CHAN SHU CHUN AND ANOTHER v. DR KUNG YAN SUM AND OTHERS

HCA 832 /2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 832 OF 2014

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JUDGMENT

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I. INTRODUCTION

1.  On 14 May 2014, Mr Chan Shu Chun (1^st plaintiff, “P1”) and a Hong Kong company King Base Engineering Limited (2^nd plaintiff, “P2”) (collectively, “Ps”) commenced the present action against Dr Kung Yan Sum (1^st defendant, “D1”), a British Virgin Islands (“BVI”) company Hero Fortune Limited (2^nd defendant, “D2”), a Hong Kong company Chinachem Charitable Foundation Limited (3^rd defendant, “D3”) and a solicitor firm practising in Hong Kong Messrs Philip KH Wong, Kennedy YH Wong & Co (4^th defendant, “D4”) (collectively, “Ds”) to claim for a sum of $50,000,000 (“$50M”) and damages for conversion together with interest and costs.

2.  Ps’ Statement of Claim (“SoC”) was endorsed on the Writ of Summons (“WoS”). On 13 June 2014, Ps filed the Amended WoS (“AWoS”) with Amended SoC (“ASoC”) endorsed thereon. On 25, 11 and 10 July 2014, D1, D3 and D4 respectively served their Defence. At that stage, Ps had not issued any Concurrent AWoS against D2.

3.  As seen below, Ps’ claim against D4 as pleaded in the AWoS/ ASoC essentially included allegations of (a) breach of duty of care owed to Ps, (b) negligence and/or (c) conversion.

4.  On 23 September 2014, D4 filed a summons (“D4 Summons”) for the following reliefs:

(a) the ASoC be struck out and Ps’ action be dismissed as against D4 under Order 18 rule 19 of the Rules of the High Court (“RHC”) and/or under the inherent jurisdiction of the court on the grounds that (i) it disclosed no reasonable cause of action against D4, (ii) it was scandalous, frivolous and vexatious and/or (iii) it was an abuse of the process of the court;

(b) alternatively, there be a determination by the court under Order 14A of the RHC for the following question of law, ie “whether [D4] owed [Ps] a duty of care to comply with the obligation to make disclosure to the relevant authorities under the Organised and Serious Crimes Ordinance (Cap 455) [“OSCO”]” (“Question”), and upon such determination Ps’ action as against D4 be dismissed;

(c) Ps do forthwith pay D4’s costs of the action and of the applications in (a) and/or (b) above to be taxed if not agreed.

5.  On 15 January 2015, Ps filed a summons (“Ps Summons”) for leave to re-amend the AWoS/ASoC in the manner marked in green as per the draft annexed thereto and set out in the Schedule to this Judgment (“Draft Amendments”) and to file/serve the same within 7 days, and for costs of the application to amend and costs of and consequential upon the amendments to Ds in any event to be taxed if not agreed. The Draft Amendments proposed to introduce a new claim against all Ds for conspiracy to defraud and also additional heads of damages arising from Ds’ alleged conspiracy.

6.  The main protagonists in respect of the Ps and D4 Summonses were Ps and D4 with Ps opposing the D4 Summons and D4 opposing the Ps Summons. D1, D2 and D3 did not take any active part in relation thereto.

II.  PARTIES

7.  Ps claimed (but D4 did not admit) P1 was/is the sole director/ shareholder of P2 and the sole shareholder of a BVI company Tian Liang Limited (“Tian Liang”), which in turn was/is the sole shareholder/operator of a PRC company Tian Yao (Xiamen) Property Development Limited (“Tian Yao”) whose main business was/is real estate development of a residential building in Xiamen, PRC (“Xiamen Project”). Ps claimed that by a Chinese tripartite agreement dated 16 January 2009 (“Tripartite Agreement”) made by Tian Liang, Tian Yao and a company wholly owned the Chinachem Group[1] called Right Margin Limited (“Right Margin”), it was agreed inter alia to appoint Right Margin as the sales agent of the Xiamen Project.[2]

8.  Ps claimed (but D4 did not admit) P2 maintained/maintains a bank account with DBS Bank (Hong Kong) Limited (formerly known as Dao Heng Bank Limited, “DBS”) (“P2 Account”).

9.  There was no dispute between Ps and D4 that (a) D1 was/is a director and the chairman of D3 and the chairman of the Chinachem Group, (b) D2’s sole director/shareholder was a Madam Song Hui Fang (“Song”) who was born on 8 September 1934 and who held a PRC identity card, (c) D2 had a bank account with DBS, Macau branch (“DBS Macau”) (“D2 Account”), and (d) D3 was engaged in litigation against a Mr Chan Chun Chung over disputed entitlement to the estate of the late Madam Nina Wang (“Estate Litigation”).

III.  PLEADINGS OF Ps AND D4

10.  Alleged investment agreement Ps averred P1 and D1 became friendly during negotiations leading to the Tripartite Agreement, and on/ about 20 January 2009 D1 in his personal capacity presented to P1 an “investment opportunity in real estate properties, land development and securities” in Hong Kong and Macau with his good friend Song (whose full name and background were not disclosed to P1 at that time) (“Investment Opportunity”) for an investment sum of $50M. Relying on D1’s representation that the proposed investment was for Ps’ participation in the Investment Opportunity (“D1 Representation”), P1 agreed to invest with Song. On 21 January 2009, P1 delivered to D1 a cheque (without naming the payee) for $50M drawn on the P2 Account (“Cheque”), and D1 produced an undated Chinese memorandum of investment cooperation in duplicate that Song executed on behalf of D2 (“MOU”).[3]

11.  D4 in their Defence put Ps to strict proof of the matters in the above paragraph, and averred as follows:

(a) D4 was retained to act for Song during January 2009, and her initial instructions were that she intended to invest in projects in Macau and to incorporate a company (eventually D2) for such purpose;

(b) once D2 was incorporated D4 acted for both Song and D2, and Mr Wong Sui Wah Michael (“Wong”) was D4’s sole solicitor, partner and/or fee‑earner who dealt with matters on behalf of Song and D2;

(c) Wong ceased to be D4’s partner by end of December 2013 and passed away in January 2014, and save for D4’s file in relation to Song/D2 (“D4 File”) the current partners of D4 (“D4 Partners”) had no knowledge of the nature of instructions to Wong by and on behalf of Song and/or D2 in connection with the subject matter of the ASoC.

12.  Shanghai meeting  Ps claimed (but D4 did not admit) nothing further was heard from D1/D2 on the proposed investment, so at P1’s request D1 accompanied him to Shanghai on 12 January 2011 to introduce Song to him, but Song did not turn up. D1 told P1 Song wanted to cancel the MOU and return $50M within 12 months. After their return from Shanghai, in/about January or early February 2011 D1 produced for P2’s execution an undated cancellation agreement for the MOU (executed in duplicate by Song on behalf of D2) (“Cancellation Agreement”).[4]

13.  Money trail  Ps averred that on 16 July 2012 (a) P1 on behalf of P2 wrote to D1 enclosing a copy letter of even date to D2 demanding payment of $50M under the Cancellation Agreement and (b) P2’s former solicitors requested D1 to inter alia disclose details of D2, but there was no reply.[5] It was common ground between Ps and D4 that (a) on 9 August 2013 P2 commenced HCMP1949/2013 against DBS, (b) on 11 September 2013 Lok J ordered DBS to disclose details of the D2 Account with relevant bank statements, and (c) discovery by DBS pursuant thereto (“DBS Discovery”) revealed that in February 2009 a sum of $49,950,009 (“Sum”) was transferred from the D2 Account to D4’s bank account with DBS in Hong Kong (“D4 Account”) (“D2/D4 Transfer”).[6] Ps averred they learned from the DBS Discovery Song’s full name/identity and the D2/D4 Transfer was made on 9 February 2009.

14.  D4 in their Defence averred (and the documents in the D4 File revealed):

(a) the D4 File had a copy Cheque (with D2 named as payee), and an attendance note dated 30 January 2009 (“Attendance Note”) that recorded Wong attended Song in Shanghai on that day and Song informed him (i) monies from P2 had been deposited in the D2 Account, (ii) she would instruct DBS Macau to remit such monies to the D4 Account, and (iii) she was considering donating the money to “Chinachem Charity” and would confirm her instructions;

(b) on/about 3 February 2009 D2 gave DBS instructions for collection of the Cheque and (if paid) to credit the proceeds to the D2 Account upon deduction of charges;

(c) on/about 9 February 2009 DBS deducted bank charges of $40 and $49,951 leaving the Sum “to be transferred” to the D4 Account;

(d) on/about 10 February 2009 Song on behalf of D2 signed a written confirmation that as no suitable investment project was available so D2 would unconditionally donate the company funds to D3 (“Donation Confirmation”);

(e) on/about 9-10 February 2009 Song on behalf of D2 gave instructions to DBS Macau to remit $50M to the D4 Account and to deduct bank charges from the remittance amount;[7]

(f) D4 received written instructions dated 10 February 2009 from D2 (signed by Song) confirming its unconditional donation of $25,000,000 (“$25M”) to D3 with no future repayment required (“1^st Confirmation”);

(g) on/about 12 February 2009, D4 drew a cheque for $25M payable to D3 and delivered it to D3 by way of donation on behalf of their client (“1^st $25M Cheque”), and D3 issued an acknowledgment of donation to “Anonymous Client of [D4]” for $25M (“1^st Acknowledgment”);

(h) on/about 13 February 2009 D4 received further written instructions from D2 (signed by Song) confirming its unconditional donation of $25M to D3 with no future repayment or reward to D2 required (“2^nd Confirmation”);

(i) on/about 16 February 2009 D4 drew a cheque for $25M payable to D3 and delivered it to D3 by way of donation on behalf of their client (“2^nd $25M Cheque”), and D3 issued an acknowledgment of donation to “Anonymous Client of [D4]” for $25M (“2^nd Acknowledgment”).

15.  Alleged discovery of deception  Ps averred (but D4 did not admit)[8] that following a reported ICAC operation in/about April 2014 they discovered D4 had paid $50M out of the D4 Account to fund D3’s Estate Litigation, so the D1 Representation was false, fraudulent and a sham, and the real intent/purpose was to use D2 as conduit for receiving $50M to enable D1 to fund D3’s Estate Litigation. Ps claimed P2 therefore suffered loss and damage by delivering the Cheque to D1.

16.  Alleged breach of duty of care  Ps alleged that upon receipt of $50M each/both of D3 and D4 (a) knew or had reasonable grounds to believe the aforesaid payments directly or indirectly represented any person’s proceeds of an indictable office, (b) dealt with misappropriated monies, and (c) was obliged to disclose to an authorised officer (see footnote 45 below) their knowledge of each payment of misappropriated monies under sections 25 and 25A of OSCO as soon as it was reasonable to do so.

17.  D4 denied paragraph 16(a) above, and averred (a) D4 upon receipt of the Sum from D2 did not know or have reasonable grounds to believe the payments represented any person’s proceeds of an indictable offence, (b) D4 had no good reason to believe payments made to D3 (a well‑known charitable foundation) were not genuine charitable donations, and (c) D4’s clients (Song/D2) did not acquire any benefit from D3’s Estate Litigation and D3 was not required to repay any money to D2.

18.  D4 did not admit paragraph 16(b) above save to agree they on behalf of D2 delivered $50M to D3 by 2 donations during February 2009 pursuant to client instructions.

19.  D4 did not admit paragraph 16(c) above, and averred (a) by reason of paragraph 17 above D4 did not know/suspect the payments to D3 represented any person’s proceeds of an indictable offence so there was no duty to disclose under section 25A of OSCO, (b) D4’s suspicion was only raised when they became aware in February 2011 that D3 was being investigated, and (c) whilst D4 continued to believe the payments made to D3 were genuine charitable donations and not any person’s proceeds of an indictable offence, out of abundance of caution they obtained counsel’s advice and reported the matter to the Joint Financial Intelligence Unit (“JFIU”) (“JFIU Report”).

20.  Ps claimed (but D4 denied) (a) by reason of paragraphs 15-16 above each of D3 and D4 owed Ps a duty to exercise reasonable care to comply with their obligations to make disclosure to the relevant authorities under the OSCO, and (b) by reason of paragraph 16 and (a) above each of D3 and D4 was in breach of its duty owed to Ps.

21.  Ps claimed (but D4 denied) they relied on D3 and D4 to make timely reports to the relevant authorities as required by the law when D3 and D4 received the misappropriated monies in whole or in part, and had either of them done so police investigation would have commenced and D1’s deception and D2’s role as conduit for receiving misappropriated monies would have been intercepted, prevented or curtailed. Ps further claimed (but D4 denied) that as a result of D3’s/D4’s negligence and/or breach of duty Ps suffered loss of $50M, and by reason of the above matters each/all of Ds had converted the Cheque and its proceeds to their own use or alternatively to the use of D3, and Ps thereby suffered loss and damage.

IV.  FURTHER AND BETTER PARTICULARS OF ASoC

22.  On 23 June 2014, D4 sought particulars of D4’s alleged knowledge or reasonable grounds for belief that the D2/D4 Transfer represented proceeds of an indictable offence. On 26 June 2014, Ps filed their answer (“FBP”) and later D4 by their Defence responded thereto as follows:

(a) Wong assisted with and arranged for a BVI company (ie D2) to be acquired by D4’s client Song in January 2009. Ps averred (but D4 did not admit) D2 was acquired off the shelf in Macau on/about 15 January 2009 whilst the D1 Representation took place on/about 20 January 2009.

