ANZ COMMODITY TRADING PTY LTD v. EXCELLENCE RAISE OVERSEAS LTD AND OTHERS

HCCL 4/2017

[2023] HKCFI 179

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO 4 OF 2017

____________

____________

________________

J U D G M E N T

________________

Background

1.  Precious metals are valuable commodities. In addition to their wide industrial application, they are traded in large volumes globally. Because of its homogeneity, its non-perishable quality, accompanying ease of storage, and the availability of liquid markets worldwide such as the London Metal Exchange, commodity traders have realized that economic benefits can be made from deals using metals such as gold, aluminium, copper and nickel. There are different forms of commercial activities which utilize metal cargo and stocks, and these include arbitrage trading conducted between different markets which take advantage of the differentials in the market rates, financing deals to monetize metal that a party has in storage or holds during transit, and other financing arrangements which are entered into between commodity traders and their clients, and between financiers and commodity traders, using metal as security, all with the purpose of maximizing the profits that can be made by the different parties from the deals. These financing deals are common in practice, take different form and often carry lucrative profit - but inevitably may involve huge risks as the corresponding price to pay.

2.  This case involves what have been referred to as metal “repo” transactions.

3.  The Plaintiff is a wholly owned subsidiary of Australia & New Zealand Banking Group Limited, which business includes providing financial services in the areas of options and commodity trading.

4.  ED&F Man Capital Markets Limited (“MCM”), which is not a party to these proceedings, is a company incorporated in England and Wales and in the global financial brokerage business. It is a ring dealing member of the London Metal Exchange (“LME”), and a customer of the Plaintiff.

5.  In 2016, the Plaintiff agreed to provide finance to MCM to enable MCM to purchase quantities of LME deliverable nickel, to be held initially for up to 6 months, with an option for MCM to repurchase the nickel. The Plaintiff was given to understand that the nickel was stored in various LME approved warehouses in Asia, under warehouse receipts which were to be endorsed by MCM and were to be delivered to the Plaintiff. In the event that MCM should fail to exercise the option to repurchase the nickel on maturity of the contract, the Plaintiff would be entitled to sell the metal. In its Statement of Claim, the Plaintiff referred to the transaction as a “warehouse finance exchange facility”.

6.  Such a framework of understanding between the Plaintiff and the Defendant is typical of “repo transactions”, which are made up of two legs of a sale and purchase of commodity. In essence, and shorn of legal technicalities, the bank or financier agrees to purchase the commodity from the seller/borrower, and at the same time agrees to sell the commodity back to the borrower/seller at a later time and for a higher price. The difference between the two prices represents the interest that accrues over the period between the purchase and the sale. The relevant purchase and resale contracts are commonly priced by reference to a specific LME price on the relevant dates, and exposure to market risk is hedged. The financier has to ensure that if the seller/borrower does not exercise the option to repurchase the commodity, the financier will be able to sell the commodity to another buyer on the market, and that the commodity held in the LME registered/approved warehouse can be delivered and sold to its purchaser. The warehouse receipt issued by the LME approved warehouse plays an important role to safeguard the financier/purchaser’s security interest and its right to obtain possession of the metal which is being traded, and is stored in the warehouse.

7.  On its pleaded case, the Plaintiff entered into 31 individual purchase contracts (“Purchase Contracts”) pursuant to a Master Commodities Purchase Agreement (“Master Agreement”) made between the Plaintiff and MCM dated 8 December 2015. The Master Agreement was the contract under which the Plaintiff agreed to provide finance to MCM by purchasing nickel, to be held by the Plaintiff for 6 months but extendable, and subject to a repurchase option on the part of MCM, exercisable within a prescribed period, failing which the Plaintiff was free to sell the nickel to any third party. As was known to the Plaintiff, MCM was in turn to provide finance to its own customers, by purchasing the nickel from its customers and selling the nickel back to the Plaintiff, on back-to-back terms.

8.  Under the Master Agreement, it was intended that the Plaintiff would in the ordinary course of events obtain title in and constructive delivery of the nickel purchased under each individual Purchase Contract, by paying the purchase price and receiving the warehouse receipt representing the nickel physically stored in various LME approved warehouses in Asia. The Plaintiff would pay MCM in each instance, and MCM would utilize the funds advanced to pay the seller from which MCM purchased the nickel.

9.  As a result of, and back-to-back to, the Purchase Contracts made between the Plaintiff and MCM, MCM in turn purchased from the 2^nd Defendant (“CH”) and the 3^rd Defendant (“MW”) in these proceedings the same quantities of nickel. Separate Commodities Sale and Purchase Master Agreements were made between MCM and CH, and between MCM and MW, respectively dated 29 April 2016 and 13 June 2016 (“MCM Master Agreements”). Under and pursuant to the MCM Master Agreements, MCM entered into contracts to purchase from CH and MW, and for CH and MW to repurchase the nickel from MCM (“MCM S&P Contracts”).

10.  Under each of the Purchase Contracts, the Plaintiff paid MCM, and MCM in turn paid CH or MW out of the funds remitted by the Plaintiff to MCM, for the nickel in question. This was in reliance on the receipt of 84 purportedly authentic and genuine original warehouse receipts issued by Pacorini Metals Asia (Pte) Ltd (“PMA”) (subsequently renamed Access World Logistics (Singapore) Pte Ltd (“AW”), 83 of which were to the order of Straits (Singapore) Pte Ltd (“Straits”) and (for 1 warehouse receipt) to the order of Genesis Resources Inc (“Genesis”).

11.  Straits is a Singapore company and a subsidiary of Straits Financial Group Pte Limited. AW is also a Singapore incorporated company, which was at all material time engaged in providing specialized logistic support, warehouse and storage and collateral management support services relating to physical non-ferrous metals. AW operates LME approved warehouses in Singapore, Malaysia and South Korea. All the 83 warehouse receipts which are the subject matter of the Plaintiff’s claims in these proceedings were issued from AW’s office in Singapore.

12.  At the time when payment was made under the Purchase Contracts, the Plaintiff believed that it obtained title in and constructive delivery of the nickel purchased under each of the Purchase Contracts, represented by what appeared to be 84 original warehouse receipts which the Plaintiff received in exchange for payment. On the face of the 83 warehouse receipts issued to the order of Straits, it was made to appear that Straits had endorsed each of the warehouse receipts to CH or MW, which in turn had endorsed them to MCM, which in turn had further endorsed the same to the Plaintiff.

13.  Each warehouse receipt was accompanied by a corresponding original letter issued by PMA (“PMA Letters”) which MCM received from CH or MW, and then delivered to the Plaintiff. The PMA Letters were addressed to the Plaintiff, and not to MCM, confirming that upon receiving the original warehouse receipt, PMA would release the subject goods to the holder of the original warehouse receipt without further written instructions from the order party (namely Straits).

14.  It transpired that at the material time in 2016, CH was involved in five sets of repo transactions in nickel which were sourced from Straits. Parties other than the Plaintiff and MCM were involved as financiers in these other repo transactions, but warehouse receipts issued by AW were involved in all the transactions.

The relevant parties

15.  Both CH and MW are companies incorporated in Hong Kong. The 4^th Defendant (“Wong”) is the sole director and shareholder of CH, and a permanent resident of Hong Kong. CH and MW share the same registered office at the material time in 2016. Until 1 July 2016, the sole director of MW was Wu Yu, a Chinese Mainland national who is believed to be Wong’s driver in Shanghai. Between 1 July 2016 and 18 January 2017, the sole director of MW became Zhao Binting (“Zhao”), who was then replaced as sole director from 18 January 2017 by Bian Yizhong (“Bian”). According to the evidence of the 6^th Defendant, Zhao is a cousin of Wong.

