I do not believe that this is a plain and obvious case for striking out Dingway’s pleading against D6 on conspiracy or dishonest assistance.  The trial of HCA is not going to take place in the near future.  The identified deficiencies certainly justify a Request for Further and Better Particulars of the Statement of Claim.”

D7’s strike out application

12.  D7’s complaints were like those of D6 based on the failure to meet various pleading requirements.  D7 contended that for dishonest assistance, there is no adequate plea on who was the principal fiduciary, when and how did he breach what fiduciary duties owed to Dingway and how was this principal fiduciary assisted by D7 in that breach[15].

13.  The judge ruled[16]:

“108.  The above analysis concerning D6’s complaints can be applied here also. On the evidence, there is clearly a good arguable case that D1 (or the persons in control of it)  had executed a plot to strip the Land (an indirectly held asset)  from Dingway and thus CCCI’s creditors. The receipt of US$13.34 million by D7 from the Sale Proceeds can be a powerful indication that it was a party to and/or had assisted in the plot, unless there is evidence that the money was received for a legitimate purpose (there is none).

109.  There are certainly areas of fragility in the Statement of Claim in terms of meeting the strict requirements of various pleas based on fraud. On the other hand, the absence of a precise plea is inherent in a case built on circumstantial evidence and inferences.

110.  I do not believe that this is a plain and obvious case of strike out but a Request for Further and Better Particulars of the Statement of Claim is justified.”

D6, D7 and D9’s claims of MND

14.  Having considered D6, D7 and D9’s claims of MND by Dingway, the judge came to the view that the only allegation of substance concerned Dingway’s alleged proprietary claim.

15.  Having applied the MND principles[17], the judge was of the view that there was a failure by Dingway to fully inform or explain to the court in its ex parte applications why it had a proprietary claim on the Sale Proceeds.  It was essential for Dingway to have properly explained the basis of that claim and it should have been made clear to the court why, notwithstanding the lack of any interest over the Land, Dingway nevertheless had a proprietary claim to the Sale Proceeds.  However, the judge believed that the non-disclosure “was innocent based on a misguided application of the legal principles”[18].

16.  Hence, the judge discharged the proprietary part of Injunction (2), but allowed the Mareva component to continue[19].

D6, D7 and D9’s application for leave to appeal before the judge

17.  The judge dismissed D6’s summons dated 12 August 2022 and D7 and D9’s summons dated 11 August 2022 for leave to appeal.

18.  He stated in his Leave Decision[20]:

“2.  With respect, I am unable to agree that there is reasonable prospect of success in either of the proposed appeal of the Defendants.

3.  In respect of D6’s proposed appeal, it is based, firstly, on the same complaints over the defects of Dingway’s pleaded case, which had been dealt with in the Decision.  Secondly, it is contended that the Mareva injunction against D6 should have been discharged on the ground of MND.

4.  The pleading complaints should be considered against the backdrop that this court had found that there was clearly a good arguable case that (a)  Transfer (2)  was not a genuine sale but a device to keep the Shares from the reach of Dingway; and (b)  D1 to D3, D6, D7 and D9 were acting in concert to deprive Dingway of the Shares and its indirect interest in the Land.

5.  Whilst there were defects in Dingway’s pleading, this court took into consideration that the trial of this action was not going to take place in the near future, and it was a case where particulars could be sought by D6 in respect of the deficiencies. It was not a plain and obvious case of strike out.

6.  Further, I believe that the following dicta of K Yeung J in Delco Participation BV v HWH Holdings Ltd [2019] HKCFI 2923, [41(f)], is particularly apposite in a case, like the present, based on circumstantial evidence and inferences:

‘Beyond the seriousness of the charge, there is in fact nothing magical in the word “fraud”. Every set of pleadings will have to be looked at on a case by case basis with the notions of fairness, justice and sufficiency in mind so as to decide whether [Further and Better Particulars] should be ordered, or whether the accuser has sufficiently pleaded a “general case of fraud” so as to be permitted to flesh out the details later on;’

7.  As regards the alleged MND, I agree with Mr Man, who appears for Dingway, that it is artificial to the extreme.  It is apparent from the evidence referred to by Mr Lai, who appears for D6, that Dingway had laid out before the ex parte Judge the evidence available to it on the issue whether there was any legitimate reason for D6 to have received part of the Sale Proceeds.

