CHUGAI PHARMA USA, INC. v. CHENG YAN AND OTHERS

HCA 1326/2023

[2025] HKCFI 251

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1326 OF 2023

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BETWEEN

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J U D G M E N T

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Introduction

1.  By a summons dated 31 July 2024 (“Summons”) and pursuant to Order 14 of the Rules of the High Court, the Plaintiff (“P”) seeks summary judgment against the 1^st Defendant (“D1”) for the sum of HK$5,990,000 (“D1 Funds”) and a declaration that D1 does hold the D1 Funds on trust for P. A hearing of the Summons was held on 27 November 2024 with Judgment reserved to be handed down. This is the Court’s Judgment.

Background facts

2.  In May 2023, Mr. Aida (the President and CEO of P) was approached by a person impersonating Mr. Okuda, the President and CEO of P’s parent company in Japan (“Fake Mr. Okuda”). The Fake Mr. Okuda falsely alleged to Mr. Aida that funds were needed from P and asked Mr. Aida to email a “Mr. Smith” (“Fake Mr. Smith”) to obtain instructions for the transfer of the funds. As instructed by the Fake Mr. Smith, Mr. Aida caused funds to be transferred to a Hang Seng Bank account held by a bogus company (“BH Trading”) in Hong Kong (“HSB Account”).

3.  P was thus the victim of a fraud perpetrated between 4 and 8 May 2023 whereby it was deceived into transferring funds in the total sum of US$2,344,632 (“Deceived Funds”) from its bank account to the HSB Account of BH Trading:-

Date of Transfer	Amount (US$)
4 May 2023	759,750
4 May 2023	826,956
8 May 2023	757,926
Total	2,344,632

4.  Some of the Deceived Funds were then transferred by BH Trading from the HSB Account to D1’s CMB Wing Lung Bank account in Hong Kong (“D1’s Bank Account”) within several days or even on the same day:-

Payment No.	Date	Name of Recipient Account	Amount Transferred
1	8 May 2023	D1’s Bank Account	HK$1,000,000
2			HK$1,000,000
3			HK$1,000,000
4	9 May 2023		HK$990,000
5			HK$1,000,000
6			HK$1,000,000
			Total: HK$5,990,000 (i.e. the D1 Funds)

5.  As the D1 Funds were paid into D1’s Bank Account as a result of fraud on P, it is P’s case that D1 holds such funds on trust for P[1].

6.  In light of the above facts as pleaded in the Amended Statement of Claim and as supported by the affirmation evidence filed by P[2], there is clearly a prima facie case for judgment against D1, subject to any believable defence that may be put up by D1.

The defence put up by D1

7.  D1 does not dispute the fraud on P and the above banking transactions. She asserts that she had no knowledge of nor any involvement in the fraud. There is also no dispute between the parties that D1 did not have any prior dealing with P or BH Trading.

8.  In gist, D1’s defence is that she had in December 2021 given a loan to a Madame Wang (“Loan”) and the transfers from BH Trading to her in May 2023 represented repayment of part of the Loan by Madame Wang to her. She thus asserted that she was a bona fide purchaser for value without notice.

9.  To oppose the Summons, D1 has filed with the Court one affirmation of 8 pages where she made the following assertions.

10.  D1 and her husband were in the business of selling medical supplies. While she had an undergraduate degree in clinical medicine and had been a sales manager for a company named “合肥綠薄荷醫藥科技有限公司” from 22 June 2020, her husband was in the business of selling medical equipment to hospitals.

11.  Prior to these proceedings, D1 did not know P nor had any prior dealing with P.

12.  D1 admitted having received the total sum of HK$5,990,000 from BH Trading but claimed that she had no knowledge of the fraudulent events leading to that total sum being received by her. Nor was she part of the scheme that had defrauded P.

13.  D1 claimed to have known and been a good friend of a Madame Wang (黃麗萍) for about a decade. In around October or November 2021, Madame Wang approached her to seek a loan in the sum of RMB 6,080,000. She informed D1 that she wished to use the funds to set up a clubhouse in Chengdu, China, which would be used for business meetings or events[3].

14.  On about 1 December 2021, D1 and Madame Wang entered into and signed a Chinese loan agreement ("Loan Agreement"). The Loan Agreement provided, inter alia, that she would give Madame Wang the Loan in the amount of RMB 6,080,000 and the term would be for a maximum of 3 years, commencing on 1 December 2021. It was also agreed or understood that the Loan was repayable on demand within the 3-year period.