16.  The 200,000 shares in MW had been held by Wu Yu until 7 July 2016, when they were transferred to Zhao, and then transferred to the 7^th Defendant (“ZH”) on 25 October 2016. The 200,000 shares were then transferred from ZH to Bian on 6 March 2017. The other 180,000 shares had been held by ZH until 9 March 2017, when they were transferred to Bian who then owned 100% of the shareholding in MW.

17.  The 5^th Defendant (“Ko”) was at the material time a permanent resident of Hong Kong. She was an employee and the operations manager of CH, and the authorized signatory for CH in its dealings with MCM.

18.  The 6^th Defendant (“Siu”) was at all material times a permanent resident of Hong Kong, and the authorized signatory for MW in MW’s dealings with MCM. Between 1 December 2016 and 12 January 2017, he was also authorized to act as a signatory for CH in CH’s dealings with MCM.

19.  ZH, the 7^th Defendant, was incorporated on the Mainland in September 2014, and as described above, held 90% of the shares in MW until 25 October 2016, and thereafter 100% of the shares until 6 March 2017, when the entire shareholding in MW was transferred to Bian. Since 23 January 2017, Bian was appointed as the legal representative of ZH, as well as its executive director. The supervisor of ZH was one Huang Zhiming (“Huang”).

20.  The 8^th Defendant (“ZT”) was incorporated on the Mainland in November 2013. Between 17 May 2016 and 15 December 2016, its shareholding was held by Huang and Zhao (cousin to Wong). ZT was at all material times the holder of 86.66% of the shares in ZH.

21.  The 1^st Defendant (“ERO”) is a company incorporated in the British Virgin Islands. Until 26 October 2018, the sole director of ERO was Chui James Jie (“JC”), a permanent resident of Hong Kong, who still holds 100% of ERO’s shares. From 26 October 2018, one Jia Qiaming became ERO’s director. JC admits in his witness statement that ERO is a corporate vehicle which is used to facilitate his business and his international investments and acquisitions, and is used by him to transfer funding to target companies. On the evidence filed in these proceedings, Bian (the owner of MW) was a friend and business partner of JC for more than 30 years.

22.  The 9^th Defendant (“JA”) was incorporated in the BVI in January 2015. Its sole director is Tadashi Koizumi (“TK”), who is also the sole registered shareholder of 5,000 shares in the company.

23.  The 10^th Defendant (“HE”) was incorporated in Hong Kong in December 2014. TK is also the sole shareholder and sole director of HE. He is the brother-in-law of Madam Li Hong (“LH”).

24.  JC is the president of both JA and HE. JC’s evidence at trial is that he acted as the managing director or president of JA, and in the Defence of JA and HE, it is admitted that JC was the person who had de facto control of JA and HE. JC admits in his evidence that he was the person who actually operated JA. According to the evidence of JC and LH, all the shares in JA and HE were held by TK for LH beneficially, whereas the shares in ERO belonged beneficially to JC.

25.  On JC’s evidence, JA had no active trading business and was an investment holding company, holding 8.9 million shares in a company known as United Biopharma (Holdings) Co Ltd (“UBH”). HE also held shares in UBH. Both JA and HE held bank accounts with DBS Bank in Hong Kong.

26.  On the Plaintiff’s case, the MCM Master Agreements between MCM and CH/MW, and the Purchase Contracts made thereunder, were all negotiated with the assistance of a company known as Genesis Resources Inc (“Genesis”). The CEO of Genesis is one Steven Kao (“Kao”), and working under or with Kao were employees of Genesis including Steven Springer, Bill Silverstein (“Silverstein”), Betty Gu (“Betty”) and Jessie Li (“Jessie”). It was Silverstein who had first approached MCM in about March 2016 to suggest the repo nickel transactions. The trades between MCM and CH/MW were managed to a great extent, and were advised by Genesis, through Kao and his team (“US Team”).

The claims made and the defences

27.  It is the Plaintiff’s case that in January 2017, MCM informed the Plaintiff that it would not exercise its option to repurchase any of the nickel financed under the Purchase Contracts, as there were concerns over the authenticity of some of the corresponding warehouse receipts, and as to the ability of CH and MW to repurchase the nickel from MCM. The Plaintiff ultimately discovered, through its investigations and inquiries made with AW, that 83 of the 84 warehouse receipts received under the Purchase Contracts (all issued to the order of Straits) were in fact forged, and did not as a result confer any title or constructive possession of the nickel on the Plaintiff.

28.  The 83 warehouse receipts bore serial numbers and detailed information on the stored nickel, which matched commodities actually stored in corresponding LME warehouses, but they either failed the authenticity test of the issuer (ie AW) upon their presentation, or had already been cancelled from the issuer’s system by the issuer, after the issuer had received from third parties authenticated and genuine warehouse receipts matching the same serial numbers and detailed information of the stored nickel.

29.  On the discovery of the forgery, and with the assistance and cooperation of MCM, the Plaintiff took steps to trace and identify the whereabouts of the funds which the Plaintiff had paid to MCM under the Purchase Contracts, and which MCM had paid to CH and MW under the corresponding MCM S&P Contracts (“Funds”). The Funds were traced to bank accounts held by CH and MW. Part of the Funds were in turn paid out of the accounts of CH and MW to ERO, ZH, ZT, JA and HE. The Plaintiff asserts a proprietary tracing claim against the Defendants, seeking recovery of sums received by them on the basis of unjust enrichment and/or constructive trust in respect of ERO, CH, MW, ZH, ZT, JA and HE; and on the basis of deceit and conspiracy in respect of CH, MW, Wong, Ko and Siu.

30.  The Plaintiff’s claim in deceit and conspiracy is that each of the forged warehouse receipts contained representations that: (1) it had been issued by AW; (2) it had been endorsed by Straits, the original order party; (3) CH and MW owned or otherwise had title to the nickel referred to in the warehouse receipt; and (4) CH and MW (as the case may be) were holders of each warehouse receipt and capable of conferring and transferring constructive possession of the nickel referred to in the receipt by endorsement and delivery of the receipt. These representations were false, and in sending or causing to be sent to MCM the forged warehouse receipts, the 2^nd to 6^th Defendants had adopted the false representations, and falsely represented to the Plaintiff that the warehouse receipts were genuine, in circumstances when they knew that the warehouse receipts were forgeries or were otherwise not authentic, and that CH and MW could not have validly transferred any title or possession or right to possession of the nickel.

31.  The Plaintiff claims that CH, MW, Wong who was in control of CH and MW, Ko the employee of CH, and Siu the employee of MW, had all conspired to injure the Plaintiff by the forgery/fraud and/or deceit in the presentation of the forged warehouse receipts to MCM, for further presentation to the Plaintiff.

32.  In their Defence filed in these proceedings, CH, MW and Wong claim that they had been introduced to Straits by Genesis and its principal Kao, and that CH and MW had entered into sale and repurchase contracts with Straits, under which Straits agreed to sell to CH/MW, and then to repurchase, tonnages of nickel which corresponded exactly to the tonnages under the MCM S&P Contracts (which in turn corresponded to the Purchase Contracts between the Plaintiff and MCM). Pursuant to these contracts, Straits transferred to CH/MW original warehouse receipts which formed the basis for the nickel sale and repurchase agreements entered into between the Plaintiff and MCM. In their Defence, it is claimed by CH, MW and Wong that Straits did not insist nor require the full price of the nickel to be paid and repaid under the sale and repurchase contracts, but only required the difference between the prices under the two sets of sale and repurchase contracts to be settled by CH/MW on monthly basis, which always resulted in a net balance in Straits’ favour.

