LINK FISH IMPORT & EXPORT S.L. v. MULTIPLY IMPORT & EXPORT HK LTD AND ANOTHER

HCMP 331/2016

[2023] HKCFI 2758

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 331 OF 2016

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J U D G M E N T

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Introduction

1.  This is the trial of the plaintiff’s claim and the 1^st and 2^nd defendants’ counterclaims in respect of 45 transactions which appeared on their face to be transactions for the supply and sale of promotional items for alcoholic beverages among the three parties.

2.  The plaintiff says that the 45 transactions were not genuine transactions but was the subject matter of a well-executed fraud instigated by a Ms Maria-Teresa Aguado Mateos (“Maria”), using the 1^st and 2^nd defendants as the vehicles to perpetuate the fraud.

3.  The 45 transactions took place between September 2014 to January 2016. The plaintiff says that it had made 118 payments to the 1^st defendant in the total sum of US$10,734,371.55 under them.

4.  The plaintiff was alerted to the fraud by a whistle-blower in January 2016. Shortly after that, it commenced the present proceedings. It claims the above sum from the 1^st and/or 2^nd defendants based on a number of heads of claim, including unjust enrichment, breach of contract, conspiracy to defraud, conspiracy to injure by unlawful means, dishonest assistance, knowing receipt and fraudulent misrepresentation.

5.  On the other hand, according to the documents filed by the 1^st and 2^nd defendants, they contend that the 45 transactions were genuine commercial transactions. However, the plaintiff stopped honouring its obligations under them since mid-January 2016. That amounted to repudiation of the contracts, which was wrongful. They therefore counterclaim for damages against the plaintiff for its repudiatory breaches.

6.  The plaintiff was represented by Mr Toby Brown, counsel, at the trial. The 1^st and 2^nd defendants were previously legally represented but the solicitors ceased to act for them since about August 2019. The defendants did not appear at the trial.

7.  The plaintiff called Mr Pedro Manuel Lopez Moreno (“Pedro”) as its sole witness. He adopted the contents of his witness statement and supplemental witness statement as his evidence in the trial.

8.  For the defendants, Mr Ladislao Vajda Guerrero (“Ladislao”) was supposed to be their sole witness. He had previously made an affirmation and two witness statements. As the defendants were absent, he was not called. Naturally and uncontroversially, his witness statements do not form part of the evidence before the court. Rather unusually, however, Ladislao made an affirmation on 17 May 2019 before a notary public in Madrid, Spain, which is entitled his 2^nd affirmation. According to the plaintiff, he sent that affirmation to Pedro.

9.  In his 2^nd affirmation, Ladislao made the following startling revelations:

(1)  He no longer believed that the statements which he had made in the two witness statements and his first affirmation to be correct.

(2)  He now believed that the 45 transactions to be false and they were part of a wider scheme executed by Maria. He had no knowledge of the true nature of the transactions at the time as he was not involved in the daily operation of the 1^st defendant’s business.

(3)  He had read the plaintiff’s documents filed in this action, including Pedro’s (first) witness statement. He agreed with the contents of that witness statement, among other documents.

(4)  Consequently, on behalf of the two defendants, he confirmed that they would not contest the plaintiff’s claim.

10.  Naturally, the plaintiff relies on Ladislao’s 2^nd affirmation in support of its case.

11.  I was satisfied that reasonable steps had been taken to notify the defendants of the date of the trial. The trial therefore proceeded in their absence.

Dramatis personae

12.  The plaintiff is a company incorporated in Spain in 2011. Its principal business was the sale and purchase of promotional items primarily for the alcoholic beverage industry. At the material time, it was 50.01% beneficially owned by Pedro through his company and 48.99% beneficially owned by Maria through her company. The remaining 1% was owned by another individual, who appeared to be a personal friend of Maria.

13.  The 1^st defendant is a company incorporated in Hong Kong. According to its defence, it was engaged in the business of distribution of branded alcoholic and non-alcoholic beverages and the manufacture and supply of promotional and marketing items for various industries, including the food and beverage industry.

14.  It is admitted by the 1^st defendant that it was beneficially owned by Ladislao. According to the plaintiff, it was ultimately controlled by Maria. The 1^st defendant denies that in its defence and says that Maria was never involved in its business affairs.

15.  According to the defendants, Maria and Ladislao were married from 1999 to 2013 but have since separated and divorced.