15.  Further to the Loan Agreement, D1 arranged an aggregate sum of RMB 6,080,000 to be transferred by her relative, a Mr. Wang (王明強), on her behalf, to the bank accounts of the following parties as designated by Madame Wang:-

(i) On 13 December 2021, RMB 700,000 was transferred to a “李進云”;

(ii) On 13 December 2021, RMB 550,000 was transferred to a “王帆”;

(iii) On 15 December 2021, RMB 3,000,000 was transferred to a company named “合肥市村果藥業有限公司”;

(iv) On 21 December 2021, RMB 700,000 was transferred to a “李锦锦”;

(v) On 29 December 2021, RMB 230,000 was transferred to a “于海峰”;

(vi) On 31 December 2021, RMB 700,000 was transferred to “李進云”; and

(vii) On 31 December 2021, RMB 200,000 was transferred to a “方建德”.

16.  D1 understood from Madame Wang at the time that the monies from the Loan were intended to be paid by D1 to the above third parties. As Madame Wang was concerned that her bank account might be affected if funds were transferred in and out of her bank account in short succession, she requested that the monies be paid to those third parties directly. D1 therefore arranged for the monies under the Loan to be paid out accordingly.

17.  In around early May 2023, D1 contemplated purchasing real estate in Hong Kong for self-use purposes. At around that time, i.e. in February 2023, the Hong Kong Government announced the new Capital Investment Entrant Scheme (“New Scheme”) and it was formally launched in March 2024.

18.  D1 had intended to participate in the New Scheme to become a Hong Kong resident and thereafter to acquire real estate in Hong Kong. However, although the New Scheme was launched in March 2024, D1 experienced some setback as some of the funds (namely, the D1 Funds) which D1 intended to apply towards meeting the scheme requirements were frozen. D1 eventually applied under the New Scheme in July 2024 and her application was approved in principle in October 2024.

19.  As Madame Wang was a Hong Kong resident, D1 discussed with Madame Wang about the possibility of her repaying D1 in Hong Kong Dollars so that she could carry out her intended investments under the New Scheme. They discussed initially via telephone and later in person when Madame Wang flew to Hefei to meet with D1 and to discuss the Loan. They eventually agreed that Madame Wang would make partial repayment under the Loan Agreement in the sum of HK$5,990,000 (being the amount that Madame Wang was able to raise at the time), using the exchange rate of RMB 0.9 = HKD 1 (“Repayment Agreement”).

20.  Pursuant to the Repayment Agreement, Madame Wang arranged for partial repayment of the Loan on about 8 and 9 May 2023, to be paid to D1 in 6 instalments. After the total sum of HK$5,990,000 was deposited into D1’s Bank Account, Madame Wang called D1 to confirm the same.

21.  D1 claimed that the sum of HK$5,990,000 constituted partial repayment of the Loan by Madame Wang to her. As at the date of D1’s affirmation[4], she had not made any further demands for repayment of the outstanding principal sum and interest under the Loan Agreement because, firstly, the maximum 3-year loan term had not yet expired; and secondly, the repayments made by Madame Wang were flagged as suspicious transactions and funds in D1’s Bank Account were frozen by the police. D1 discovered that when she sought to withdraw or transfer the funds around 2-3 weeks after they had been deposited into her bank account. At around that time, D1 was informed by the police by telephone that such funds were frozen and were suspected to be proceeds of fraud, and she was asked to attend the police station to provide a statement.

22.  D1 thus claimed in her affirmation that she was a bona fide purchaser for value without notice. She also denied that she had any actual or constructive knowledge or any notice of P’s proprietary interest in the D1’s Funds (i.e. the total sum of HK$5,990,000). D1 also maintained that the transfers of those funds were made to her for commercial and legitimate reasons.

Relevant legal principles on Order 14 applications

23.  In Re Safe Rich Industries Ltd, CACV 81 of 1994 (unreported and dated 3 November 1994), Bokhary JA (as he then was) observed (at §13):-

“The test at the summary stage is indeed as simple as whether the defendant’s assertions are believable. But it must be recognized - because failure to recognize it would create a debt-dodger’s charter - that whether the defendant’s assertions are believable is a question to be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as is either undisputed or beyond reasonable dispute.”

24.  In Guanghua SS Holdings Ltd v Lim Yew Cheng & Anr [2022] HKCFI 1052, Ng J elaborated on the proper approach to an Order 14 application (at §13):-

(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.