(b) D2’s only director/shareholder was Song who was a 75 year-old PRC citizen residing in the PRC.

(c) Wong assisted with opening the D2 Account with DBS Macau on/about 15 January 2009. Ps averred (but D4 did not admit) such account became effective on 21 January 2009 (ie same day as the date of the Cheque).

(d) D4’s office address appeared on D2’s Resolution and Minutes dated 15 January 2009.[9] Ps averred (but D4 did not admit) D4 provided its office address for D2 to convene 2 meetings of its board of directors on 15 January 2009, firstly for approving the opening of the D2 Account with DBS, and secondly for asking DBS to act on D2’s instructions/requests in connection with the operation of the D2 Account and other banking services by telephone, facsimile or other communication device as DBS might approve (“Remote Channel Authority”) and for providing a mandate to DBS, ie naming a person as D2’s authorised representative to give instructions/requests by telephone, facsimile or such other communication device as DBS might approve.

(e) Wong was named as “Delegated Person for Confirmation” in an undated Letter of Authorisation to DBS (see footnote 9 above). Ps claimed (but D4 did not admit) that by such document Wong as D4’s partner was authorised by D2 to be the only Delegated Person for Confirmation for the Remote Channel Authority.

(f) DBS’ Due Diligence Form stated D2 “was engaged in the business of property investment in Hong Kong / Macau” and the number of employees of D2 was “2” (see footnote 9 above). Ps claimed (but D4 did not admit) that for the purpose of due diligence in relation to opening the D2 Account, D4[10] on behalf of D2 reported to DBS on 16 January 2009 that “[D2] was engaged in the business of property investment in Hong Kong / Macau having 2 employees”,[11] and the source of funds was “T/T from China / Hong Kong to Macau”.

(g) Ps averred D2 used D4’s office address as its address in Hong Kong when opening the D2 Account, and D2 provided D4’s office telephone number and Wong’s personal mobile telephone number as D2’s contact telephone numbers. D4 repeated their stance to (d)-(e) above.

(h) Wong certified copy corporate documents of D2 and documents of Song’s personal details (see footnote 9 above). Ps averred (but D4 did not admit) D4 by Wong certified and provided to DBS all documents required for opening the D2 account, including D2’s corporate documents, relevant board resolutions and Certificate of Incumbency.

(i) D4 received copy account statements of the D2 Account on behalf of their client. Ps averred (but D4 did not admit) that as a result D4 would have known (i) the misappropriated monies were “deposited in the [D2 Account] on 6 February, 2009”, and (ii) a similar amount of the misappropriated monies was transferred/deposited in the D4 Account on 9 February 2014 “for further dissipation”.

V.  PROCEDURAL HISTORY

23.  On 28 January 2015, I granted leave for Ps to file/serve further affidavit for the Ps Summons, but subject thereto the proceedings between Ps and D1/D3/D4 were stayed for Ps to serve the AWoS/ASoC on D2 out of jurisdiction. On 9 April 2015, Master A Ho granted leave for Ps to issue a Concurrent AWoS for service of the same on D2 out of jurisdiction in BVI. The Ps/D4 Summonses were restored for directions hearing on 17 September 2015 when I granted directions for filing/serving affidavit evidence as between Ps and D4, and for excusing further attendance by D1 and D3 if they would adopt a neutral position in respect of the Ps Summons, abide by the decision of the court (subject to any appeal) on such summons, and agree for costs of and occasioned by the Ps Summons as between Ps and D1/D3 (including any reserved costs) to be disposed of on nisi basis upon determination of such summons. On 24 September 2015, D1 and D3 by their respective solicitors gave such confirmation.

24.  According to the 4^th affirmation of Ps’ solicitor Ms Lam Yan Fong Flora (“Ms Lam”) filed on 11 September 2015, the Concurrent AWoS was served on D2 in BVI on 3 June 2015. At a further call-over hearing on 3 December 2015, I granted case management directions for inter alia filing/serving affidavit of service and adjourning the Ps/D4 Summonses for argument. According to 2 affirmations of service by the process server of Ps’ solicitors filed on 2 and 11 December 2015, the Ps/ D4 Summonses with supporting affirmations, the notice of hearing and my order dated 17 September 2015 were served on D2 in BVI by post on 19-20 October 2015. D2 did not file any acknowledgment of service.

25.  For the D4 Summons, D4 filed the 1^st and 2^nd affirmations of D4’s partner Mr Kennedy Ying Ho Wong (“Mr Wong”) in support on 24 September and 3 November 2014 respectively (“Wong 1^st and 2^nd Affs”), and Ps filed P1’s affirmation in opposition on 14 October 2014 (“P1 Aff”). For the Ps Summons, Ps filed Ms Lam’s 1^st affirmation in support on 15 January 2015 (“Lam 1^st Aff”) and her 5^th affirmation in support on 5 November 2015, and the affidavit of their solicitor Mr Lam Ping Cheung (“Mr Lam”) in support on 5 February 2015 (“Lam Aff”), and D4 filed the 2^nd affirmation of their solicitor Mr Tony Leung (“Mr Leung”) in opposition on 15 October 2015. On 10 December 2015, Ps’ solicitors confirmed Ps would also rely on paragraphs 8-15 of Ms Lam’s 2^nd affirmation filed on 9 February 2015[12] in support of Ps Summons. Mr Leung’s 1^st affirmation filed on 27 January 2015 on matters leading up to the case management hearing on 28 January 2015 was not particularly relevant for the argument hearing that came before me on 22 April 2016 (“Hearing”).

VI.  AFFIRMATION EVIDENCE FOR D4 SUMMONS

26.  Synopsis  D4 claimed that despite the serious allegations made against D4 in the ASoC, Ps’ case against D4 was in fact unsustainable as it was not capable of reasoned argument, was without foundation and could not possibly succeed, and hence the ASoC should be struck out and Ps’ action as against D4 should be dismissed with costs. Ps disagreed and further denied their claim against D4 was frivolous or vexatious and/or an abuse of the process of the court.

27.  Striking out application  D4 claimed the alleged breach of OSCO was a statutory issue and not a civil matter, and in fulfilment of their obligations under OSCO D4 made the JFIU Report upon suspicion being raised, so Ps had no cause of action against them in tort for breach of statutory duty simpliciter. D4 further claimed as a matter of law they did not owe Ps any duty of care, so likewise Ps had no cause of action against them in tort for breach of common law duty. But even if D4 were in breach of OSCO and such breach was actionable in private law (which D4 denied), there was still no causal link between D4’s alleged wrongdoing in failing to make a timely report (and D4 did make the JFIU Report in any event) and Ps’ alleged loss of $50M which Ps claimed to have suffered when they gave the Cheque to D1. In short, it was said since such loss would have occurred in any event, D4’s alleged breach of duty (which Ps denied) did not cause Ps to suffer the loss complained of. D4 contended Ps’ allegation that had D4 made a timely report the monies would have been “intercepted, prevented or curtailed” was too remote. On such basis, it was said Ps’ claim against D4 was without any solid basis in fact or law.

28.  On the other hand, the P1 Aff pointed out (a) a money launderer can be convicted of an offence under section 25 of OSCO if viewed objectively he has reasonable grounds to believe the property he handles represents any person’s proceeds of an indictable offence, and (b) the exoneration of guilt under section 25A of OSCO requires the person who handles the property to disclose his suspicion to an authorised officer, and such disclosure must be timely, ie before he handles the property or on his initiative as soon as it is reasonable to do so after he has handled the property. Ps noted the JFIU Report was made only 2 years later in February 2011 after taking counsel’s advice following revelation of an investigation into the affairs of D3.

29.  Mr Wong disagreed with paragraph 28(b) above and claimed the factual position was:

(a)   D4 all along believed payments made to D3 were genuine charitable donations by D2, and D4 did not know or have reasonable grounds to believe they represented any person’s proceeds of an indictable offence;

(b)   it was only on 22 February 2011 when in Shenzhen Mr Wong was told by Mainland acquaintances there was investigation into D3 of suspected money laundering that D4’s suspicion was first raised;

(c)   D4 continued to believe payments made to D3 were genuine charitable donations and did not represent any person’s proceeds of an indictable offence, but out of abundance of caution D4 obtained counsel’s advice and made the confidential JFIU Report dated 1 March 2011 as soon as reasonably possible after suspicion was first raised.

30.  The P1 Aff referred to the FBP (see paragraph 22 above) and went on to say (a) $50M being misappropriated monies were first deposited in the D2 Account on or about 21 January 2009[13] but was transferred from the D2 Account to the D4 Account on/about 10 February 2009[14] (and Wong was asked by DBS to confirm such transaction),[15] and (b) D3’s Defence revealed on 12 and 16 February 2009 D4 drew the 1^st and 2^nd $25M Cheques in favour of D3. But Mr Wong referred to D4’s Defence and denied the D4 Partners had any personal and/or first-hand knowledge of the above matters.

31.  Abuse of process Mr Wong claimed Ps’ action in the ASoC against D4 was a sham and without substance, and he believed Ps made such claim against D4 because they could not recover their loss of $50M from D2, and as an afterthought (as they had no reasonable cause of action against D4) joined D4 to fish for documents/information that might assist their claims against the other Ds. D4 contended this was an abuse of the process of the Court, but Ps denied this and claimed it was evident from the ASoC they had obtained adequate information from the DBS Discovery to unveil the paper trail in respect of misappropriation of $50M.

32.  Order 14A application  Ps pleaded in the ASoC a cause of action in tort, ie (a) D4 owed Ps a duty to exercise reasonable care to comply with their obligations to make disclosure to the relevant authorities under OSCO as required by law, (b) D4 breached such duty of care by failing to make timely report to the authorities, and (c) as a result Ps suffered loss of $50M. D4 contended the Question was suitable for determination without full trial of the present action, and if the court would determine the Question in favour of D4, it would finally determine (subject only to appeal) Ps’ pleaded cause of action in tort against D4 for negligence and/or breach of duty, and hence the entire matter.

VII. AFFIRMATION EVIDENCE FOR PS SUMMONS

33.  By the Draft Amendments Ps sought to introduce a claim for conspiracy to defraud against all Ds. Ms Lam said this was not the first time fraud was pleaded as the ASoC had particularised discovery of the money trail in respect of $50M and related deception, and the FBP also pleaded other matters from the DBS Discovery now included in the Draft Amendments. But Mr Leung disagreed fraud had previously been pleaded against D4 in the ASoC, and claimed fraud was only asserted in relation to the D1 Representation. D4 claimed Ps pleaded fraud (of any sort) as against D4 for the first time by introducing a claim against all Ds for conspiracy to defraud in the Draft Amendments.

34.  Ms Lam / Mr Lam noted the DBS Discovery revealed the money trail after presentation of the Cheque for payment, and Ps’ solicitors also requested/obtained more documents from D4 on 15 July 2014 and from DBS on 22 July 2014. They reiterated the particulars in the ASoC (see paragraphs 10 and 12-13 above), FBP (see paragraph 22 above) and Draft Amendments (see the Schedule to this Judgment), and added as follows:

(a)   at all material times D4’s partner Wong was named as the person to be “looked for” with telephone numbers provided to DBS in relation to the D2 Account;

(b)   a cheque dated 24 November 2011 for $5,031[16] payable to Offshore Inc Limited-MCO[17] was drawn on the D2 Account, so it was reasonable to infer D2 was acquired off the shelf in Macau;

(c)   the Attendance Note dated 30 January 2009 suggested (i) Wong attended Song in Shanghai on that day and reported to her monies from P2 had been deposited in the D2 Account[18] (but $50M was only received by D2 on 9 February 2009),[19] (ii) he “had instructed to remit the Money to the [D4 Account]”,[20] and (iii) Song was considering to donate $50M to D3 and would confirm such instructions;

(d)   the Cheque was deposited in the D2 Account for collection on 3 February 2009 and receipt of monies was shown in the relevant bank statement;

(e)   on 9 and 10 February 2009 DBS received instructions from D2 (signed by Song) for the D2/D4 Transfer, and Wong gave confirmations for such transaction (see footnote 20 above);

(f)   on 10 February 2009 Song on behalf of D2 signed the Donation and 1^st Confirmations (Mr Lam noted it was type-written in traditional and not simplified Chinese that was commonly used by PRC citizens, and it was not addressed to anyone);

(g)   on 12 February 2009 D4 issued the 1^st $25M Cheque payable to D3 by way of donation and D3 issued the 1^st Acknowledgment;

(h)   on 13 February 2009 Song on behalf of D2 signed the 2^nd Confirmation (Mr Lam noted it was also not addressed to anyone);

(i)   on 16 February 2009 D4 issued the 2^nd $25M Cheque payable to D3 by way of donation and D3 issued the 2^nd Acknowledgment.

35.  Ms Lam / Mr Lam claimed the Cheque was given to D1 (who was a director and the chairman of D3 being the ultimate beneficiary of $50M) on 21 February 2009 without name of payee, and D2 had been incorporated for only a short time before that. It was said the Attendance Note showed that on 30 January 2009 D4 (who assisted in incorporating D2 and in opening/handling the D2 Account) knew in advance $50M would come from P2 before D2 actually received such monies.[21] Shortly after the Cheque was deposited in the D2 Account on/about 6 February 2009 (see paragraph 6 of the Lam 1^st Aff), the D2/D4 Transfer was effected on/about 9 February 2009, and $50M was then transferred to D3 to fund the Estate Litigation.

