VIOLET PASSION HOLDINGS LTD v. LIAN YI

HCA 1981/2020

[2025] HKCFI 4589

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1981 OF 2020

____________

____________

_______________

J U D G M E N T

_______________

INTRODUCTION

1.  This is the Plaintiff’s application for default judgment. Pursuant to this Court’s order for substituted service dated 30 September 2024, proceedings have been served on the Defendant on 9 October 2024 through Ling & Lawyers and by emails. No acknowledgement of service has been filed by the Defendant.

2.  Subsequent to being served, the Defendant had unilaterally written to the Court. This Court replied to her on 16 January 2025 (“the Court’s Letter”), copied to the Plaintiff, (a) informing her that the Court would not communicate with any party on an ex parte basis; (b) directing her to provide the documents enclosed with her letter to the Plaintiff and provide a correspondence address in Hong Kong to the Court, otherwise the Court may not correspond with her after that letter. The Defendant has not complied with such directions.

3.  Further, in a Civil Originating Process Writ dated 27 October 2024, signed and fingerprinted by the Defendant, the Defendant sued Faith Corporate Services Ltd and Wang Shiming. That was less than 3 weeks from service through Ling & Lawyers. In documents filed by the Defendant in those proceedings, the Defendant expressly complained about the present proceedings in Hong Kong.

4.  The Defendant plainly has notice of the present proceedings but chooses not to appear or provide a correspondence address. She remains evasive. The writ and present summons for default judgment have been validly served on her. I therefore proceed with this hearing in her absence.

FACTUAL BACKGROUND

5.  The Plaintiff is an investment holding company and a wholly owned subsidiary of Clear Expert Limited (“Clear Expert”).

6.  The Defendant had been:

(1)  the sole director of the Plaintiff from 7 July 2014 to 4 November 2020.

(2)  the sole shareholder of the Plaintiff from 7 July 2014 until the shares were transferred to Clear Expert on 7 May 2015.

(3)  the sole director and shareholder of Clear Expert from 7 May 2015 to November 2020.

7.  The ultimate beneficial owner of Clear Expert and the Plaintiff is Mr Xiao Ziqiang (“Mr Xiao”). The Defendant had been Mr Xiao’s nominee pursuant to a Declaration of Trust, holding the shares in the Plaintiff and Clear Expert on his behalf.

8.  The Plaintiff used to hold 167,872,000 shares in Yunfeng Financial Group Ltd, since around 10 November 2015.

9.  Five years later, between October and November 2020, amongst a series of unauthorized acts, the Defendant misappropriated 55,000,000 of the Yunfeng Shares (“the Shares”) and placed them into her personal account with China Tonghai Securities Limited (“Tonghai”), now known as Quam Securities Limited (“Lian Account”). She did so by providing to Tonghai purported bought and sold notes showing that she had purchased the Shares from the Plaintiff for a consideration of HK$192,500,000 when in fact no such consideration had been received by the Plaintiff.

10.  She sold part of the Shares and received proceeds (after stamp duty) in the sum of HK$6,709,926.71. As of 1 March 2021, the Lian Account holds 50,902,000 Shares (“the Remaining Shares”), with a cash balance of HK$9,054,149.63 (“the Remaining Balance”).

11.  Upon discovering the unauthorized dealings on or around 5 November 2020, the Defendant’s directorship was replaced by and her shareholding was transferred to Mr Wang Shiming.

LEGAL PRINCIPLES

12.  In an application for default judgment, the Court decides if the plaintiff appears to be entitled to judgment on its statement of claim. No evidence is required.

13.  It is not the Court’s practice to grant a declaration in the absence of the defendant, but it is not a rule of law but a practice. It should not be followed when the plaintiff has a genuine need for the declaration and justice would not be done if such relief is denied.

14.  A director who acts in breach of his fiduciary duties by misappropriating and receiving the company’s assets holds the same on constructive trust: JJ Harrison (Properties) Ltd v Harrison [2002] BCC 729, §§25-27.

15.  A fiduciary who has misappropriated assets or otherwise caused loss or damage to the trust assets in breach of his duty is to restore the lost property to the trust. Where restoration in specie is not possible, the Court may order equitable compensation in place of restoration: Libertarian v Hall (2013) 16 HKCFAR 681, §87.

16.  A claim for account and inquiry can be rolled up as part of the application for default judgment if the statement of claim properly pleads the facts：Amidas Hong Kong v Che Si Ltd [2025] HKCFI 1128, §§29-31, Au-Yeung J.

ANALYSES

17.  The Defendant was the trustee of the Shares. She clearly acted in breach of trust and breach of duties as a fiduciary of the Plaintiff by misappropriating the Shares, selling part of them and obtaining part of the proceeds for her own benefit.

18.  The Statement of Claim has pleaded facts showing that the Plaintiff has traced the route of the Shares and their proceeds. They went into the Lian Account which, initially, had a nil balance but ended up having the Remaining Shares and Remaining Balance.

19.  This is a clear case that a declaration of constructive trust will bring about substantive benefit to the Plaintiff in that the Remaining Shares and Remaining Balance can be returned to the Plaintiff, who can have the Shares registered in the name of the Plaintiff or its nominee.

20.  There should be an injunction restraining the Defendant from disposing of or dealing with the assets in the Lian Account, as they belong to the Plaintiff beneficially.

21.  The Defendant should pay the Remaining Balance to the Plaintiff and execute documents to instruct Quam Securities to transfer the Remaining Shares to the Plaintiff. In the event the Defendant fails to do so, the Plaintiff may apply by summons for the appointment of the Plaintiff’s handling solicitor to execute the necessary documents pursuant to s.25A of the High Court Ordinance, Cap 4. The summons shall be supported by an affirmation as to service of this Order on the Defendant, which summons shall be returnable before Au-Yeung J. If the Defendant does not respond to the summons by affirmation within 7 days of service, Au-Yeung J shall dispose of the summons on paper.

22.  The Defendant should also pay equitable compensation of HK$6,709,926.71 to the Plaintiff, being the amount she received or dissipated from the unauthorized sale of 4,098,000 Shares. There shall be interest thereon at P+1% from the date of the writ to the date of the judgment, and thereafter at judgment rate.

23.  For the avoidance of doubt, the Plaintiff no longer seeks relief in relation to §§1(g)-(h) of the Summons, which seeks equitable compensation and an equitable lien on the basis that the Plaintiff would have sold the Shares had Lian not misappropriated the same.

24.  Costs of this action, including costs of this Summons and all costs reserved, shall be paid by the Defendant to the Plaintiff to be taxed if not agreed.

25.  The Plaintiff has suggested serving this order on the Defendant through Ling & Lawyers again. I do not see the need to trouble that firm. The Defendant has chosen to ignore the Court’s Letter and failed to give a correspondence address. The Plaintiff needs only serve this order and any document in this case at the email addresses, and that shall be deemed good and sufficient service.

26.  For the reasons given, I give an order in terms of the draft as amended by me.