33.  On the pleaded case of CH, MW and Wong, Straits had sent to these Defendants scanned PDF copies of the warehouse receipts in respect of the nickel, and subsequently, hard copies of the original warehouse receipts would be couriered by Straits to CH, MW, Wong and Ko. In addition, Straits had procured the PMA Letters to be issued to cover each transaction entered into between CH/MW and MCM, and had sent these PMA Letters to CH, MW and Wong. These Defendants claim that each of the warehouse receipts in question had been provided by Straits, and that they honestly and reasonably believed that each and every warehouse receipt provided by Straits, and which they forwarded to MCM, was genuine.

34.  Although Defences have been filed for all the Defendants apart from ZH and ZT, only ERO, JA and HE (“JC Camp”), Ko and Siu appeared at trial. CH, MW and Wong had been legally represented up to 18 June 2019, but no step had been taken by them in the action since that date. Ko and Siu were at one stage legally represented by the former solicitors for the JC Camp, but each of Ko and Siu had acted in person since June 2019. ZH and ZT were served with these proceedings on the Mainland, but neither has acknowledged service or taken any part in the action.

35.  On the part of the JC Camp, they claim in essence that the Plaintiff has not established that it has any proprietary interest in the Funds, that the money received by them is not traceable to the Funds, that they had in any event changed their position, and that there is no claim of unjust enrichment which can be asserted against them.

Issues

36.  The issues in dispute for determination at trial include, as agreed between the Plaintiff and the JC Camp in respect of the Plaintiff’s claims against ERO:

(i)  whether the Plaintiff retains a proprietary interest in the sum of USD 4,395,164.84 (i.e. the “ERO Sum”);

(ii)  whether the ERO Sum represents part of the Funds which the Plaintiff is said to have been wrongly deceived into paying for the nickel represented by the 83 warehouse receipts;

(iii)  whether ERO is a bona fide purchaser for value of the ERO Sum received;

(iv)  whether ERO can rely on any change of position with respect to the ERO Sum; and

(v)  whether ERO only received the ERO Sum in a ministerial position on behalf of JC and so has not been enriched.

37.  In respect of the Plaintiff’s claims against JA and HE, the agreed issues were:

(i)  whether the Plaintiff retains a proprietary interest in the sum of USD 7,000,000 (i.e. the “JA Sum”) and in the sum of USD 3,263,636.36 (the “HE Sum”) together with traceable fruits and proceeds thereof;

(ii)  whether the JA Sum and the HA Sum represent part of the Funds which the Plaintiff is said to have been wrongfully deceived into paying for the nickel represented by the 83 warehouse receipts;

(iii)  whether, if the Plaintiff retains a proprietary interest in the JA Sum, the JA Shares (as defined at paragraph 30B of the Re‑Amended Statement of Claim) represent the traceable proceeds of the JA Sum; and

(iv)  whether, if the Plaintiff retains a proprietary interest in the HE Sum, the High Express Shares (as defined at paragraph 30D of the Re-Amended Statement of Claim) represent the traceable proceeds of the HE Sum.

38.  As for the claims against CH, MW, Wong, Ko and Siu, the issues are:

(i)  whether Wong had practical control over MW;

(ii)  whether there was an agreement or combination, or whether one can be inferred, between two or more of CH, MW, Wong, Ko and Siu and other persons or entities to defraud MCM and the Plaintiff;

(iii)  whether CH, MW, Wong, Ko and Siu (or any of them) knew or ought to have known that the Plaintiff financed the purchase by MCM and/or was intended to receive the 83 warehouse receipts and/or would rely on the genuineness of the 83 warehouse receipts;

(iv)  whether the original 83 warehouse receipts endorsed by CH and MW and delivered by CH, MW, Wong, Ko and Siu to MCM were authentic or not;

(v)  whether CH, MW, Wong, Ko and Siu knew that the 83 warehouse receipts were forgeries or not otherwise authentic;

(vi)  whether CH, MW, Wong, Ko and Siu (or any of them) reasonably or genuinely believed that Straits did not require or expect the full sale and repurchase price to be paid by and repaid to CH and MW, but only the difference between the two sets of prices which were allegedly to be settled with Straits on a monthly basis;

(vii)  whether CH, MW, Wong, Ko and Siu (or any of them) reasonably or genuinely believed that Straits transferred title to and possession of the nickel to CH and MW together with the original 83 warehouse receipts;

(viii)  whether CH, MW, Wong, Ko and Siu or any of them are liable to pay damages to the Plaintiff for the tort of deceit and/or conspiracy to injure by unlawful means; and

(ix)  if so, the quantum of damages payable by CH, MW, Wong, Ko and Siu.

39.  In respect of the claims against ZH and ZT, the issue is whether the Plaintiff retained a proprietary interest in the sums of US$3,597,759.85 and RMB 18,760,430 (“ZH Sums”) against ZH, and in the sums of US$6,670,676.57 and RMB 43,245,442.49 (“ZT Sums”) against ZT, with the traceable proceeds thereof, representing parts of the Funds the Plaintiff had been deceived into paying for the nickel represented by the 83 warehouse receipts.

Whether the relevant warehouse receipts were forgeries

40.  At the heart of the issues in dispute as to whether the Plaintiff can succeed in its claim, is the question of whether there is an established fraud, and a conspiracy amongst the relevant Defendants, namely CH, MW, Wong, Ko and Siu (“Primary Defendants”), to defraud the Plaintiff or to injure the Plaintiff by unlawful means, or by deceit. For its proprietary claim, the Plaintiff relies on the fact that the Funds received by all the Defendants had been fraudulently obtained from the Plaintiff as a result of the fraud and deceit practised against the Plaintiff by CH and MW’s use and presentation of the forged warehouse receipts. If the Plaintiff’s claim of fraud/deceit/conspiracy can be established against CH, MW, Wong, Ko and Siu, the Plaintiff maintains that the Funds can be followed and traced to the money received by ERO, ZH, ZT, JA and HE from the fraudsters. The Plaintiff claims that ERO, ZH, ZT, JA and HE hold the sums they had received as constructive trustees for the Plaintiff. There is also the alternative claim that ERO, JA and HE had been unjustly enriched by their receipt of the Funds transferred from the Plaintiff.

41.  The Primary Defendants have all denied the Plaintiff’s claims of fraud, deceit and conspiracy. The JC Camp have likewise put the Plaintiff to proof of these claims, highlighting the fact that the allegation of forgery is the foundation of the Plaintiff’s action against the JC Camp. Counsel for the JC Camp emphasized that these serious allegations must be proved to the high standards required, and argued that the Plaintiff has failed to discharge the heavy burden of proving the forgery alleged. The forgery of the warehouse receipts will accordingly be addressed first.

42.  On behalf of the Plaintiff, Mr Chan pointed out that even the Primary Defendants themselves have not advanced any positive case in their pleadings that the warehouse receipts are in fact genuine. They have put the Plaintiff to proof, but CH, MW and Wong admit that 50 of the 83 warehouse receipts which they had received from Straits have discrepancies which can be discerned on close inspection, and when compared with the original warehouse receipts held by Straits or Straits’ bankers. In Ko’s Amended Defence, she claims that Straits had sent the original warehouse receipts to CH, which CH had sent to MCM, and that if the warehouse receipts were forgeries, she was not aware of it. Both Ko and Siu claim that they knew nothing about the forged receipts.