36.  It was said D4 knew D2 was formed and the D2 Account was opened for the purpose of carrying out Song’s intention to invest in projects in Macau,[22] but D4 “later agreed to be the conduit in passing [$50M] to [D3] through [the D4 Account]”. It was further suggested the close temporal proximity of the deposit of $50M in the D2 Account for investment purpose, the D2/D4 Transfer and the donation of $50M to D3 should put D4 on enquiry as to the nature of the monies they handled (see paragraphs 13(e)-(f) of the Lam Aff). On such basis and with legal advice, Ps wished to raise a cause of action on conspiracy to defraud which they claimed was necessary for determining the real question in controversy between the parties.

37.  But Mr Leung said the Draft Amendments were badly pleaded as they failed to provide necessary particulars for the cause of action on conspiracy to defraud, and even the affirmations/affidavit Ps filed (which merely supported the Ps Summons but did not form part of the proposed pleading itself) failed to provide such necessary particulars. Since the Draft Amendments sought to introduce a new, serious and offensive cause of action after the close of pleadings without necessary particulars, Mr Leung suggested this showed Ps either did not know how to sufficiently plead their new proposed cause of action or had not made up their mind as to the subject matter of their claim for conspiracy to defraud.

38.  Ms Lam disagreed, and claimed sufficient material facts and particulars had been pleaded with supporting documents exhibited to Ps’ supporting affirmations/affidavit. Ms Lam reminded that Ps obtained information on the money trail in this matter through the DBS Discovery, and upon further legal advice it was considered necessary for determining the real question in controversy between the parties that Ps should pursue a claim for conspiracy to defraud against all Ds.

VIII.  D4 SUMMONS: STRIKING OUT

(a)  Legal principles

39.  The principles governing striking out applications are well established. Hong Kong Civil Procedure 2017 provides as follows:[23]

“…... It is only in plain and obvious cases that the court should exercise its summary powers to strike out the indorsement on any writ or any pleading under this rule. There should be no trial upon affidavit. Disputed facts were to be taken in favour of the party sought to be struck out. Nor should the court decide difficult points of law in striking out proceedings. The claim must be obviously unsustainable, the pleadings unarguably bad and it must be impossible, not just improbable, for the claim to succeed before the court will strike it out. ……

Plain is not the same as simple and obvious is not the same as short. …… The mere fact that the case is weak and not likely to succeed is no ground for striking it out ……

It is for the party seeking to strike out an indorsement or pleading to demonstrate that the case is a plain and obvious one in which the other party’s claim is bound to fail. ……”

But the fact a question of law appears difficult/obscure does not necessarily preclude the court from striking out pleadings if it is satisfied it has all the necessary information to decide the question, and has come to the conclusion after full argument in the face of all relevant information that the case is plainly and obviously one for striking out. In such circumstances, the court “should not decline to do so on the ground that the issues are difficult or complicated”.[24]

40.  No reasonable cause of action  A reasonable cause of action means “a cause of action with some chance of success when only the allegations in the pleadings are considered ……”.[25] No affidavit evidence is admissible on an application under Order 18 rule 19(1)(a) of the RHC.[26]

41.  Frivolous or vexatious claim  Hong Kong Civil Procedure 2017 states that:[27]

“…… A proceeding is frivolous when it is not capable of reasoned argument, without foundation or where it cannot possibly succeed. A proceeding is vexatious when it is oppressive and/or lacks bona fides. For instance, it is vexatious and wrong to make solicitors, or others, parties to an action merely in order to obtain from them discovery or costs ……

In Yifung P roperties Ltd v. Manchester Securities Corp, (unrep., HCA1341 and 1359/2014, [2015] H.K.E.C. 2182), Au Yeung J stated:

12. … Where a litigant brings a claim knowing that there is no substance in it or that it is bound to fail, or if the claim is on its face so manifestly misconceived that it can have no prospect of success, it may be deemed frivolous and n abuse of process …… the court should see what the party in question knew or ought to have known if he had gone about the matter seriously ……

13. … Vexatiousness implies the doing of something over and above that which is necessary for the conduct of the litigation and suggests the existence of some spite, or desire to harass the other side to the litigation, or some other improper motive ……

14. To decide that the litigant has been frivolous or vexatious and thus abused the process of the court is a serious finding to make, for it will generally involve bad faith on his part and one would expect the discretion to be sparingly exercised.[28]

In exercising a judicial discretion to determine whether proceedings are vexatious …… the court may admit affidavit evidence ……”

42.  Abuse of the process of the court Order 18 rule 19(1)(d) of the RHC confers upon the court powers hitherto exercised under the court’s inherent jurisdiction where there appears to be an abuse of the process of the court. The process of the court must be used bona fide and properly, and the court will, in a proper case, summarily prevent its machinery from being used as a means of vexation/oppression in the process of litigation.[29] Hong Kong Civil Procedure 2017 states as follows:[30]

“ The categories of conduct rendering a claim frivolous, vexatious or an abuse of process are not closed but depend on all the relevant circumstances and for this purpose considerations of public policy and the interests of justice may be very material.

In Tam Chi Kok, it was said that:

“[t]his is a case where a plaintiff commences an action when he does not know how to formulate his case. In other words, he sues before he knows what to sue, or before he can make up his mind as to the subject matter of his complaint. …… and of course it is of the function of a statement to set out precisely what a plaintiff wishes to sue and ask the court to grant him relief about.””

Likewise, To J in Falcon Private Bank Ltd v Borry Bernard Edouard Charles Limited & anor said as follows:[31]

“(b) A party should know his case and be in a position to identify the relevant evidence when he starts a claim. It is an abuse of the process of the court for a party to start a case without a solid foundation hoping that evidence will turn up during the course of the proceedings, whether by discovery or otherwise: Nomura International plc v Granada Group Ltd [2008] Bus LR 1 at §37 per Cooke J; New China Hong Kong Group Ltd v Ng Kwai Kwai Kenneth, HCA 519/2010 at §70 per Fok JA. ……”

43.  Amendment  Hong Kong Civil Procedure 2017 states inter alia as follows:[32]

“…… This rule also empowers the court to amend …… any pleading. If a statement of claim does not disclose the cause of action relied on, an opportunity to amend may be given, …… However, unless there is reason to believe that the case can be improved by amendment, leave will not be given.

…… If the proposed amended SOC could not survive the striking-out application, it would be futile to allow the application: LY Group Development Ltd v. East Canton Ltd [2015] 4 H.K.L.R.D. 84 (at [12] – [13]). However, where the amendments would be far‑reaching and so radical as to amount to a totally new pleading which would probably provoke a fresh application to strike out, the correct course is to strike out. ……”

In Total Lubricants Hong Kong Limited & ors v Christophe de la Cropte de Chanterac & ors, Poon J (as he then was) said as follows:[33]

“14. First, if a pleading is capable of being cured by amendments, it should not be struck out. An opportunity to amend should be given instead. However, if the pleading is so defective that no amendment can cure it or if the proposed amendment is incapable of improving the defects, the pleading is liable to be struck out and the proposed amendment should be refused.

15. Second, when a party seeking to amend his pleadings in order to save it from being struck out, the proposed amendment should be properly and exactly formulated, includes all necessary averments or mandatory particulars and constitutes a full and complete plea of a reasonable cause of action.”

(b) No reasonable cause of action

44.  Mr Kim, counsel for Ps, orally confirmed at the Hearing Ps’ pleaded causes of action in the ASoC covered breach of both statutory duty simpliciter and common law duty of care. Mr Lee, counsel for D4, submitted it was plain and obvious Ps had no cause of action against D4 on either basis.

45.  I note at the outset Ps’ claim against D4 was a civil claim by Ps via their solicitors in contra-distinction to a criminal prosecution by the government via the Department of Justice. Whilst Mr Lee’s research unearthed some criminal case law on section 25 of OSCO,[34] neither counsel was able to identify any case law on private law claims for breach of statutory duty simpliciter or breach of common law duty in relation to sections 25 and/or 25A of OSCO. As Mr Kim urged me to voyage into such virgin legal territory, it is necessary to turn to the relevant legal principles.

46.  But before doing so, I note Mr Kim vigorously complained[35] against D4’s alleged attempt to rely on the Wong 1^st and 2^nd Affs on the question of whether or not there was a reasonable cause of action.[36] But as seen below, Mr Lee’s submissions in respect of D4’s striking out application for no reasonable cause of action did not require bolstering by the Wong 1^st and 2^nd Affs. Ironically, it was Mr Kim who in his oral submissions attempted to resort to affirmation/affidavit evidence to shore up Ps’ pleas in the ASoC against D4, which approach on his own written submissions was quite impermissible.

47.  Statutory duty simpliciter Mr Lee submitted that breach of statutory duty under OSCO is a statutory issue which cannot support any civil claim. The principles for determining whether a cause of action exists for breach of statutory duty simpliciter have been discussed by the Court of Appeal (“CA”) in Dah Sing Insurance Services Ltd v Gill Gurbux Singh[37] (“Dah Sing CA”), and I agree they remain valid even though such decision was overturned on the facts by the Court of Final Appeal (“CFA”) in Gill Gurbux Singh v Dah Sing Insurance Services Ltd (“Dah Sing CFA”).[38]

48.  In Dah Sing CA/CFA, the plaintiff insurance agent appointed the defendant as technical representative, but subsequently terminated his appointment by notice. The former failed to report the latter’s termination of appointment and his Continuing Professional Development (“CPD”) credits to the Insurance Agents Registration Board (“IARB”) as required by the Code of Practice for the Administration of Insurance Agents (“Code”) and relevant Guidance Note issued by the IARB. The first instance judgment in favour of the defendant was reversed on appeal (ie the CA held inter alia there was no actionable breach of statutory duty), but the CFA allowed the defendant’s appeal.

49.  In Dah Sing CA, Kwan JA referred to the principles in X (Minors) v Bedfordshire County Council[39] for determining whether a cause of action exists for breach of duty simpliciter:

“ Private law claims for damages can be classified into four different categories, viz: (A) actions for breach of statutory duty simpliciter (i.e. irrespective of carelessness); (B) actions based solely on the careless performance of a statutory duty in the absence of any other common law right of action; (C) actions based on a common law duty of care arising either from the imposition of the statutory duty or from the performance of it; (D) misfeasance in public office, ……

……

This category [ie category (A)] comprises those cases where the statement of claim alleges simply (a) the statutory duty, (b) a breach of that duty, causing (c) damage to the plaintiff. ……

…… The basic proposition is that in the ordinary case a breach of statutory duty does not, by itself, give rise to any private law cause of action. However a private law cause of action will arise if it can be shown, as a matter of construction of the statute, that the statutory duty was imposed for the protection of a limited class of the public and that Parliament intended to confer on members of that class a private right of action for breach of the duty. There is no general rule by reference to which it can be decided whether a statute does create such a right of action but there are a number of indicators. If the statute provides no other remedy for its breach and the Parliamentary intention to protect a limited class is shown, that indicates that there may be a private right of action since otherwise there is no method of securing the protection the statute was intended to confer. If the statute does provide some other means of enforcing the duty that will normally indicate that the statutory right was intended to be enforceable by those means and not by private right of action: Cutler v. Wandsworth Stadium Ltd. [1949] A.C. 398; Lonrho Ltd. v. Shell Petroleum Co. Ltd. (No. 2) [1982] A.C. 173. However, the mere existence of some other statutory remedy is not necessarily decisive. It is still possible to show that on the true construction of the statute the protected class was intended by Parliament to have a private remedy. ……”

50.  Where a statute enforces an obligation by a specified manner, normally it is not to be enforced by another manner. But exception arises where on true construction of the statute the obligation is imposed for the benefit of a particular class of individuals. Kwan JA at page 197 of Dah Sing CA referred to Lord Kinnear’s observations in Butler (or Black) v Fife Coal Co Ltd as follows:[40]

“…… We are to consider the scope and purpose of the statute and in particular for whose benefit it is intended. …… when a duty of this kind is imposed for the benefit of particular persons there arises at common law a correlative right in those persons who may be injured by its contravention.”

To answer the crucial question of whether the legislative intent is to protect a particular class of the public, Morgan J in Digicel (St Lucia) Ltd v Cable and Wireless plc[41]distilled a list of questions. But even though Mann J in paragraph 16 of his judgment in Leon Di Marco v Morshead Mansions Limited[42] referred to such list of questions, he held in paragraph 17 that the basic question was “overall, having regard to the above and any other relevant matters, what did the legislature intend as regards actionability of a breach of duty?” and “the preceding points are points which assist in answering that basic question”. Kwan JA at pages 197-198 in Dah Sing CA explained those questions will not be answered all one way, and the key is what weight should be given to various answers in different directions in order to arrive at the crucial answer to which all those questions are directed.

51.  By applying the above principles, Dah Sing CA[43] found the legislature’s intent was to protect public consumers, so as a matter of statutory construction it ought not to be inferred that breach of duty by insurance agents was actionable by technical representatives, hence there was no cause of action for breach of statutory duty simpliciter. Dah Sing CFA did not disturb this aspect of the CA’s decision.

52.  Here, Ps averred in the ASoC that D4 was in breach of statutory duty simpliciter under section 25 of OSCO. OSCO’s long title provides such statute is:

“to create new powers of investigation into organized crimes and certain other offences and into the proceeds of crime of certain offenders; provide for the confiscation of proceeds of crime; make provision in respect of the sentencing of certain offenders; create offences relating to the proceeds of crime or property representing the proceeds of crime; and for ancillary and connected matters”.