16.  Maria was a businesswoman engaged in the business of import, export, distribution and sale of promotional items.

17.  According to the filings at the Companies Registry, the directorship of the 1^st defendant underwent a number of changes in its composition during the period from February 2012 to January 2016. It would be sufficient to highlight here the following:

(1)  Ladislao acted as its director at various times.

(2)  Ascot Asia Corporation (“Ascot”), a BVI company, was appointed as its corporate director during this period.

18.  Ascot was owned in equal shares by Maria and her sister, Ms Maria Aguado Mateos. Maria was its sole director. It is the plaintiff’s case that the latter acted in accordance with the former’s instructions in relation to matters concerning Ascot.

19.  The 2^nd defendant is a company incorporated in Hong Kong. According to its defence, it was engaged in the business of import and distribution of spirits and soft drinks and was the representative and distributor of a number of well-known spirit brands.

20.  It is admitted by the 2^nd defendant that it was beneficially owned by Ladislao. According to the plaintiff, it was ultimately controlled by Maria. The 2^nd defendant denies that in its defence and says that Ladislao was one of the persons who was in charge of its day-to-day operation.

21.  As revealed by the company search, same as the 1^st defendant, the directorship of the 2^nd defendant went through a number of changes in its composition at the material time. It would be sufficient to highlight here the following:

(1)  Ladislao acted as its director at various times.

(2)  Ascot was appointed as its corporate director from February 2014 and remained as a director as of January 2016.

Procedural history

22.  This matter has gone through a longer than usual journey, with the delay attributable in main part to the COVID-19 pandemic.

23.  The plaintiff commenced these proceedings by originating summons on 15 February 2016.

24.  From the outset, the 1^st and 2^nd defendants were legally represented, initially by different law firms and later by the same law firm.

25.  In February 2016, the plaintiff obtained an ex parte mareva injunction against each of the defendants up to US$10,736,931.55 and a banker’s book order in respect of their bank accounts pursuant to section 21 of the Evidence Ordinance, Cap 8. The plaintiff then took out a summons to continue the injunction and the 1^st defendant took out an application to discharge the same.

26.  These applications came before Recorder Linda Chan, SC in April 2016. The decision was handed down in June of the same year. The injunction was continued until trial and the 1^st defendant’s discharge application was dismissed.

27.  The 2^nd defendant also took out an application to discharge the injunction but never applied to have it listed for substantive argument.

28.  In November 2016, it was ordered that the proceedings be converted to a writ action. Discovery was made and witness statements exchanged in the usual manner.

29.  In November 2018, the court granted leave for the action to be set down for trial with eight days reserved. The trial was fixed before G Lam J and was scheduled to commence on 1 June 2020.

30.  In August 2019, the solicitors’ firm then acting for the defendants was granted a “cease to act” order.

31.  Since then, no other firm has been appointed to act for the defendants. No notice to act in person has ever been filed. The defendants have since taken no further steps in the proceedings and have not responded to correspondence or documents served on them. (I should pause here to add that Ladislao’s 2^nd affirmation was sent to Pedro in May 2019, just a few months before the cease to act order.)

32.  In September 2019, G Lam J granted leave to the plaintiff to serve and adduce a supplemental witness statement of Pedro.

33.  In December 2019, G Lam J vacated the original trial dates, brought the trial forward to 28 February 2020 and reduced the length of the trial to one day, upon the expectation that neither defendant would appear at trial.

34.  Unfortunately, the re-fixed trial date fell within the general adjourned period announced by the Judiciary due to the COVID-19 pandemic. As a result, the one-day trial was adjourned. As Pedro was located in Spain, it was not possible to re-fix the trial until he was able to travel to Hong Kong.

35.  The trial eventually took place before me on 7 March 2023.

The plaintiff’s case

36.  The plaintiff’s factual case is as follows.

37.  Pedro came to know Maria in late 2010 in some business dealings between their respective companies.

38.  The plaintiff was formed in 2011 as a collaboration between Pedro and Maria. The collaboration was to take advantage of a business opportunity which Maria had identified that she presented to Pedro to finance. Maria claimed to have the necessary knowledge and connections to start a profitable business supplying promotional items for the alcoholic beverage industry.

39.  Pedro was not familiar with this line of business. It was agreed that Maria would contribute her expertise and experience in managing and developing the business while Pedro would be the sole financier. Pedro would not be involved in the day-to-day operation of the business.

