TARGET INSURANCE CO LTD (MANAGERS APPOINTED UDNER SECTION 35(2)(b) OF THE INSURANCE ORDINANCE (CAP 41)) v. NG YU AND OTHERS

HCA 305/2022

[2023] HKCFI 565

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 305 OF 2022

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BETWEEN

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DECISION

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INTRODUCTION

1.  Before this Court is a summons issued by P (through the Managers appointed under section 35(2)(b) of the Insurance Ordinance, Cap 41), for leave to appeal against the order of DHCJ Burns SC to discharge a Mareva injunction against D1 and for stay of execution of that order.

2.  The decision was handed down by DHCJ Burns SC (“Deputy Judge”) on 3 January 2023, the last day of his sitting (“Decision”). I will follow the abbreviations and nomenclature in the Decision, save where otherwise indicated herein.

3.  After the Decision was handed down by the Deputy Judge, P issued an urgent ex parte summons for stay with notice to D1, which was heard by this Court the same day. Upon P undertaking to issue on or before the following day a summons for leave to appeal together with an application for stay pending the determination of the leave application, I granted P an interim stay pending the determination of the summons, and further directed that the matters to be dealt with on papers unless otherwise directed by the assigned judge. P issued a summons on 4 January 2023 for both leave to appeal (“Leave Application”) and for stay (“Stay Application”) and the summons has now come before this Court.

THE PARTIES AND BRIEF BACKGROUND

4.  P is and was at all material times an authorized insurer in Hong Kong and a wholly owned subsidiary of TIHL, a company listed on the HKEX (stock code:6161).

5.  Since 13 January 2020, D1 has been a substantial shareholder of TIHL[1]. D1 held the position as Chairman and Executive Director of TIHL from 23 December 2020 until his resignation on 27 May 2022, and held the position as Executive Director of P from 17 July 2021 to 19 January 2022.

6.  According to information provided by D1 to the Insurance Authority (“IA”) in the Form A dated 8 September 2021, (i) D2 is a Cayman company, the management share of which are wholly owned by D1; (ii) D3 is a BVI company of which D1 is the sole director and its 100% shareholder; (iii). D4 is a Singaporean company of which D1 is a director and its 100% shareholder; and (iv), D5 is a Hong Kong company of which D1 is a director and 100% shareholder.

7.  D6 was an employee of NBL, a brokerage firm in Hong Kong, between 8 September 2014 to 31 August 2018 and a director of NBL between 1 August 2020 to 3 May 2022[2]. D6 was the CFO of D5 and a licensed representative of D5 between 3 October 2018 and 13 February 2020. According to D6, the sole purpose of his joining D5 in October 2018 was to facilitate the intended acquisition of NBL by D1 and that his role was to oversee the acquisition of NBL and after D1 gave up the intended acquisition, D6 discharged his SFC licence in D5 in early 2020 and formally left D5 in August 2020, and according to D6, he had never worked for D1 at all[3].

8.  Prior to becoming a substantial shareholder of TIHL, D1 has also since 23 December 2019 been the Chairman and an Executive Director of another company listed on HKEX, namely Amber Hill Financial Holdings (stock code:0033) (“Amber Hill Financial”). D1 is a 72.75% shareholder of Amber Hill Financial through D3.

9.  In or around June 2020, P opened a managed account with a brokerage firm NBL, and it was provided under the Institutional Services Client Agreement (“Agreement”) that NBL shall open, maintain and operate the account in accordance with P’s instructions. At all material times, D6 was P’s main point of contact at NBL.

