BARCO INVESTMENTS LTD v. WONG YAN HO (also known as GEOFFREY WONG YAN HO) AND OTHERS

HCA 1184/2022

[2023] HKCFI 1648

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1184 OF 2022

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BETWEEN

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D E C I S I O N

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1.  There are two summonses before me:

(1) the plaintiff (“P”)’s Amended Summons dated 27 March 2023 (“Amended SJ Summons”) for summary judgment and/or interim payment against the 1^st, the 6^th, the 7^th and the 8^th defendants (“D1”, “D6”, “D7” and “D8” respectively);

(2) as an alternative to the application against D1 above, P’s Summons dated 4 May 2023 for a Hadkinson order against D1 (“Hadkinson Summons”).

2.  P’s case, in essence, is that P is the victim of a fraudulent scheme, by which P was induced to participate in a purported pre-IPO investment opportunity (“StockX Investment Opportunity”) in buying some shares of StockX LLC, a company operating an online marketplace for the sale of sneakers, apparel, and other goods (“StockX”).

(1) In June 2021, P paid US$6,300,073.82 (“Investment Sum”)[1] for the subscription of shares in an exempted Cayman limited partnership, ie the 4^th defendant (“D4”) on the basis that D4 would then acquire shares in StockX. Clause 5 of the Subscription Agreement (“SA”) signed in respect of the StockX Investment expressly provided that the Investment Sum would either be (a) released to the seller, if D4 was able to acquire StockX shares, or (b) refunded to P, if not.

(2) In or about October 2021, P was presented with a set of documents purporting to show that D4 had acquired shares in StockX (“Purported StockX Documents”).

(3) Unbeknown to P at that time, D4 never acquired any shares in StockX. In fact, shortly after P paid the Investment Sum through the 9^th defendant (“D9”) into the 2^nd defendant (“D2”)’s account controlled by D1, it was transferred to, inter alios, D1, D6, D7 and D8, who received US$4,198,100 (“D1 Sum”), US$640,900 (“D6 Sum”), US$500,000 (“D7 Sum”) and US$200,000 (“D8 Sum”) thereof respectively.

(4) P only came to know the fraud in late August 2022.

3.  D1 is absent in the hearing before me. However, for the reasons set out in [33] below, I am satisfied that D1 had notice of this hearing, but he chose not to attend the hearing without giving any explanation to the court. In the circumstances, the court ought to proceed to hear and determine the aforesaid summonses notwithstanding the absence of D1 in the hearing.

4.  In the hearing before me, P is represented by Mr Benjamin Yu SC (leading Mr Danny Tang, Me Keith Chan and Mr Jonathan Fung), and D6 to D8 are represented by Mr Ambrose Ho SC (leading Mr Vincent Lung and Mr Bryan Lee).

A. BACKGROUND FACTS

5.  The following background facts are taken from P’s written submissions dated 1 June 2023. Those background facts are not in dispute or indisputable.

6.  P is an indirectly wholly-owned subsidiary of Sinostar FE (PTC) Ltd, a private trust company. The beneficiaries of the trust are Mr Chiau Sing Chi (“Mr Chiau”) and his family. Ms Gaw Ching Ying (“Carol”) was P’s representative for matters relating to the StockX Investment Opportunity.

7.  D1 was a director and the sole shareholder of D2, the investment manager of D4, and the ultimate beneficiary of a bank account of D2 with DBS (“Critica DBS Account”) into which the Investment Sum was paid by P. D1 was also a director and shareholder of the 3^rd defendant (“D3”), the General Partner of D4. Further, D1 was the initial limited partner of D4.

8.  D6 and D7 were the middlemen who introduced P to the StockX Investment Opportunity.

(1) They were employees of the 9^th defendant (“D9”), a licensed securities brokerage for carrying out Type 1 (dealing in securities), Type 2 (dealing in futures contracts), Type 3 (leveraged foreign exchange trading) and Type 9 (asset management) regulated activities under the Securities and Futures Ordinance, which was wound up by the court on 3 May 2022. D6 was the Head of D9’s Business Development Team, whereas D7 was a licensed representative.

(2) D6 was also a director and shareholder of the 8^th defendant (“D8”), a company which became a director and the majority shareholder of D3 on 8 June 2021.

(3) D7 held himself out as a director of D8 on his name card.

9.  In or around March 2021, P was introduced by D6 and D7 to the StockX Investment Opportunity. The StockX Investment Opportunity originated from D1, who had allegedly obtained the same from his connections.

10.  Over the following weeks, D6 and D7 provided P with information and various documents relating to the StockX Investment Opportunity, including the following:

(1) At the beginning, D6 and D7 provided P a structure chart showing that the StockX Investment would be effected by way of a 2-tier fund structure:

(a) P would invest in a Hong Kong fund managed by D9 holding 100% of a Cayman fund (ie D4) managed by D2.

(b) D4 would in turn purchase and hold shares of StockX (valued at US$85 per share) at a discounted price of US$82.204 per share.

(2) Thereafter, D6 provided P with an updated structure chart for the StockX Investment, with the Hong Kong fund removed and P subscribing directly in D4 as a limited partner.

(3) On 28 April 2021, in a WhatsApp group chat comprised of Carol, D6 and D7, in response to a question from Carol as to why the seller was selling his shares in StockX, D6 replied and said “he is very early around [sic] investor. The return of his already 10x. He is selling part of it only, not all. He is keeping the rest for even longer position. The seller is entertainment industry background. the sector has been affected since Covid. Based on the relationship with the seller, he is fine to sell to close and friendly party”.

(4) On or around 13 May 2021, P was provided by D1 (through D6 and D7) with a letter purportedly issued by SS&C Inc (“SS&C”, a reputable fund administrator), the purported administrator of the Fund (“Purported SS&C Letter”). The letter was certified as a true copy by D1’s lawyer, Mr Richard Keady (“RK”), a partner at Dentons Hong Kong LLP. In the letter, it is stated that (a) SS&C had an active Service Agreement with D2 and (b) had control over, inter alia, the Critica DBS Account.

11.  D6 and D7 also represented to P (through Carol) that:

(1) D4 was specifically set up to hold only shares in StockX; and

(2) As D9 was the advisor, introducer and custodian of the StockX, P would have to first pay the subscription monies to D9, which would then release the monies to D4 for use in purchasing shares of StockX.

12.  Subsequently:

(1) On 12 May 2021, P applied to open a securities trading account with D9.

(2) On 24 May 2021, P transferred US$6,318,094 (“the Total Payment”, which is the total of the Investment Sum plus some bank fees) to D9’s bank account with Bank of Communications (“D9’s Account”).

(3) On 9 June 2021, P signed two agreements, which are as follows:

(a) Amended and Restated Exempted Limited Partnership Agreement of Burnaby Capital BC Growth Fund LP (“ARLPA”) between P (as Limited Partner), D3 (as General Partner) and D1 (as initial limited partner). P’s case is that the following clauses in the agreement are relevant:

(i) Clause 1.1 defines the “Investment” and the “Investment Strategy” are defined as “an investment in the Target by the Partnership in accordance with this Agreement” and “acquisition and holding shares in investments in the Target”. The “Target” is defined as “StockX LLC registered in the state of Michigan, United States of America with registered company no. 801826165”.

(ii) Clause 15.8 stipulates that as soon as practicable after each quarter, the General Partner shall send to the Limited Partner a report summarising the financial position of D4 during the relevant period, which shall include a copy of the unaudited financial statements, a description of the performance of each Investment, and the value of each Investment.

(b) SA between P and D3 (re-signed on 10 June 2021 by reason of a clerical error in the name of D4), in which it is stated:

(i) In Clause 1, D3 acknowledged receipt of the payment of US$6,300,073.82 (inclusive of subscription fees) for the subscription of 72,990 interests in D4.

(ii) In Clause 3, P undertook to pay all subscription monies into the Critica DBS Account.

(iii) In Clause 4, it is stated that the account details of the Critica DBS Account had been confirmed by SS&C, the Fund Administrator, to be under its sole control for payment services, and that “for the avoidance of doubt, all monies sent by [P] will then be controlled by SS&C Inc and will be released either to the seller of shares in StockX LLC or refunded to [P] under the conditions of [Clause 5]”.

(iv) In Clause 5, the parties agreed that:

- Upon receiving the subscription monies, D2 will inform the seller of StockX shares with proof of funds and request the sellers to immediately submit a right of first refusal (“ROFR”) request to the board of directors of StockX;

- During the 14-day period of the ROFR request, the funds are to be kept with D2 and monitored by SS&C;

- In the event the ROFR request is granted and passed, D4 will enter into a legally binding share purchase agreement with the seller and complete the same within 3 business days, whereupon the funds will be released by SS&C to the seller.

- After completion, D3 shall make sure to obtain the share certificate of StockX addressed to D4 from the StockX board, and register D4 as a member of StockX within 5 business days.

- If the ROFR is unpassed, the funds will be refunded by SS&C without interest to P (via the NBL BOCOM Account) within 1 business day.

13.  P’s case is that D3 held the Investment Sum paid to it by P through D9 on an express trust, either (1) for the Investment Sum to be paid to seller of the StockX shares if the ROFR request is granted and D4 enters into a share purchase agreement with the seller of the StockX shares, or otherwise (2) to be returned to P if the Investment Sum cannot be applied to purchase StockX shares.

14.  On the same day (ie 9 June 2021), P authorised D9 to transfer the Investment Sum from D9’s Account to the Critica DBS Account by way of a Cash Withdrawal Request Form. The Investment Sum was paid into the Critica DBS Account on 10 June 2021.