40.  Maria identified the 1^st defendant as a supplier. At that time, she told Pedro that it was a company with whom she had worked with in her other business. She did not disclose to Pedro that she was connected with the company. As far as the plaintiff knows, the 1^st defendant appears to have been a genuine supplier of promotional items for the alcoholic beverage industry at the time.

41.  Maria then introduced the 2^nd defendant as a new customer. At that time, Maria told Pedro that it would be a reliable customer. She did not disclose to Pedro that she was connected with the company. Again, as far as the plaintiff knows, it appears that the 2^nd defendant had a genuine business as a distributor for certain brands of alcohol and may have genuinely traded in promotional items, sourcing them for third party customers.

42.  In this action, it is not the plaintiff’s position that the two defendants were purely vehicles of fraud. Rather, it seems highly likely that they operated genuine businesses of their own, and did some genuine businesses with the plaintiff.

43.  Here, the plaintiff’s claim is limited to the 45 transactions. Their details are set out in Schedule 1 to the statement of claim, a copy of which appears at the end of this judgment. Each transaction is identified by, among other things, the date of the plaintiff’s order to the 1^st defendant, the date of the 1^st defendant’s pro forma invoice, the invoiced amount, the total amount paid by the plaintiff to the 1^st defendant, the plaintiff’s invoice to its customer, and the name of such customer.

44.  The 45 transactions appeared on their face to be normal commercial transactions. It appeared that customers, including the 2^nd defendant, were placing orders with the plaintiff. When such orders were received, the plaintiff sourced the goods from the 1^st defendant, who then placed orders with factories in the mainland to fill those orders. The contract between the plaintiff and the 1^st defendant would be partly evidenced by the latter’s invoices.

45.  The 1^st defendant typically required tranche payments from the plaintiff at various stages of the procurement process. This would typically include a deposit, a payment on delivery to the customer or on the issuance of the bill of lading and a final payment 60 days after delivery. It can be seen from Schedule 1 that for some transactions, there could be as many as five tranches of payments.

46.  For ease of handling, the 1^st defendant shipped the goods directly to the plaintiff’s customers, which would often be the 2^nd defendant or the 2^nd defendant’s customers. As such, while the plaintiff was the “middleman” in the purchasing chain, it was not involved in the delivery chain and would never “handle” the goods sourced by the 1^st defendant and hence never had direct or independent evidence that they had actually been produced and delivered.

47.  The plaintiff was supposed to make a profit from the difference in the price paid to the 1^st defendant to source the goods and the higher price charged to customers for provision of the goods.

48.  The plaintiff’s role in the process was entirely controlled by Maria. She ran its day-to-day operation via her service company. In return, the service company received a monthly payment of about €14,000.

49.  However, unknown to Pedro at the time, the 1^st defendant was connected to Maria via Ladislao. In respect of the 45 transactions, although the 1^st defendant would accept the plaintiff’s payments, the 1^st defendant would not procure or deliver the goods.

50.  In the normal course of things, this should result in dissatisfied customers who had placed orders with the plaintiff which were never fulfilled. However, these customers fell into two categories.

(1)  The first category is those who appear to be third party customers. The plaintiff has subsequently made enquiries with these customers. Some have responded to the enquiries and some have not. For those who have, they stated that they did not in fact place the orders with the plaintiff.

(2)  The second category is the 2^nd defendant. Unknown to Pedro at the time, Ladislao was also its sole beneficial owner and hence through him, Maria was connected with the 2^nd defendant as well.

51.  This arrangement allowed Maria to cause the plaintiff to accept fake orders from purported third parties or from the 2^nd defendant. She did not require any payment in advance from these “customers”. She would then place corresponding orders with the 1^st defendant. The 1^st defendant would invoice the plaintiff such that the plaintiff would need to pay upfront and in tranche payments without any funds from the end “customer”.

52.  Despite being paid for the orders, the 1^st defendant would not actually produce the goods. At the time, it would appear to the plaintiff that the goods had been shipped to the third parties or, as the case may be, the 2^nd defendant. But in fact they had not. The plaintiff would then bill the third parties or the 2^nd defendant, who would become “indebted” to the plaintiff for the fake orders.

53.  In gist, the plaintiff was handing over actual funds to the 1^st defendant but accruing fictional debts payable by the third party “customers” or the 2^nd defendant.