10.  From what this Court can gather, the chronology of D1’s involvement in P, NBL, Amber Hill Financial, TIHL, and P’s investments with NBL, appears to be briefly as follows[4]:-

(1) Between 2017 and 2019, D1 had intended to acquire NBL, which did not complete[5]

(2) According to D6, he met Dr Haywood Cheung (former single largest shareholder of TIHL and Executive Director and Co-Chairman of the Board) at end of 2017 and in late 2019. D6 began to have more contact with Dr Haywood Cheung[6]

(3) On 23 December 2019, D1 became Chairman and Executive Director of Amber Hill Financial[7]

(4) On 13 January 2020, D1 became a substantial shareholder of TIHL through Smart Neo[8]

(5) On around 15 April 2020, the Board of P and TIHL approved the opening of an account with NBL[9]

(6) In June 2020, P transferred about USD 25.8m to NBL[10]

(7) On 17 July 2020, NBL acted as sole placing agent of Amber Hill Financial[11]

(8) Between 29 July 2020 and 3 August 2020, P transferred about USD 13.1m to NBL[12]

(9) On 20 August 2020, P transferred USD 15m to NBL[13]

(10) On 30 November 2020, P transferred USD 12.89m to NBL[14]

(11) On 7 December 2020, P transferred USD 10.3m to NBL[15]

(12) On 15 December 2020, the Investment Committee of P resolved to further increase P’s investments with NBL[16]

(13) On 23 December 2020, D1 became Chairman and Executive Director of TIHL[17]

(14) On 7 January 2021, P transferred USD6.5m to NBL[18]

(15) On 26 January 2021, Smart Neo subscribed for convertible bonds in aggregate amount of HKD 400m for new shares of TIHL[19]

(16) On 26 May 2021, P’s Board of Directors discussed and reviewed the above investments with NBL and Amber Hill Financial[20]

(17) On 7 July 2021, the Investment Committee of P recommended to the Board of Directors to further invest HKD 660m by two phases in foreign currency trading through NBL[21]

(18) On 7 July 2021, P transferred USD 42.6m to NBL[22]

(19) On 15 July 2021, D1 became Executive Director of P[23]

(20) On 13 August 2021, P transferred USD 25.44m to NBL[24]

(21) On 27 August 2021 it was resolved that (a) HKD330m from proceeds of convertible bonds issuance of TIHL be injected into P as capital; and (b) D1 be appointed as an additional member of the Investment Committee of P[25]

(22) On 24 September 2021, P transferred USD 2.5m to NBL[26]

(23) On 30 September 2021, NBL acted as sole offer agent of Smart Neo in its pre-conditional mandatory unconditional cash offer to acquire all the issued shares of TIHL[27]

(24) By around October 2021, P had transferred over HKD 1.4 billion, representing approximately 90% of its cash, ie P’s Funds, to NBL[28]

(25) Throughout late October 2021, IA made repeated inquiries into P’s cash position held with NBL[29]

(26) As at 29 October 2021, P’s investments in NBL were around USD 186,000,000[30]

(27) On 1 and 16 November 2021, 2 sums of USD 2.3m and USD 29.5m were returned to P by NBL totalling USD 31.8m, leaving the balance of USD 154,000,000, ie the Sum unpaid[31].

(28) On 25 January 2022, about USD 7,000 was returned to P[32]

(29) On 24 February 2022, Smart Neo granted a revolving facility up to USD 750m to TIHL[33]

11.  On 4 January 2022, the IA notified P that SFC discovered that P’s Funds held with NBL were in fact transferred to and held with the Amber Hill ES Currency Arbitrage Fund AP (“Amber Hill ES Fund”), one of a number of segregated portfolios owned by D2. This was denied by NBL.

12.  On 7 January 2022, the IA appointed the Managers (of Deloitte) to carry out investigations into P’s affairs including the whereabouts of P’s Funds. Despite repeated request made by the Managers, NBL had failed to return the Sum to P.

13.  The Managers then procured P to present a petition for the winding up of NBL, which was resisted with an affirmation from D6. In short, D6’s evidence was that the Sum was used to purchase what were called LP Units in a Cayman Fund referred to as Four Dimensions, and that NBL was unable to withdraw the Sum from Four Dimensions because of Cayman regulatory requirements and that the Sum had all along been with Four Dimensions. The evidence of D6 was found to be unbelievable, and the submissions made on behalf of NBL were rejected by DHCJ Bernard Man SC who appointed the Managers as provisional liquidators over NBL on 17 February 2022. NBL was subsequently ordered to be wound up on 19 May 2022 by L Chan J.