25.  The Court would also bear in mind any changes or inconsistencies in the defendant’s case. In Jiang, Jianxin v Yiu, Ming Fung [2020] HKCA 916, the Court of Appeal held (at §6.4):-

“In an application for summary judgment the test is whether the defendant has raised triable issues on the plaintiff’s claim. But the mere fact that the defendant has put forward a defence does not necessarily mean that there are triable issues because the Court does not need to accept such defence on its face value. On the contrary the Court is required to decide whether the defence is credible or simply moonshine. The Court is, of course, not to conduct a mini trial on the evidence but at the same time in order to assess the credibility of the defence, the Court is clearly entitled to test it against contemporaneous documents, whether the defence is inconsistent with the defendant’s case previously put forward or whether it is only recently raised despite opportunity being given to the defendant to respond earlier. The Court will also consider the inherent probability of the defence.”

26.  The defendant’s affidavit must “condescend upon particulars” and state clearly and concisely what facts are relied on to support the defence. A mere general denial that the defendant is liable will not suffice: see Hong Kong Civil Procedure 2025 at §14/4/4.

27.  In Li Chuen Kwai v Po Lam Construction Development Ltd, HCA 2376/2013 (unreported and dated 24 September 2014), Wilson Chan J expounded the following principles (at §12(2), (3) and (4)):-

(1) A complete defence need not be shown. The defence set up need only show that there is a triable issue or question or that for some other reason there ought to be a trial; and leave to defend ought to be given unless there is clearly no defence in law and no possibility of a real defence on the question of fact.

(2) The Court will not embark on a mini-trial of the action on paper and leave to defend will be granted unless the defence raised is so incredible or so contradicted by the contemporaneous documents or circumstances that it becomes clear that the defence is a sham.

(3) The test is not whether the defendant’s assertions are to be believed, rather it is whether those assertions are believable, i.e. capable of being believed. If so, the defendant must have leave to defend.

28.  On the issue of contemporaneous supporting evidence, DHCJ Jin Pao SC observed in Leung Chin Sing Rabo v Ko Chun Hay Kelvin [2021] HKCFI 2242 (at §42):-

“It is rare in modern commercial litigation to encounter a claim based on an agreement which is not only said to have been purely by word of mouth but of which there is no contemporaneous documentary record of any kind. The prevalence of e-mails, text messages and other forms of electronic communication is such that most agreements or discussions which are of legal significance, even if not embodied in writing, leave some form of electronic imprint: Blue v Ashley [2017] EWHC 1928 (Comm) at [65] per Leggatt J (as he then was); Music Holdings Property HK Ltd v Ooi Lean Choo [2020] HKCFI 1312 at [58] per Ng J. Because the value of a written record is understood by anyone with business experience, its absence may, depending on the circumstances, tend to suggest that no contract was concluded: Blue v Ashley at [49]; Wing Hing (1956) Co Ltd v Nissin Foods Co Ltd [2021] HKCFI 638 at [56] per DHCJ Abraham Chan SC.”

Discussion

29.  At the hearing, the key issue was whether D1’s assertions are believable: (i) the Loan Agreement was entered into between D1 and Madame Wang in December 2021; and (ii) the D1 Funds were partial repayments of the Loan by Madame Wang to D1 in May 2023. In her submissions opposing summary judgment, counsel for D1, Ms Sat, emphasized that D1’s case is supported by the bank records of the 7 transfers and the Loan Agreement and so long as there is a believable defence, P’s application for summary judgment should be dismissed.

30.  Having considered the pleadings, the evidence and the parties’ respective submissions in the whole context, I am of the view that D1’s assertions are not capable of belief and my reasons are as follows.

31.  First, D1’s assertions and pleadings about the giving of the Loan to Madame Wang are inconsistent or contradictory in material respects and are incredible:-

(1) According to D1’s affirmation, D1 had arranged an aggregate sum of RMB 6,080,000 to be transferred (1) by her relative Mr. Wang on her behalf, (2) to bank accounts designated by Madame Wang, and (3) by a total of 7 transfers.[5] But that was not her pleaded case in the Defence or Amended Defence where it was simply pleaded, “During the period from 13^th to 31^st December 2021, the 1^st Defendant advanced an aggregate loan of RMB 6,080,000 to Madame Wang via 6 tranches”.[6] In other words, in the pleadings, not only was the involvement of Mr. Wang never mentioned, it was also not suggested that Madame Wang was not paid directly but other recipient accounts designated by her were.[7] There is the further remarkable inconsistency in relation to the number of transfers made: “6 tranches” were pleaded in the Defence or Amended Defence whereas in D1’s affirmation, it was alleged that there were altogether 7 transfers.[8] These are material inconsistencies pertaining to important matters which cast doubt on D1’s claim that she had made the Loan to Madame Wang.

