RPB SA (a company incorporated in accordance with the laws of Argentina) v. HEALTHY FOOD LTD AND OTHERS

HCA 399/2020

[2021] HKCFI 1153

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 399 OF 2020

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REASONS FOR DECISION

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1.  There is before the Court a summons issued by the plaintiff (“P”) on 6 April 2020 for continuation of the ex parte injunction granted by this Court on 3 April 2020 (“Injunction”)[1] against the 1^st to 17^th defendants, who were the “3^rd tier” recipients of the proceeds of a fraud which had been perpetrated against P.  The hearing only concerns the 15^th and 16^th Defendants (respectively “D15” and “D16”).  After hearing submissions of counsel, I made an order continuing the Injunction until trial or further order of the court with costs to be paid by D15 and D16 to be taxed if not agreed.  These are the reasons for my decision. 

Background

2.  P is a company incorporated in Argentina which engages in the business of production and commercialisation of wines, juices and fruit-based drinks, water and dairy products.  Mr Juan Alejandro Baggio (“Baggio”) is the president of the board.

3.  P is the victim of an “email fraud”.  On 4 December 2019, a person impersonated himself as Mr Adrian Clamp from KPMG successfully obtained the email address of Ms Diana Veronesi (“Veronesi”), a staff at P’s finance department.  On the same day, a person impersonated himself as Baggio informed Veronesi that she would be contacted by Mr Clamp to assist in providing finance for an acquisition of an Asian based company. 

4.  Between 3 December 2019 and 18 December 2019, Veronesi was misled into making 8 transfers in the aggregate amount of US$6,823,288 (“1^st to 8^th Transfers”) to a bank account maintained by Hong Kong HRJ Trade Limited (“HRJ”) at Standard Chartered Bank (“SCB”). 

5.  The fraud was discovered on 2 January 2020 when Baggio was informed by the bank that several attempted transfers to Hong Kong had been rejected. 

6.  On 13 January 2020, P commenced HCA 57/2020 against HRJ. 

7.  With the assistance of the documents provided by the banks pursuant to the disclosure order made by the Court, P was able to identify the “2^nd tier” recipients of the 1^st to 8^th Transfers. 

8.  On 12 February 2020, P commenced HCA 150/2020 against “2^nd tier” recipients which had received the proceeds of the 1^st to 8^th Transfers.  One of the 19 defendants was Tin Loong Telecom Company Limited (“Tin Loong”). 

9.  Thereafter, with the assistance of the documents obtained from the banks, P was able to trace the whereabouts of the funds transferred from the “2^nd tier” recipients to the “3^rd tier” recipients. 

10.  According to the bank statements obtained by P from SCB:

(1)  except the 1^st Transfer on 3 December 2019, almost the entire proceeds of the 1^st to 8^th Transfers were transferred out of HRJ’s account on the same days they were deposited into the account;

(2)  prior to the 7^th Transfer (US$990,655) paid into HRJ’s account on 17 December 2019, the balance in the account was US$3,366.32;

(3)  on the same day, almost the entire sum representing the 7^th Transfer was transferred out of the HRJ account by way of 9 transfers, of which US$90,000 and US$130,800 were transferred to the account of Tin Loong at SCB; and

(4)  the US$90,000 and US$130,800, together with 2 other sums transferred from other parties into Tin Loong’s account, were on the same day transferred out of Tin Loong’s account to (a) D15’s account at Bank of East Asia as to US$212,325 (“D15 Sum”); and (b) D16’s account at China Minsheng Banking Corporation Ltd as to US$530,260 (“D16 Sum”); and

(5)  by 2 January 2020, only US$6,423.55 remained in HRJ’s account at SCB.

Injunction

11.  On 3 April 2020, P commenced this action against the “3^rd tier” recipients who were named as the 1^st to 17^th defendants.  On the same day, P obtained the Injunction against all the defendants up to the amounts they received from the “2^nd tier” recipients. 

12.  The Injunction contains both a  proprietary injunction over the D15 Sum and D16 Sum and a Mareva injunction over the general assets of D15 and D16 to the extent that there is a shortfall between the D15 Sum and D16 Sum and the amounts remain in their respective accounts.  Given the proprietary nature of the injunction, there is no provision for legal or any expenses incurred or to be incurred by D15 and D16.