15.  After P’s entry into the StockX Investment, P proceeded on the basis that the Investment Sum had been applied to acquire StockX shares in accordance with the ARLPA and SA. P’s case is that P was led to have such belief by D6 and D7, who in October and November 2021 provided P with a series of documents purporting to show that D4 had acquired shares in StockX (“the Purported StockX Documents”), which comprised the following:

(1) a copy of a purported share certificate issued by StockX dated 1 October 2021 numbered #93, which purported to show that D4 was the registered holder of 206,805 shares in StockX (“Purported Share Certificate”);

(2) a copy of a purported capitalization table of StockX dated 30 September 2021, which purported to show that D4 held 206,805 “Secondary” shares in StockX, equivalent to a 0.46% shareholding (“Purported Cap Table”);

(3) a copy of a purported shareholders agreement between D4 and StockX dated 1 October 2021 (“Purported Shareholders Agreement”); and

(4) a copy of a purported Amended and Restated Bylaws of StockX purportedly executed by D4 on 1 October 2021, which enclosed a Register of Members of StockX showing that D4 had been entered on the Register as a member on 30 September 2021.

16.  The Purported StockX Documents were provided to D6 and D7 by D1. All the Purported StockX Documents were all certified as true copies by D1’s lawyer, RK.

17.  Separately, D6 and D7 provided Purported Statements of Fund Performance issued by D4 for the periods from 30 Nov 2021 to 31 Dec 2021, 28 Feb 2022 to 31 Mar 2022, and 31 May 2022 to 30 Jun 2022, purporting to show that P had an interest in D4 valued at “share prices” of US$85.000, US$84.982 and US$84.964 respectively (“Purported Fund Statements”).

18.  Unbeknown to P until after the commencement of these proceedings, the Investment Sum was not in fact applied to towards the acquisition of StockX shares, but was promptly transferred out from the Critica DBS Account to, inter alios, D1, D6, D7 and D8. From the documents disclosed by DBS, it can be seen that:

(1) Prior to the receipt of the Investment Sum on 10 June 2021, the Critica DBS Account had a balance of US$17.35.

(2) Following the receipt of the Investment Sum of US$6,300,073.82, outward payments totalling US$6,299,000 were made to inter alios, D1, D6, D7 and D8 between 10 and 11 June 2021, which after bank charges left a balance of US$1,022.38 in the Critica DBS Account.

(3) The Critica DBS Account remained largely dormant afterwards and was closed on 29 September 2021.

19.  P only discovered the following in the course of these proceedings:

(1) D3 had in fact been struck off by the Cayman Islands Registrar on 30 October 2020, ie more than 9 months prior to its receipt of the Investment Sum.

(2) SS&C never had control over the Critica DBS Account. At all material times, the only authorised signatories of the Critica DBS Account were D1 and the 5^th defendant (“D5”). As between D1 and D5, only D1 was authorised to perform cash management functions.

20.  On 23 August 2022, D6 and D7 met with Carol, at which they informed her that:

(1) D6 and D7’s Michigan lawyers had received confirmation from StockX’s lawyers by email that (a) D4 does not own and has never owned shares in StockX, (b) the purported seller, Steve Aoki (“Aoki”), has never sold his shares in StockX, and (c) the Purported Share Certificate is a forgery.[2]

(2) D6 and D7’s Hong Kong lawyers, Messrs Hau Lau Li & Yeung (“HLLY”) had reported the fraud to the Hong Kong Police.[3]

21.  Given StockX’s confirmation, there can be no dispute that the Purported Share Certificate, the Purported Cap Table and the Purported Shareholders Agreement were forged, and the Purported Fund Statements contained false information.

22.  By letters dated 31 August and 2 September 2022, P’s solicitors, Anthony Siu & Co (“ASC”) made enquiries with HLLY as to what remedial steps they would take in light of their discovery, and requested that they provide information about the whereabouts of the Investment Sum. ASC did not receive any response.

23.  On 14 September 2022, P commenced these proceedings against D1 to D4 and obtained an ex parte injunction and ancillary disclosure orders against them (“1^st Injunction Order”).

24.  In the course of serving the 1^st Injunction Order, P discovered that (a) D2 had been struck off, (b) D3 and D4 were both pending strike off, and (c) Walkers Corporate Ltd (“Walkers”) had resigned as the registered office provider for all three entities.

25.  At the return date hearing of the 1^st Injunction Order on 23 September 2022:

(1) ST Poon J ordered that the 1^st Injunction Order be continued against D1 and granted P’s application for disclosure of bank records from DBS Bank in respect of the Critica DBS Account (“1^st Bankers Trust Order”).

(2) D1 obtained an extension of time for compliance with his ancillary disclosure obligations in the 1^st Injunction Order.

26.  By an email on 28 September 2022 at 22:17, i.e. shortly prior to the expiry of the extended deadline for D1’s disclosure of the whereabouts of the Investment Sum (“28 Sep Email”), Mr Phillip Georgiou of Messrs Georgiou Payne Stewien stated on D1’s instructions that:

“1. …… as of today’s date, [D1] has no knowledge of the location of the Investment Sum;

2. …… to the best of [D1’s] knowledge and recollection, the Investment Sum was transferred from [the Critica DBS Account] sometime towards the end of June 2021 to an entity by the name of Dimmak LLC (the entity that [D1] believed was selling and transferring its shares held in StockX to [D4]) upon the authorization of SS&C (the fund administrator appointed to manage the [Critica DBS Account]). [D1] has since the date of the Order made inquiries with SS&C to confirm that the transfer was in fact made to Dimmak LLC. SS&C has not answered the inquiries. Consequently, [D1] does not have actual knowledge if the transfer to Dimmak LLC occurred towards the end of June 2021 or at any other time.”

27.  On 30 September 2022, P was provided by DBS with bank records for the Critica DBS Account (“DBS Documents”) pursuant to the 1^st Bankers Trust Order. The DBS Documents revealed for the first time that the Investment Sum had been transferred to, inter alios, D1, D6, D7 and D8 (not paid to SS&C or any entity named Dimmak).

28.  On the basis of the DBS Documents, on 6 October 2022, P obtained a further ex parte injunction and ancillary disclosure orders against, inter alios, D1, D6, D7 and D8 (“2^nd Injunction Order”). The 2^nd Injunction Order was continued by Cheng J at the return date on 14 October 2022.

29.  On 18 October 2022, ST Poon J granted retrospective leave to P to disclose the DBS Documents to the Police. His Lordship observed that there was “prima facie evidence of fraud” perpetrated by various parties on P, and it was clear that D1 had “attempted to mislead the Court” by denying knowledge of the whereabouts of the Investment Sum, with the result that “Police assistance was required” to trace the Investment Sum.

30.  In or about February 2023, following enquiries from P, SS&C provided P with a copy of a letter dated 28 December 2022 sent by their solicitors to D2 (“Cease and Desist Letter”), in which SS&C confirmed that:

(1) the Purported SS&C Letter was false and forged;

(2) the use of SS&C’s name, information and intellectual property on the Purported SS&C Letter was unauthorised;

(3) the purported signature of Normand A Boulanger (allegedly a director of SS&C) on the Purported SS&C Letter was forged;

(4) SS&C had informed D2 by email on 10 May 2021 that no service agreement ever existed between D2 and SS&C and that any prior services agreement that might existed had expired and was no longer effective; and

(5) the statement in the Purported SS&C Letter that SS&C had oversight and control of, inter alia, the Critica DBS Account was “entirely untrue”.

31.  D1 did not comply with the ancillary disclosure provisions in the 1^st and 2^nd Injunction Orders:

(1) In respect of the order that D1 shall disclose the whereabouts of the Investment Sum or its traceable proceeds (1^st Injunction Order §4), D1 provided demonstrably false information to P by way of the 28 Sep Email as described above.

(2) In respect of the order that D1 shall make disclosure of all his assets of an individual value of HK$50,000 or more (1^st Injunction Order §5), D1 provided a generalised list of 6 categories of assets (namely bank accounts, artwork, timepieces, men’s clothing, wine collection and men’s jewelry) without any breakdown as to the location, value, or details of each individual asset.

(3) D1 did not comply with the order that he verify his disclosures by way of affidavit (1^st Injunction Order §6).

(4) D1 did not attempt compliance with the order that he shall disclose the whereabouts of the sum of US$4,198,100 transferred into his Standard Chartered Bank account (2^nd Injunction Order §11).

32.  On 5 January 2023, P commenced HCMP 24/2023 to commit D1 for criminal and civil contempt pursuant to leave granted by ST Poon J.

33.  Initially, D1 was represented by Messrs Oldham, Li & Nie (“OLN”) in these proceedings. On 20 February 2023, upon the joint application made by P’s solicitors and D1’s solicitors by a consent summons dated 19 February 2023, Recorder William Wong SC directed, inter alia, that the substantive hearing of P’s application for summary judgment be heard on 8 June 2023. Hence, D1 must have notice of this hearing.

34.  On 21 February 2023, ST Poon J found the charges of criminal and civil contempt presented by P proven beyond reasonable doubt, adjourned the matter for sentencing (for which D1 was specifically ordered to appear in person) and issued a warrant for D1’s arrest.