54.  In early January 2016, Pedro was tipped off to the fraud by a whistle-blower, who used to work for a company of Maria. She told Pedro the following:

(1)  Maria was the ultimate owner of the two defendants.

(2)  Maria had been committing a fraud against the plaintiff by creating fictitious transactions with companies owned and/or controlled by her which involved the plaintiff making payments to these companies.

(3)  Maria, the 1^st defendant or the 2^nd defendant would not be able to produce any third party documents to support the validity of those transactions. Pedro should ask for the same.

55.  The tip-off sparked a chain of enquiry. Company searches revealed the link between Maria, Ladislao and the two defendants – see paras 17 and 21 above. The search results were in line with the whistle-blower’s allegations.

56.  Pedro confronted Maria, asking her to provide the third party documents. Maria refused. She resigned from the plaintiff on about 20 January 2016. The refusal to provide any supporting documents was, again, in line with the whistle-blower’s prediction.

57.  A subsequent review of the plaintiff’s records revealed that it had made 118 payments to the 1^st defendant in the total sum of US$10,734,371.55 in relation to the 45 transactions. This figure appears as the total figure in the bottom row of the table in Schedule 1. In fact, the plaintiff had not been paid by the end “customer”, whether that “customer” was the 2^nd defendant or a third party. Out of that total amount, the orders which were purportedly placed by third party “customers” accounted for US$3,925,973.08 and those purportedly placed by the 2^nd defendant accounted for US$6,808,398.47. The latter figure appears at the bottom right corner of the table under the heading “Total Amount Paid by Plaintiff to 1^st Defendant relating to 2^nd Defendant (USD)” in Schedule 1.

58.  Upon uncovering the fraud in mid-January 2016, the plaintiff stopped making further tranche payments to the 1^st defendant for the 45 transactions.

59.  The plaintiff’s investigation also reveals that the 2^nd defendant did make some payments in respect of certain orders placed by it (either for itself or other ultimate customers). Some of these may have been payments for genuine transactions. However, many payments appear to have been made using money provided to the 2^nd defendant by the 1^st defendant. These payments by the 2^nd defendant were to ensure that the bad debt situation did not become unsustainable (which may then alert Pedro to a problem and lead to discovery of the fraud). The 2^nd defendant looked “on the books” like a good customer paying its bills, albeit not promptly while the increasing volume of its order increased its overall indebtedness. This fraud is colloquially referred to as “kiting”.

60.  More specifically, for the years 2014, 2015 and 2016, the plaintiff paid the 1^st defendant a total sum of US$24,845,982.22, of which US$10,734,371.55 was paid pursuant to the 45 transactions. In those three years, the 1^st defendant paid a total sum of US$13,584,250 to the 2^nd defendant. There does not appear to be any genuine commercial purpose underlying such payments. Then, for the same period, the 2^nd defendant paid to the plaintiff a total sum of US$12,914,910.20 in settlement of invoices which are separate from the 45 transactions. The overall effect of such circular fund flow was that the plaintiff’s invoices to the 2^nd defendant were ultimately being settled with the plaintiff’s own funds as part of the “kiting” fraud.

61.  Based on its investigation, including the searches at the Companies Registry and the review of the documents obtained under the banker’s book order, the plaintiff’s case is that Maria, with the assistance of Ladislao and her sister, was in control of both defendants. Her concealed presence behind them left it open for her to come up with a scheme to deceptively siphon out money from the plaintiff. In fact, given their relationship, there could be no genuine commercial reason for the 2^nd defendant not to place orders directly with the 1^st defendant. Instead, it opted to place orders with the plaintiff, having to pay a premium in the process.

62.  Against such background, the plaintiff contends:

(1)  The 1^st defendant was at all times aware that the 45 transactions were not genuine transactions, as it did not in fact supply the goods.

(2)  The 2^nd defendant was at all times aware that those transactions purportedly placed by it with the plaintiff out of the 45 transactions were not genuine transactions. It never intended to pay for the same, knowing that such fake orders would result in orders placed with, and payments made to, the 1^st defendant by the plaintiff.

(3)  Each of the defendants further engaged in a fraudulent process of circulating funds in order to make the plaintiff to believe that the transactions were genuine.

63.  The evidence in support of the above factual case comes in the following forms.

64.  First, the witness statement and the supplemental witness statement of Pedro, which were adopted as his evidence under oath at the trial.