8.  Moreover, D6’s case on the Loan was rejected by this court. It is very difficult to understand why the Mareva injunction against D6 should have been discharged based upon a rejected case.

9.  Turning to the application of D7 and D9, it is also based on pleading deficiencies and the discharge of the Mareva injunction against them as a consequence of the unsustainable pleading.

10.  Firstly, there is an argument not raised at the previous hearing, namely, Dingway’s loss had materialized in October 2019 when Transfer (1)  took place and the pleaded overt acts of D7 and D9, which related to the Sale which took place in 2021, did not cause that loss.  The argument is misconceived because it ignores the fact that the Sale was part of the Wrongful Scheme pleaded against, inter alia, D7 and D9, and it was through that Sale that the fruit of the wrong was obtained.

11.  In respect of the pleading complaints raised at the last hearing (only by D7 and not D9), they were dealt with in the Decision, [106] to [110], and paras 4 to 6 above apply mutatis mutandis.

12.  Given the lack of a reasonably arguable appeal in respect of the pleading issues, there is no basis to discharge the Mareva injunction against D7 and D9.

13.  For these reasons, I dismiss both applications.”

19.  Having been refused leave to appeal, D6, D7 and D9 filed the present summonses to renew their applications for leave to appeal.

Applicable principles for leave to appeal

20.  Leave to appeal shall not be granted unless the appeal has a reasonable prospect of success; or there is some other reason in the interest of justice why the appeal should be heard.  For this purpose, a reasonable prospect of success involves the notion that the prospect of success must be more than fanciful, without having to be probable (SMSE v KL [2009] 4 HKLRD 125 §17).

21.  Judicial discretion is involved in determining whether a claim should be struck out on the ground that deficiencies in the pleading are such that the claim is obviously unsustainable.  Generally, an appellate court will not interfere with a judge’s exercise of discretion unless the judge misunderstood the law or the evidence or the exercise of the discretion was plainly wrong, i.e., that it was outside the generous ambit within which reasonable disagreement is possible (Hong Kong Civil Procedure 2023, vol 1, §§59/0/54 and 59/0/55).

The present applications

22.  By a summons dated 9 November 2022, D7 and D9 seek leave to appeal against the Order, with costs of the application to be in the cause of the intended appeal[21].

23.  D6 issued a similar summons on the same day[22].

24.  The parties were informed by the court by letter dated 1 December 2022 that the Court of Appeal would consider both applications together and deal with them on paper, unless otherwise directed.  Having read the papers and submissions, we think it is appropriate to dispose of the applications without an oral hearing pursuant to Order 59 rule 2A(5)(a)  of the Rules of the High Court and proceed to do so. 

The intended grounds of appeal

D6’s intended grounds of appeal

25.  In its draft grounds of appeal, D6 contends:

(1)  Ground 1: The judge erred in failing to strike out the action against D6 in its entirety.  It was incumbent for the judge to strike out the pleadings as the claims of unlawful means conspiracy and dishonest assistance were not properly pleaded or particularised. 

(a)  The plaintiff failed to (i)  identify the relevant individual(s), (ii)  plead the state of mind and knowledge of each of the relevant individuals, and (iii)  plead the factual basis for attributing the state of mind and knowledge of each individual to D6.

(b)  In light of the judge’s finding at §101 of the Decision that “there are merits in the complaints over the deficiencies in the pleading requirements for both unlawful means conspiracy and dishonest assistance”, the judge ought to have struck out Dingway’s claims in unlawful means conspiracy and dishonest assistance against D6.