43.  On all the evidence adduced, I am satisfied that the 83 warehouse receipts presented by CH and MW to MCM and to the Plaintiff were forgeries. The following matters were taken into consideration and form the basis of my decision.

1)  Cancellation in AW’s system and rejection by AW

44.  The Plaintiff’s case is that 83 of the 84 warehouse receipts involved in the transactions are forged. In January 2017, AW had discovered that there were forged warehouse receipts circulating in the market, and it issued a press statement in connection with the matter. The Plaintiff had contacted AW in January 2017, to check whether the 84 warehouse receipts if had received were valid. It was first notified by AW in January 2017 that of the 84 warehouse receipts, only 7 had not been presented already and had not been cancelled by AW. On 3 February 2017, AW then informed the Plaintiff that 81 of the 84 warehouse receipts had already been cancelled upon presentation, and only 3 were “live in its system”. The Plaintiff presented one of those 3 warehouse receipts on 13 February 2017, which was checked and acknowledged by AW to be authentic. On 20 February 2017, AW confirmed to the Plaintiff that the 2 remaining warehouse receipts had also been cancelled in its system.

45.  The Plaintiff and the JC Camp have both, in the course of these proceedings, referred to either the pleadings or the judgment (“MCM Judgment”) in ED&F Man Capital Markets Limited v Come Harvest Holdings Limited, Mega Wealth International Trading Limited and others [2022] EWHC 229 (Comm). These were proceedings instituted by MCM against CH, MW, Straits, Genesis, Kao and others in the English Court (“MCM Proceedings”), in relation to the same warehouse receipts presented by CH and MW, which had been presented to MCM for MCM to forward and present to the Plaintiff under the Purchase Contracts. In the MCM Judgment, the English Court found, inter alia, that CH and Genesis had supplied, as original warehouse receipts, counterfeits which had been derived from color scanned copies supplied by Straits; that Wong/Kao of Genesis had used the color scanned copies of the warehouse receipts for the fraudulent purpose of obtaining finance from parties including MCM and the Plaintiff; and that CH, MW, Kao and Genesis had conspired to injure MCM by deceit and fraudulent representation that CH and MW had title to the metal which they purported to sell to MCM.

46.  Counsel for the JC Camp highlighted that the factual findings contained in the MCM Judgment are inadmissible and irrelevant to these proceedings (citing Capital Century Textile Co Ltd v Li Dianxiao [2018] HKCFI 729 and Hoyle v Rogers [2015] 1 QB 265). As contended by Counsel for the Plaintiff and as I accept, the rationale is that it is for the trial judge to decide a case on the evidence received and in the light of the submissions made on the evidence presented, such that findings of fact made by another tribunal are irrelevant to the court or tribunal hearing a case. However, the evidence referred to in an earlier judgment, such as the contents of documents or statements of the evidence of witnesses, are not excluded and are admissible, as not falling foul of the rule in Hollington v F Hewthorn & Co Ltd [1943] KB 587. This was made clear and adequately explained by Hon Lisa Wong J in Capital Century Textile Co Ltd v Li Dianxiao itself which is relied upon by Mr Lin for the JC Camp.

47.  According to the Defence filed by Straits in the MCM Proceedings, Straits or its bankers held the original warehouse receipts at all material times, and these original warehouse receipts (bearing the same serial numbers as those presented by CH and MW to the Plaintiff in this case) had been authenticated by the bankers with AW, and acknowledged by AW to be original when AW received them from Straits. The Plaintiff’s witness, Mr Bitossi, also confirmed in his evidence in these proceedings that AW had confirmed to the Plaintiff that it had already received from third parties the genuine warehouse receipts bearing the same serial numbers as those presented by CH and MW.

48.  In circumstances similar to those in the present proceedings, separate action was brought by Natixis SA, a bank financier, against Marex Financial, AW and others in the English court (in Claim No CL‑2017‑000325) (“Marex proceedings”), in respect of warehouse receipts issued by AW and presented to Natixis and Marex under repo transactions concerning nickel which were made between CH and Marex Financial. As Mr Chan, Counsel for the Plaintiff, pointed out and as set forth in the judgment in the Marex Proceedings ([2019] EWHC 2549 (Comm)) (“Marex Judgment”), there are a substantial number of security checking features adopted by AW in its authentication of the warehouse receipts issued by it. On a balance of probabilities and applying common sense, it is inherently improbable and highly unlikely that AW would have accepted the warehouse receipts presented by Straits and its bankers in this case, if they had not been authentic and established to be authentic by AW’s security checking measures. Upon presentation and verification, the 83 authentic warehouse receipts in question had been accepted by AW upon presentation, and then cancelled in its system, before the Plaintiff presented those receipts it had received from CH and MW through MCM. As Counsel pointed out, this should be considered in the light of the fact that by January 2017, AW had already been made aware that there were forged warehouse receipts in circulation, and so must have been put on guard as to the likelihood of forgeries. The context also includes the evidence that none of the nickel represented by the warehouse receipts presented to MCM and the Plaintiff had remained in AW’s warehouses at the relevant time, and the further evidence that Straits never received the full purchase price of the nickel from either CH or MW.

49.  Siu referred in his evidence to a watermark on the paper which appears in the warehouse receipts presented by CH and MW, and he relies on that to suggest that they were in fact authentic receipts. Having considered the features referred to in the Marex Judgment, I am not satisfied that the Orbit watermark on the paper in question is the security feature referred to in the Marex Judgment as AW’s confidential features, nor that it is sufficient to cast doubt on AW’s authentication process.

50.  The JC Camp pointed out that the Plaintiff has not produced the genuine or original warehouse receipts in these proceedings, for comparison or for verification. However, it has always been the Plaintiff’s case that it never received any genuine originals of the warehouse receipts. Moreover, as recorded in the MCM Judgment, the evidence of Straits in the MCM Proceedings is that the original warehouse receipts held by Straits had already been presented, and the metal covered by the warehouse receipts had all been sold by Straits between January and April 2017, following the exercise by of its rights as holder of the original warehouse receipts. I am not satisfied on the facts of this case that the absence of the original warehouse receipts for production in evidence can cast doubt on the Plaintiff’s claims of forgery and deceit.

2)  No evidence of payment by CH/MW to Straits of purchase price

51.  The Plaintiff was able to obtain from the Court orders made against various banks for discovery of the bank statements of CH and MW. According to these, there was no evidence of any payment having been made by CH or MW to Straits, which may suggest payments made for purchase of the nickel from Straits. As Counsel for the Plaintiff submitted, if CH and MW had been expecting in the normal course of events to obtain the original genuine warehouse receipts and title to the nickel, the vast majority of the proceeds received by either CH or MW from MCM would have been paid on to Straits, from which they had purportedly purchased the nickel. There is no such evidence revealed from the bank records obtained through the banks.

52.  According to the evidence, the total amount of the sales from Straits to CH and MW was invoiced at US$322,160,147.26, which exceeds US$284,806,932.30 as the total gross amount paid by MCM to CH and MW. On behalf of the Plaintiff, it was pointed out that Straits was never paid in full or at all for any of the invoices it had issued to CH and MW. Instead, the amount actually paid to Straits by CH and MW consisted of a fee levied each month, based on the aggregate quantity of nickel being held by Straits at the time for CH and MW respectively, and this was settled monthly. On the evidence, in respect of the invoiced amount of the total sales by Straits to CH and MW, of US$322,160,147.26, CH and MW only paid a sum of US$21,681,113.02. Counsel for the Plaintiff submitted that for such a small outlay, it is incredible that CH and MW could expect to receive the original warehouse receipts and good title to the nickel for onward sale, when the total invoiced sum was US$322,160,147.26.