35.  Thereafter, D1 attempted to comply with the 1^st Injunction Order §§5 and 6 by way of an affirmation filed on 6 March 2023 (“D1’s 2^nd”). P’s case is that D1’s 2^nd is deficient. In any event, D1 has not attempted to purge his breaches of the 1^st Injunction Order §4 and the 2^nd Injunction Order §11.

36.  At the adjourned hearing of the committal proceedings on 11 May 2023 (at which D1 did not appear), ST Poon J reserved his decision on sentence.

37.  On 29 May 2023, OLN obtained leave from the Court to cease to act for D1 in this action.

38.  Up to the date of the hearing before me, the arrest warrant issued against D1 remained unsatisfied.

B. SUMMARY JUDGMENT AND INTERIM PAYMENT - THE PRINCIPLES

39.  The previous “fraud exception” in Order 14 was removed on 1 December 2021. From that date onwards, summary judgment can be sought, even if the plaintiff’s claim involves an allegation of fraud.[4]

40.  The principles concerning summary judgment are trite. A summary of those principle can be found in a recent decision by Ng J in Guanghua SS Holdings Ltd v Lim Yew Cheng[5]. Those principles are as follows:

(1) The Order 14 machinery works on the basis that if the plaintiff’s application is properly constituted, it is prima facie entitled to judgment unless the defendant shows cause to the contrary.

(2) The mere assertion in an affidavit of a given situation by the defendant responding to an application for summary judgment does not, ipso facto, ground leave to defend.

(3) The burden is on the defendant to show a real or bona fide defence or some other reason for a trial. The defendant must satisfy the Court that his evidence is capable of being believed and that on the basis of such evidence, there is a fair or reasonable probability of the defendant having a real or bona fide defence.

(4) In deciding whether there is a fair or reasonable probability of the defendant having a real or bona fide defence, the Court does not isolate each factual issue and consider whether it is possible that the defendant’s story on that issue is credible. Rather, the Court must look at the whole situation.

(5) In assessing the credibility of the defendant’s factual case, while the Court will not embark upon a mini-trial on affidavit evidence, the Court is not obliged to suspend its critical faculties and assume that the defendant’s evidence is accurate.

(6) If having regard to inherent plausibility, inconsistency with contemporaneous documents and other compelling evidence, the defence is not credible, the Court must say so.

(7) If the defendant’s evidence is incredible in any material respect, it cannot be said that there is a fair or reasonable probability that the defendant has a real or bona fide defence.

41.  It has to be borne in mind that in determining an Order 14 application, the real question is whether the defendant’s defence is reasonably arguable, and whether the defendant’s factual case is capable of being believed, not whether it is to be believed at the trial.

42.  It has to be also borne in mind that where “the point at issue is at heart a short one the court will recognize the fact and act accordingly no matter how bulky its outer garments”.[6]

43.  The standard of proof in civil cases, in which serious allegations of misconduct such as fraud is in issue, is on the preponderance of probabilities, and the degree of probability must be commensurate with the occasion. That does not mean that the court is looking to a degree of probability higher than the civil standard. It means that the more inherently improbable the act in question, the more compelling will be the evidence needed to satisfy the court on a preponderance of probability.[7]

44.  Regarding interim payments[8],

(1) The court would first consider whether the applicant would obtain judgment for a substantial sum of money at trial. The test is essentially the same as for granting conditional leave to defend: the court must be satisfied that the defendant either has no arguable defence or that there are sufficient doubts regarding the genuineness of the defence, ie the defence is shadowy.

(2) If so satisfied, the court would then decide whether to exercise its discretion to make an order, and if so, for what amount.

C. P’s CLAIM AGAINST D1

C1. Summary Judgment

45.  Based upon the evidence before the court, I am of the view that D1 has not shown any triable issue, and P is entitled to have summary judgment against D1. That being the case, it would not be necessary for me to consider P’s application for interim payment against D1

46.  P’s claim against D1 is based upon the following causes of action:

(1) Deceit;

(2) Dishonest assistance;

(3) Proprietary claims over the Investment Sum and its traceable proceeds based upon knowing receipt; and

(4) Unlawful means conspiracy

47.  D1 has filed his 3^rd Affirmation in opposition to P’s application. Although D1 did not attend the hearing before me, I have considered the evidence in opposition put forward by him. In my view, the contentions put forward by D1 in his affirmation are unbelievable, and D1 has failed to show any arguable defence to P’s claim.

48.  D1 has put forward the following in opposition to P’s application for summary judgment:

(1) He had genuine discussions on the StockX Investment with the purported seller, Aoki.

(2) His receipt of US$4,198,100 of the Investment Sum was the reimbursement of a sum of US$4.25 million which D1 had paid to Aoki’s representatives using D1’s own funds as a deposit, in advance of P’s entry into the StockX Investment.

(3) Regarding the Purported StockX Documents, there is no evidence whatsoever that the documents which he provided to D6 and D7 are the same documents passed on to P, and “there is serious doubt as to whether [D6 and D7] may have tampered with any documents”[9].

(4) Regarding SS&C, D1 said the following in his 3^rd Affirmation:

“I am aware that there is a clause within the documents between the Cayman entities and [P] that funds should be administered by SS&C, however, that is a clerical error, as [D6] and [D7] forgot to omit that part of the agreement when the deal had already been completed. If anything, [P] is entitled to bring an action against those entities for breach of contract on that specific clause, however, not against myself personally.” (Emphasis added)

49.  These contentions are unbelievable.

(1) D1’s allegation that he had genuine discussion on the StockX Investment with Aoki, and his allegation that he had paid US$4.25 million to Aoki’s representative as a deposit prior to P’s entry to the StockX Investment, are bare assertions without support of any documentary evidence. Applying common and commercial sense, if there is any truth in D1’s allegations, there must be some documents evidencing the same. The absence of any document in support of these allegations clearly shows that these allegations are incapable of being believed.

(2) D1 claimed that that he could not produce bank documents in support of the deposit of US$4.25 million claimed by him, “as since the imposition of [the injunction] bank accounts have been frozen, and in particular I have not been able to obtain documents or information from online banking including the payment confirmation”.[10] As submitted by Mr Yu, an injunction order would only freeze D1’s bank accounts, but would not prevent D1 from obtaining documents from the bank. Further, if D1 really could not obtain documents in support of his defence because of the injunction, D1 could make an application to seek an order from the court, allowing him to have access to the relevant bank documents notwithstanding the injunction. In my view, D1 is merely using the injunction order(s) obtained by P as an excuse to try to explain why he could not produce any document in support of his defence. That excuse is clearly untenable.

(3) The “reimbursement” claim is clearly inconsistent with his case as stated in the 28 Sep Email. In that email, it is stated that the Investment Sum, upon the authorization of SS&C, were transferred from the Critica DBS Account to Dimmak LLC, the purported seller of StockX Shares. The version in the 28 Sep Email has been clearly shown as being untrue by the DBS Documents.

(4) In accordance with the SA signed by D1 on behalf of D2, the Investment Sum should either be used to acquire StockX shares, or be returned to P. D1 did not say a word to try to explain why a substantial part of the Investment Sum were transferred to himself, but not applied to either of the agreed purposes.

(5) It is indisputable that the Purported StockX Documents are false and forged documents. These documents are clearly originated from D1, as they were certified as true copies by RK, who was D1’s lawyer.

(6) Regarding the claim that the references to “SS&C” in the SA are some clerical errors, this claim is unbelievable.

(a) In Clause 5 of the SA, it is stated:

“……

The funds are to be kept by [D2] and monitored by SS&C during the ROFR request ……

In the evented that the ROFR request is granted and passed, [D4] will enter into a legally binding Share Purchase Agreement with the seller of the shares and complete any completion within 3 Business days after the execution of the Share Purchase Agreement. Where then funds will be released by SS&C Inc to the Seller of the Shares. SS&C will be provided a copy of the Share Purchase Agreement.

……

In the event that a Right of First Refusal request is unpassed any funds sent by the Subscriber to [D2] shall be refunded by SS&C Inc within 1 Business Day to the Subscriber’s designated Bank Account with no interest bearing.” (Emphasis added)

(b) It is plain and obvious that in the deal as described in the SA, SS&C would play an important role. It is incapable of being believed that the references to SS&C in the SA are clerical errors.

50.  In my judgment, P’s evidence against D1 is compelling. D1 has not shown any arguable defence to P’s claim. Based upon the evidence before the court, notwithstanding the fact that the application before me is an application for summary judgment, I am able to come to the conclusion that D1 is clearly knowingly participated in the fraud perpetrated against P. As a result of the fraud, P has been given an impression that P was participating in the StockX Investment by transferring the Investment Sum to D2 in accordance with the SA. In fact, the StockX Investment as painted by D1 is a scam. At the end, P has paid the money and obtained nothing in return.

51.  With the aforesaid conclusion, D1 is clearly liable to P for the Total Payment by reason of deceit.

(1) The elements of the tort of deceit are as follows:[11]

(a) there must be a representation of facts by word or conduct;

(b) the representation must be made with knowledge that it is or may be false, in the sense that it must be wilfully false or in the absence of any genuine belief that it is true; and

(c) it must be proved that the claimant acted upon the false statement and suffered damage by so doing.

(2) D1 has certainly taken an important role in introducing the StockX Investment Opportunity to P. P was introduced by D1 (including providing the purported corporate documents of StockX and the Purported SS&C Letter to P) to that investment. In doing so, D1 had represented to P by conduct that the StockX Investment was genuine.

(3) Based upon the evidence before me, I find that while D1 was introducing the StockX Investment Opportunity to P, D1 knew that the whole matter was a scam, and D1 knowingly participated in the fraud.