14.  Deloitte’s investigations revealed that (1) the Sum was transferred from NBL to a DBS account of Amber Hill ES Fund; (2) from the DBS account to D2’s account at Malayan Banking Berhad, Singapore; and then (3) to accounts of D3, D4, and D5.

THE PRESENT ACTION

15.  P alleges that it is the victim of a “massive fraud” perpetuated by D1 and D6 utilising various corporate entities including NBL as 1^st layer recipient, D2 as 2^nd layer recipient, and D3, D4 and D5 as 3^rd layer recipients, resulting in the misappropriation of the Sum.

16.  On 25 March 2022, P issued an ex parte application to seek proprietary/mareva injunctions. ST Poon J made an order granting P amongst other things (a) a proprietary injunction as against D2, D3, D4 and D5 to preserve assets over which P has asserted a proprietary claim; (b) Mareva Injunction as against D1 and D6 for an amount equivalent to the Sum; (c) ancillary disclosure orders against D1 and D6.

17.  P issued an inter partes summons on 28 March 2022 to seek continuation of the ex parte injunctions (“Continuation Summons”). D1, D3, D4 issued a summons on 21 April 2022 seeking discharge of the Ex Parte Order as against them (“Discharge Summons”), and pending determination of the Discharge Summons, D1 sought a variation and/or stay of the ancillary disclosure order as against him (“Disclosure Order”). On the return day on 29 April 2022 before DHCJ Paul Lam SC, the ex parte injunctions were continued by agreement until determination of the summonses and in relation to the application for variation and/or stay of the Disclosure Order, DHCJ Paul Lam SC handed down his decision on 13 May 2022, varying the individual value of assets which D1 should disclose from HKD 10,000 to HKD 200,000 and further granted a stay of the amended Disclosure Order pending the determination of the Continuation Summons and the Discharge Summons, subject to certain conditions in relation to the “4 Assets” which had been disclosed by D1 in his affirmation of 26 April 2022.

18.  The Continuation Summons and the Discharge Summons were heard by the Deputy Judge on 5 and 6 December 2022. D2, D5 & D6 were unrepresented and did not attend the hearing. As said, the Decision was then handed down on 3 January 2023.

19.  In the Decision, the Deputy Judge, amongst other things, continued the proprietary injunctions against D2, D3, D4 and D5. As for the Mareva injunctions against D1 and D6, the Deputy Judge continued the sane against D6, but discharged the Mareva injunction against D1. This led to the present application of D1.

THE REASONS FOR DISCHARGE AGAINST D1

20.  The Deputy Judge discharged the Mareva injunction against D1 mainly because he was not satisfied that P had shown a good arguable case against D1. He set out his reasons in paragraphs 64 to 66 of the Decision for him not preparing to draw the inferences as to the alleged involvement of D1 in the alleged fraudulent scheme, namely that he found there was little, if anything of substance, to link D1 with either NBL or with D6 and that the absence of any evidence of a firm link between D1 on one hand and either NBL, or D6, on the other, let alone evidence that NBL was in any way controlled by D1 or D1 had any influence on decisions or acts of NBL was in his view a crucial missing link in P’s case that D1 was the mastermind in the alleged fraudulent scheme.

21.  The Deputy Judge also found that there was nothing to contradict D1’s evidence that he was not involved in the management of the Amber Hill entities, and he was not himself aware of how the Sum was disbursed by NBL or thereafter by D2, and that D1 had no knowledge of the acquisition of the LP Units.

22.  Further, having considered to those points summarised by him in paragraph 41 of the Decision, the Deputy Judge was not satisfied that P had shown that, without the Mareva injunction, there would be a real risk that D1 might dissipate his assets.