(c)  The judge erred, at §§104-105 of the Decision, in coming to the view that it was up to D6 to request for further and better particulars.

(2)  Ground 2: The judge was plainly wrong and/or failed to take relevant factors into account when he ruled that the “only complaint of substance” of MND concerns Dingway’s proprietary claim over the Sale Proceeds (§142 of the Decision).  It was within Dingway’s knowledge or anticipation and Dingway failed to bring to the attention of the ex parte judge that D6 may have advanced US$40 million to D4 (“the Loan”)  in November 2019 as a legitimate lender to finance D4’s purchase of the Land, and D6 may therefore have received a part of the Sale Proceeds as repayment of the Loan.

D7 and D9’s intended grounds of appeal

26.  In its draft grounds of appeal, D7 and D9 contend:

(1)  Ground 1: The judge erred in failing to strike out the whole action against D7 and D9, as Dingway’s remaining two personal claims failed on causation, and such fundamental and inherent defect is not curable by amendment or the provision of particulars. 

(2)  Ground 2: The judge erred in failing to strike out Dingway’s personal claims as it is wrong as a matter of law and principle to require a defendant faced with such a defective pleading to seek particulars.  The correct approach is for Dingway to present to the court its formulated amendments to be considered by the court and the other party should have proper opportunity to object.  If Dingway persistently failed to formulate a proper amendment, its claim should be struck out.

(3)  Ground 3: In light of Grounds 1 and 2, the injunctions against D7 and D9 should be discharged.

27.  We now deal with the intended grounds of appeal.

D6’s intended appeal

Ground 1 – striking out

28.  D6 submits that the judge has fallen into error in refusing to strike out Dingway’s statement of claim.  It argues that for a claim of unlawful means conspiracy to be made against a corporate defendant, the plaintiff must prove that the corporate defendant had the requisite state of mind and knowledge of the agreement.  In support, D6 refers to Pido v Compass Technology Co Ltd [2010] 2 HKLRD 537 at §17:

“17. As a matter of pleading, a case based on conspiracy, must contain the following elements:

(a)  The agreement between two or more persons. The means of carrying out the agreement, whether lawful or unlawful, must be set out.

(b)  The intention to injure the plaintiff, whether predominant (in the case of a lawful means conspiracy)  or merely an intention to injure (in the case of an unlawful means conspiracy).

(c)  The acts that were carried out pursuant to the agreement and the stated intention.

(d)  The damage caused to the plaintiff.

See Bullen & Leake & Jacob's Precedents of Pleadings (16^th ed., 2008)  Vol.2, p.855 para.51-02.”

29.  Further, D6 submits that for a claim in dishonest assistance to be made against a corporate defendant, the plaintiff must prove that the corporate defendant had a dishonest state of mind when assisting a breach of trust.  In support, D6 refers to Barlow Clowes International Ltd v Eurotrust International Ltd [2006] 1 All ER 333 at §10:

“10. The judge stated the law in terms largely derived from the advice of the Board given by Lord Nicholls of Birkenhead in Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378. In summary, she said that liability for dishonest assistance requires a dishonest state of mind on the part of the person who assists in a breach of trust. Such a state of mind may consist in knowledge that the transaction is one in which he cannot honestly participate (for example, a misappropriation of other people’s money), or it may consist in suspicion combined with a conscious decision not to make inquiries which might result in knowledge: see Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd [2003] 1 AC 469. Although a dishonest state of mind is a subjective mental state, the standard by which the law determines whether it is dishonest is objective. If by ordinary standards a defendant’s mental state would be characterised as dishonest, it is irrelevant that the defendant judges by different standards. The Court of Appeal held this to be a correct state of the law and their Lordships agree.”