(4) As a result of the fraud, P has suffered loss in having parted with the Total Payment, with nothing in return.

52.  As a result of the fraud, as against D1, P was entitled to rescission and did rescind the contractual documentation executed by P regarding the StockX Investment as claimed in [51] of the Amended Statement of Claim, which is as follows:

“51. By reason of [the fraud], [P] was entitled to elect to rescind all of the documents set out in paragraphs 14, 19 and 21 above (collectively “Transaction Documents”) and did so elect by service of the Injunction Order granted by Hon Anthony Chan J dated 6 October 2022 and the summons for joinder and amendment of the Writ of Summons dated 7 October 2022 on the relevant Defendants. ……”

53.  Regarding D1 Sum, D1 is holding the same, or its substitutes or traceable proceeds, on constructive trust for P.

(1) After rescission, all property transferred under the contract is held on constructive trust for the transferor.[12] Accordingly, P is entitled to trace D1 Sum, which is part of the Investment Sum fell into the hands of D1.

(2) Alternatively, the Investment Sum should be treated as being held on constructive trust for P as property obtained by way of fraud. As said by Coleman J in Predicine Holdings Ltd v Bianchi (Hong Kong) Ltd[13]:

“90. When property is obtained by fraud, equity imposes a constructive trust on the fraudulent recipient, so that the money is recoverable and traceable in equity. Even if the recipient is not a party to the fraud, if his state of knowledge is such as to make it unconscionable for him to retain the money, the defrauded claimant has a tracing remedy, that is the property is held on constructive trust for the claimant.

91. Knowledge does not have to be acquired at the time of receipt, but can be acquired subsequently while the money is still in the recipient’s hands. Therefore, the recipient may, for example, gain knowledge of the fraud from any injunction order, pleadings and other court documents served on that recipient.

92. Reference can also be made to Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 at 715-716, which emphasises that the mere receipt of monies, in ignorance of the mistake under which was paid, gives rise to no trust, but the retention of the monies after learning of the mistake may well have given rise to a constructive trust. Further, stolen monies are traceable in equity. But the proprietary interest which equity is enforcing in such circumstances arises under a constructive, not a resulting, trust. Where property is obtained by fraud, equity imposes a constructive trust on the fraudulent recipient, and the property is recoverable and traceable in equity. Specifically, monies stolen from a bank account can be traced in equity.”

(3) The Investment Sum was obtained by D1 and/or D2 by reason of fraud. D1’s knowledge of the fraud is clearly attributable to D2, for D1 was D2’s director and sole shareholder at the material times. Plainly, it would be unconscionable for D1 and/or D2 to retain the Investment Sum which P deposited (through D9) into the Critica DBS Account of any part thereof. In the circumstances, D1 must be treated as holding D1 Sum and its substitutes or traceable proceeds on constructive trust for P.

(4) D1 has not put forward any defence to P’s proprietary claim against him. Since D1 has knowingly participated in the fraud against P, D1 cannot be a bona fide purchaser and must take D1 Sum subject to P’s equitable interest therein.

54.  The above would be sufficient for allowing P’s application for summary judgment against D1. Mr Yu has also put forward some other points in support of P’s application against D1. With no disrespect to counsel, it would not be necessary for me to go into those points in this decision.

C2. Hadkinson Summons

55.  Since P has succeeded in its application for summary judgment against D1 and has obtained final judgment against D1 in these proceedings, it would not be necessary for P to pursue the application as per the Hadkinson Summons. I grant leave to P to withdraw the Hadkinson Summons. The only reason for P to withdraw the Hadkinson Summons is that P has succeeded entirely in its claim against D1 in this case. In the circumstances, notwithstanding the withdrawal of the Hadkinson Summons, costs of the summons should still be to P.

D. P’s CLAIM AGAINST D6 TO D8

56.  Having considered the evidence before the court and the parties’ respective submissions, I am of the view that P’s application for summary judgment against D6 to D8 should be allowed to the extent as indicated below. As to the rest of P’s claim, I would grant D6 to D8 unconditional leave to defend, and I also decline to order interim payments.

D1. Finders’ Fees Defence

57.  D6 to D8’s factual case is that they have not participated in the fraud against P at all. At the time of their receipt of the relevant parts of the Investment Sum, (ie D6 Sum, D7 Sum and D8 Sum), they were not aware of the fictitious nature of the StockX Investment Opportunity. At that time, they honestly believed that those sums were the finders’ fees paid by the seller (“the Finders’ Fees Defence”). They only came to know that the StockX Investment Opportunity was a scam designed by D1 on 21 August 2022.

58.  The factual case put forward by D6 to D8 is as follows[14]:

(1) D6 and D7 have known each other since their secondary education, and they have kept in contact with each other ever since. They graduated from universities in UK in 2015 and 2016 respectively.

(2) In or around 2018, D6 met D1 at a mutual friend’s wedding party. D1 claimed that he was a graduate from Cambridge University and an expert in the finance field including investment and foreign exchange.

(3) In or around 2020, D6 came to know Carol. At that time, he was given an understanding that Carol was the managing director of Montclair Trustees (Hong Kong) Limited. In about early 2021, D6 learned that Carol in fact worked for Mr. Chiau and his family as their financial advisor.

(4) In or about January 2021, D7 joined D9 as an account executive. Upon D7’s recommendation, D6 also joined D9 as its Head of Business Development Team in or around April 2021.

(5) On or around 4 April 2021, D1 got in touch with D6 and recommended him some private equity deals and projects. At that time, D6 informed D1 that he was only interested in e-commerce platforms, and D6 mentioned about his interest in StockX.

(6) On 7 April 2021, D1 informed D6 that he was able to obtain StockX shares as he knew the CEO of StockX. On 8 April 2021, D1 texted D6 again and showed him a reply from the CEO of StockX, Scott R. Cutler, saying that StockX was not going to issue new shares. D6 was understandably impressed by D1’s connections and the manner in which he was able to do things promptly.

(7) On 9 April 2021, D1 informed D6 that one of the existing shareholders of StockX, ie Aoki of Dimmak LLC, was willing to sell his StockX shares. D6 to D8 believed that this was a genuine investment opportunity.

(8) On 10 April 2021, D6 texted Carol and showed her some information about StockX to explore whether Mr Chiau would be interested to invest in the StockX Investment.

(9) On 11 April 2021, D6 informed D7 about the potential deal involving StockX. As a result, D7 contacted Benjamin Tsoi (“BT”) of “Profound Step Limited” (“Profound”) and informed the latter about the investment opportunity.

(10) On or about 19 and 20 April 2021, D1 revealed that he was able to contact the financial advisor of Aoki. D1 also requested D6 to sign a non-disclosure agreement (“NDA”), pursuant to which D6 understood that was not allowed to contact Aoki without the consent of D1. On 21 April 2021, D8 (which D6 intended to use as the corporate vehicle for the investment opportunity) signed the NDA with D2, a company set up by D1.

(11) On 23 April 2021, D1 provided D6 with several documents through email evidencing Aoki’s ownership of his StockX shares. On 25 April 2021, D1 provided D6 some further documents. All the documents provided by D1 were certified by a Californian attorney.

(12) On 26 April 2021, D6 met Carol at her office the aforesaid documents. Later that day, Carol, D6 and D7 set up a Whatsapp chatgroup so as to facilitate their discussions.

(13) On 28 April 2021, D1 mentioned through Whatsapp that he knew Mr. Tang Yiu Man who is the CFO of Pacific Century Premium Developments Limited, a subsidiary of PCCW Limited, and that Mr. Tang also expressed interest in the StockX Investment.

(14) On or around 28 April 2021, Carol told D6 that Mr. Chiau has a wealthy friend, Mr Patrick Cheung (“PC”), who would like to study the StockX Investment for and on behalf of Mr Chiau.

(15) Very soon thereafter, Carol confirmed that Mr Chiau would like to invest around US$5 million in the StockX Investment.

(16) On 30 April 2021, D6, through the introduction of Carol, went to PC’s office to discuss the concerns raised by PC in respect of the StockX Investment. Later that day, D6 and D7 also met BT and discussed about the StockX Investment. On that occasion, BT (on behalf of Profound) agreed to invest about US$1 million in the StockX Investment.

(17) In or about early May 2021, Carol informed D6 that she managed to find an additional investor called HK Langingtong Limited (“Langingtong”) for the StockX Investment. D6 and D7 then passed on the information of Langingtong and Profound to D1 and informed him that they were additional investors which were interested in taking part in the StockX Investment.

(18) On or around 10 May 2021, Carol called D7 and inquired whether Mr Chiau could invest US$1 million more on top of the contemplated US$5 million. D7 relayed the message to D6, who then liaised with D1.

(19) On or around 10 May 2021, D1 notified that all the investors were willing to set up an investment fund (ie D4) and participate in the StockX Investment. D1 also informed D6 that for the purpose of the StockX Investment, he had already incorporated a company (ie D3), which would be the general partner of D4 and that D2 would be the Investment Manager of D4. D1 also produced an advice from James Gaden, a Cayman lawyer of Walkers, as to whether general partners may appoint its own investment manager, with SS&C as fund administrator of the investment manager to control the cash on account.

(20) On or about 12 May 2021, D1 further informed D6 that he had already set up a fund in Cayman Island, ie D4, for the purpose of holding the shares of StockX. D1 also proposed SS&C to be the intended fund administrator.