THE LEAVE APPLICATION – P’S INTENDED GROUNDS OF APPEAL

23.  There are 4 grounds of appeal, the first 3 are against the Deputy Judge’s findings that P has not shown a good arguable case against D1.

Whether good arguable case against D1

24.  As set out in paragraph 45 of the Decision, the Deputy Judge was satisfied that even if the initial transfer of funds from P to NBL was unimpeachable, the issue as to whether the transactions whereby the Sum was transferred into the account of Amber Hill ES Fund and then into the accounts of D3, D4 and D5 was pursuant to a fraudulent scheme is a serious issue to be tried, and that the surrounding circumstances summarized by him ( in particular the discredited evidence of D6) suggest that the transfer of the Sum to D3, D4, and D5 was as a result of a dishonest or fraudulent scheme.

25.  In paragraph 46, the Deputy Judge also said despite investigations by Deloitte, the LP Units had not been identified or found and there must be real doubt as to whether they existed or whether the Sum was in fact used to purchase any such units, and that the question as to whether the purchase of LP Units fell within NBL’s mandate as per the Agreement is another serious issue to be tried.

26.  As set out in paragraph 64 of the Decision, the Deputy Judge had considered the following:

(1) The alleged “relations” between D1 and NBL going back to 2019 are unparticularized save a proposed acquisition by D1 of NBL which did not come to fruition;

(2) There was some doubt as to whether a company AH Holdings International Limited (of which D1 stated in Form A to be a sole director and 100% shareholder) was formerly known as Nerico Brother;

27.  The Deputy Judge had also considered that in July 2020 NBL acted as sole placing agent of Amber Hill Financial in its placing of new shares and in September 2021 NBL acted as sole offer agent of Smart Neo in its offer to acquire all the issued shares in TIHL (which did not proceed), but came to the view that all above did not form a firm link between D1 and NBL (or D6).

28.  However, having considered the chronology of events and the cumulative effect of the evidence, in particular that the Sum ended up in the account of firstly D2 and then to accounts of D3, D4 and D5, I agree with those submissions made on behalf of P that there is a reasonable prospect of success in P arguing that the Deputy Judge overlooked that D2 to D5 (“4 Companies”) are companies of which the management shares and/or 100% shares are wholly owned by D1 and D1 is also the sole director of D3, and whilst D1 disowns management of the 4 Companies, it seems against commercial and common sense that for whoever in control of the 4 Companies and D6 to have acted on a frolic of their own without involving D1, who is the one who ultimately stands to benefit from the scheme. As set out in the 2^nd ground, the real and crucial question which the Deputy Judge would seem to have overlooked is why the 4 Companies had committed the fraudulent acts to induce the transfer of the Sum to the 4 Companies and to put forward a false story to cover up the true whereabouts of the Sum, if not for the benefit of D1, who appeared to be the one who ultimately stood to benefit the alleged fraudulent scheme.

29.  Having considered the above, I am of the view that there is a reasonable and realistic prospect of success in P in arguing that the Deputy Judge has erred in rejecting that there is a good arguable case against D1 that D1 is the mastermind of the fraudulent scheme perpetrated against P. As for risk of dissipation, there is a reasonable prospect of success in P arguing that such risk is self-evident and flows from the fraud itself.

STAY APPLICATION

30.  In the circumstances, I am prepared to grant P’s Leave Application. I am also prepared to grant a stay pending final determination of the appeal, but I accept, to prevent any delay in the appeal and prejudice to D1, and given P’s acceptance that there is public interest involved in this litigation, and in light of P’s willingness to undertake to expedite the appeal, such stay will be granted on P’s undertaking to serve the Notice of Appeal upon D1 and to set down the appeal within 7 days from the date of this order.

COSTS

31.  Costs of P’s summons will be costs in the cause of the intended appeal.