Sections 25 and 25A of OSCO (which provisions came into effect on 2 December 1994)[44] provide as follows:

“25(1) Subject to section 25A, a person commits an offence if, knowing or having reasonable grounds to believe that any property in whole or in part directly or indirectly represents any person’s proceeds of an indictable offence, he deals with that property.

(2) In proceedings against a person for an offence under subsection (1), it is a defence to prove that –

(a) he intended to disclose to an authorized officer[45] such knowledge, suspicion or matter as is mentioned in section 25A(1) in relation to the act in contravention of subsection (1) concerned; and

(b) there is reasonable excuse for his failure to make disclosure in accordance with section 25A(2).

(3) A person who commits an offence under subsection (1) is liable –

(a) on conviction upon indictment to a fine of $5,000,000 and to imprisonment for 14 years; or

(b) on summary conviction to a fine of $500,000 and to imprisonment for 3 years.

……

25A(1) Where a person knows or suspects that any property –

(a) in whole or in part directly or indirectly represents any person’s proceeds of;

(b) was used in connection with; or

(c) is intended to be used in connection with,

an indictable offence, he shall as soon as it is reasonable for him to do so disclose that knowledge or suspicion, together with any matter on which that knowledge or suspicion is based, to an authorized officer.

(2) If a person who has made a disclosure referred to in subsection (1) does any act in contravention of section 25(1) (whether before or after such disclosure), and the disclosure relates to that act, he does not commit an offence under that section if –

(a) that disclosure is made before he does that act and he does that act with the consent of an authorized officer; or

(b) that disclosure is made – (i) after he does that act; (ii) on his initiative; and (iii) as soon as it is reasonable for him to make it.

……”

53.  OSCO is silent on whether breach of its provisions would give rise to a civil cause of action.[46] As Kwan JA reminded at p 96 in Dah Sing CA, this is not unusual and “ …… [one] must look to indicators such as whether there is legislative intent to protect the class in question and whether the statute provides any other adequate remedy for its breach”. Charlesworth & Percy on Negligence also explains:[47]

“…… No universal rule has been formulated which determines whether in any given case an individual can sue for damages, but indicators include whether there is evidence of a Parliamentary intention to protect the class in question and whether the statute provides any other adequate remedy for its breach. It has been said that the “cases where a private right of action for breach of statutory duty have been held to arise are all cases in which the statutory duty has been very limited and specific as opposed to general administrative functions imposed on public bodies and involving the exercise of administrative functions.””

54.  Mr Lee submitted neither OSCO itself, including its long title (see paragraph 52 above), nor materials placed before the Legislative Council (“LegCo”) at the time of considering/enacting OSCO (or its major amendments) showed any legislative intent to protect a limited class of the public and/or individual claimants such as victims of breach of statutory duty (ie the reporting requirements under OSCO) which Ps seemed to claim they were.

55.  In respect of OSCO itself, Mr Lee argued OSCO as a whole is intended to protect the public at large against evils of organised crimes in their multifarious manifestations in Hong Kong (eg syndicated drug trafficking, syndicated illegal gambling, syndicated money laundering etc) rather than to protect a specific class of persons, hence any private civil claim for breach of statutory duty simpliciter fails in limine.

56.  In respect of relevant materials placed before LegCo, Mr Lee referred me to the LegCo debate on 18 December 1991 before the enactment of OSCO in which the Administration as well as LegCo members expressed concerns about organised crime in Hong Kong.[48] The then LegCo member Mrs Rita Fan moved for a member’s motion on the White Bill on Organised Crime published on 9 August 1991 to support the Administration’s efforts to combat organised crime, to urge the Administration to carefully consider the views of LegCo members and the public on the White Bill, and to ensure the final proposals for legislation would take full account of Bill of Rights implications. Mrs Fan said inter alia as follows:

“ The above motion consists of three parts. In its first part, I am asking Members of this Council to support the Administration in fighting organized crime. There is no doubt that our community is very concerned and worried about the activities of triads and gangs. They threaten the daily lives of our people. Their influence spreads far and wide. Everyone, no matter young or old, rich or poor, strong or weak, may become their victims.[49] ……These syndicates, triads, gangs, coming under the common name of Organized Crime Groups must be controlled and their leaders must be forced out of action. If they are allowed to flourish, the stability of our community is at risk. …… We must give our full backing to the Administration, in particular, the law enforcement agencies, in their efforts to crack down on organized crime. ……

……

The second part of today’s motion is to ask the Administration to carefully consider the views expressed by Members in this debate, and also the feedback from the public consultation. ……

……

The third part of the motion urges the Administration to ensure that the final proposal, that is the Blue Bill, will be an effective tool against organised crime. A point that was repeatedly raised is the possible inconsistency that the White Bill may have with the Bill of Rights. ……”

Other LegCo members expressed support for Mrs Fan’s motion. The then Secretary for Security Mr Ian Robert Strachan responded as follows:

“ We all agree that organized crime is a serious problem in Hong Kong. Public concern about the threat from triads is real, and it is valid. …… There are other non-triad crime groups who engage in organized crime. ……

The definition of organized crime in the Bill has been drawn up with these characteristics in mind. …… we believe the definition reflects the reality of organized crime groups in Hong Kong. The Bill will only be used in respect of persons who have committed the offences set out in the Bill, as the Attorney General has just stated.

……

…… Given this serious criminal environment, the Bill proposes tough penalties for persons who commit the organized crime offences.

……

A notable feature of organized crime is that it can generate enormous profits for the perpetrators. In many cases these profits are laundered into legitimate businesses. ……

   There is general support for the money laundering and confiscation provisions in the Bill. …… Some believe that the requirement to report would create an unnecessary burden for financial institutions. There is a suggestion that banks should not be vicariously liable for the acts of their employer. Let me make the position clear: the Bill creates a new money laundering offence, not a new reporting duty. If a person fails to report a suspicious activity, he does not commit an offence. In fact the reporting system in the bill seeks to safeguard financial institutions from incurring legal liabilities should they report a suspicious transaction.”

In my view, the above debate clearly showed the focal object of the White Paper on Organised Crime was to combat the societal problem of organised crimes rather than to afford protection to a limited class of the public.

57.  When the then Secretary for Security Mr Alistair Peter Asprey moved for the 2^nd reading of the Organised and Serious Crimes Bill (“OSCB”) on 15 July 1992, he noted the purpose of OSCB was as given in the long title of OSCO (see paragraph 52 above) and went on as follows:[50]

“ Our objective in tackling organised crime must therefore be twofold: to enable the police to obtain evidence against those who organize, co-ordinate or carry out such crimes, and to enable adequate sanctions, including financial penalties, to be imposed on those involved in organized crime. I have no doubt that these objectives are widely supported by the community.

……

We have also sought to enable the courts to impose more stringent penalties, including financial penalties, for those convicted of organized and serious crimes where this may be appropriate. ……

We also propose that where a person is convicted of a specified offence, the court would be empowered to make a confiscation order in respect of all proceeds of crime received by the person in connection with the commission of any offence. In addition, a general money laundering offence covering the proceeds of all crime is proposed.[51] These proposals represent an extension of the proposals in the White Bill on Organized Crime, in that they would not be limited to the proceeds of specified offences relating to organized crime.

……”

This showed the purpose of OSCB was to fight organised crimes rather than to protect a limited class of persons, say, actual victims of perpetrated organised crimes.

58.  Upon resumption of the LegCo debate on the 2^nd reading of OSCB on 12 October 1994, the then LegCo member Dr Philip Wong summarised OSCB’s crime-fighting measures against organised crimes, and various LegCo members addressed on the need for proper/reasonable balance between combating organised crime and protecting right to privacy/silence. Dr Wong noted the proposed money laundering offence in clause 25 of OSCB (eventually section 25 of OSCO) would extend the then provision in the Drug Trafficking (Recovery of Proceeds) Ordinance Cap 405, and said as follows:[52]

“ The ad hoc group recognised the merit of a wider provision against money laundering. Yet, the present proposal to enlarge the provision to such extent as to cover all proceeds of crime will net even trivial cases. It may create unnecessary burden on innocent third parties who routinely handle money on behalf of their clients, for instance, bankers, lawyers, estate agents, and so on. The Administration has assured us that these legitimate trades are not their target. It has been agreed to limit the provision to proceeds of indictable offences; and proceeds of foreign offences which would amount to an indictable offence in Hong Kong. This latter application will help combat the internationalization of crime and prohibit criminals from making Hong Kong a haven of money laundering.”

Again, there was no indication of any private right to claim for breach of statutory duty or any protection for a limited class of persons.

59.  OSCO was enacted in 1994 and certain provisions (including sections 25 and 25A) came into effect in December 1994. Other provisions came into effect in April 1995. Amendments were enacted in 1995, and sections 25 and 25A of OSCO became the current version.

60.  In November 1999, the Narcotics Bureau of the Security Bureau presented a paper for discussion by the LegCo Panel on Security on 11 November 1999 on inter alia proposed amendments toOSCO. The paper noted the anti-money laundering provisions had improved significantly after amendment of OSCO in 1995, but the working group[53] set up to improve the quantity/quality of suspicious transaction reporting noted a major obstacle for such reporting was the small number of convicted money laundering cases, which in turn discouraged people from reporting those transactions. Hence, the Administration proposed a number of amendments to inter alia OSCO, including:

(a)   adding a provision to section 25 that a person commits an offence if, having reasonable grounds to suspect any property represents any person’s proceeds of indictable offences, he still deals with that property, and that a person who commits an offence under this new section should be liable on conviction upon indictment to a fine of $1,000,000 and to imprisonment for 5 years or on summary conviction to a fine of $250,000 and to imprisonment for 2 years;[54]

(b)   increasing the maximum term of imprisonment in section 25(3) from 14 to 20 years;[55]

(c)   proposing similar amendments to section 25A.

61.  In the paper presented in January 2001[56] to elaborate on the difference between “reasonable grounds to believe” and “reasonable grounds to suspect”,[57] the Security Bureau put forward reasons for introducing a new money laundering offence using the latter mental element as follows:

“8. To ensure the effectiveness of Hong Kong’s anti-money laundering regime, the operational difficulties from the existing legislation need to be addressed. It is also considered that there is a pressing need to introduce an offence using the mental element of “reasonable grounds to suspect”, so that the scope of the offences can be expanded to cover those obvious cases where a person is assisting criminals to launder crime proceeds but cannot be pursued due to the limitations of existing legislation.”

I agree with Mr Lee that nowhere from these papers submitted to LegCo could it be discerned the existing provisions in sections 25 and 25A of OSCO were to protect a particular class of persons.

62.  Mr Kim argued OSCO was to improve the effectiveness of anti-money laundering legislation by imposing a duty upon persons who may otherwise knowingly/recklessly deal with proceeds of crime which obviously have originated from victims, so the legislative intent is to protect victims of crime from hampering detection of movement of crime proceeds, and as a matter of statutory construction a private cause of action arises from breach of OSCO’s provisions in the present context. Mr Kim reminded the threshold test for striking out pleadings is a high one, and courts should not decide difficult points of law in an area of law that is in the process of developing.

63.  But when pressed on how this can be said to be an uncertain and developing area of law as opposed to application of established principles to particular legislative provisions, Mr Kim was unable to elaborate further except to reiterate (a) this was a difficult area of law not fit for a striking out application, and (b) the available materials showed Ps’ claim for breach of statutory duty simpliciter has reasonable prospect of success.

64.  In my view, this is not a developing area of law. The applicable legal principles are trite, and the issue is the application of such principles to sections 25 and 25A of OSCO. In this respect, I disagree with Mr Kim’s construction of OSCO’s legislative intent. There will be victims for every piece of legislation that creates criminal offences and imposes criminal sanctions, but it does not necessarily follow every such statute gives rise to private law claims. In my view, given the legislative framework, the LegCo proceedings and other legislative materials, and looking at the matter as a whole, it is plain and obvious OSCO is designed to protect the public at large against the evils of organised crimes rather than to protect any limited class of persons. Unlike other legislation in footnote 46 above, OSCO is silent on any private right of action (which is consistent with the view that OSCO is not intended to protect a limited class of persons). Sections 25 and 25A of OSCO also provide for serious criminal penalties by fine and/or imprisonment (see paragraph 52 above) for deterring breaches of obligations thereunder. Overall, I find it plain and obvious the LegCo did not intend any private right of action in damages for mere breach of statutory duty laid down in sections 25 and 25A of OSCO, so no cause of action for breach of statutory duty simplicter arises, and such cause of action as pleaded in the ASoC against D4 ought to be struck out.

65.  Common law duty of care  Mr Lee submitted that whether it is appropriate to superimpose on the statutory regime a common law duty of care giving rise to a claim in damages is to be determined by reference to the tests adopted by the House of Lords in Caparo Industries Plc v Dickman & ors:[58]  

“…… in addition to the foreseeability of damage, necessary ingredients in any situation giving rise to a duty of care are that there should exist between the party owing the duty and the party to whom it is owed a relationship characterised by the law as one of “proximity” or “neighbourhood” and that situation should be one in which the court considers it fair, just and reasonable that the law should impose a duty of a given scope upon one party for the benefit of the other.”