(21) On or about 13 May 2021, D1 provided a letter from SS&C to D6 and D7, confirming that SS&C would be willing to be the fund administrator of Critica DBS Account. D1 also further produced a legal advice from Henry Williams of Walkers advising that the Investment Manager may receive money for acquisition in the target company. That was certified to be a true copy by RK. D6 and D7 had the understanding that the investment sums for the StockX Investment from different investors would be deposited into the Critica DBS Account. However, D6 to D8 did not have control of the Critica DBS Account.

(22) Subsequently, D6 learned that D1 signed an Investment Manager Agreement on 14 May 2021 for both D2, D3 and D4. This agreement was witnessed by RK.

(23) On or around 14 May 2021, D1 informed D6 and D7 that he did not like the involvement of PC in respect of the StockX Investment.

(24) On or around 17 May 2021, D1, D6, D7 and PC met at PC’s office. On this occasion, PC indicated that he and Mr Chiau together wanted to invest around US$11 million in the StockX Investment. At around the same time, PC confirmed with D6 and D7 that from his contacts in US, he gathered that Aoki was indeed seeking buyers to purchase his StockX Shares. At this point, D6 and D7 had no basis to think that the StockX Investment would be a fraudulent scheme where even PC was able to confirm the veracity of the seller and his willingness to sell.

(25) On 18 May 2021, D6 met D1. On that occasion, D1 told D6 that he wished to introduce Pacific Century Group Holdings Limited (“Pacific Century”), a company owned by Mr Richard Li (as well-known tycoon), to be the 4^th investor in the StockX Investment.

(26) By this time, Carol had procured Langingtong to invest around US$5 million into the StockX Investment, and D7 had procured Profound to invest around US$1 million. Eventually, both Langingtong and Profound injected sums into D9 according to the investment framework as envisaged by D1, as reflected by their order forms with D9.

(27) D1 intimated to D6 that Aoki agreed to pay finders’ fees to D6 and D7 for their services of introducing investors to Aoki. D1 represented to D6 and D7that the Finders’ Fees would be paid by Aoki and not by the investors (including P) and he would take care of such arrangement.

(28) D1 told D6 and D7 that he agreed with Aoki for the payment of the Finders’ Fees at 8% of the total purchase price for the StockX Shares. D7 then informed Carol that Aoki agreed to pay 8% of the total purchase price for the StockX Shares as Finders’ Fees to D1, and in turn D1 would pay over the same to D6, D7 and Carol. Carol told D7 that she would inform P accordingly and assured that the Finders’ Fees arrangement should be fine. She felt confident because P would not be the one to pay – Aoki would.

(29) In late May 2021, P caused the Investment Sum to be transferred into D9’s Account.

(30) By the end of May 2021, D1 confirmed that Pacific Century would be the 4^th investor investing around US$5 million in the StockX Investment.

(31) In or around early June 2021, according to D6 to D8’s understanding, the total investment for the StockX Shares paid to Aoki were as follows:

Investor	Amount (USD)	Payment Date
Profound	$1m	$6M (on 20 May 2021, as the monies reached D9 on 19 May 2021)
Langingtong	$5m
Pacific Century	$5.375m	Unknown
P	$6.3m	$6.3M on 10 June 2021
	Total: $17.675m

(32) The 8% Finders’ Fees which Aoki agreed to pay would be around US$1.36 million.

(33) After deduction of certain expenses in the amount of US$19,100, a sum of US$1,340,900 was to be received and shared. It was the parties’ agreement that Carol’s share would be about 24%, and after deducting certain expenses Carol shall receive around US$311,526.03.

(34) Eventually, Carol did receive US$311,526.03 as her share of the Finders’ Fees, out of which D6 paid US$161,526 to Montclair Limited (the remaining US$150,000 was transferred by D7). Montclair Limited is an entity nominated by Carol to receive payment which bears a name strikingly similar to Montclair Trustees (Hong Kong) Limited, which is an entity controlled by Carol.

(35) As for D1, D6 to D8’s understanding was that he was supposed to receive US$300,000 from P as direct subscription fees and
7.5% from Pacific Century in the sum of US$375,000.

(36) In early June 2021, D8 was appointed as a director and majority shareholder of D3. The reason was that D6 would like to be seen as “overseeing” the StockX Investment and that was also the very reason why D4 also carried the name “Burnaby”. D6 felt that it would give some confidence to the investors.

(37) Subsequently, D6 was informed by D1 that he signed the Sale and Purchase Agreement (“SPA”) with Aoki on 4 June 2021, which was witnessed by RK. D1 further confirmed with D6, through Whatsapp, that the SPA was sent back to Aoki on around 9 June 2021.

(38) On 10 June 2021, D6 to D8 each executed an Engagement Agreement of Consulting Services with D2 for their respective share of the Finders’ Fees (“Engagement Agreements”). The reason why the D6 to D8 executed the Engagement Agreements with D2 but not with Aoki was due to the existence of the NDA – D6 and D7 understood that they were not entitled to deal with Aoki directly, and D1 informed them that it would be more convenient to sign the Engagement Agreements with D2 instead and he would pay the D6 to D8 through D2. Pursuant to the Engagement Agreements, D6 to D8 received D6 Sum, D7 Sum and D8 Sum respectively on 11 June 2021.

(39) On 17 June 2021, D6 met RK at a birthday party held by D1, and he thanked RK for certifying, preparing and witnessing documents for the transactions in the StockX Investment. RK replied that everything was fine.

(40) D1 provided a copy of the SPA to D6 and D7 on 1 July 2021. It was the first occasion which RK signed as a witness in a formal transaction document, essentially attesting to the genuineness of a formal transaction document.

(41) From July to November 2021, further documents in respect of the StockX Investment were provided by D1.

(42) On 17 November 2021, D1 further produced to D6 to D8 some documents. These were certified to be true copies of the originals by RK.

(43) In early December 2021, D6 chased D1 for documentary proof of the genuineness of the acquisition of StockX shares. On 29 December 2021, D1 showed his email to Scott Cutler proving that he was already asking StockX to confirm the registration as a stockholder.

(44) On 25 May 2022, in a zoom meeting participated by D1, D6, D7, and RK, RK promised that he would follow up on chasing for further documents with the legal team of StockX.

(45) In or about early June 2022, due to the lack of response from Walkers in producing some requested documents, including the annual report of StockX, D6 to D8 sought assistance from HLLY to make enquiries with Walkers.

(46) On 16 June 2022, there was another zoom meeting attended by D1, D6, D7 and RK. After this 2^nd zoom meeting, D1 sent D6 a screenshot showing that he was chasing RK as well.

(47) On 27 July 2022, D6 caused D8 to engage Schafer & Weiner PLLC (“SW”), a US law firm, to investigate into the matter.

(48) On 21 August 2022, SW confirmed that the Purported Share Certificate was a forgery and there has never been any transaction for the sale and purchase of the StockX shares as contemplated.

(49) D6 to D8 only came the know the fraud perpetrated by D1 on 21 August 2022.

(50) On 22 August 2022, D6 reported the matter to the Hong Kong Police and made a police statement. Subsequently, on 18 September 2022, D6 made a supplementary police statement.

59.  D6 to D8’s case is that they are as innocent as P. They took no part in the fraudulent scheme devised by D1 and had no knowledge of the fraud at the material times. D6 Sum, D7 Sum and D8 Sum received by them are finders’ fees. At the time of receipt of these sums, they believed that these sums were paid by the seller of StockX shares.

60.  Mr Yu submits that the Finders’ Fees Defence is unbelievable.

(1) The Finders’ Fees Defence is clearly an afterthought. D6 and D7 have concealed the existence of D6 Sum, D7 Sum and D8 Sum prior to the commencement of these proceedings, whether to P or to the Police. In the two police statements made by D6, there is not a word mentioning the alleged Finders’ Fees. If D6 and D7 were not parties to the fraud and honestly believed that the alleged Finders’ Fees were legitimate payments, one would have expected them to come clean at the earliest possible opportunity upon discovering the fraud and realizing that the Finders’ Fees were not paid by Aoki, but were rather traceable proceeds of the Investment Sum.

(2) D6 and D7’s alleged belief that the payments were made by the purported seller of StockX shares is contradicted by the purported Engagement Agreements produced by them, which were agreements with D2 signed by D1, not agreements with Aoki. D6 and D7 would also have known that the monies they received were from D2, not from Aoki.

(3) D6 and D7 alleged that Carol also received a share of the proceeds as her share of the “finders’ fees” in the form of the US$161,526 and US$150,000 that they paid to Montclair Limited in June and July 2021. Their allegation is wholly inconsistent with their previous explanation for the payments (which they have verified on oath) and contradicted by contemporaneous documents.

(a) Between June and July 2021, D6 and D7 made a total of five transfers totalling US$312,091 from their respective bank accounts to Montclair Limited (“Montclair Payments”).

Date	Payor	Amount
16 June 2021	D6	US$114,286.00
16 June 2021	D7	US$95,238.50
6 July 2021	D6	US$47,240.00
7 July 2021	D7	US$54,761.50
9 July 2021	D6	US$565.00

(b) These transfers were first disclosed by D6 and D7 in letters from HLLY dated 21 October 2022 (“Disclosure Letters”), and verified by D6 and D7 by affirmations dated 4 November 2022 (“Disclosure Affirmations”). In both the Disclosure Letters and the Disclosure Affirmations, the Montclair Payments were described as payments of “professional fees and deposits”.