53.  I agree with Counsel for the Plaintiff, that if the warehouse receipts were indeed genuine, one would expect CH, MW and Wong to have maintained that the receipts delivered to MCM were genuine, and to adduce evidence of their having made full payment to Straits for purchase of the nickel in order to support their right to delivery of the warehouse receipts, irrespective of whether such payment would be made directly to Straits, or through other intermediaries such as Genesis or other related parties. There is neither such claim nor evidence from CH, MW, and Wong. Their claim of the monthly payment does not support the conclusion that they were entitled to delivery of nickel represented by the warehouse receipts.

3)  Improbability of Straits releasing original warehouse receipts

54.  The pleaded case of CH and MW is that they had entered into sale and repurchase agreements with Straits for the nickel, pursuant to which Straits transferred to CH and MW the warehouse receipts (evidencing the metal held at AW), on the understanding that the full price of the metal did not have to be paid and repaid in full, but that CH and MW would only be required to settle the difference between the prices under the two sets of sale and repurchase agreements, on a monthly basis in Straits’ favour. According to CH and MW, this agreement with Straits for Straits’ transfer of the warehouse receipts was part of the financial arrangement which was the real effect of the sale and repurchase between CH/MW and MCM under the MCM Master Agreements: whereby in exchange for the security represented by the corresponding warehouse receipts, MCM would advance credit in the amount of the purchase price paid over to CH/MW for a credit period, at the end of which CH/MW had the option to close out the transaction by repurchasing the nickel from MCM, and return same to Straits.

55.  According to Straits’ Defence in the MCM Proceedings, it only gave CH/MW options to purchase the metal referred to in the warehouse receipts, and pursuant to those options, Straits had held physical inventory in nickel for the benefit of CH or MW. In return for payment by CH/MW of a spread margin and/or a daily non-performance fee, Straits would buy and hold nickel on behalf of CH/MW. Scanned colored copies of the original warehouse receipts were provided by Straits to CH/MW, as proof of the existence and availability of the metal to be held by Straits, and to allow CH and MW to verify the metal stock with AW, if they so wished.

56.  It was Straits’ pleaded case in the MCM Proceedings that: (1) CH and MW could not have believed that they were entitled to receive original warehouse receipts from Straits in circumstances where they were not paying the purchase price for such metal to Straits; (2) Straits had no commercial reason to provide and did not provide the original warehouse receipts to CH/MW without receiving the purchase price; and (3) it was commercially nonsensical to suggest that Straits was expected to transfer and did transfer to CH/MW original warehouse receipts and/or title to metal without any guarantee or security for payment from CH/MW.

57.  Further, on Straits’ pleaded case, it or its bankers had always held the original warehouse receipts and had retained the title to the nickel, which would only be delivered and transferred to CH and MW if Straits received the full purchase price of the nickel, which never occurred. At paragraph 4.3 of Straits’ Re-Amended Defence, Straits admitted that it provided soft copies of the original warehouse receipts to CH and MW, but materially, Straits’ pleading at paragraph 4.4 is that it did not provide any hard copy warehouse receipts to CH or MW, by courier or otherwise.

58.  On the basis of the case pleaded and pursued by Straits in the MCM proceedings, I agree that it is incredible that Straits would have sent original warehouse receipts to CH/MW when it was never the contracting parties’ intention to make full payment of the purchase price of the metal.

4)  No evidence that CH/MW had actually received the original warehouse receipts directly from Straits

59.  There is no dispute that CH and MCM sent colour scanned copies of the warehouse receipts to MCM by email. CH, MW and Wong claim in their Defence that PDF copies of the warehouse receipts had been received by them from Straits. The warehouse receipts were issued by AW to the order of Straits, and Straits’ position (as reflected in its Defence in the MCM Proceedings) is that it had supplied PDF soft copies of the original warehouse receipts (which Straits had signed) to CH and MW. Straits claims that it was normal market practice, for scanned copies of warehouse receipts to be sent to potential buyers or financiers of the metal. The scanned copies were provided together with the PMA Letters from AW, which letters were addressed to the Plaintiff, and by which AW confirmed that upon receiving the original warehouse receipt duly endorsed by the order party (Straits) and subject to payment of warehousing fees, AW would release the goods to the endorsee without further instructions from the order party.

60.  The scanned copies of warehouse receipts were in fact also sent by Staits to a number of other addressees by email, which addressees included not only Ko, Siu and Wong but also Kao, his niece Melinda Kao, Silverstein, Jessie and Gu who were based in Shanghai. The initial email from Straits which attached the PDF soft copies of the warehouse receipts and the PMA Letter stated in similar terms: “Please find attached WHRs and PMA Letter for your perusal. The original PMA Letter will be couriered to Ms Ko by DHL, tracking number [supplied]. (Emphases added)”

61.  It is the case of CH, MW and Wong that hard copies of the original warehouse receipts were thereafter delivered by Straits to them by courier, and that these were endorsed by CH/MW and then couriered to MCM, for further dispatch to the Plaintiff. According to Straits, the original warehouse receipts had always been retained by it or its bankers, and the originals had never been sent to CH/MW.

62.  It is the Plaintiff’s contention that forged versions of the warehouse receipts had been produced on the basis of the PDF soft copies supplied by Straits to CH/MW and other recipients of the emails.

63.  Ko claims in her Amended Defence that Straits couriered the original warehouse receipts to CH, which would then be stamped and signed either by herself or by Siu, following which the original warehouse receipts would then be couriered to MCM. There is however no evidence of any letter evidencing the actual dispatch of the original warehouse receipts from Straits to Ko, or to CH or MW. There is only evidence of the dispatch/receipt of the original PMA Letters. This is consistent with the emails exchanged between Kao and Silverstein in April 2016, in which Kao stated that the PMA Letters and the warehouse receipts would be issued at different times or dispatched at different times.

64.  In her answer to the Plaintiff’s interrogatories, Ko claimed that she did not know why Straits did not inform CH of the delivery information concerning the warehouse receipts, but alleged that Jessie would inform her in Hong Kong after Straits had notified Jessie of the delivery, including the relevant airway bill numbers for the dispatch of the warehouse receipts. She maintained in her evidence that she had been notified by Straits or by the Shanghai office of the dispatch of the original warehouse receipts to CH, and that every time Straits sent the original warehouse receipt to CH, she would be notified of the fact by Jessie of the Shanghai office, either orally, or by WeChat communication. There is of course no evidence at all which can corroborate this, and Ko confirmed that there was not a single document showing that Jessie had ever told her the airway number of the warehouse receipts dispatched. As Counsel for the Plaintiff pointed out, Ko’s claim, that she had been orally advised of the delivery or dispatch of the original warehouse receipts, is also contrary to the practice adopted by Straits, of advising Ko and Siu by email of the airway number for delivery of the original PMA Letters.

65.  The Plaintiff was able to obtain discovery of documents from DHL, and according to the evidence produced, the hard copies of the warehouse receipts which had been dispatched to and received by CH/MW were sent from Shanghai.