13.  It later transpires that by the time the Injunction was obtained, the bulk of the D15 Sum and D16 Sum had already been transferred out of the bank accounts of D15 and D16, leaving only the following amounts:

(1)  D15: HK$19,413.24, GBP990.09, US$18,040.38; and

(2)  D16: HK$562.78, US$59,729.22.

14.  On 22 June 2020, P obtained judgment against HRJ. 

15.  The principles governing the grant of a proprietary injunction and Mareva injunction have been sufficiently stated by Recorder Eugene Fung SC in Zhang Yan v ASA Bullion Ltd [2019] HKCFI 179, at §§11 and 17:

“11.  The relevant legal principles regarding a proprietary injunction are as follows:

(1)  Where a plaintiff asserts title to property or seeks to trace property which belongs to him, the Court has jurisdiction to grant a proprietary injunction restraining the disposal of that property….

(2)  For the grant of a proprietary injunction, there are three elements which the plaintiff has to demonstrate, following the American Cyanamid approach: (a) that there is a serious issue to be tried on the merits; (b) that the balance of convenience is in favour of granting an injunction and (c) that it is just and convenient to grant the injunction. It is not necessary to show any risk of dissipation of assets.….

(3)  A proprietary injunction must relate to a specific asset held by or under the control of the defendant, or its traceable proceeds, in respect of which a proprietary claim is raised by the plaintiff….

(4)  In order to justify the grant of a proprietary injunction, the plaintiff should ordinarily adduce some reasonable evidence of the existence of the specific asset (or its traceable proceeds) and that the same is being held by or under the control of the defendant. Where the asset forming the subject matter of the proprietary claim has been dissipated and can no longer be traced, a proprietary injunction cannot ordinarily be granted.….

17.  For the grant of a domestic Mareva injunction, the plaintiff must show that:

(1)  he has a good arguable case on a substantive claim over which the court has jurisdiction;

(2)  there are assets within the jurisdiction;

(3)  the balance of convenience in favour of grant;

(4)  there is a real risk of dissipation of assets, or removal of assets from the jurisdiction, which would render the plaintiff’s judgment of no effect;

(5)  he must comply with a strict duty of full and frank disclosure.”

Serious issue to be tried

16.  In general, victims of a fraud have a good arguable case against the recipient of funds for constructive trust.   They may assert a proprietary claim to the extent that their funds can be traced and identified as representing recognisable assets of the recipient.  The plaintiff only needs to show that the recipient has received or retained property in which the plaintiff has proprietary interest (Virgo, The Principles of the Law of Restitution (3^rd ed, 2016), pp 567-9).   

17.  Where a defendant seeks to show that there is no serious issue to be tried, the threshold for him to succeed is high, as he would need to demonstrate that the claim should be struck out (Yifung Properties Ltd & Ors v Manchester Securities Corp and Ors, CACV 258/2015, 9 September 2016), §20.

18.  On the basis of the evidence before the Court, it is clear that both the D15 Sum and D16 Sum came from the 7^th Transfer.  They are traceable proceeds of P’s assets which were transferred to HRJ’s account pursuant to the fraud perpetrated against P, and P has a proprietary claim over the D15 Sum and D16 Sum.  Unless D15 and D16 are able to establish a valid defence to P’s claim, they are liable to return the D15 Sum and D16 Sum to P.  

19.  In their Defences, both D15 and D16 advanced 2 positive defences to P’s claim namely, bona fide purchaser for value without notice and change of position.  For the purpose of opposing the continuation of the Injunction, D15 and D16 only rely on the defence of bona fide purchaser for value without notice.   

20.  It is well established that to raise a defence of bona fide purchaser for value without notice, the defendant has to prove that (1) there was a purchase for value (2) of the legal estate in property (3) in good faith (4) without notice (5) at the time of transfer of the legal estate (Lewin on Trust, 20^th ed, §44-119).

21.  Ms Natalie So, counsel for D15 and D16, submits that the evidence adduced by D15 and D16 show that they are bona fide purchasers  for value in respect of the D15 Sum and D16 Sum which, she says, is sufficient to defeat P’s proprietary claim and the claim in unjust enrichment. 