65.  Second, the search results obtained from the Companies Registry and the documents obtained under the banker’s book order reveal the relationships among Maria, her sister, Ladislao, Ascot, the 1^st defendant and the 2^nd defendant.

66.  Third, the replies made by some of the third party “customers” in response to the plaintiff’s enquiries show that the orders purportedly placed by them are fake (see para 50(1) above). Within this group of “customers”, some replied to the plaintiff in writing.

(1)  Johnson & Johnson, ie the customers listed in rows 1 to 3 in Schedule 1, confirmed that they had done business with the plaintiff in the past from about August 2011 to about April 2014, but as of February 2016 they had no open order with the plaintiff. Emails exchanged between the plaintiff and Johnson & Johnson were produced in the evidence. There was also a handwritten remark made by Johnson & Johnson on each of the copy of the plaintiff’s invoices stating that “This order does not belong to us” (English translation).

(2)  Bauer, ie the customer listed in row 4 in Schedule 1, confirmed that it had not done business with the plaintiff since November 2013 and did not enter into any transaction with respect to the invoice in question. Emails exchanged between the plaintiff and Bauer were produced in the evidence.

(3)  Shaw Ross, ie the customer listed in rows 33 and 34 in Schedule 1, confirmed in a telephone conversation that it had not done business with the plaintiff in respect of the two invoices in question.

67.  Fourth, Mr Brown highlights the objective fact that the process of arranging the manufacture and supply of goods is a document-heavy process and he points out that notwithstanding that, in the course of these proceedings, the 1^st defendant was not able to produce a single document evidencing the manufacture and the supply save for some invoices which were purportedly issued by some factories in the mainland. This must mean that it had no documents to produce and that was because there was no underlying manufacturing or supplying activity in the first place.

68.  Mr Brown submits that for the 45 transactions to be genuine transactions, there would exist documents relating to the 1^st defendant’s payment for the goods to the factories, and documents relating to the manufacture, storage and transportation and delivery of the goods (eg orders, quotes, samples, bills of lading). Yet, when confronted, Maria refused to produce any of these documents. In the course of resisting the interlocutory injunction, the defendants failed to produce any underlying documents generated by third parties.

69.  The lack of the underlying documents produced by the defendants in this action must be considered as proof that there was no such documentation and hence proof that the 45 transactions were not genuine.

70.  Fifth, in his 2^nd affirmation, Ladislao agreed to the correctness of the plaintiff’s case as revealed in the various affirmations and witness statement filed by the plaintiff. Mr Brown submits that it should be considered as an admission to the plaintiff’s claim and judgment should be entered on that basis. Alternatively, that affirmation, Mr Brown submits, is evidence against self-interest as far as the defendants are concerned. As such, it must be given considerable weight, which goes to support the plaintiff’s case.

71.  On the strength of the above factual case, the plaintiff claims against the defendants under a number of heads – see para 4 above.

The 1^st and 2^nd defendants’ case

72.  I should state at the outset that the (separate) defences filed by the defendants were accompanied by statements of truth signed by Ladislao. The defences can be broadly summarised as follows.

73.  The 1^st defendant pleads that the 45 transactions were genuine. Goods were in fact sourced for the plaintiff by the 1^st defendant in accordance with its orders. For some of the transactions, the goods were ready for delivery, pending instructions from the plaintiff as to where to deliver. For some others, because of the plaintiff’s wrongful repudiation in mid-January 2016 and failure to make further tranche payments, the 1^st defendant was unable to meet its obligations with the mainland factories and hence was unable to have the goods manufactured. For some other transactions, the goods were in fact manufactured and delivered to the 2^nd defendant and/or its downstream customers.

74.  The 1^st defendant was operated by its CEO and Ladislao essentially to the exclusion of Maria. In fact, Pedro knew about the relationship between Maria and Ladislao and knew that Ladislao was the 1^st defendant’s owner.

75.  In summary, for the 1^st defendant, its pleaded case is that it had performed or was performing its obligation when the plaintiff stopped making payments in mid-January 2016. This released the 1^st defendant from any further obligations and entitled it to forfeit payments which had already been made. As such, there was no fraud, no breach of contract by the 1^st defendant and no unjust enrichment.

76.  Furthermore, the 1^st defendant says that it made payments to the 2^nd defendant because it acted as the 2^nd defendant’s agent in Hong Kong in respect of the latter’s distribution business.