30.  In short, D6 contends that as a corporate entity does not have a mind of its own, Dingway must specifically plead from whom such state of mind has been attributed and how.  Further, as Dingway has failed to plead the factual basis upon which D6 could be said to be dishonest for the purpose of these personal claims, it is not open to the court to infer dishonesty.  These arguments were made before the judge and were rejected for the reasons given in the Decision at §§101 to 105 and the Leave Decision at §§4 to 6.

31.  We see no merit in D6’s contentions.  As noted in §6 of the Leave Decision, there is nothing magical in the word “fraud” beyond the seriousness of the charge and every set of pleadings will have to be looked at on a case by case basis with the notions of fairness, justice and sufficiency to decide whether the plaintiff has sufficiently pleaded a “general case of fraud” so as to be permitted to flesh out the details later by the provision of particulars or whether the pleading is so incurably bad as to warrant striking out the claim.  As mentioned, this kind of assessment involves an exercise of discretion.  D6 has not demonstrated that the judge was plainly wrong in the exercise of his discretion.

32.  Dingway has pleaded the following with regard to D6, D7 and D9’s knowledge or intent for conspiracy and dishonest assistance:

“34. By reason of the matters pleaded in paragraph 28 above, [D6, D7] … knew of, or turned a blind eye as to, [D2’s] Breach of Duty, [D1’s] Breach of Duty and/or [D4’s] Breach of Duty in receiving their respective shares of the 2021 Sale Proceeds.

…

36. By reason of the matters pleaded in paragraph 28 above, [D9] knew of, or turned a blind eye as to, [D2’s] Breach of Duty, [D1’s] Breach of Duty, [D4’s] Breach of Duty and/or [D8’s] Breach of Duty in receiving the sum of US$33,000,000.

…

38. Without prejudice and as a further alternative to the claims pleaded above, it is averred that by reason of the aforesaid (including, in particular, by reason of their respective participation in the Wrongful Scheme[23]), the Defendants wrongfully and with the intent to injure Dingway by unlawful means conspired and combined together to defraud Dingway by depriving Dingway of the Shares and their value (being the value of the Miami Land), and to conceal the proceeds of such fraud from Dingway. Alternatively, the Defendants wrongfully conspired together with a predominant purpose to injure Dingway, thereby causing loss and damage to Dingway. In furtherance of such conspiracy, the Defendants carried out the following unlawful acts and means by which Dingway was and remains injured:

…

Overt acts of [D6 and D7]

38.11 Receiving the 2021 Sale Proceeds.

39. Without prejudice and as a further alternative to the claims pleaded above, it is averred that by reason of the matters aforesaid:

39.1 … [D6, D7 and D9] dishonestly assisted [D2’s] Breach of Duty by dissipating the Shares (or the value in the Shares)  and the 2021 Sale Proceeds.” (Emphasis added.)

33.  It was for the judge to look at the pleadings both as pleaded and in substance (Pido v Compass Technology Co Ltd [2010] 2 HKLRD 537 at §18).  The latter exercise is necessary in that even if a pleading is bad, as long as it can be saved by amendment, the court may not be prepared to dismiss the whole action.  The judge had approached the matter correctly.

34.  The judge rejected D6’s case on the Loan and determined that Dingway has a good arguable case on the facts[24].  The sole issue for determination on the strike out application was whether Dingway had properly pleaded D6’s knowledge of both the conspiracy and dishonest assistance.  Whilst accepting that the pleading suffered from some deficiencies, the judge determined that the pleading is curable by way of further and better particulars.

35.  We agree with the judge.  In a situation such as this, where fraud and conspiracy are often by their nature clandestine, the averments of fraud and conspiracy cannot be “too precise”[25].  That aside, we form the view that D6 knows sufficiently Dingway’s case on conspiracy and dishonest assistance that it must meet.

36.  As for D6’s argument there is no pleaded basis for the court to infer dishonesty on its part, the judge was satisfied that the receipt of a large part of the Sale Proceeds (“the receipt by D6 of a very substantial portion of the Sale Proceeds can speak volumes”)[26] and his rejection of the Loan as alleged[27] are sufficient to maintain the claims against D6 in that he accepted that Dingway “has a good arguable case on the facts”[28].