22.  So far as D15 is concerned, the D15 Sum represented payment made by Tin Loong on 17 December 2019 for purchase of Samsung LED monitors (“Monitors”).  The relevant transactions are evidenced by the following documents adduced by D15:

(1)  The 4 invoices dated between 2 and 9 December 2019 whereby D15 contracted to sell 9,500 units of Monitors for US$499,865 to Tin Loong;

(2)  The 4 invoices dated between 10 and 19 December 2019 whereby D15 contracted to sell 12,500 units of Monitors for US$592,625 to Tin Loong;

(3)  On 16 December 2019, D15 purchased 9,963 units of Monitors from Meridian Wireless Limited (“Meridian”) for US$472,614.31;

(4)  On 17 and 18 December 2019, D15 purchased 16,204 units of Monitors from Meridian for US$485,787.02; and

(5)  Specifically, US$212,323.07 (D15 Sum) was payment for the invoice dated 17 December 2019 for sale of 5,000 units of Monitors to Tin Loong.

23.  Ms So also points to the shipment documents pertaining to D15’s purchase of the Monitors from Meridian and submits that they show that D15 has provided good consideration for its receipt, in that D15 has evidently acted on its promise to perform (Snell’s Equity, 34^th ed, §4-022).

24.  Mr Ernest Ng, counsel for P, submits that the evidence of D15 is incredible given that:

(1)  there is no evidence to show that it was the normal and proper trade practice for electronic product traders to use prepaid monies from customers to source products from the suppliers;

(2)  it is questionable why D15 would agree to sell the Monitors to Tin Loong before it sourced the same from Meridian;

(3)  the invoices contained only a company chop of D15 but not the signature of any person; and

(4)  there is a complete lack of documents to show that the 5,000 Monitors were actually delivered to Tin Loong.  It is inconceivable that there would be no delivery documents of any kind, given that each pallet of the Monitors delivered to D15 weighed over 420kg. 

25.  In response, Ms So contends that D15 is not a sophisticated or substantial business entity and the fact that D15 did adopt the practice in the way it conducted its business with Tin Loong only shows that the parties were willing to assume the risk in the way they did.  There is nothing sinister or unusual about the use of company shop, citing the observation of Louis Chan J in TS Office System Ltd v Wing Kee Produce Ltd [2015] 1 HKLRD 479, §29 and Butterworths Hong Kong Company Law Handbook, 22^nd ed, §124.02.

26.  As regards “good faith and without notice”, Ms So refers to the previous dealings between D15 and Tin Loong before the transfer of the D15 Sum, being the transactions made in October 2019 and November 2019 whereby Tin Loong purchased other quantities of Monitors from another company associated with the senior manager of D15.  There was simply no suspicious circumstances which would put D15 on notice about the propriety of the transfer of the D15 Sum from Tin Loong to D15.   

27.  As for D16, Ms So submits that the documents adduced by D16 show that:

(1)  the D16 Sum was paid by Tin Loong on 17 December 2019 pursuant to a “contract” constituted by an invoice (“Invoice”) made on the same day whereby D16 agreed to sell 740 iPhones to Tin Loong;

(2)  the 740 iPhones had already been sourced from 2 suppliers pursuant to (a) a contract made with Callable Telecom Ltd (“Callable”) on 10 December 2019 whereby D16 agreed to purchase 190 iPhones for US$129,200; and (b) a contract made with Zhong Tian Heng He (Tianjian) International Trade Co Ltd (“ZT”) on 17 December 2019 whereby D16 agreed to purchase 550 iPhones for US$399,300;

(3)  the purchase from ZT is supported by (a) a written confirmation dated 19 December 2019 from ZT stating that 550 iPhones had been delivered to Dubai; (b) the payment of US$339,300 from D16 to ZT on 17 December 2019; and (c) the air waybill showing that the iPhones were delivered by ZT on 18 December 2019; and

(4)  the purchase from Callable is evidenced by 2 invoices issued by Callable, and the amount was paid by D16 in cash.   

28.  As regards “good faith and without notice”, Ms So places much emphasis on the history of dealings between D16 and Tin Loong which started in as early as November 2017 and the absence of any suspicious circumstances which would put D16 on enquiry on the propriety of the receipt of D16 Sum from Tin Loong.