66.  Ko accepted in her evidence that most of the original warehouse receipts she had received were sent from Shanghai. As Counsel highlighted, this was unusual, when Straits was based in Singapore, the emails from Straits enclosing PDF copies of the warehouse receipts were typically sent from Straits in Singapore, and none of the nickel in question was stored in Shanghai or anywhere on the Mainland. The nickel covered by the warehouse receipts delivered to the Plaintiff were stored in Singapore, Malaysia or South Korea. There was no LME-approved warehouse on the Mainland. Further, every warehouse receipt states on its face that it was issued in Singapore. As Counsel submitted, there is no logistical basis for the hard copy warehouse receipts to be dispatched from Shanghai, instead of Singapore, unless Shanghai is the place where the forged warehouse receipts were produced. I find that more probable, if not very probable.

67.  According to the evidence obtained from DHL regarding deliveries made to CH and MW, the shipper of various packages containing the warehouse receipts delivered to CH and MW was one Li Qing, with a company name Yong Service and an address in Shanghai for one delivery, and another address in Xinjiang, Wulumuqi in another delivery. On Ko’s evidence, she did not know who Li Qing and Yong Service were. She claims that it might have been the Shanghai branch of Straits which had instructed Li to send the warehouse receipts to Hong Kong.

68.  There is no apparent connection between Straits, and Li Qing and Yong Service. The appearance of an address in Wulumuqi from which the warehouse receipt was sent is highly unusual and suspect. On all the evidence, and the different addresses given for Li Qing, I do not find Ko’s explanation for the dispatch of the original warehouse receipts from the Mainland to be at all credible.

69.  In relation to the manner of CH/MW’s receipt of the purported warehouse receipts from Straits, Counsel for the Plaintiff referred to the evidence of Siu which is more direct and forthright. In his Defence, Siu states that the hard copy warehouse receipts were either handed over to him by his superiors, whom he identified as a range of companies and individuals which included CH, MW, Wong, Zhao, Kao, Silverstein and other staff of Genesis, or were handed to him by courier, or through Ko, and that he had received 2 to 3 warehouse receipts directly from Wong.

70.  Siu accepted that he had never received any warehouse receipt directly from Straits, only from Ko and Wong in person, or by courier from Shanghai, and that the Shanghai office would inform him in advance that he would be receiving a package for the original warehouse receipt. According to Siu, Jessie or Betty in Shanghai would send him a photograph of the airway bill by WeChat, with instructions for him to pick up the warehouse receipt sent from Shanghai.

71.  Significantly, Siu’s evidence is that none of the packages that he received from Straits and which enclosed the PMA Letter had contained any warehouse receipts, and that he had never received any email from Straits informing him that original warehouse receipts would be couriered by them. He also confirmed in his evidence that he had never received any original warehouse receipt directly from Straits, by courier.

72.  On Siu’s evidence, there were approximately 5 occasions on which Wong had personally handed to him “original” warehouse receipts. Siu confirmed that he did not know Li Qing, and that he had never been told by Jessie, Betty or Wong who Li Qing was. Siu was clear in his evidence that he had never seen any written correspondence from Straits indicating that they would be sending warehouse receipts to CH/MW, and none of the warehouse receipts which he had received had come from Straits.

73.  I accept the submissions made by Counsel, that it is extremely likely that the warehouse receipts were forged in Shanghai, using the PDF scanned copies sent by Straits, and that they were then sent to Hong Kong by or under the name of Li Qing, or otherwise handed over by Wong.

5)  Discrepancies between the PDF scanned copies and the warehouse receipts sent to MCM/the Plaintiff

74.  Even to the untrained eye, there are differences, in some cases obvious ones, between the PDF copies of the original warehouse receipts sent by Straits and those hard copies which were sent by CH/MW to MCM and the Plaintiff, with the chop and signature of CH/MW. Examples are warehouse receipt AWSG/MY/24785 where the PDF copy supplied by Straits referred to “Sherritt nickel briquette” whilst the hard copy warehouse receipt couriered by Ko referred to “Sherritt nickel briquettes”; and warehouse receipt AWSG/MY/0025170 where the soft copy supplied by Straits referred to “FOT and LME Rental are applicable” whereas the hard copy provided by Ko contained the additional word “charges” at the end.

75.  Ko accepted in her testimony that the version of one warehouse receipt which was endorsed by her was different to the soft copy emailed by Straits. She claimed however that she had not checked whether the hard copy received was in fact the same as the soft copy emailed by Straits. On Ko’s evidence, she had only been instructed by Jessie to verify the warehouse receipt number, the weight of the cargo stated, and the existence of the Straits endorsement, and having been instructed by Kao to endorse and dispatch the hard copy she received, she had no knowledge that the hard copy did not originate from Straits.

6)  No evidence of payment of storage charges

76.  Each of the 32 purchase contracts for the subject transactions contains a provision whereby AW’s storage charges were to be paid by CH or MW (as the case may be) for 180 days, plus a further period of 14 days thereafter if CH or MW did not exercise the option to repurchase the nickel, and it was necessary for MCM and the Plaintiff to put the nickel on LME warrant prior to sale. The equivalent contract between MCM and the Plaintiff provides that storage charges were to be paid by MCM, but MCM delegated the obligation to pay storage charges to either CH or MW. In order to pay storage charges, both CH and MW would need to have an account with AW. There is no evidence of CH or MW paying storage charges to AW in respect of the warehouse receipts which are claimed to be forged. Ko accepted in her evidence that CH did not pay for AW’s storage charges in Hong Kong.

77.  In respect of the transactions involving MW, Siu’s evidence was that he was aware that MW had agreed to pay the storage charges for the nickel, but he was not aware whether MW had any account with AW at all.

78.  In contrast, with regard to the two transactions (made between CH and Freepoint), where genuine warehouse receipts were involved and there is evidence of Genesis paying Straits in respect of the nickel, storage charge invoices were actually issued by AW to CH for the nickel which was the subject matter of the warehouse receipts in question. There is also evidence of CH selling the nickel after repurchasing same from Freepoint to a third party.

7)  Adverse inferences

79.  Although CH, MW and Wong filed their Defence, they abandoned their defence of the proceedings and did not participate in the trial. Bian had been the sole director of MW since 18 January 2017, and the controller and sole beneficial owner of the shareholding in MW since March 2017. Bian was also the legal representative of ZH.

80.  In July 2017, Bian and Zhou had both filed affirmations in support of ERO’s opposition to the Plaintiff’s application for an injunction against ERO. Bian was also listed as an intended witness of ERO in the Information Sheet filed for the Case Management Conference in March 2018. It is therefore apparent that Bian had assisted the JC Camp in their defence in these proceedings, and in their resistance to the Plaintiff’s claims made against the JC Camp for the monies received by them.

81.  In cross-examination, JC’s evidence was that he had discussed these proceedings with Bian just a few months before trial. Ultimately, Bian had not agreed to testify at trial, nor did he produce any document or bank statements to show the source of the funds paid to and received in the bank accounts of ZH and ZT, and to reject the Plaintiff’s assertions that the Funds derived from the Plaintiff.

82.  JC’s claim is that he had been friends with Bian for 30 years, and they had closely cooperated in that business dealings, to the extent of making advances of several tens of millions of RMB  without any written agreement between them. Yet, Bian not only failed to defend the Plaintiff’s claims against MW, ZH and ZT, but also refused to disclose and produce to the JC Camp any bank statements of ZH and ZT which may assist to dispute the Plaintiff’s case that the Funds paid to and received by MW, ZH, ZT and the JC Camp were not derived from the Plaintiff.