(c) ASC then wrote to HLLY requesting supporting documentation for the Montclair Payments. In HLLY’s reply dated 20 December 2022, HLLY provided copies of five invoices corresponding to the Montclair Payments (“Montclair Invoices”) setting out in detail the services for which the payments were made. There was nothing in HLLY’s letter indicating that that the Montclair Payments were in truth payments of finders’ fees to Carol, or that the Montclair Invoices were sham documents created to disguise such payments.

(d) D6 and D7 did not mention the Finders’ Fees Defence in their affirmations filed on 29 December 2022 in opposition to P’s application for summary judgment. The Finders’ Fees Defence was only raised for the first time in D6 and D7’s supplemental affirmations dated 9 March 2023. That defence must be a recent invention and an afterthought.

(e) Montclair Limited has told ASC in correspondence that it is prepared to disclose the supporting documentation for the Montclair Invoices, but D6 and D7 had not given consent to such disclosure. It is clear that D6 and D7 have withheld their consent for fear of exposing the falsity of the Finders’ Fees Defence.

(f) Further, in the letter from Messrs Wellington Legal (solicitors for Montclair Limited) (“Wellington”) to ASC dated 24 March 2023, Wellington said:

“1. Our client has never represented to [D6 and D7] that she was your Client’s agent in relation to the StockX Investment.

2. Our client was not aware of the arrangements between Aoki and [D6 and/or D7], and accordingly could not have agreed to D6 and D7 in receiving a Finders Fee which purportedly would be paid by Aoki. Our client strenuously denies that she had “assured [D7] that the Finders’ Fees arrangement should be fine” and “was confident because [P] would not be the one to pay - Aoki would”.

3. Our Client maintains the explanation provided in our Client’s letter to you dated 15 December 2022 and would reiterate that the payments that our Client received were professional fees for services provided or to be provided, and are bona fide transactions for projects related to the principal business of [D6, D7 and D8]. This is confirmed in the letter by [HLLY] dated 21 October 2022 ……”

(4) The only contemporaneous record relied upon by D6 and D7 in support of the Finders’ Fees Defence is some WhatsApp exchanges between D1 and D6 on 18 May 2021, where D1 suggested the “option” of “get[ting] aoki to send back [finders’ fees]”. However, D6 and D7 have only adduced piecemeal excerpts of the WhatsApp conversation with D1, and the context of entire conversation is unclear. Further, on D6’s own evidence, his WhatsApp conversation with D1 was concerned with the finders’ fees payable in respect of another investor, PC, and not the finders’ fees payable in respect of P’s investment. As such, it is not evidence of any alleged agreement concerning finders’ fees in relation to P’s investment.

(5) D6 to D8’s case that the sums were paid to them as purported finders’ fees is incapable of being believed, for the sums received by them totalled US$1,340,900, which would be over 20% of the Investment Sum. D6 and D7 have tried to explain this point away by saying that the finders’ fees were calculated as 8% of the total amount of US$17.675 million invested in D4 by P and three other investors. This explanation cannot be accepted, for it is D6 and D7’s own evidence that one of those other investors, Pacific Century, was introduced by D1, not D6, D7 or D8. D6 to D8’s finders’ fees cannot be calculated by reference to Pacific Century’s investment.

61.  Notwithstanding the eloquent submissions of Mr Yu, I am persuaded by Mr Ho that the Finders’ Fees Defence cannot be said as incapable of being believed. As the matter will be resolved in the trial, I would only briefly set out the reasons why I am of the view that this defence cannot be brushed aside summarily at this stage.

62.  First, the evidence shows that on 27 July 2022, D6 caused D8 to engage SW to investigate the truthfulness of the StockX Investment as told by D1. On 21 August 2022, SW reported that the Purported Share Certificate was a forgery and the whole transaction as claimed by D1 did not exist at all. On 23 August 2022, D6 and D7 reported the matter to Carol. It is not in dispute that P came to know the fraud because of the report made by D6 to D7 voluntarily to Carol. At [56] of Carol’s affirmation dated 14 September 2022, Carol said:

“56. On 23 August 2022, I received an urgent phone call from [D7], asking to meet at the office of [HLLY]. At the meeting, [D6 and D7] (and HLLY) informed me that the StockX Investment was confirmed to be a fraud by [SW]; that the Purported Share Certificate was a forgery and [Aoki] … had never actually sold his shares; and that [D6] and HLLY had reported the crime to the Wanchai Police Station. [D6 and D7] also informed me for the first time that [D8] was also the general partner of [D4].”

63.  The fact that the fraud was revealed by an investigation commissioned by D6 to D8, and the fact that D6 to D8 voluntarily reported the matter to P shortly after knowing the outcome of the investigation conducted by SW, lend support to D6 to D8’s claim that they did not participate in the fraud, and they did not know the fraud before 21 August 2022.

64.  I am aware that D6 to D8 did not reveal the alleged finders’ fees received by them prior to the commencement of these proceedings by P, and D6 also did not mention the finders’ fees in his two statements given to the police. However, the fact as stated in [63] above remains true and cannot be ignored.

65.  Second, from around March 2021 to June 2021, Carol, D6 and D7 had done some works to introduce P to the StockX Investment Opportunity. In other words, Carol, D6 and D7 are the middlemen in bringing P and the purported seller of StockX shares together. There is no evidence showing that P has not agreed to pay any remuneration to the middlemen. Applying common and commercial sense, it is not unbelievable that in mid-2021, D6 and D7 were under the impression that there would be some remunerations for the works done by Carol and them, ie the finders’ fees, from the seller of the StockX shares.

66.  The WhatsApp exchanges produced by D6, although may not be perfect evidence in support of the Finders’ Fees Defence, are in fact evidence showing that finders’ fees have been discussed between D1 and D6. Although the subject matter in that discussion is the finders’ fees in relation to a potential investment by PC, the discussion itself shows that the issue of finders’ fees was in the mind of the middlemen doing the liaison works between the seller and the buyers of StockX shares.

67.  Third, regarding the amount of finders’ fees received by D6 to D8, I have to acknowledge that there is much force in the arguments put forward by Mr Yu. However, at the same time, I have to bear the matter mentioned in [66] above in mind. After all, it is unrealistic to expect that the middlemen would do all the liaison works without any remuneration from the seller and/or the buyer of the StockX shares. The finders’ fees arrangement as claimed by D6 to D8 may be very beneficial to them. However, one cannot say that the finders’ fees arrangement as claimed by D6 to D8 is unbelievable because the arrangement is very beneficial to them.

68.  Fourth, as to whether Carol has received any finder’s fees, in my view, the matter has to be further investigated in the trial and cannot be determined summarily.

69.  Mr Ho submits that there is no evidence from Carol refuting the Finders’ Fees Defence put forward by D6 to D8. Notably, Carol has made an affirmation dated 14 September 2022 in support of P’s injunction application. It is not the case that P is unable to contact Carol. Without the evidence from Carol, P is in no position to challenge the factual foundations of the Finders’ Fees arrangement as claimed by D6 to D8. There is no evidence from Carol suggesting that Carol and/or Montclair Limited had other business or transactions with D6 to D8 other than introducing P to the StockX Investment. In the circumstances, whether the Montclair Payments are in fact the finder’s fees paid to Carol as claimed by D6 to D8 is a matter to be investigated in the trial.

70.  Mr Yu submits that it would not be necessary for P to adduce evidence from Carol, for it is plain and obvious that the Montclair Payments are not finder’s fees to Carol, as shown in the Montclair Invoices. These payments are “professional fees and deposits” paid to Montclair Limited in respect of matters not related to the purported StockX Investment. The nature of the payments to Montclair Limited has been stated in the Disclosure Letters and verified by the Disclosure Affirmations.

71.  In my view, what has been stated in the Disclosure Letters and verified by the Disclosure Affirmations is that the payments to Montclair Limited are “professional fees and deposits”. The contents of the Montclair Invoices have not been confirmed by D6 to D8. The description “professional fees and deposits” does not necessarily exclude the finder’s fees as claimed by D6 to D8. Notwithstanding the forceful submissions made by Mr Yu, the point taken by Mr Ho as stated in [69] above is still a valid point.

72.  Further, as said in the above, naturally a middleman would receive some remuneration from the seller and/or the buyer. No doubt Carol is one of the middlemen in the deal between P and the purported seller in the StockX Investment. P’s case is that P has not agreed to pay any remuneration to any middleman. With all these in mind, it is believable that at the material time, Carol, D6 and D7 would under the impression that they would have some finders’ fees from the seller as the remuneration for the liaison works done by them in the transaction. On the contrary, the idea that Carol would not have any remuneration from P or from the seller does not sit well with common and commercial sense.

73.  Fifth, the allegation that D6 to D8 have knowingly participated in the fraud perpetrated against P at all times is a serious allegation. I should only grant summary judgment or order interim payment if the evidence is sufficiently compelling. With all the aforesaid matters in mind, I am unable to reach the conclusion that the Finders’ Fees Defence is incapable of being believed and bound to fail. Whether D6 to D8 can make out the Finders’ Fees Defence is a matter to be explored in the trial.

D2. Other matters

74.  One of the points relied upon by P in support of its application for summary judgment is that D6 and D7 have knowingly misrepresented the price of the StockX shares which were purportedly being acquired by D4. P’s point is as follows:

(1) As mentioned in [10(1)(b)] above, D6 and D7 represented to P that D4 would be acquiring shares in StockX at a price of US$82.204 per share. This appeared to be favourably, when compared to StockX’s valuation of US$85 per share.