66.  The leading local authority is Luen Hing Fat Coating & Finishing Factory Ltd v Waan Chuen Ming,[59] which essentially adopts the approach in Caparo Industries plc as explained by Sir Donald Nicholls VC in the English Court of Appeal in White & anor v Jones & anor.[60] These principles have been helpfully summarised by Cheung CJHC in Lam Pak Keung v Ip Tsz Ping as follows:[61]

“22. …… In other words, there are three headings to consider, namely, “foreseeability”, “proximity or neighbourbood” and “the requirements of fairness, justice and reasonableness”. As regards the second and third headings, there is no real demarcation line between them. They shade into each other. Both involve value judgments. These two headings are no more than two labels under which the court examines the pros and cons of imposing liability in negligence in a particular type of case: White v Jones at p.221F‑G, quoted by Bokhary PJ in Luen Hing Fat at [28]. Bokhary PJ also mentioned Lord Walker’s judgment in Customs and Excise Commissioners v Barclays Bank Plc [2007] 1 AC 181, 209G, where His Lordship observed that “the elements of the threefold test are labels” and that “their usefulness is limited”, and that labels “help steer the mind through the task in hand”: Luen Hing Fat at [29].

23. In the following paragraph, Bokhary PJ said:

Ultimately it is necessary to stand back and take a holistic view of foreseeability, proximity and the need to be satisfied that it would be fair, just and reasonable to impose a duty of care. In Marc Rich & Co AG v Bishop Rock Marine Co Ltd [1996] AC 211, 235E‑G Lord Steyn endorsed the statement in the Court of Appeal by Saville LJ (as Lord Saville of Newdigate then was) that ‘these three matters overlap with each other and are really facets of the same thing’. The relationship between proximity and what is just and reasonable was addressed in the Supreme Court of Canada by McLachlin J (as McLachlin CJ then was) in Canadian National Railway v Norsk Pacific Steamship Co [1992] 1 SCR 1021. At p.1152 she said that ‘the concept of proximity may be seen as an umbrella, covering a number of disparate circumstances in which the relationship between the parties is so close that it is just and reasonable to permit recovery in tort.’”

67.  The CFA in Dah Sing CFA held the plaintiff insurance agent owed a tortious duty of care to the defendant technical representative on the basis that (a) viewed objectively the plaintiff could be said to have assumed responsibility to report the cessation of the employment and the CPD credits of the defendant, (b) given such assumption of responsibility the foreseeability of loss and the defendant’s reliance on the plaintiff to make those reports rendered it fair, just and reasonable to impose a duty of care at common law on the plaintiff, and (c) the employment contract was not inconsistent with tortious liability and could not exclude the duty of care.

68.  Tang PJ at pp 461-462 reiterated that whether a common law duty will arise turns on the application of orthodox common law concepts of “foreseeability of loss”, “proximity” or “neighbourhood” and “assumption of responsibility” which should be viewed objectively, but as explained by Lord Hoffmann in Customs and Excise Commissioners v Barclays Bank plc,[62]

“the answer does not depend upon what the defendant intended but …… upon what would reasonably be inferred from his conduct against the background of all the circumstances of the case. The purpose of the inquiry is to establish whether there was, in relation to the loss in question, the necessary relationship (or “proximity”) between the parties and, …… the existence of that relationship and the foreseeability of economic loss will make it unnecessary to undertake any further enquiry into whether it would be fair, just and reasonable to impose liability.”

69.  I agree with Mr Lee the circumstances of Dah Sing CA/CFA (where there was a direct contractual relationship between the insurance agent and the technical representative) were dissimilar to the present circumstances (where there was no relationship between D4 (solicitors) and Ps (non-clients who placed funds with D4’s clients or, to put it in a different way, counterparties in commercial relationship with D4’s clients)).

70.  At first, Mr Kim relied on general tort principles and alluded to the oft-cited case of Hedley Byrne & Co Ltd v Heller & Partners Ltd to say the pleaded facts in the ASoC/FBP gave rise to D4’s duty of care that was owed to Ps. But upon further research over lunch, Mr Kim enlightened this court with the House of Lords case of White & anor v Jones & anor[63] as referred to in Bokhary, Sarony and Srivastava, Tort Law and Practice in Hong Kong,[64] but he only provided the reported judgment of the English Court of Appeal.[65] In that case, a solicitor delayed preparation of a will for a client, and the client died leaving his proposed beneficiaries without their intended legacies. The client’s estate had a valid claim against the solicitor for negligence, but it suffered no loss. The House of Lords held the intended beneficiaries who suffered loss had a valid claim as the solicitor’s duty of care to the client extended to the client’s intended beneficiaries.

71.  Two matters are of note in relation to that case. First, the House of Lords adopted/applied the Caparo test, and held it was satisfied as the loss was foreseeable, there was a proximate relationship between the client and the proposed beneficiaries, and there was no reason why liability could not be fair, just and reasonable. This, in my view, was nothing more than applying the Caparo test to particular circumstances, and did not take the legal discussion any further. Indeed, Tort Law and Practice in Hong Kong[66] noted White & anor is “not of universal application. In Trend Publishing (HK) Limited v Vivien Chan & Co (a firm),[67] Keith J held that there was no duty of care owed by a landlord’s solicitor to a tenant in preparation of the tenancy agreement”.

72.  Secondly, the majority in White & anor emphasised that in a “will” situation there would be no remedy for the solicitor’s negligence if he was not under a duty to the intended beneficiaries. At p 262 Lord Goff discussed the situation of an inter vivos gift which was ineffective due to a solicitor’s negligence and held there was no claim by the intended donee against the solicitor as “[it] is enough …… that the donor is able to do what he wishes to put matters right”. He went on to say as follows:[68]

“…… the real reason for concern in cases such as the present lies in the extraordinary fact that, if a duty owed by the testator’s solicitor to the disappointed beneficiary is not recognised, the only person who may have a valid claim has suffered no loss, and the only person who has suffered a loss has no claim. ……” (p 262)

“…… it seems to me that it is open to your Lordships’ House …… to fashion a remedy to fill a lacuna in the law and so prevent the injustice which would otherwise occur on the facts of cases such as the present. …… the nature of the transaction [the preparation of a will] was such that, if the solicitors were negligent and their negligence did not come to light until after the death of the testator, there would be no remedy for the ensuing loss unless the intended beneficiary could claim. In my opinion, therefore, your Lordships’ House should in cases such as these extend to the intended beneficiary a remedy under the Hedley Byrne principle by holding that the assumption of responsibility by the solicitor towards his client should be held in law to extend to the intended beneficiary who (as the solicitor can reasonably foresee) may, as a result of the solicitor’s negligence, be deprived of his intended legacy in circumstances in which neither the testator nor his estate will have a remedy against the solicitor. Such liability will not of course arise in cases in which the defect in the will comes to light before the death of the testator, and the testator either leaves the will as it is or otherwise continues to exclude the previously intended beneficiary from the relevant benefit. ……” (p 268) (my emphasis)

Thus, the House of Lords came to its conclusion only because it was reasonably foreseeable from the nature of the transaction (preparation of a will) that the solicitor’s client/estate could not claim against the solicitor for loss suffered by the intended beneficiaries, and it would have been unjust for his negligence to go unremedied. 

73.  On the above analysis, I cannot see how White & anor could assist Ps (non-clients) in their claim against D4 (solicitors). Unlike the testator and intended beneficiaries, there was possible conflict of interest as Ps were counterparties of Song/D2 (D4’s clients) (and indeed Ps also sued D2 in the present action), and Mr Kim did not explain how a duty of care could arise in such circumstances. I cannot see how it could be said Ps and D4 had a proximate relationship at the relevant time in February 2009. In any event, it was plain and obvious there were other remedies available to Ps, not least against D1, D2 and D3 (whom Ps were also suing in the present action for the same reliefs) and (if they saw fit) possibly Song too.

74.  Viewed objectively, on the pleas in the ASoC/FBP, I am unable to see how D4 assumed responsibility vis-à-vis Ps. There was no suggestion in the ASoC that D4’s receipt of $50M from D2 and payment of $50M to D3 were not in accordance with clients’ instructions, and there was no pleaded foundation for the “foreseeability” element. Rather, the pleas in the ASoC/FBP (ie descriptions of what D4 did for their clients Song/D2) appeared to assume the existence and breach of a common law duty of care without sufficient material averments on the anterior elements of “foreseeability”, “proximity” and “neighbourhood” and/or “assumption of responsibility” that are essential for establishing the existence of a common law duty of care. On such basis, there was paucity of necessary pleas in the ASoC/FBP to show why it would be fair, just and reasonable to impose a duty of care on D4 at common law for the benefit of Ps.

75.  Mr Kim suggested this was an inappropriate forum to consider/decide whether any common law duty of care should arise in a novel context, which issue, he said, should be adjudicated on the basis of law and evidence ventilated at trial. But he did not condescend on arguable contentions as to why so sailing into uncharted waters was tenable (even on the threshold for striking out applications) in light of the clear and obvious legal propositions explained above. On this I bear in mind that Lord Bridge of Harwich said at page 618 in Caparo Industries plc that:

“…… the law has now moved in the direction of attaching greater significance to the more traditional categorisation of distinct and recognizable situations as guides to the existence, the scope and the limits of the varied duties of care which the law imposes. We must now, I think, recognize the wisdom of the words of Brennan J in the High Court of Australia in Sutherland Shire Council v Heyman (1985) 60 A.L.R. 1, 43-44 where he said:

   “It is preferable, in my view, that the law should develop novel categories of negligence incrementally and by analogy with established categories, rather than by a massive extension of a prima facie duty of care restrained only by indefinable ‘considerations which ought to negative, or to reduce or limit the scope of the duty or the class of person to whom it is owed.’”

In my view, there were no unusual or exceptional circumstances in the present situation to give rise to a duty of care at common law.

76.  At the Hearing, Mr Kim drew attention to a note (not found in or annexed to his written submissions) said to be downloaded from the JFIU website that referred to Practice Direction P issued by the Law Society of Hong Kong (effective since 1 July 2008) and also to 2 further documents, ie “The New Practice Direction P and its Implications” and “Practice Direction P – Guidelines on anti-money laundering and terrorist financing”, but Mr Kim did not provide any of these 3 documents for consideration by Mr Lee or this court.

77.  The note Mr Kim produced referred to “some of the common red-flag indicators”, and he placed particular emphasis on the following indicators:

(a)	unusual settlement requests – such as settlement by cash of large transactions for the purchase of property; or payment by way of third party cheque or money transfer where there is a variation between the account holder, the signatory and the prospective investor without justification or apparent reason;
(b)	unusual instructions (eg where the relevant client has no discernible reason for using the firm’s services such as when an overseas client could find the same service in his country of residence); or clients whose requirements do not fit into the normal pattern of the firm’s business and could be more easily serviced elsewhere;
(c)	large sums of cash to be held in the client account, either pending further instructions from the client or for no other purpose than for onward transmission to a third party;
(d)	secretive clients, in particular those with non-face to face relationship;
(e)	“u-turn” transactions, where money or assets pass from one party to another and then back to the original party.

Mr Kim argued that since decisions on fairness, justice and reasonableness are policy decisions inspired by legal or public policy,[69] it must be a clear policy issue for solicitors confronted with the aforesaid “common red-flag indicators” to make proper/timely report under the OSCO requirements and to be visited with a common law duty of care actionable by private law civil claim.

78.  Mr Lee could have taken the point that the note from the JFIU website was extraneous to Ps’ pleadings, which point was all the more regrettable by silence on the subject in both the P1 Aff and Mr Kim’s written submissions. But Mr Lee’s brief but fundamental point was that the note drawn from the JFIU website did not advance understanding any further because the common red-flag indicators referred therein would at best assist solicitors in complying with the statutory reporting requirements, but there was nothing in the note itself to demonstrate D4 would therefore owe a common law duty of care to actual victims of organised crimes or to their clients’ counterparties in commercial arrangement.

79.  Further, I am unable to see how some of the common red-flag indicators would be pertinent in any event. Eg, for paragraph 77(d) above, according to the Attendance Note D4’s Wong did meet Song face to face in Shanghai, and for paragraph 77(e) above, $50M that P2 gave to D2 did not “u-turn” back to P2. Mr Kim also did not explain how these points would be relevant to a striking out application based on no reasonable cause of action when matters extraneous to Ps’ pleadings would not be considered. This brings me to the next point.

80.  Despite his vigorous complaint against D4’s attempt to resort to the Wong 1^st and 2^nd Affs (see paragraph 46 above), it was Mr Kim who travelled beyond the ASoC/FBP and who resorted to D4’s Defence and available affirmation evidence (eg the JFIU Report) in the course of his oral submissions at the Hearing to suggest D4 owed a common law duty of care to Ps. I reject such approach. If D4 was constrained to mount their striking out application for no reasonable cause of action on the basis of the ASoC/FBP alone, I cannot see how Ps could marshal other evidence/ materials (eg the JFIU Report exhibited to the Wong 2^nd Aff) to assert there was a viable cause of action “on their pleadings”, especially when Mr Kim in his written submissions invited this court to expunge the Wong 1^st and 2^nd Affs “for the purpose of the no reasonable cause of action ground of striking out”. I will consider Mr Kim’s other arguments on the striking out application in Part VIII(c) below.

81.  By reason of the above matters, Ps’ case as pleaded in the ASoC/FBP had no reasonable cause of action for breach of statutory duty simpliciter (by reason that breach of sections 25 and 25A of OSCO is not actionable by a private law civil claim) and/or for breach of common law duty of care (by reason that D4 did not owe any duty of care to Ps). Since Ps’ claim on conversion vis-à-vis D4 was made “[by] reason of the facts and matters aforesaid” (see paragraph 26 of the ASoC), it would also fall away.