37.  There is no legal prohibition from relying on inferences in the context of conspiracies and frauds, so long as those inferences are drawn from primary facts that have been proved up to the requisite standard.  The primary facts concerning the conspiracy, and receipt of the Sale Proceeds have been pleaded in the statement of claim.  Dingway is entitled to invite the court to infer from those primary facts a conspiracy to injure Dingway.

38.  Furthermore, as submitted by Dingway, it has pleaded the factual basis upon which it is alleged that D6 was a nominee or corporate vehicle of D1 in receiving the sum of US$45 million odd[29]. Hence, if the court is satisfied at the trial that that is true, the knowledge of D1 or those exercising control of D1 would be attributed to D6 and D6’s sole shareholder and director, Ea.  This demonstrates that the pleadings are sufficient.  We are inclined to agree.

39.  We disagree with D6’s contention that the judge erred in principle in “[failing] to appreciate that special requirements apply for pleading allegations of serious wrongdoings”[30].  The judge was fully aware of the importance of the pleadings and decided that the level of precision in pleading such allegations in this instance is sufficient notwithstanding some deficiencies identified by D6, which are best remedied by a request for further and better particulars, given that the trial is not going to take place anytime soon.

40.  We do not see any basis to interfere with the judge’s exercise of discretion in declining to strike out the claims for the reasons explained in §§102-105 of the Decision.

Ground 2 – MND

41.  D6 contends the judge was wrong in holding at §142 of the Decision that the only complaint of MND of substance was Dingway’s proprietary claim.  D6 argues there was also MND of its potential defence that it was a legitimate debt financier of D4 in its purchase of the Land, and therefore had a legitimate reason for receiving US$45 million odd of the Sale Proceeds and that Dingway had failed to inform the court of this potential defence at its ex parte application.  D6 complains that this was not addressed in the Decision when the judge dealt with MND.

42.  This can be dealt with shortly.  We agree with Dingway there is no substance in D6’s submissions on MND.

43.  At the ex parte stage it was not possible for Dingway to speculate how D6 would run its defence, including the allegation there was the Loan to D4 of US$40 million in November 2019.  D6’s contention that Dingway was aware of the Loan at the time of making its ex parte application, is unsupported by evidence.

44.  Dingway did draw the attention of the ex parte judge to a document dated 14 December 2021 indicating a charge of the shareholding interest in Company A by D4 in favour of D6, stating that “documents indicate there may have been a financing transaction by which [D6] was a lender to [D4]”, and noting “there is nothing in the [Liquidators (D)’s] investigations, including but not limited to the [JPMorgan Chase Bank, NA] disclosure or the documents produced by [Chicago Title Insurance Company] to suggest [D4] received any money from [D6] on or around that time”[31].

45.  D6’s reliance on Sen Wang’s testimony in the Miami Action is unhelpful.  Mr Wang stated that D4 had raised a loan of US$40 million from a company to finance the purchase of the Land, but did not disclose the funding sources.  D6 also pointed to D4’s bank statement in November 2019 showing incoming funds of US$83 million.

46.  It was entirely unrealistic to expect Dingway to pull from various incomplete strands of information that the Loan as alleged might have arisen in November 2019 between D4 and D6.  We agree with the judge that the alleged MND is “artificial to the extreme”[32].  We do not find there has been any MND in relation to this allegation by D6.

47.  Hence, D6’s intended appeal would fail on both grounds, and as such has no reasonable prospects of success.  

D7 & D9’s intended appeal

Grounds 1 and 2 – striking out

48.  D7 and D9’s 1^st intended ground of appeal is concerned with causation.  It is contended that Dingway has failed to prove pecuniary loss arising out of its claims of conspiracy and dishonest assistance.