(2) In fact, D1, D6 and D7 all along knew that the StockX shares were not being sold to D4 at US$82.204 per share. The stated share price in the SPA purportedly executed between D4 and Aoki for the sale of StockX Shares was US$76 per share.

(3) D6 and D7 are parties to the scheme to inflate the share price of StockX when recommending the same to P. In a WhatsApp conversation between D6 and D1 on 9 April 2021, D6 said to D1 that he was “thinking should I make a larger number [for StockX’s valuation] when I go through compliance”, to which D1 responded “The ipo is minimum 4.5 b” and “so 1 b runway for u”.

75.  I agree with D6 to D8 that there can be no summary judgment to P on the entire Investment Sum or Payment Sum by reason of this point.

(1) According to D6, he did not find out that the price stated in the SPA was adjusted until 1 July 2021. D6 was kept in the dark and did not know why that happened. He was under the impression that he was not allowed to have contact with Aoki because of the NDA obligations. All communications with the purported seller of StockX shares were handled D1.

(2) Even if D6 and D7 have misrepresented the price of the shares to P, that does not mean that they have knowingly participated in the fraud perpetuated against P, ie the StockX Investment Opportunity is entirely fictitious and is a sham. P cannot rely upon the misrepresentation on the price of the shares to obtain a summary judgment on the whole Investment Sum or the Total Payment against D6 to D8.

76.  As to P’s claim based upon breach of fiduciary duties and negligence, I agree with D6 to D8 that there should be no summary judgment in this regard.

(1) It is trite that “the facts and circumstances must be carefully examined to see whether in fact [an agent] is in a fiduciary relationship to his principal”, and “[t]here is no class of case [of imposing fiduciary duties on an agent] in which one ought more carefully to bear in mind the facts of the case…”[15]

(2) In assessing the duty of care owed by a party, the assessment starts “from the circumstances in which the defendants were acting, not from their status or description…”[16]

(3) What duties owed by D6 and D7 to P must be assessed when all the circumstances are known. In this summary stage, it is difficult and not appropriate to do that assessment.

(4) D6 to D8’s argument is that Carol has assumed all the advisory duties in respect of the StockX Investment vis-à-vis P. D6 and D7 at most are introducing agents, and they assume no duty to investigate the feasibility or the risks associated with the StockX Investment.

(5) D6 to D8 also argue that they could not be expected to discover the fraud at an earlier time, while D1 managed to produce extensive and detailed documentation throughout about the StockX Investment, and different professionals have both “given their blessings” to the deal, it is reasonable for D6 and D8 to rely on them. The blessings given by the professionals include the following:

(a) the documents provided by D1 on 23 April 2021 and 25 April 2021 Documents appear to be certified by a Californian attorney;

(b) the advice from James Gaden (provided by D1) as to the mechanics of the StockX Investment;

(c) screencaps of emails from the CEO of StockX (provided by D1);

(d) certification by RK that various documents produced by D1 in respect of the StockX Investment are true copies of the originals;

(e) PC told D6 and D7 that he learned from his own sources that Aoki was indeed seeking buyers to purchase his StockX shares.

(6) In view of all these, there can be no summary judgment against D6 to D8 based upon breach of fiduciary duties and negligence at this summary stage.

77.  P has also made a personal claim against D6 to D8 by relying upon knowing receipt in respect of the sums received by them. P’s case is that even assuming that D6 to D8 were not aware of the fictitious nature of the StockX Investment Opportunity at the time of their receipt of traceable proceeds of the Investment Sum and honestly believed that such sums were finders’ fees paid by the seller, they were at the very least put on inquiry as to whether the sums were paid in breach of trust by reason of the following:

(1) the Engagement Agreements which they have entered in respect of their purported finders’ fees are with D2, not with Aoki;

(2) the sums they received were paid by D2 from the Critica DBS Account; and

(3) the sums were paid to them the day after D9 made payment of the Investment Sum on P’s behalf into the Critica DBS Account.

78.  With respect, in respect of the claim based upon knowing receipt, subject to the matters discussed in [90] below, I am of the view that arguably, the matters relied upon by P may not be sufficient to fix the necessary constructive knowledge on D6 to D8.

(1) As said by Coleman J at [80] of the Predicine case:

“…… constructive knowledge would only suffice if on the facts actually known to the defendant, a reasonable person would either have appreciated that the transfer was probably (as distinct from possibly) in breach of trust or would have made enquiries or sought advice which would have revealed the probability of breach of trust ……”

(2) As to why D6 to D8 would enter into the Engagement Agreements with D2 but not with Aoki, D6 and D7 have given an explanation. See [58(38)] above. I cannot say that this explanation is incapable of being believed. Whether the explanation would be believed in the trial is another matter.

(3) Although the sums they received were paid from the Critica DBS Account, D6 to D8 did not have any control of this account, and they would not know whether the payments from this account were from P or from Aoki.

(4) The fact that they received the payments the day after D9 paid the Investment Sum on P’s behalf into the Critica DBS Account may not add any strength to P’s case. From D6 to D8’s perspective, since they had successfully introduced P to Aoki, it would just be naturally that they got the finders’ fees from Aoki.

D3. No summary judgment or interim payment in respect of P’s entire claim

79.  For the reasons above, I decline to enter summary judgment or order interim payment against D6 to D8 for the entire claim made by P. Subject to the matters set out in Section D4 below, I would grant D6 to D8 unconditional leave to defend.

D4. Constructive Trust

80.  Notwithstanding the above, I am of the view that P is entitled to have summary judgment against D6 to D8 in respect of the traceable proceeds of the Investment Sum which were in their possession or control on 21 August 2022 or at any time thereafter by reason of the proprietary claims pleaded by P[17].

81.  There can be no doubt that D6 Sum, D7 Sum and D8 Sum are parts of the Investment Sum paid by P. As said in [53] above, after rescission of the contractual documents executed by P regarding the StockX Investment, the Investment Sum and its traceable proceeds should be treated as being held on constructive trust for P. Alternatively, the Investment Sum and its traceable proceeds should be treated as being held on constructive trust for P as property obtained by fraud. Knowledge does not have to be acquired at the time of receipt, but can be acquired subsequently while the money is still in the recipient’s hands.[18] D6 to D8 certainly came to know that the StockX Investment Opportunity as painted by D1 was a fraud on 21 August 2022, when SW reported the matter to D6.

82.  I am aware that both D6 to D8 have put forward a “change of position” defence. However, in D6’s and D7’s respective affirmations, they only mentioned “change of position” as a mere assertion without any particular. Clearly, D6 to D8 cannot rely upon “change of position” to resist the proprietary claim made by P.

83.  Another defence relied upon by D6 to D8 is the “bona fide purchase” defence.[19] For the reasons below, I am of the view that this is not an arguable defence to P’s proprietary claims.

84.  Regarding the “bona fide purchase” defence, Mr Yu has helpfully referred me to the judgment of Recorder Eugene Fung SC in Zief Incorporated v Tekchandani Ajai Mohan (t/a D’Ziner Collections (Hong Kong) and Others[20], which is insightful. In that case, the plaintiff remitted a sum to the bank account of the 4^th defendant as a result of an email fraud. The 4^th defendant was a diamond trader and was not aware of the fraud. The plaintiff claimed against the 4^th defendant for the sum by relying upon unjust enrichment. The 4^th defendant put forward the “bona fide purchase” defence. The 4^th defendant said that a Mr Leo, who claimed to be the plaintiff’s epresentative, placed an order for diamonds with the 4^th defendant. Subsequently, the plaintiff paid the sum to the 4^th defendant. After receiving the sum, the 4^th defendant delivered the diamonds to Mr Leo. In fact, Mr Leo was never an employee or agent of the plaintiff, and the plaintiff never authorized Mr Leo to represent the plaintiff to have any dealing with the 4^th defendant.

85.  In Zief, the learned Recorder held that the 4^th defendant could not rely upon the defence of bona fide purchase for value without notice. In the judgment, his lordship said:

“32. The burden of establishing the bona fide purchase defence is on the defendant: Barclays Bank plc v Boulter [1999] 1 WLR 1919 at 1924G-H (Lord Hoffmann); Chan Chun Chung v PBM (Hong Kong) Ltd (2004) 7 HKCFAR 178 at §14 (Litton PJ). One of the conditions that must be satisfied is that the defendant must have provided value for the transfer of the property.

33. D4’s pleaded case is that it has given valuable consideration pursuant to the Purported Transaction, namely the Diamonds. P submits that given that there was no binding contract between P and D4, D4 could not have provided valuable consideration.