82.  Causation/remoteness/loss  Mr Lee further argued even if (a) D4 had a statutory duty to report to an authorised person, (b) D4 was in breach of such obligation and (c) such breach was actionable in private law (which D4 denied), Ps’ claim against D4 was still unsustainable because there was no sufficient plea that D4’s alleged breach caused Ps’ loss. Paragraph 19A of the ASoC pleaded that “[by] reason of [D1’s] false representations aforesaid [ie D1 Representation] [P2] has suffered loss and damage by and as a result of delivering the Cheque to [D1] as referred to in paragraph 10 above” (ie on 21 January 2009), so Mr Lee submitted Ps would have suffered the loss of $50M in any event irrespective whether D4 subsequently made timely report to JFIU or not. But in light of the conclusion in the above paragraph, there is no need for me to consider this argument.

(c)  Mr Kim’s oral submissions at the Hearing

83.  At the Hearing, Mr Kim underlined contradictions between pleas in D4’s Defence on one hand and (a) the contents of the JFIU Report dated 1 March 2011 (signed by Mr Wong and Wong on behalf of D4), and (b) information available from the DBS Discovery on the other hand.

84.  The JFIU Report stated inter alia as follows:

“In January 2009, [D1] introduced to [D4] one [Song] of Shanghai …… [Song] intended to jointly invest together with other investors in projects in Macao. As [D4] had previous experience to act for investment funds in Macao investment, [D1] asked [D4] to assist [Song]. [Song] asked [D4] to purchase a BVI shelf company for her for the said purpose. [D4] purchased on her behalf a BVI company [D2] …… [Song] was the sole shareholder and director of [D2].

One of [D4’s] partners, [Wong] …… had experience in acting for investment fund for Macao projects. He personally knew Mr Leo Pun of DBS Macao. [Song] wanted to open a Macao bank account for the aforesaid purpose. [Wong] accompanied [Song] to DBS Macao to open a bank account [D2 Account] ……

On 21 January 2009, [Song’s] investment partner, [P2] ……, a company incorporated in Hong Kong sent [D4 the Cheque of $50M] being its share of investment capital. [P2] asked [D4] to deposit this in [the D2 Account]. This was the only time [D4] deposited cheque in the [D2 Account].

In February 2009, [D4] received instructions from [Song] that they had not found the appropriate investment project. As [D3] …… needed money for its litigation, [D2] would donate money from [the D2 Account] to [D3]. [Song] sent [D4] a cheque drawn upon [the D2 Account] of [$50M] and instructed [D4] to donate to [D3] on its behalf.

[Song] gave two reasons for not donating money directly from [D2] to [D3]. As the money would be used for litigation, [Song] wanted to ensure that she would not have any benefit from the litigation, therefore [Song] instructed [D4] to state in [their] letters to [D3] that [their] client did not require any benefit from the litigation. In any event – no matter what will be the outcome of the litigation, [D3] is not required to repay [D2] of any money. To donate money through [D4], [their] letter for the donation cheque will serve as evidence on this point. The second reason is that the donor would like to remain anonymous.

……”

85.  Mr Kim submitted the JFIU Report suggested D4 knew (a) Song intended to jointly invest together with other investors in projects in Macau, (b) her instructions to buy a BVI shelf company (ie D2) was “for the said purpose”, (c) she wanted to open a Macau bank account (ie D2 Account) “for the aforesaid purpose”, and (d) the Cheque given by Song’s investment partner P2 was “its share of investment capital” which P2 asked D4 to deposit in the D2 Account, and (e) D4 via Wong was instrumental in setting up and operating the D2 Account as particularised in the FBP. Mr Kim also reminded that the DBS Discovery showed the Cheque was deposited in the D2 Account on 6 February 2009,[70] and the D2/D4 Transfer was made on 9 February 2009.

86.  But Paragraph 13(2) of D4’s Defence[71] was not inconsistent with paragraph 85(a)-(b) above. Paragraph 20(1) of D4’s Defence that averred D4 had copy Cheque on the D4 File did not appear to contradict the JFIU Report. So Mr Kim must have been referring to paragraph 20(2) of D4’s Defence that averred the copy Attendance Note dated 30 January 2009 on the D4 File recorded Song told Wong (a) money received from P2 was deposited in the D2 Account and she would instruct DBS Macau to remit the monies to the D4 Account, and (b) she was considering donating the money to D3 and would confirm her instructions. It was said (a) above contradicted the DBS Discovery that revealed the Cheque was only received in the D2 Account on 6 February 2009, and (b) above contradicted the JFIU Report that stated P2 last told D4 on 21 January 2009 the Cheque for $50M was its share of investment capital.

87.  I am afraid these arguments could not assist Ps. First, these contentions were irrelevant to a striking out on the ground of no reasonable cause of action. One had to look at Ps’ ASoC/FBP (and not D4’s Defence or Ps’/D4’s affirmation evidence) to see if there was a reasonable cause of action, and if there was none, the strength/weakness of D4’s defence contentions would be neither here nor there. Secondly, even if Mr Kim were right in saying the aforesaid alleged discrepancies in relation to D4’s case (in contra-distinction to the sufficiency of Ps’ case) would raise red‑flag indications for making report to an authorised person under OSCO, it did not follow (as Mr Kim would have this court conclude) a common law duty of care would be applicable in such circumstances. The discussion in paragraphs 65-81 above explained otherwise. Thirdly, it also did not follow (as Mr Kim submitted) the present circumstances would be akin to the situation in White & anor, and I refer to the discussion in paragraphs 70-73 above.

88.  As Mr Lee said, it was a bold submission (which I do not accept) for Ps to suggest the points in paragraphs 84-86 above in relation to the JFIU Report would give rise to sufficient “proximity” or “neighbourhood” between D4 and Ps to found a common law duty of care when Ps were unable to point to any legal proposition to support the contention that solicitors do owe a duty of care to their clients’ counterparties in a commercial arrangement to make proper and timely report under OSCO, especially when such counterparties had potential avenues of recourse against other parties (see paragraph 73 above). In my view, the present circumstances were a far cry from the situation in White & anor. For all these reasons, I am unconvinced Mr Kim’s arguments in paragraphs 83-86 above took the matter any further.

89.  Mr Lee made 2 further points. First, he submitted there was no material inconsistency as alleged, especially when the brief account in the JFIU Report on the transit of monies was made in 2011 in the immediate aftermath of Mr Wong becoming aware of an investigation into suspected money laundering by D3 thereby raising suspicion that led to the report, and the pleadings were made several years later upon fuller understanding of the situation but which in no way altered the substance of the matter. Secondly, Mr Lee argued that even if the contents of the FBP were to be considered,[72] they would not have advanced Ps’ case as the same group of averments had been recycled twice for inconsistent purpose (see paragraphs 110-112 below). However, in light of the aforesaid analysis, there was no need for me to deal with these further points.

(d)  Frivolous or vexatious claim

(e)  Abuse of the process of the court

90.  The court’s process must be used bona fide and properly. Since, as I have found, the ASoC against D4 disclosed no reasonable cause of action, Ps’ pleaded claim against D4 must be frivolous or vexatious and/or an abuse of the process of the court. So there was no need for me to go further to consider whether or not (a) Ps’ pursuit of their pleaded claim against D4 was because they were unable to recover the alleged loss of $50M from D2, especially when Ps did not effect service of originating process on D2 until June 2015 (see paragraph 24 above)[73] and/or (b) Ps joined or appeared to have joined D4 in the present proceedings as an afterthought (as they had no reasonable cause of action against D4) to fish for documents/information that might assist their claims against the other Ds.

IX.  D4 SUMMONS: ORDER 14A APPLICATION

(a)  Legal principles

91.  Order 14A rule 1 of the RHC provides that:

“(1) The Court may upon the application of a party or of its own motion determine any question of law or construction of any document arising in any cause or matter at any stage of the proceedings where it appears to the Court that-

(a) such question is suitable for determination without a full trial of the action; and

(b) such determination will finally determine (subject only to any possible appeal) the entire cause or matter or any claim or issue therein.

(2) Upon such determination the Court may dismiss the cause or matter or make such order or judgment as it thinks fit.

(3) The Court shall not determine any question under this Order unless the parties have either-

(a) had an opportunity of being heard on the question; or

(b) consented to an order or judgment on such determination.”

92.  Hong Kong Civil Procedure 2017 states as follows:[74]

“The requirements for employing the procedure under this Order are the following:

1. the defendant must have given notice of intention to defend;

2. the question of law or construction is suitable for determination without a full trial of the action (para.1(i)(a));

3. such determination will be final as to the entire cause or matter or any claim or issue therein (para.1(i)(b)); and

4. the parties had an opportunity to being heard on the question of law ...... (para.1(3)). ......”

“...... Where the issues of fact are interwoven with the legal issues raised, it will be undesirable for the court to split the legal and factual determination, for to do so would in effect be to give legal rulings in vacuo or on a hypothetical ruling, which the court will not do ......”

In Shell Hong Kong Ltd v Yeung Wai Man Kiu Yip Co Ltd & anor,[75] Chan PJ reiterated that “if it is necessary for the court to hear evidence to resolve a factual dispute in order to come to a determination on the question of law ......, it would not normally be suitable to invoke O.14A”. Likewise, Order 14A procedure will be unsuitable if the legal viability of a cause of action is unclear (perhaps because the law is in transition). But Sir Thomas Bingham MR in E (a Minor) v. Dorset County Council and other appeals[76] reminded that if after argument the court can be properly persuaded no matter what (within reasonable bounds of the pleading) the actual facts are the claim is bound to fail for want of a cause of action, there is no reason why the parties should be required to prolong the proceedings before that decision is reached. Indeed, Korso Finance Establishment Anstalt v John Wedge referred to in Hong Kong Civil Procedure 2017[77] reminded that a respondent to an Order 14A application should not be allowed to hunt around for evidence or to hope something may turn up on discovery.

93.  A 3-point approach was adopted in Rockwin Enterprises Limited v Shui Yee Ltd & ors:[78] (a) whether the question was one of law or construction of a document, (b) if so, whether the question (ie (i) whether the court has all necessary facts/matters such that the question is suitable for determination without trial, (ii) if so, whether it will determine (subject to appeal) the entire cause/matter or any issue/claim therein, and (iii) whether the court in its discretion is satisfied the question ought to be determined under O14A of the RHC) should be determined under Order 14A procedure,[79] and (c) if so, what determination and consequential orders are to be made.

(b)  Question

94.  Hong Kong Civil Procedure 2017 states that “[in] many cases in which the application to strike out a pleading under O.18, r. 19 depends upon a point of law, it is advisable to apply in the alternative to have the relevant point of law determined under O.14A ……”[80] Further, Order 14A rule 1(5) of the RHC provides “nothing in this Order shall limit the powers of the Court under Order 18, rule 19 or any other provision of these rules”. Since I have found the ASoC/FBP as against D4 discloses no reasonable cause of action, there is no need for me to deal with D4’s Order 14A application, but I shall do so briefly for the sale of completeness.

95.  In my view, the Question was clearly a question of law that was precisely framed and suitable for determination without a full trial. It was a dominant feature of the pleaded case in the ASoC between Ps and D4, and determination of the Question would finally determine (subject to possible appeal) Ps’ entire claim against D4 in the ASoC.

96.  Mr Kim submitted the Question would entail detailed examination of the law on private law causes of action arising from statutory breaches and the legislative intent in the present context, and such legal issues were interwoven with issues of fact, hence it would be undesirable to proceed with an application under Order 14A of the RHC. But I disagree the law on duty of care owed in tort is uncertain/complicated or “in a state of transition”. After all, firm guidance and established principles have fallen from the CA/CFA, and the application of such principles to the present circumstances for determination of the Question would not involve or require resolution of controversial issues of fact (as evident from the discussion in Part VIII(b) above on D4’s striking out application for no reasonable cause of action), and would not turn on assumed or hypothetical facts. Rather it would turn on the pleadings and legal authorities, and I have found it plain and obvious that Ps had no cause of action in tort against D4 for breach of statutory duty simpliciter or for breach of the common law duty. I therefore answer the Question in the negative, ie D4 did not owe Ps a duty of care to comply with the obligation to make disclosure to the relevant authorities under OSCO, and on such determination there was no reason to prolong Ps’ pleaded claim against D4 towards trial and thereby cause Ps and D4 to incur unnecessary costs. I would strike out Ps’ claims in the ASoC/FBP against D4.

X.  Ps SUMMONS

(a)  Legal principles: amendment of pleadings

97.  Order 20 rules 5 and 8 of the RHC provide as follows:

“(1) Subject to Order 15, rules 6, 7 and 8 and the following provisions of this rule, the Court may at any stage of the proceedings allow the plaintiff to amend his writ, or any party to amend his pleadings, on such terms as to costs or otherwise as may be just and in such manner (if any) as it may direct. ......” (rule 5)

“(1) For the purpose of determining the real question in controversy between the parties to any proceedings, or of correcting any defect or error in any proceedings, the Court may at any stage of the proceedings and ...... on the application of any party to the proceedings order a pleading or any other document in the proceedings to be amended on such terms as to costs or otherwise as may be just and in such manner (if any) as it may direct.