77.  As for the 2^nd defendant, its case largely mirrors that of the 1^st defendant. It pleads that Maria had no control over it.

78.  Each of the defendants make a counterclaim against the plaintiff. Shortly put, the counterclaims are based on breach of contract on the part of the plaintiff.

79.  The 1^st defendant says that its business has effectively ceased as it had lost its goodwill and reputation due to its inability to complete payments to factories and suppliers. It counterclaims the entire value of its business or, alternatively, loss of profits for the three years following the plaintiff’s wrongful repudiation or, alternatively, loss of profits in respect of some of the 45 transactions.

80.  The 2^nd defendant’s counterclaim is along the same lines. It further counterclaims for injurious falsehood or unlawful interference with business as in February and March 2016, Pedro contacted its business partners and licensors in the spirits distribution industry and told them about the alleged fraud.

Legal principles

81.  In his opening submissions, Mr Brown drew to the court’s attention the correct approach to a trial where the defendant fails to attend.

82.  The plaintiff must still prove on the balance of probabilities the various elements of his claim: The Financial Conduct Authority London Property Investments (UK) Limited [2022] EWHC 2862 (Ch) at para 6.

83.  There is also an obligation of fair presentation, which is less extensive than the duty of full and frank disclosure in an ex parte application:

(1)  The plaintiff should identify points of factual or legal note which may be of benefit to the defendant;

(2)  The plaintiff should not pursue claims which are not sustainable;

(3)  The plaintiff should identify to the court points which the defendant had taken before it decided to play no further part in the action; and

(4)  The plaintiff should also consider, and bring to the attention of the court, points which had not been taken by the defendant but which might well have been had it decided to defend the proceedings.

84.  See, eg, the discussion in China Citic Bank International Ltd v Cheuk Shuk Hing [2022] HKCFI 3646 at para 6.

85.  If the plaintiff’s case is based on fraud of the defendant, cogent evidence is required in order to discharge its burden of proof on the balance of probabilities: Moulin Global Eyecare Holdings Ltd v Lee Sin Mei Olivia [2019] 3 HKLRD 833, [2019] HKCFI 1715 at para 3 (a trial where the defendant was absent).

86.  In advance of the trial, Mr Brown had lodged an opening submissions, in which he set out the defendants’ cases as pleaded and such of the defendants’ evidence that is accepted as true or may be true that may suggest that they were genuine operators and not fraudsters. Having reviewed the submissions against the pleadings and other material documents included in the trial bundles, I am satisfied that the plaintiff, through counsel, has properly and fairly discharged its duty of fair presentation.

The evidence and factual findings

87.  In this action, the burden is on the plaintiff to make out the case that the 45 transactions were not genuine transactions in that the 1^st defendant did not intend to, and in fact did not, deliver the goods in accordance with the orders, and that the 2^nd defendant did not in fact make the payments to the plaintiff in relation to transactions relating to it and the third party “customers” in fact did not place those orders as stated to be placed by them.

88.  As the plaintiff is alleging fraud, it is required to produce cogent evidence to support its allegations.

89.  I have set out the evidence produced by the plaintiff in paras 17, 18, 21, 64 to 70 above. As the defendant was absent, Pedro was not cross-examined and his evidence is therefore effectively unchallenged. The plaintiff’s evidence does not comprise only Pedro’s evidence. It also contains written documents, including company search results and confirmations from some of the third party “customers”. The former reveal the connection between Maria, Ladislao and the two defendants. The latter is objective evidence from apparently independent parties to the action. I would accept their written confirmations in respect of the respective invoices at face value. It is true that not all third party “customers” had responded to the plaintiff’s enquiries. There is no need to speculate why that is the case. There is no obligation on their part to respond. In my view, the absence of response in these cases do not undermine the reliability of the plaintiff’s case.

90.  Overall speaking, the plaintiff’s factual case is inherently plausible, internally consistent and in part supported by objective documents. It is therefore credible.

91.  The credibility of the plaintiff’s factual case is further reinforced by the fact that while they were still defending the claims in this action, the defendants had failed to disclose documents which would support the genuineness of the 45 transactions and which ought to have existed if they had indeed been genuine.

92.  Lastly, the most unusual feature of this action is of course the 2^nd affirmation made by Lasdilao. While he signed a statement of truth in respect of the defences filed (separately) by the 1^st and 2^nd defendants, he effectively withdrew the assertions there in his 2^nd affirmation and confirmed in the most unambiguous terms that the 45 transactions were false. Since then, the defendants have not appeared once in these proceedings to defend themselves.