(1) In Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548, Cass (a partner of a firm of solicitors), without authority, had drawn on the firm’s bank account to gamble. The firm brought proceedings for money had and received against the casino where Cass had spent the money. One of the contentions advanced by the casino was that the claim of money had and received did not lie because it gave valuable consideration for the money it received. The House of Lords held, amongst other things, that the casino provided no consideration for the money paid over by Cass, and therefore was not a bona fide purchaser for value without notice to have an absolute defence to restitution. The reason why the defence failed was because the value by the casino was given under a void wagering contract and therefore did not count for the purpose of establishing that it was a bona fide purchaser for value. Lord Goff said:

‘In my opinion, when Cass placed a bet, he received nothing in return which constituted valuable consideration. The contract of gaming was void; in other words, it was binding in honour only … But it does not follow that, when Cass placed the bet, he received anything that the law recognises as valuable consideration. In my opinion he did not do so. Indeed, to hold that consideration had been given for the money on this basis would, in my opinion, be inconsistent with Clarke v Shee and Johnson 1 Cowp 197. Even when a winning bet has been paid, the gambler does not receive valuable consideration for his money. All that he receives is, in law, a gift from the club.’[p 575C-F]

‘… contracts by way of gaming or wagering are void in English law … It is obvious that each time a bet is placed by the gambler, the agreement under which the bet is placed is an agreement by way of gaming or wagering, and so is rendered null and void. It follows … that the casino, by accepting the bet, does not thereby give valuable consideration for the money which has been wagered by the gambler, because the casino is under no legal obligation to honour the bet. Of course, the gambler cannot recover the money from the casino on the ground of failure of consideration; for he has relied upon the casino to honour the wager - he has in law given the money to the casino, trusting that the casino will fulfil the obligation binding in honour upon it and pay him if he wins his bet - though if the casino does so its payment to the gambler will likewise be in law a gift. But suppose it is not the gambler but the true owner of the money (from whom the gambler has perhaps, as in the present case, stolen the money) who is claiming it from the casino. What then? In those circumstances the casino cannot, in my opinion, say that it has given valuable consideration for the money, whether or not the gambler's bet is successful. It has given no consideration if the bet is unsuccessful, because its promise to pay on a successful bet is void; nor has it done so if the gambler’s bet is successful and the casino has paid him his winnings, because that payment is in law a gift to the gambler by the casino.”’[p 577C-F]

(2) It appears that the effect of the House of Lords’ decision in Lipkin Gorman is that to be valuable consideration for the purposes of the defence of bona fide purchase for value without notice, the value must be given under a valid contract.

(3) On the authority of Lipkin Gorman, it does not seem to me that D4 had given valuable consideration for the HK$3,120,000 that it “purchased” because there was no promise to deliver the Diamonds to P. D4 did not advance any submission to contend that valuable consideration was nonetheless provided in the event that there was no contract between P and D4. Accordingly, I am not satisfied that the defence has been made out.” (Emphasis added)

86.  Mr Yu submits that D6 to D8 have not identified any valid contract under which their services were rendered. They never had any agreement with Aoki given that Aoki never sought to sell his shares to D4. As regards the Engagement Agreements which they purportedly signed with D2, these were at all material times nullities given that D2 had been struck off the companies register in October 2020. Their attempted invocation of the “bona fide purchase” therefore fails in limine. Mr Yu’s points are succinct and forceful.

87.  Mr Ho has made the following submissions in reply to Mr Yu’s points:

(1) D6 to D8 have provided value for the sums they received. The value provided by D6 to D8 is bringing Carol and D1 together.

(2) The Engagement Agreements can be “resuscitated” by taking advantage of s.159 of Cayman Companies Law (2020 Revision), which provides that:

“If a company or any member or creditor thereof feels aggrieved by the company having been struck off the register in accordance with this Law, the Court on the application of such company, member or creditor made within two years or such longer period not exceeding ten years as the Cabinet may allow of the date on which the company was so struck off, may, if satisfied that the company was, at the time of the striking off thereof, carrying on business or in operation, or otherwise, that it is just that the company be restored to the register, order the name of the company to be restored to the register, on payment by the company of a reinstatement fee equivalent to the original incorporation or registration fee and on such terms and conditions as to the Court may seem just, and thereupon the company shall be deemed to have continued in existence as if its name had not been struck off; and the Court may, by the same or any subsequent order, give such directions and make such provisions as seem just for placing the company and all other persons in the same position as nearly as may be as if the name of the company had not been struck off.” (My emphasis)

(3) The position is essentially identical in Hong Kong. See s.768 of the Companies Ordinance.

(4) Since no party has adduced Cayman law expert opinion for the purpose of the Summons, it must be assumed that the foreign law is the same as Hong Kong law. In any case, a plain reading of s.159 of Cayman Companies Law (2020 Revision) supports this position.

(5) Upon the reinstatement of D2, the problem of incapacity would fall away. D6 to D8 may then affirm the Engagement Agreements and thus there would be valid value provided by D6 to D8 in the circumstances.

(6) There is no need for D6 to D8 to show that the position is necessarily correct. It is sufficient for present purposes that it is reasonably arguable.

88.  With respect, I agree with Mr Yu. I am unable to accept Mr Ho’s submissions.

(1) As submitted by Mr Yu, D6 to D8 are unable to point to any valid contract under which they have provided value for the sums received by them. As submitted by Mr Yu, it is beyond doubt that there has never been any contract between P and Aoki. Further, I have ruled that D1 has knowingly participated in a fraud perpetrated against P. In the circumstances, there can be no valid contract between P and D1.

(2) Regarding the point that D2 could be restored to resuscitate the Engagement Agreements, with respect, I am unable to accept that this is an arguable point.

(a) First, there is no evidence before the court showing that any member or creditor of D2 is prepared to make an application to the Cayman Court for an order restoring D2.

(b) Second, while the purpose of restoring D2 is to enable D6 to D8 to keep the respective sums received by them, which are part of the proceeds derived from a fraudulent scheme, it is extremely doubtful that the Cayman Court would think that “it is just that the company be restored” in these circumstances. In any event, D6 to D8 have not adduced any evidence to show that such an application would have a reasonable chance of success in the Cayman Court. They have not discharged the burden of adducing evidence to show that “the resuscitation point” taken by them is really an arguable defence in this Order 14 application.

89.  In my judgment, D6 to D8 have not put forward any arguable defence to P’s proprietary claim. Accordingly, P is entitled to have the declaratory relief and orders for accounts and inquiries in respect of the amounts received by D6 to D8 from the Critica DBS Account and/or their traceable proceeds, which were still in their possession or control on 21 August 2022 or at any time thereafter. That would include the sum of US$216,287.50 which D6 and D7 had paid to Montclair Limited as “professional fees and deposit” for projects which, according to Montclair Limited, had never completed for various reasons. This sum is part of the Montclair Payments and is still being held by Montclair Limited. As submitted by Mr Yu, the sum is liable to be refunded by Montclair Limited to D6 and D7, and they would in turn hold those monies on constructive trust for P, and would have to account for them (in addition to other traceable proceeds in their hands) to P.

90.  Further, P would be entitled to have summary judgment against D6 to D8, by reason of knowing receipt, in respect of any sums derived from the Investment Sum, which were still in the possession and control of these defendants on or after 21 August 2022. That would include the US$216,287.50 as mentioned in the above. On 21 August 2022, SW had reported to D6 and D7 that the StockX Investment as claimed by D1 was a scam. On 21 August 2022, D6 to D8 was fixed with the knowledge of the fraud. From this day onwards, D6 to D8 would be liable to P in respect of any sum derived from the Investment Sum which was still in their possession or control. There is no arguable defence to this claim.

91.  For avoidance of doubt, in concluding that P should be given summary judgment in respect of the above, I have not taken into account a settlement proposal recorded in Wellington’s letter to HLLY dated 10 January 2023. In that letter, it is recorded that D7 has related a settlement proposal to Carol. The discussion between D7 and Carol is arguably covered by without prejudice privilege. As submitted by Mr Ho, the characterisation and the circumstances as to how the discussion came about, and whether it is privileged, are triable.

D5. Summary judgment to a limited extent

92.  For the reasons above, I am of the view that P should be allowed to have summary judgment to the limited extent as set out in the above.

E. DISPOSITION

93.  I enter summary judgment against D1 for P’s entire claim. As between P and D1, there be a costs order nisi that costs of these proceedings, including costs of the Amended SJ Summons and costs of the Hadkinson Summons, be to P forthwith, with a certificate for 3 counsel.

94.  I enter summary judgment against D6 to D8 to the limited extent as indicated in Section D4 above. As to the rest of P’s claim, I grant D6 to D8 unconditional leave to defend and decline to order interim payment. As between P on the one hand and D6 to D8 on the other hand, in view of the extent of P’s success in the application for summary judgment against D6 to D8, there be a costs order nisi that 30% of the costs of the Amended SJ Summons be to P forthwith, with a certificate for 3 counsel. As between P on the one hand and D6 to D8 on the other hand, the remaining costs of the Amended SJ Summons be in the cause of the trial, with a certificate for 3 counsel.

95.  Unless there is an application made by summons for the variation of the aforesaid costs orders nisi within 14 days after the handing down of this decision, the said costs orders nisi shall become absolute.

96.  The costs covered in each of the costs orders mentioned above would be summarily assessed by the court. In respect of each costs order, there be leave to P to file and serve a bill of costs for summary assessment on the relevant defendants within 7 days after the costs order nisi becoming absolute, and leave to the relevant defendants to file and serve a written reply to the said bill within 7 days thereafter.

97.  I direct that within 21 days after the handing down of this decision, P on the one hand and D6 to D8 on the other hand shall jointly provide agreed proposed directions for the further conduct of these proceedings to the court. In the absence of an agreement between the parties, within the same timeframe, each side shall lodge proposed directions and the reasons in support of the proposal with the court and serve the same on the other side.

98.  I further direct that:

(1) P do prepare a draft order in accordance with this decision and provide the same to D1, D6 to D8 for comments within 7 days;

(2) D1, D6 to D8 do provide their respective comments (if any) on the said draft order to P within 7 days thereafter;

(3) P do submit the draft order, together with the comments from the said defendants and P’s responses to those comments (if any), to the court for my approval within 7 days thereafter.

99.  There be liberty to apply.

100.  Lastly, it remains for me to thank all counsel for the very helpful assistance rendered to the court.