(1A) The Court shall not under paragraph (1) order a pleading to be amended unless it is of the opinion that the order is necessary either for disposing fairly of the cause or matter or for saving costs. ......” (rule 8)

98.  The broad principles summarised in Ketteman v Hansel Properties Ltd[81] suggest that generally all amendments ought to be made as may be necessary for determining the real question in controversy between the parties[82] unless the applicant has been acting mala fide or the mistake he has made causes injustice to the other party.[83] But as a result of the Civil Justice Reform the CA in Topwell Corp Ltd v Kwan Kam Kee put in a caveat as follows:[84]

“39. ...... in the exercise of discretion, the Court must of course have regard to the underlying objectives in O.1A of the RHC ......, so it cannot be assumed that once the principles in Ketteman are satisfied, the amendment would be allowed. The court would need to balance all relevant factors to decide how its discretion should be exercised, if the application is made in circumstances offending one or more of the underlying objectives.  In this particular case, a pertinent consideration in giving effect to the underlying objectives is that the Court “shall always recognise that the primary aim in exercising the powers of the Court is to secure the just resolution of disputes in accordance with the substantive rights of the parties” (O.1A rule 2(2) of the RDC).”

99.  It behoves the party seeking the amendment to ensure adequate particularity,[85] and it is no defence to argue particulars can always be ordered.[86] After all, it is essential for a party to plead all necessary averments of his cause of action, and it is not the function of particulars to take place of such necessary averments in order to fill in the gaps to make good an inherently bad pleading.[87]

100.  “The court will always look at the materiality of the proposed amendment. …… An inconsistent or useless amendment will not be allowed ……; nor an addition of some irrelevant matters or an amendment which fails to give the necessary material facts or particulars ……”[88] As explained in Hsu Ming Chi v Lam Shu Chit & ors,[89]

“14. Leave is readily granted to amend before trial unless it can be shown that the new claim based on the proposed amendment is bound to fail. While the court is entitled to have regard to the merits of the case, it should only do so when the merits are readily apparent, and are so apparent as not to require prolonged investigation: Natamon Protpakorn v Citibank NA supra at para. 25 (per Cheung JA).

15. If the proposed amendments are bound to fail, no leave to amend should be granted. In this regard, the court will take the applicant’s proposed pleaded case to the highest: Bank of China v Leigh Hardwick unrep., HCA 1110 of 2006, 28 August 2013, per Anthony Chan J at para. 2.”

(b)  Legal principles: pleading fraud

101.  Allegations of fraud must be pleaded distinctly and with the utmost particularity, and should not be left to be inferred from the facts.[90]

(c)  Legal principles: pleading conspiracy to defraud

102.  In relation to an “unlawful means” conspiracy in which the participants combine together to perform acts which are themselves unlawful, the plaintiff must plead and prove the following necessary elements: (a) a combination or agreement between 2 or more individuals, (b) an intent to injure, (c) pursuant to which combination or agreement and with that intention certain acts were carried out, and (d) resulting loss and damage.[91] In Yong Weng Chye v Ho Yu Kuen & ors, I explained as follows:[92]

84. Barker JA in Marquis Trading Co & ors v Associated Bankers Insurance Co Ltd & ors [1982] HKLR 434, 440 cited with approval the earlier edition of Bullen & Leake & Jacobs on Precedents of Pleadings in which it was stated that a statement of claim on conspiracy to defraud should describe the parties to such conspiracy and their relationship with each other, and also allege the agreement between the defendants to conspire as well as state precisely what was the purpose/object of the alleged conspiracy. It must set out with clarity and precision the overt acts that were alleged to have been carried out in pursuance and in furtherance of the conspiracy.

85.  Further, in ADS v Wheelock Marden & Co Ltd & ors [1994] 2 HKC 264, 271, Bokhary JA (as he then was) cited the well-known statement of Buckley LJ in Belmont Finance Corporation Ltd v Williams Furniture Ltd & ors [1979] 1 Ch 250, 263, that “an overt act establishing the existence of a conspiracy is an overt act which shows that the agreement which is alleged to be conspiratorial has already been made”.  He then went on to say at p.272 as follows:

“…… When it comes to a claim in the tort of conspiracy, what the pleader has to do in regard to pleading an overt act or overt acts is this. He has to plead at least one overt act which is the act of all the alleged conspirators or, failing that, a number of overt acts which include at least one act on the part of each conspirator. And the overt act or overt acts pleaded must be such as to show: (i) that the conspiratorial agreement alleged against the defendants had been entered into by each and every one of them; (ii) that the agreement, and not merely the intention of one person alone, was implemented; and (iii) that such implementation caused the damage complained of.

If the pleader fails to do that, then, depending on whether the failure is in respect of all the defendants or only some or one of them, then either the plea is liable to be struck out altogether or it is liable to be struck out as against some or one of the defendants.

Reverting to what ADS pleads as overt acts, one sees that the only acts pleaded are the alleged express misrepresentations and, if such a thing is an act, the fact that none of them were corrected. The other things alleged, being knowledge, common purpose and intention, are not acts. ……

Also, it might be added, they have, in any event, to be viewed with some caution: because, when the mass of particulars pertaining to them are examined, it can be seen that they involve piling one layer of inferences upon another in order to obtain the end product. ……

To maintain its plea that all the defendants conspired together - in other words to maintain its conspiracy plea in its entirety - ADS has to plead at least one overt act of all the defendants or, failing that, a number of overt acts which include at least one on the part of each defendant. And the overt act or overt acts must show that each and every defendant had conspired together.

To maintain its plea that any of the defendants conspired together - in other words, to maintain any conspiracy plea at all - ADS has to plead an overt act or overt acts on the part of at least two individual defendants showing that they had conspired together.”

(see also Hong Kong Civil Procedure 2010 Vol.1 para.18/12/8 at p.373).

……

89. …… it is in my view plainly undesirable and insufficient for P to ask Ds to infer the conspiratorial combination or agreement from “the facts and matters pleaded in the foregoing paragraphs” when there are 118 paragraphs that preceded the end product or conclusion averred in §119 of the ASOC.  I am also mindful of Poon J’s observation in paragraphs 18-19 of his judgment in Total Lubricants Hong Kong Limited that inferences are pleas of evidence (not of material facts) and liable to be struck out.”

(d) Discussion

103.  “Fresh” cause of action  Conspiracy to defraud is a “fresh” cause of action pleaded in the Draft Amendments. Paragraph 28 of Mr Kim’s written submissions dated 6 April 2016 appeared to suggest the Ps Summons was “in the alternative” to dismissal of D4 Summons, but it was clarified at the Hearing that Ps’ pursuit of the Ps Summons was irrespective of the outcome of the D4 Summons.

104.  Ps’ contentions  Mr Kim submitted the “fresh” cause of action on conspiracy to defraud in the Draft Amendments did not “fundamentally change the story” and was not brought “to support a hopeless case”. Rather, the Draft Amendments came about because of facts and matters elicited from the DBS Discovery (part of which had been set out in the FBP) and D4’s Defence, and they were necessary for determining the real question in controversy between the parties. Mr Kim submitted these facts and matters now fully particularised in the Draft Amendments gave “all details pertaining to all [Ds] and their involvement in the conspiracy to defraud [Ps]”. He argued the facts/pleas spoke for themselves, and even on a cursory perusal there was nothing to suggest they could be subject to any further application to strike out.

105.  Conspiratorial agreement, overt acts and unlawful means Mr Kim submitted paragraph 27 of the Draft Amendments pleaded P’s primary case of the actual conspiratorial agreement and paragraph 28 of the Draft Amendments pleaded Ps’ fall‑back case of inferring a conspiratorial agreement from the acts particularised therein. Mr Kim referred to paragraph 83 of Yong Weng Chye to say that more often than not it would be necessary to look at the overt acts as pleaded to see what inferences can be drawn as to the existence or otherwise of the alleged conspiratorial combination or agreement, and paragraph 28 of the Draft Amendments had sufficiently pleaded the overt acts so D4 should have no difficulty in understanding Ps’ cause of action against them on conspiracy to defraud and/or in responding to such claim. Mr Kim submitted paragraph 29 of the Draft Amendments also pleaded with particularity the unlawful acts/means by which P2 was injured. On such basis, it was said that all elements of the cause of action on conspiracy to defraud were made out in the Draft Amendments.

106.  Mr Lee complained the Draft Amendments lacked important and/or necessary particulars for such new cause of action, and failed to plead any overt act committed by D4. It was also said the Draft Amendments failed to plead (a) a conspiratorial agreement alleged against Ds had been entered into by D4 and any other of the Ds, (2) there was an intent by Ds to injure Ps, (3) the conspiratorial agreement was implemented, and (4) such implementation caused the damage to Ps.

107.  I agree that paragraph 27 of the Draft Amendments of itself could not amount to a primary case for conspiracy to defraud for it is no more than a bare assertion of an unlawful means conspiracy without any particulars. But that was not the end of the matter. Paragraph 28 of the Draft Amendments pleaded what Mr Kim submitted was Ps’ fall-back case of conspiracy to defraud that was “apparent from or alternatively is to be inferred from” a set of “facts and matters”. Mr Lee submitted this alternative basis was insufficient as it was not pleaded with utmost particularity, and also the conspiratorial combination or agreement in establishing an overt act (which Ps failed to “plead”) could not be inferred. I am mindful of the observations by Poon J (as he then was) in paragraphs 18-19 in Total Lubricants Hong Kong Limited that inferences are pleas of evidence (not of material facts) and are liable to be struck out, but as I have explained in Yong Weng Chye:

“88. It is trite that fraud and/or conspiracy must be distinctly pleaded with utmost particularity and distinctly proved, and it is not allowable to leave such pleas to be inferred from the facts (see Davy v Garratt [1877] 7 Ch D 473, 489). But one must also consider the practical reality of modern commercial life. …… 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 Ds sufficiently know P’s case on the conspiratorial combination(s) or agreement(s) that they have to meet.”

108.  In gist, D4’s overt acts as pleaded in paragraph 28(a)-(h) and (j)-(l) of the Draft Amendments were (a) D4 aided their client Song to incorporate D2 and to open the D2 Account, and (b) assisted their clients Song/D2 to receive the Sum from P2, to transfer $50M to the D4 Account and to donate $50M to D3 for funding the Estate Litigation. The gravamen of Ps’ complaint against D4 was in paragraph 28(f), (l) and (m) of the Draft Amendments that (i) D4 made payments totalling $50M from the D4 Account to D3 to fund the Estate Litigation when D4 knew D2 had been incorporated for only a short period and when D4 on behalf of D2 (whose sole director/shareholder was Song) answered DBS’ due diligence questions for opening the D2 Account to the effect that D2 was “engaged in the business of property investment in Hong Kong / Macau having 2 employees” (even though Song had not submitted proof/credentials on such experience), and (ii) D4 was aware of and participated in Song’s change of mind over a short time over use of $50M for the original investment purpose to the subsequent donation to D3 to fund the Estate Litigation. This fed Ps’ averment in paragraph 29(4) of the Draft Amendments that D4 “knowingly and dishonestly assisted” in incorporating D2, opening/maintaining the D2 Account, effecting the D2/D4 Transfer and transferring $50M to D3. It was said this dishonest knowledge coloured D4’s acts and characterised their unlawful nature, and this “knowing” assistance in relation to the overt acts demonstrated D4 did not act independently but in a concerted manner that involved conspiratorial combination(s) or agreement(s) with the other Ds.

109.  Mr Lee suggested the averments as to D4’s knowledge in paragraph 29(4) of the Draft Amendments were thin, and hence the alleged overt acts by D4 were not “unlawful means”. But Peter LJ in Rigby v Decorating Den Systems Ltd[93] observed that:[94]

“It does not seem to me a necessary requirement for a pleading of this nature, where it is quite clear that fraud is being alleged and where the pleading expressly states that the defendants had the relevant knowledge, that particulars of knowledge must be given. That to my mind is sufficient to enable the plea to withstand an application to strike out.”

I also refer to the observation in paragraph 64 in Yong Weng Chye. In my view, although the Draft Amendments were not perfect, there were enough averments/particulars to sustain the cause of action for conspiracy to defraud involving D4. It might well be that, as Mr Lee submitted, if leave were granted for Ps to re-amend the ASoC as per the Draft Amendments, D4 would like to apply for further and better particulars of Ps’ new claim, but the question here is whether it would be a suitable case for an application to strike out the Draft Amendments. I am not convinced D4 would not understand the thrust of Ps’ cause of action on conspiracy to defraud from the pleaded averments or the Draft Amendments were unsustainable.

110.  Pleading inconsistent alternatives Mr Lee submitted the Draft Amendments pleaded inconsistent claims (breach of duty of care and conspiracy to defraud) which was embarrassing and expressly impossible under Order 18 rule 12A of the RHC.[95] He suggested there is a distinction between advancing mutually inconsistent allegations of fact (which would make it impossible to verify such pleadings) and advancing alternative positions based on the same underlying facts (eg advancing a fall-back position in law in the event the court held contrary to a party’s primary contention).[96] On the other hand, Mr Kim suggested the underlying facts in Ps’ original claim in the ASoC/FBP and their “fresh” claim in the Draft Amendments were the same, and these two claims were alternative causes of action in the Draft Amendments. It was said there was no hard and fast rule to amendment of pleadings which is a matter of discretion, and Yu Man Fung Alice v Chau Sing Chi Stephen demonstrates it is permissible to put forward “different legal formulations of the cause of action of the Plaintiff”.[97] In that case, the draft amendments were reasonably arguable and did not purport to support a hopeless case; they were allowed as the plaintiff did not fundamentally or radically change her story.