83.  Faced with such facts, the Court can only draw adverse inferences against the absent defendants and against the JC Camp, to the extent that their evidence and any bank statements of ZH and ZT would not assist the case of MW, ZH, ZT and the JC Camp.

84.  Throughout these proceedings, Counsel for the Plaintiff has highlighted the fact that only scarce discovery had been made by CH, MW and Wong. Their lists of documents only comprised 18 or 19 documents. Specific discovery orders made against them were not complied with. It was only after orders were made against Ko and Siu for production of the personal email accounts which they had operated on behalf of CH and MW, that the Plaintiff was able to obtain discovery of more than 16,000 emails held in a number of email accounts, and exchanged amongst the Primary Defendants, Straits, Genesis and other related parties. These comprise most of the documentary evidence against the Defendants at trial, in conjunction with documents disclosed pursuant to orders obtained against the various banks with which CH and MW had maintained accounts. Nevertheless, Counsel pointed out that, as claimed by Ko and Siu in their evidence, they had received instructions from parties including Jessie, Betty and Zhao by other forms of communications such as WeChat, Whatsapp and QQ, and the Plaintiff has not been able to obtain discovery of such communications, and that this comprised a considerable gap in terms of evidence. The Court has borne this in mind when assessing the respective cases of the parties, and in the context of considering whether there had been communication between the parties on the forgery of the warehouse receipts, as to the source of the Funds and as to the genuineness of the dealings between CH/ MW and Straits and the documents dealt with.

Deceit and fraudulent misrepresentation

85.  On the totality of the evidence concerning the dealings in the warehouse receipts relating to the nickel, I am satisfied that the warehouse receipts which were delivered to MCM and the Plaintiff were forgeries.

86.  Being forgeries instead of genuine warehouse receipts issued by AW, and endorsed and delivered by Straits as the order party, I am satisfied that the forged warehouse receipts contained misrepresentations that:

(1)  they were issued by AW;

(2)  they had been endorsed by the original order party, Straits;

(3)  CH and MW (as the case may be) owned or otherwise had title to the nickel referred to in the warehouse receipts;

(4)  CH and MH (as the case may be) were in their capacity as holders of each warehouse receipt capable of conferring and transferring constructive possession of the subject nickel by endorsement and delivery of each warehouse receipt.

87.  The forged warehouse receipts were sent and presented to MCM and the Plaintiff together with the PMA Letters which were addressed to the Plaintiff. On the evidence and in particular the correspondence exchanged amongst Genesis (the US Team including Silverstein and the Shanghai team including Jessie and Betty), CH and MW, CH, MW and Wong clearly knew that the Plaintiff was the ultimate purchasing party/financing banker of the nickel. In particular, Ko, Jessie, Betty, Siu, and Kao were all informed by Silverstein (in an email of 3 May 2016) that the Plaintiff should be the new addressee/attention party for the PCM Letter, and this information was forwarded by Ko to Straits.

88.  Ko and Siu both accept that they received and were aware that the PMA Letters were addressed to the Plaintiff. I accept and find that Wong, the boss of Ko and Siu who gave them instructions on the dealings, must also have been aware of the Plaintiff’s role throughout.

89.  CH, MW, Wong, Ko and Siu clearly knew that the PMA Letters and the warehouse receipts would be presented to the Plaintiff (in whose name the PMA Letters were issued and procured by CH/MW), and intended that the Plaintiff would rely on both documents and the representations contained therein, before releasing funds to MCM for further payment to CH/MW.

90.  By sending the PMA Letters and the warehouse receipts, or causing them to be sent, to MCM and the Plaintiff, CH, MW and Wong (being the effective and practical controller of CH and MW) had each made, authorized or adopted the false representations, and had falsely represented that the warehouse receipts were genuine.

91.  I find that Plaintiff was induced by the fraudulent representations contained in the forged warehouse receipts to make payment to MCM. As a result of the warehouse receipts being false and the representations being untrue, the Plaintiff suffered loss as CH and MW in fact had no title to nor any right to possession of the nickel to pass same to MCM and the Plaintiff.

Whether Wong had effective control of CH and MW

92.  There is no claim or evidence to dispute Wong being the person who owned and controlled CH.

93.  Wong denies in his Defence that he had ownership or control of MW. MW had as its sole director (until 1 July 2016) Wu Yu, a Chinese Mainland national who was (on Siu’s evidence) Wong’s driver. Zhao became the sole director of MW from 1 July 2016 until 18 January 2017, when he was replaced by Bian. On Ko’s evidence, Zhao was Wong’s cousin, and Wong had told Ko that MW had been set up by Bian.

94.  It is clear from the evidence that it was Ko in Hong Kong who dealt with CH’s transactions in the nickel. Both Wong and Ko were the authorized signatories of CH in its dealings with MCM, and Ko (together with Wong) was also the authorized signatory of CH’s bank accounts in Hong Kong. Siu was named a signatory of MW’s account, but he claims that he had never signed to operate it. Both Ko and Siu were employees of CH, and the daily work of both Ko and Siu covered matters on behalf of CH as well as MW, and the two companies shared an office. There did not appear from the evidence to be a clear division of role or work between the employees of CH and MW.

95.  Although it was Ko’s evidence that she only received instructions from Kao or Deng Zhixiong and Bian on matters concerning MW, Siu’s evidence is that he regarded CH, MW and Wong as one entity. According to Siu, he had been asked by Wong to handle all the MCM contracts with CH, and further, that it was Wong who mainly gave him instructions on work, regardless of whether the business related to CH or MW. Siu claimed that Wong was the “highest decision maker”, and that on a business trip Siu made with Wong to England in November 2016, Wong was presented as “the true boss of CH and MW”.

96.  According to the answers given in writing for a due diligence questionnaire for Freepoint (one of the parties which entered into metal transactions with CH), Wong was stated to be the person who actually owned MW and CH, whilst the “legal owner” of MW was Zhao. In finalizing the due diligence questionnaire prepared in October 2016 for Freepoint, Siu’s evidence was that the answers had been provided to him by Wong, Ko, Jessie and Betty, and these answers show that both CH and MW were owned by Zhao and Huang Zhiming, both of whom were relatives of Wong. Siu also confirmed in evidence that the answers in the questionnaire, that Wong controlled both MW and CH, had been provided to him by Wong himself. According to Siu, he had also learnt from Ko in May 2016 that MW was also owned by Wong.

97.  In an email to MCM dated 9 January 2017, Siu had also stated that the shareholders of MW were “relatives of Wong”.

98.  In its Defence in the MCM Proceedings, Kao and the other Genesis parties named as 3^rd to 8^th Defendants claimed that Wong in fact controlled CH and MW.

99.  On all the evidence, I am satisfied and find that Wong was the person who had practical control of both CH and MW, to whom Ko and Siu reported.

Knowledge of Wong, Ko and Siu

100.  I have found that Wong, Ko and Siu all knew of the Plaintiff’s role as the ultimate financier or purchaser of the nickel purportedly represented by the warehouse receipts. I also find that Wong, Ko and Siu knew or ought to have known that the Plaintiff, as ultimate financier, would rely on the genuineness of the warehouse receipts presented to it.

101.  I have also found that the warehouse receipts were forgeries. As counsel for the Plaintiff submitted and I accept, it is not necessary for the Court to determine the actual forger of the documents in question.