93.  For the above reasons, I accept on the balance of probabilities that the plaintiff’s factual case as set out above in full and find them as facts.

Rulings

94.  Based on my factual findings, I hold that the plaintiff succeeds in making out its claim under the following heads.

95.  Applying the principles set out in Shanghai Tongi Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79 at para 67, the claim against the 1^st defendant based on unjust enrichment is made out. The 1^st defendant was enriched in the total sum which it received for the 45 transactions. The enrichment was at the plaintiff’s expense. It was unjust because the 1^st defendant did not produce or deliver the goods paid for by the plaintiff and the sum was in fact received as a result of the fraud perpetuated by the 1^st defendant. And there is no applicable defence.

96.  Out of the 45 transactions, in respect of those where orders were purportedly placed by the 2^nd defendant as a customer, the 1^st and 2^nd defendants are liable for conspiracy to defraud and conspiracy to injure by unlawful means in respect of the total amount of those orders. By perpetuating these fake transactions, the defendants were plainly dishonest. The purpose was to cause the plaintiff to pay funds to the 1^st defendant in the belief that it was purchasing goods to be sold to the 2^nd defendant.

97.  Funds received as a result of a fraud are prima facie held on constructive trust by the recipient. And the funds are recoverable and traceable in equity. See, eg, Sultana Distribution Services Inc v Hong Kong Fuheng Technology Co., Ltd [2018] HKCFI 1480. Here, by reason of the fraud as proved, the 1^st defendant holds the total sum which it received in respect of the 45 transactions on trust for the plaintiff.

98.  The above would be sufficient to dispose of the plaintiff’s claim. I do not therefore consider it necessary to examine whether the other heads of claims are made out. I would only record here that Mr Brown confirmed at the closing stage that in the event that I found that the 45 transactions were not genuine, the plaintiff would not pursue the breach of contract claim.

99.  As the counterclaims of the defendants are premised on the 45 transactions being genuine, they must be dismissed given my factual finding that they were not.

Orders

100.  In the course of his closing submissions, Mr Brown submitted a revised draft order for the court to make if it was to rule in favour of the plaintiff. I now make an order in terms of paras 1 to 7 of that draft, save that in para 6, the date of “7 September 2023” should be altered to “30 April 2024”.

101.  The judgment sums asked for are very slightly reduced (by $94.1), which now stand at (1) US$10,734,277.45 (for the total sum received by the 1^st defendant), and (2) US$6,808,304.37 (for the total sum relating to the orders purportedly placed by the 2^nd defendant). The plaintiff is prepared to take into account the amounts admitted by the defendants to have been made, which is $94.1 less than the plaintiff’s calculations.

102.  In broad terms, I grant a declaration that the total sum set out in para 101(1) above and received by the 1^st defendant is held on constructive trust for the plaintiff and the 1^st defendant do account to the plaintiff for that sum, together with interest.

103.  Further, I order that the 1^st and 2^nd defendants do jointly and severally pay the plaintiff the sum set out in para 101(2) above, together with interest.

104.  As elected by the plaintiff, it only asks for interest to run from 11 January 2016, which is the date of the last payment made by the plaintiff to the 1^st defendant.

105.  The interlocutory injunction against the defendants be continued for six months counting from the date of this judgment to allow for enforcement. It is justified to continue the injunction for that purpose as the fraud case against the defendants has now been made out and that points to a real risk of dissipation. It would be just and convenient to order a continuation.

106.  In addition, I order that the counterclaims of the 1^st and 2^nd defendants be dismissed.

107.  I make an order nisi that the plaintiff do have costs of the action and the counterclaims, including all reserved costs, to be taxed on an indemnity basis if not agreed.

108.  Provisionally, I accept Mr Brown’s submissions on costs.

109.  When the defendants filed their evidence, the best that can be said is that the evidence was untrue because Ladislao had no knowledge of the events. In that event, he had no right to set out baseless evidence to resist the plaintiff’s claim. At worst, the evidence was deliberately untrue. In either case, this is a case where the court should mark its disapproval of the defendants’ conduct in this litigation by awarding costs against them on an indemnity basis: Society for Protection of the Harbour Ltd v Town Planning Board [2004] 1 HKLRD 127 at para 11.

Schedule 1