111.  There was no doubt the Draft Amendments raised a “fresh” cause of action, and I agree this was the 1^st time fraud was asserted against D4. The complaint against D4 in paragraph 25 of the ASoC in respect of D4’s negligence and/or breach of duty did not connote intentional fraud or dishonesty. Mr Lee submitted Ps’ proposed “unified claim” in the draft Re-Amended SoC containing inconsistent averments of carelessness versus fraud/dishonesty were not “alternative” pleas under Order 18 rule 12A(b) of the RHC, and this would be sufficient to disallow the Draft Amendments. In this respect, I note that right at the beginning of the pleas for the “fresh” cause of action for conspiracy to defraud in paragraph 27 of the Draft Amendments Ps pleaded it was a “furthermore” claim rather than “further or alternative” claim, so it appeared Ps’ “fresh” cause of action on conspiracy to defraud was not an alternative to the existing causes of action against D4 on breach of duty simpliciter and/or breach of the common duty of care. But this complaint is now immaterial because I had struck out the existing causes of action against D4, and the concern over conflicting pleas fell away.

112.  Mr Lee also argued no reasonable grounds had been made out for pleading inconsistent alternatives (see Order 18 rule 12A(a) of the RHC). The Lam Aff suggested conspiracy of defraud was introduced as a result of the DBS Discovery and D4’s Defence (in 2014) which supposedly implicated D4, but Mr Lee submitted Ps did not apply to re-amend until 2015 and no justification was given as to why a claim of fraud should now sit atop an earlier claim of carelessness. As explained above, the concern over inconsistent allegations fell away upon striking out the existing causes of action against D4, and fraud had been pleaded against D1 in the ASoC in relation to the D1 Representation. In any event, Mr Lee’s complaints above essentially went to alleged delay in raising the Draft Amendments rather than the merits of such pleas themselves, which I have found to be sustainable. At this rather formative stage of the present action (when discovery and witness statements were not yet complete), I am not with Mr Lee on this contention.

113.  Knowing assistance  Mr Lee submitted the new cause of action on unlawful means conspiracy to defraud Ps pleaded D4’s unlawful act as one of dishonest assistance (see paragraph 29(4) of the Draft Amendments). Mr Lee argued the main elements for a claim for dishonest assistance[98] are (a) the commission of primary breach of trust or some other breach of duty by the trustee or person in a fiduciary relationship with the claimant, and (b) the defendant accessory’s assistance in the

primary breach was given dishonestly.[99] Mr Lee submitted that (a) above had not been pleaded in the Draft Amendments or discernible from other parts of the ASoC, so a claim against D4 for dishonest assistance was not made out, and hence the Draft Amendments did not disclose a sufficiently particularised claim of unlawful means conspiracy.

114.  But as Mr Kim submitted, there was no independent cause of action on knowing assistance on the part of D4. Rather the pleaded “assistance” was D4’s overt acts that implemented the conspiratorial combination(s) or agreement(s), and the pleaded “knowledge” went to the question of dishonesty that characterised D4’s overt acts/statements as unlawful acts of the conspiracy. Whilst fraud/dishonesty must be distinctly alleged and sufficiently particularised, it was reasonably clear from paragraphs 28-29 of the Draft Amendments that Ps were relying on (a) the circumstances and temporal proximity of the overt acts and facts/matters pleaded in paragraphs 28-29 of the Draft Amendments to colour the nature of the monies/transfers, and (b) the manner in which $50M was applied (for donation to D3 to fund the Estate Litigation) so very shortly after D4 became aware such $50M was for investment and D4 in turn made known to DBS D2 was established for investment purpose, to find/infer that D4 knew the alleged overt acts were unlawful acts/statements in furtherance of concerted conspiracy by Ds.

115.  Limitation defence  Mr Lee submitted the payments in question and the alleged conspiracy occurred latest by February 2009 (ie D4 on behalf of D2 transferred $50M to D3 on 12 and 16 February 2009), so the time limit for bringing the claim for conspiracy to defraud would have expired in 6 years (ie February 2015),[100] hence leave to amend should not be given if its effect would be to deprive D4 of a limitation defence which would otherwise be lost as a result of the operation of the relation back rule.[101] Mr Lee acknowledged that on the state of the existing authorities (which were binding on this court) the appropriate time to determine the expiry of the limitation period is when the application to amend was made (ie 15 January 2015) rather than the date on which leave to amend is granted (ie date of this Judgment).[102] Mr Lee argued such approach attracted different views in Hong Kong and was at odds with authorities in other jurisdictions, and D4 would like (and Mr Kim had no objection) to reserve their right to pursue this ground of opposition against leave to amend on appeal if necessary and if so advised.

116.  Other reasons  I am unable to agree with Mr Lee’s suggestion that in introducing a new claim against all Ds for conspiracy to defraud in 2015 after close of pleadings based on facts elicited from the DBS Discovery (summarised in the FBP) and D4’s Defence in mid-2014 (when, Mr Lee submitted, the parties ought to have focused on preparation for trial) constituted an abuse of the process of the Court that was oppressive. I am also unconvinced that the new cause of action was introduced so late in the day that it would cause irremediable forensic prejudice to D4. Further, as the facts and matters pleaded in the Draft Amendments were largely elicited from the DBS Discovery and D4’s Defence, it could hardly be said the new cause of action for conspiracy for defraud was (as pleaded) a sham. Whether or not it was actually so would be a matter of evidence and/or trial. I do not believe the Draft Amendments would prejudice, embarrass or delay the fair trial of the action. After all, the parties still required time/preparation in terms of discovery and witness statements before they would be ready for trial. In my view, the Draft Amendments were necessary for determining the controversy among the parties. The proposed new cause of action on conspiracy to defraud should be allowed.

XI.  CONCLUSION

117.  In respect of the D4 Summons, I order that (a) paragraphs 20‑26 of the ASoC against D4, (b) items 1-2 in the prayer of reliefs in the ASoC against D4 and (c) the FBP be struck out, and the causes of action and reliefs therein against D4 be dismissed. There is no reason why costs should not follow event, and I grant a cost order nisi that Ps shall pay D4 costs of and occasioned by the D4 Summons (including all costs reserved if any) to be taxed forthwith if not agreed.

118.  In respect of the Ps Summons, I grant leave for Ps to re-amend the AWoS and ASoC in the following manner:

(a)   subject to (i)-(j) below, in the manner marked in green as per the Draft Amendments;

(b)   delete “and the 4^th Defendant, and each of them” in the preamble of paragraph 20 of the ASoC;

(c)   delete “each of” in paragraph 20(c) of the ASoC where it first appears;

(d)   replace “each [or Each] of the 3^rd and 4^th Defendants” with “the [or The] 3^rd Defendant” whenever it appears in paragraphs 21-24 of the ASoC;

(e)   replace “the 3^rd and 4^th Defendants’ negligence” with “the 3^rd Defendant’s negligence” in paragraph 25 of the ASoC;

(f)   replace “each of the them” with “the 3^rd Defendant” in paragraph 25 of the ASoC;

(g)   delete “and/or 4^th” in paragraph 26 of the ASoC;

(h)   delete “1. The Misappropriated Money in the sum of HK$50 million; 2. Damages for conversion” in the prayer of relief against all Ds in the ASoC;

(i)   add “AND THE PLAINTIFFS CLAIM AGAINST THE 1^ST, 2^ND AND 3^RD DEFENDANTS: 1. The Misappropriated Money in the sum of HK$50 million; 2. Damages for conversion.” immediately before “AND THE PLAINTIFFS CLAIM AGAINST THE 1^ST, 2^ND, 3^RD AND 4^TH DEFENDANTS:”’;

(j)   the numbers for the specific reliefs under “AND THE PLAINTIFFS CLAIM AGAINST THE 1^ST, 2^ND, 3^RD AND 4^TH DEFENDANTS:” be numbered chronologically.

119.  I also grant consequential directions under the Ps Summons as follows:

(a)   Ps shall file and serve Re-Amended Writ of Summons with Re-Amended Statement of Claim endorsed thereon within 7 days from today.

(b)   leave to D1, D3 and D4 to file and serve their respective Amended Defence within 28 days thereafter;

(c)   leave to Ps (if so advised) to file and serve Reply thereto within 28 days thereafter.

120.  There is no reason why usual costs order should not apply. I therefore grant the following cost order nisi:

(a)   subject to (b) below, Ps do pay D1, D3 and D4 costs of and occasioned by and consequential upon their application to re‑amend the AWoS/ASoC;

(b)   D4 do pay Ps costs of the Hearing in respect of the Ps Summons to be taxed forthwith if not agreed.

121.  I further direct Ps to forthwith serve a copy of this Judgment on the respective solicitors for D1 and D3, and also on D2.

Schedule

Conspiracy to Defraud

27.   Furthermore, in or about January 2009, [Ds] (or any two or more together) wrongfully and with intent to injure [Ps] by unlawful means conspired and combined together to defraud [Ps] and to conceal such fraud and the proceeds of such fraud from [Ps].

28.   The conspiracy between [Ds] to defraud [Ps] is apparent from or alternatively is to be inferred from the following facts and matters:

(a) [D2] was incorporated under the laws of the [BVI] and was acquired off-the-shelf in Macau through the assistance and arrangement of [D4] on or about 15 January 2009.

(b) The only director and sole shareholder of [D2] was [Song] who at the material time was 75 years of age and a PRC citizen residing in the PRC.

(c) [D4] arranged and assisted in the opening of the [D2 Account] with [DBS] at its Macau branch on or around 15 January 2009.  The [D2 Account] became effective on 21 January 2009.

(d) [D4] provided its office address to [D2] on 15 January 2009 to convene two meeting of the board of directors of [D2].  Firstly, for the purpose of approving the opening of the [D2 Account] with [DBS] and secondly, to request [DBS] to act on instructions and requests given by [D2] to [DBS] in connection with the operation of the [D2 Account] and other banking services by telephone, facsimile or other communication device as [DBS] might approve (“the Remote Channel Authority”) and to provide a Mandate to the bank such that an Authorized Representative may give any instructions/requests by telephone, facsimile or such other communication device [DBS] might approve on behalf of [D2].

(e) By an undated Letter of Authorization, [Wong], one of the partners of [D4], was authorized by [D2] as the sole Delegated Person for Confirmation in respect of the Remote Channel Authority.

(f) [D4] answered due diligence questions asked by [DBS] as to the history and background of [D2] on behalf of [D2] and in so doing, despite [D4] being aware that [D2] had only been incorporated for a short time, that its sole shareholder and director was [Song] and that [Song] had not submitted any proof of her credentials as to such experience, reported to [DBS] that “it was engaged in the business of property investment in Hong Kong / Macau having 2 employees”.

(g) [D2] used the office address of [D4] as the address of [D2] in Hong Kong when opening the [D2 Account] and provided the office telephone number of [D4] and [Wong’s] personal mobile number as contacting telephone numbers of [D2].

(h) [D4], through [Wong], certified and provided all the required documents to [DBS] including [D2’s] corporate documents, the relevant resolutions of the board of the directors, the Certificate of Incumbency, and documents relating to the personal details of [Song] which were required for the opening of the [D2 Account].

(i) [Ps] repeat the matters contained in paragraphs 9,10 and 11 hereinabove which in summary relates to the [D1 Representation] leading to the Cheque being delivered to [D1] on 21 January 2009.

(j) The Misappropriated Money was deposited by way of the Cheque into the [D2 Account] on or about 6 February 2009.

(k) [Ps] repeat the matters contained in paragraphs 17, 18 and 19 hereinabove which in summary relates to the diversion of the Misappropriated Money from the [D2 Account] to the [D4 Account] on or about 9 February 2009 and the subsequent payments from the [D4 Account] to fund [D3] in the Estate Litigation.

(l) [D4] made the payments from its bank account to [D3] to fund the Estate Litigation when [D4] had made the statements to [DBS] as set out at paragraph 28(f) hereinabove.

(m) Since the opening of the [D2 Account], its account statements had been sent to [D4’s] address and [D4] would have known that the Misappropriated Money was handled as particularized in paragraphs 28(j) and (k) hereinabove.

(n) [Ps] repeats paragraph 4 hereinabove.

29.   Pursuant to and in furtherance of the conspiracy pleased in paragraph 28 hereinabove, [Ds] carried out the following unlawful acts and means by which [P2] was injured:

(1) [D1], whilst a director and chairman of [D3] and chairman of the Chinachem Group made the [D1 Representation] dishonestly to [P1] as pleaded at paragraphs 9,10 and 11 hereinabove when [D1] knew the real intent and purpose of the Misappropriated Money was to enable [D1] to fund the Estate Litigation by [D3] as pleaded at paragraphs 17, 18 and 19 hereinabove.

(2) [D2] knowingly and dishonestly acted as a conduit to receive the Misappropriated Money by opening and/or causing [D4] to open the [D2 Account] on 15 January 2009 in order to receive the Misappropriated Money on or about 6 February 2009 and then divert it to the [D4 Account] on or about 9 February 2009 as particularised at paragraph 28(a)-(k) hereinabove.

(3) [D3] received the fruits of the deception, namely the Misappropriated Money.

(4) [D4] knowingly and dishonestly assisted in the incorporation of [D2], the opening and maintenance of the [D2 Account] and the subsequent transfer of the Misappropriated Money from the [D2 Account] to the [D4 Account] and eventually to [D3] as particularised at paragraph 28(a)-(n) hereinabove.

30.   By reason of the conspiracy to defraud and injure [Ps] and by reason of the unlawful means as pleaded in paragraphs 27 to 29 hereinabove, [P2] has suffered loss and damage.

31.   [Ds] are jointly and severally liable to [Ps] in damages for conspiracy.

……

AND THE PLAINTIFFS CLAIM AGAINST THE 1^ST,2^ND,3^RD AND4^TH DEFENDANTS:

……

3. Damages for conspiracy;

……