(2) Indeed, it is even more remarkable that the Loan Agreement which was purportedly entered into on 1 December 2021 was also not pleaded in D1’s Defence or Amended Defence. Had it all along been D1’s case that such a Loan Agreement was signed between D1 and Madame Wang, it would have been the first matter to be pleaded in the Defence or Amended Defence given its significance and the chronology of events, especially when it was the plank of D1’s defence. In the pleadings, there was simply no mention of the entering of the Loan Agreement on 1 December 2021 which purportedly took place before the 7 transfers between 13 and 31 December 2021.

(3) Turning to the Loan Agreement itself, it can be seen to be a rather crudely prepared, and as described by Ms Sat “home-made”, document. There is no evidence as to who had drafted it. It was obviously not prepared by lawyers nor was there any witness to its signing. Indeed, even its very first sentence already contains a patent error: it reads “甲方因乙方的要求，向乙方提供貸款…” (i.e. “At the request of Party B, Party A provided the loan to Party B…”) when Madame Wang was stated to be “甲方” (Party A) and D1 to be “乙方” (Party B). In other words, by that part of the first sentence, D1 was wrongly stated to be the borrower and Madame Wang the lender. Had it been a genuine instrument, it is unthinkable that the parties would not have spotted that error at the very beginning of the document, bearing in mind that D1 is an educated person with a business background. And looking at the signing page, one may be forgiven to take the view that the signatures of the two parties and all the handwriting there look rather cursory and could have been easily signed or written by the same person. The Loan Agreement raises doubt rather than lends credibility to D1’s case.

(4) In D1’s affirmation, D1 also sought to rely on a total of 7 transfer records to prove that upon her arrangement, Mr. Wang had caused 7 transfers to be made to accounts designated by Madame Wang[9]. But looking at those records, they simply do not show that such transfers were related in any way to Madame Wang or D1 at all. It is only D1’s bare assertion that they were so related. On the face of the transfer records, the funds clearly did not come from D1 nor could they be seen to be paid to Madame Wang. Indeed, in 6 out of the 7 transfer records, it cannot even be seen that Mr. Wang had provided the funds for the transfers. One transfer record does show that Mr. Wang had provided the funds of RMB 3,000,000 but it was to pay “合肥市村果藥業有限公司”, apparently a medicine company in Hefei (合肥). As we know from D1’s affirmation, D1 is from Hefei and she is in the business of medical supplies. Therefore, even this transfer appears more likely to be paying D1’s related or designated party than Madame Wang’s (who is supposed to be a Hong Kong resident). Seen properly in context, these transfer records simply do not support D1’s assertion of the Loan; it is only D1’s bare assertion that they do.

(5) D1 has also failed to condescend upon particulars and explain: (1) why she had not made the transfers herself? (2) why was there the need to engage her purported relative Mr. Wang to do that? (3) who was this purported relative Mr. Wang? (4) why was Mr. Wang prepared to assist her given the large sums of funds involved in those 7 transfers? Further, D1 has not stated in her affirmation whether she had reimbursed Mr. Wang for making those 7 transfers totaling RMB 6,080,000. If not, was it therefore a loan owed by Madame Wang to Mr. Wang? What was the arrangement between D1 and Mr. Wang? The bare assertion that D1 had arranged Mr. Wang to pay Madam Wang raises many obvious questions which are simply unanswered.

(6) It is also significant that D1 has not produced any records of communication concerning how Madame Wang had informed D1 or Mr. Wang to designate the different bank accounts to be paid by the 7 transfers. To make such designated transfers, details of the recipient bank accounts would have had to be supplied by Madame Wang to D1 or Mr. Wang. It is incredible that there is no contemporaneous communication record of any kind pertaining to the arrangement of those 7 transfers, whether between Madame Wang and D1 or between D1 and Mr. Wang. Nor have there been any records produced by D1 to show that those 7 transfers were received and acknowledged by Madame Wang.

(7) In short, whilst D1 has claimed that the Loan Agreement was signed between her and Madame Wang in 2021 and that the Loan was made by “6 tranches” (or 7 transfers) through Mr. Wang, these remain to be bare assertions made by D1 alone. The Court has certainly noted that neither Madame Wang nor Mr. Wang has come forward to support such of her assertions.