29.  However, the documents adduced by D16 do not inspire confidence.  In particular, the Invoice raises more questions than it answers:

(1)  unlike the other sales contracts used by D16 to sell products to Tin Loong in the past, there was no contractual provision governing the respective obligations of the parties;

(2)  the format of the Invoice bears much resemblance with the invoices previously issued by Ting Loong (as seller) to D16 (as customer);

(3)  the top of the Invoice did not bear any company name; and

(4)  the name of the company stated in the bottom of the Invoice was not D16, but another company.

30.  In my view, the evidence presently before the Court do not support D15/D16’s contention that they have a strong defence of bona fide purchasers for value without notice.  Leaving aside the veracity of the documents adduced by D15 and D16, which will be determined at trial, what is conspicuously lacking is any document showing that the Monitors and the iPhones in question were actually delivered by D15 and D16 to Tin Loong.  Without such evidence, it is difficult to see how it can be said that D15 and D16 have provided any “value” for the D15 Sum and D16 Sum. 

Risk of dissipation and balance of convenience

31.  As the bulk of D15 Sum and D16 Sum had already been transferred away from the bank accounts of D15 and D16 and their current whereabouts unknown, Mr Ng accepts that the Court has to consider whether there is a real risk of dissipation on the part of D15 and D16 and whether the balance of convenience is in favour of the continuation of the Injunction. 

32.  As regards risk of dissipation, Mr Ng urges the Court to follow the approach expounded by the Court of Appeal in Convoy Collateral Ltd v Cho Kwai Chee & Ors [2020] 6 HKC 81, §53:

“… The ultimate question is whether [the plaintiff] succeeds in showing objectively there is a solid basis for concluding that there is a real risk of unjustified dissipation of assets by a defendant. That question is to be answered by examining the evidence holistically. Evidence of dishonest and fraudulent conducts or other serious wrongdoings which form the basis of the claims, and which reflect adversely on the integrity of the defendant could point powerfully towards an inference of such risk.”

33.  Mr Ng submits that taking the evidence as a whole, there is a solid basis for concluding that there is real risk of dissipation of assets on the part of D15 and D16:

(1)  their defence of bona fide purchaser without notice is wholly incredible and should be rejected;

(2)  the absence of a credible defence and the fact that the funds in question have already been dissipated are sufficient for the Court to infer a risk of dissipation of assets (Convoy, §§47-48; Heitkamp & Thumann KG v Living Profit Trading Develop Ltd [2018] HKCFI 1006); and

(3)  D15 and D16 are companies with no meaningful assets.  The funds remain in their accounts are the only funds known to P.

34.  Ms So reminds the Court that the standard of proving real risk of dissipation is “relatively high” and should be established by “solid” and “cogent” evidence (China Medical Technologies & ors v Wu Xiaodong & ors [2019] HKCFI 1266, §17, per Ng J).  She contends that there is no such evidence against D15 and D16; the evidence shows that both D15 and D16 run legitimate businesses.  Further, balance of convenience lies against the continuation of the Injunction as D15 and D16 have been prevented from carrying on their business or using their only bank accounts, and the damage to their reputation and business cannot be compensated by damages.  

35.  In my view, there is a real risk of dissipation on the part of D15 and D16 for the following reasons:

(1)  While I do not think that the defence of bona fide purchaser for value can be rejected summarily, I do not think that as matter now stands, D15 and D16 have a credible defence to P’s claim for the D15 Sum and D16 Sum for the reasons stated in §§29 to 30 above. 

(2)  I agree with the other 2 matters advanced by Mr Ng (see §33(2)-(3) above).   

36.  Balance of convenience plainly lies in favour of continuing the Injunction. 

(1)  As submitted by Mr Ng, although D15 and D16 both assert the Injunction has the effect of preventing them from carrying on their business, they have not asked for variation of the Injunction to allow them to carry on their business.  This suggests that D15 and D16 have either not been carrying on their business or that they have other funds available to their use for the purpose of carrying on their business. 

(2)  More importantly, the evidence adduced by D15 and D16 suggests that the funds currently deposited in their bank accounts are the only assets known to P.  The Injunction is the only means to preserve such assets pending determination of P’s claim.