49.  The judge in his Leave Decision pointed out that this was not an argument raised at the hearing below[33].  D7 and D9 do not deny this, but assert in their submissions that given there were 8 summonses before the judge with multiple substantive legal issues and factual disputes, “it is natural that the causation point did not receive as much attention as it does on appeal”[34].

50.  In short, D7 and D9 contend there is a break of causation with regards to Transfer (1)  dated 15 October 2019, and the eventual sale of the Land in 2021.  It is contended that Dingway’s loss resulted solely from Transfer (1)  and had occurred on 15 November 2019, and hence no claim of conspiracy or dishonest assistance is maintainable against D7 or D9, as none of the acts by D7 (receiving the 2021 Sale Proceeds)  or D9 (procuring, arranging and executing the 2021 Sale, and receiving the 2021 Sale Proceeds)  are referable to that loss.

51.  The argument of D7 and D9 on causation was rejected by the judge for the succinct reason that it ignores the fact that the Sale in 2021 was part of the Wrongful Scheme pleaded against inter alia D7 and D9, and it was through that Sale that the fruit of the wrong was obtained[35].

52.  We agree with the judge.  With regard to the claim of conspiracy, Dingway’s pleaded case is that through a combination of parties and multiple acts, including Transfer (1)  and the Sale of the Land, Dingway suffered pecuniary loss.  The misappropriation of the Shares enabled the defendants to get control of the corporate entity holding the Land and the subsequent sale of the Land (in which D7 and D9 participated)  rendered the Shares valueless.  It is not plain and obvious why Dingway should not be entitled to run such a claim.  This is best left for determination at the trial.

53.  In respect of the claim of dishonest assistance, the breaches of duty as pleaded do not only concern the transfer of the Shares by Dingway for no consideration or the subsequent transfer of the Shares by D1 to D4 allegedly by way of sale, but also include the duty to preserve the value of the Shares and the duty to restore the Shares with their full value to Dingway[36]. The Sale of the Land in December 2021, in which D7 and D9 participated, deprived Dingway of the value of the Shares.  On the pleadings, the causal impact of the dishonest assistance of D7 and D9 on the breaches of fiduciary duty, which resulted in the loss suffered by Dingway, would appear to have been made out. 

54.  Consequently, D7 and D9’s 1^st intended ground of appeal fails.

55.  The 2^nd intended ground of appeal relates to the judge’s determination that a request for further and better particulars would be more appropriate.  D7 and D9 run similar arguments as D6. They contend that the pleading deficiencies render them unable to know the case they must meet.  We see no merit in these submissions for the reasons set out earlier.  The pleadings sufficiently set out the case that D7 and D9 have to meet.

56.  We reiterate each case must be looked on its individual facts with regards to its pleading and the deficiencies from which it suffers.  We agree with the judge’s assessment that the pleading is not so defective such that it is plain and obvious the claims should be struck out. On the present facts, the judge was entitled to come to the view that a request for further and better particulars would be more appropriate.  There is no prospect of success on this intended ground of appeal.

Ground 3

57.  This ground is based on D7 and D9’s success on its intended Grounds 1 and 2 above.  In light of our decision above, this intended ground of appeal is without merit and fails.

Conclusion and costs

58.  For the above reasons, we are not satisfied that the intended appeals have reasonable prospect of success or that there is any other reason in the interests of justice why the appeals should be heard.  The summonses of D6, D7 and D9 are therefore dismissed with costs to Dingway.

59.  Since the applications are in our view totally without merit, we further make an order under Order 59 rule 2A(8)  that no party may request the determination be reconsidered at an oral hearing inter partes.

60.  We order costs against D6, D7 and D9 on the party and party basis.  Having considered the statements of costs filed by Dingway, we summarily assess the costs of D6’s summons at $34,895 to be paid to Dingway and the costs of D7 and D9’s summons at $34,895 to be paid to Dingway.