32.  Second, D1’s further assertions about repayment of part of the Loan by Madame Wang to her in May 2023 are equally incredible for the following reasons:-

(1) Again, there is the dearth of contemporaneous evidence (e.g. emails, phone messages or call records) concerning D1’s purported request for repayment of the Loan by Madame Wang in May 2023. Not one single contemporaneous record can be produced to show that such a request had been made by D1 to Madame Wang. There is only D1’s bare assertion that the two had discussed about the loan repayment “initially via telephone, and later in person”[10]. Not even a copy of Madame Wang’s air ticket or its purchase record has been produced to show her purported flight to Hefei to meet with D1 to discuss the repayment.

(2) D1 has also failed to condescend upon particulars: (1) how was the lesser repayment sum of HK$5,990,000 arrived at and agreed between the two? (2) whether that sum included the accrued interest of the Loan and if so, how much, and if not, why not? (3) what was the balance of the Loan and when would it be due? Indeed, clauses 4(2) and 5 of the Loan Agreement required that the accrued interest be paid at the same time as the repayment of the Loan, and any “early repayment” be supported by a written request – Ms Sat conceded that there was no written request. In other words, the assertion that the D1 Funds were repayments of the Loan is inconsistent with the express terms of the Loan Agreement. It is also incredible that there was simply no entry or record made or produced by any of the parties to register the partial repayment of the Loan, the receipt thereof by D1, the outstanding balance of the Loan, and the interests paid or remaining.

(3) It is also significant that P was defrauded of the Deceived Funds between 4 and 8 May 2023 and out of those funds, on 8 and 9 May 2023, the D1 Funds were transferred to D1’s Bank Account. In other words, within several days or even on the same day (involving a total of HK$3,000,000 on 8 May 2023), part of the Deceived Funds were arranged to be paid into D1’s Bank Account. Given the close proximity in time of such transfers with the fraud transactions and in the absence of any explanation offered by D1, it is incredible to suggest that Madame Wang could have coincidentally arranged for such funds to be repaid to D1 and/or done so innocently. The pattern of immediate (or close to immediate) receipt and dissipation of funds is also contrary to D1’s assertion that Madame Wang and D1 had discussed and arranged the loan repayment beforehand.

(4) It is also unbelievable that after May 2023, D1 had not made any further demands for repayment by Madam Wang under the Loan Agreement. D1 was informed by the police in around May 2023 that the D1 Funds had been frozen and were suspected to be proceeds of fraud. One would have expected that the first thing that D1 would do would be to contact Madam Wang, question her about the funds and demand for further repayment of the outstanding Loan and interest. It was D1’s case that funds were then needed to prepare for the New Scheme.

(5) D1 claimed that she asked for the repayment of the Loan because in February 2023, the Government had announced the New Scheme. But the New Scheme was not formally launched until March 2024, and her request for early repayment appeared premature when it could not even be shown that the requirements of the New Scheme had been finalized and announced. In any event, her subsequent successful application in July 2024 showed that she had had sufficient assets or investments to apply for the New Scheme even without the D1 Funds or the purported repayment of the Loan by Madam Wang. In the Court’s view, D1’s attempt to explain the sudden need for the purported repayment of the Loan by Madam Wang is unconvincing and lacks credibility.

33.  Having considered all of the above matters in §§31 and 32 and the whole situation, this Court finds D1’s defence not capable of being believed. Therefore, summary judgment should be entered in favour of P.

Other considerations

34.  In their written submissions and at the hearing, the parties had gone on to make submissions on whether D1 should be regarded as having had knowledge or received notice of the fraud on P and therefore should not be entitled to the defence of a bona fide purchaser without notice. Given my finding above that D1’s case of the Loan is simply not believable, there is no need for the Court to further address this issue of notice.

Judgment

35.  I therefore order that final judgment be entered against the 1^st Defendant in this action for:-

(i) An order for the return of the sum of HK$5,990,000 ("D1 Funds") to the Plaintiff;

(ii) A declaration that the 1^st Defendant holds the D1 Funds and any profits and interest thereon in whatever form which are traceable to the D1 Funds on constructive and/or resulting trust for the Plaintiff and consequential orders thereon;

(iii) Interest on the D1 Funds at the Hong Kong Dollar Prime Rate plus 1% per annum from 21 August 2023 to the date hereof and thereafter at judgment rate until payment; and

(iv) The costs of and occasioned by the Summons filed herein on 31 July 2024 (with certificate for counsel) and the costs of this action be to the Plaintiff, to be taxed if not agreed.

36.  Lastly, I thank counsel for their assistance.