102.  For the Plaintiff’s claim in deceit, the essentials are set out in the leading case of Derry v Peek (1889) 14 App Cas 337 and the judgment of Lord Herschell:

“First, in order to sustain an action of deceit, there must be proof of fraud and nothing short of that will suffice. Secondly, fraud is proved when it is shown that a false representation has been made (i) knowingly, (ii) without belief in its truth, or (iii) recklessly, careless whether it be true or false. Although I have treated the second and third as distinct cases, I think the third is but an instance of the second, for one who makes a statement under such circumstances can have no real belief in the truth of what he states. To prevent a false statement from being fraudulent, there must, I think, always be an honest belief in its truth.”

103.  As pleaded in the Re-Amended Statement of Claim, the alleged deceit was founded on the presented warehouse receipts being forged and containing false representations:

(1)  that they had been issued by AW;

(2)  that they had been endorsed by the original order party, Straits;

(3)  that CH and MW owned or otherwise had title to the subject nickel; and

(4)  that CH and MW were in their capacity as holders of each warehouse receipt capable of conferring and transferring constructive possession of the subject nickel by endorsement and delivery of each warehouse receipt. Were capable of passing title or right to possession to the nickel represented by the warehouse receipts.

104.  The issue is whether Wong, Ko, and Siu had knowledge that the warehouse receipts were not authentic and that the representations contained in the warehouse receipts presented to the Plaintiff were false, or without belief as to the truth of the representations, or were reckless as to whether they were true or false.

Wong, CH and MW

105.  It was Genesis, through Kao and Silverstein and their team, which had introduced CH and MW to MCM. The Genesis team had also assisted CH and MW to negotiate the terms of the MCM Master Agreements and the subsequent MCM S&P Contracts. Kao and the Genesis team played an important role in managing CH’s and MW’s accounts with MCM, in giving instructions on the execution of the trades, and in advising CH and MW. Independent Contractor Agreements were entered into between Genesis and CH on 1 April 2016, and between Genesis and MW on 16 June 2016, under which Genesis agreed to provide services in the form of introducing CH and MW to buyers and sellers of materials for the companies’ business, and providing hedging services on futures exchanges in order to mitigate the companies’ risks. These agreements were signed by Wong as CEO of CH, and by Wu Yu as director of MW. The transactions between CH/MW and Straits were set up by Genesis, through Kao, and it was the Genesis team which contacted Straits to provide details of each parcel of nickel ordered and to agree the price. The contract documentation, including the color scanned copies of the warehouse receipts, the sale and purchase contracts and the invoices, were all sent by Straits directly to CH or MW, with copies to the Genesis team.

106.  Clearly, the Genesis team including Kao, Jessie and Betty were acting as agents and advisers of CH and MW, when the terms of the MCM Master Agreement and MCM S&P Contracts were negotiated and finalized. It is inherently improbable that Wong (the owner and controller of CH and MW, and who had the personal relationship with Kao) would not have been either involved or informed by the Genesis team as to the terms of these contracts, what they involved, and the documentation required to be prepared and sent to MCM and the Plaintiff. The MCM Judgment in fact referred to meetings which had been held between Wong, Kao and Springer of Genesis, and Ms He and Ms Tan of Straits in Singapore, when the details of the transactions including the contents of the PMA Letter to be procured, were discussed. Even ignoring and without such evidence in the MCM Proceedings, I consider it totally implausible and unbelievable that Wong, the owner and controller of CH and MW (through Wu Yu his driver, and Zhao his cousin) would not have been aware of, or had not agreed to, the terms of the MCM S&P Agreements proposed by Kao and his team, how the transactions were conducted, and the modus operandi of the transactions including what documents were to be prepared and sent to MCM and the Plaintiff as the ultimate financier.

107.  The MCM Judgment also referred to correspondence produced in the MCM Proceedings, which of course related to the same transactions between CH/MW and Straits on the one hand and between CH/MW and MCM on the other. Such evidence is not fully available in these proceedings because of the lack of discovery from CH and MW. That correspondence exchanged between Straits (including Ms He) and the Genesis team, and in particular Jessie and Betty, revealed the clear role the Genesis team played in procuring the PMA Letters to be issued by AW, and in deciding and arranging for how the warehouse receipts should be sent to MCM. The correspondence also showed the knowledge on the part of the Genesis team (particularly Jessie and Betty) that the endorsed original warehouse receipts would not in fact be sent to CH/MW, but would throughout remain with Straits. I have borne in mind the fact that some of the correspondence has not been made available in these proceedings.

108.  What is relevant is that Wong himself was based in the Shanghai office which he or his companies shared with Genesis, and where Jessie and Betty worked. It would be incredible to suggest that he knew nothing of what Jessie and Betty were doing, or of their liaison with and instructions to Ko and Siu. It was Wong who, on Siu’s evidence, gave Siu packages of the allegedly original warehouse receipts. The packages of the warehouse receipts which were sent to Ko and Siu in Hong Kong, for dispatch to MCM, all originated from the Shanghai office. It is likely that Wong, either on his own or in conjunction with Jessie, had arranged for the forged warehouse receipts to be produced, and sent to CH and MW in Hong Kong, for endorsement and delivery to MCM.

109.  On the evidence available in these proceedings, I am satisfied and find that Wong had knowledge of the modus operandi of the entire scheme devised and agreed amongst Genesis, at least certain individuals of Straits, and CH and MW: which was to obtain scanned copies of the endorsed warehouse receipts from Straits, to produce these copies to MCM and the Plaintiff and present them as original receipts, in order to mislead and deceive MCM and the Plaintiff into believing that CH/MW were in the position to transfer to MCM and the Plaintiff title in and right to possession of the nickel referred to in the warehouse receipts, and thereby to obtain funds from the Plaintiff. I also find that Wong and his co‑conspirators had actual knowledge that the original warehouse receipts remained with Straits, that there would be no payment by CH/MW of the price of the nickel purportedly sold to them by Straits, and that Straits had no intention to transfer the original warehouse receipts with title and right to possession of the nickel to CH/MW, in the absence of full payment of the purchase price of the nickel. To avoid any doubt, I find that Wong had actual knowledge that the 83 warehouse receipts presented to the Plaintiff were forgeries or otherwise not authentic.

110.  Having found that Wong was the beneficial owner and had effective control of CH and MW, which were regarded by one and all as the same, Wong’s knowledge can be attributed to both CH and MW.

Knowledge of Ko and Siu

111.  Ko was employed as the operations manager of CH. She was employed on a part-time basis from 2013, became an official employee in 2015, and was made an authorized signatory of CH’s three bank accounts and of one of MW’s bank accounts in 2016. She acted as a signatory for CH in CH’s dealings with MCM and was the person at CH who dealt with the warehouse receipts.

112.  Counsel for the Plaintiff emphasized that Ko’s evidence revealed that she understood all the English technical terms used in the commodities trade. Mr Chan described Ko as a careful and calculated witness who was familiar with the metal repo trade operations. Ko had been entrusted by Wong to handle on his behalf in Hong Kong hundreds of millions of dollars in transactions.

113.  On Ko’s evidence, she had helped Wong in the past in relation to large monetary transactions and was therefore trusted by Wong. However, Ko maintained that she had no knowledge that the warehouse receipts which she handled were forged or not authentic in any way. She claimed that at all material times, she was only doing her job in handling the documentation upon and under the instructions given to her by Wong, Bian, other persons related to or affiliated with Wong such as Zhao and Deng Zhixiong, and by the Shanghai Genesis team which included Jessie and Betty.

114.  Although it is clear from the correspondence that Ko had handled the communications with Straits, MCM and other counterparties using her own work email address, and she appeared from the emails to be familiar with the operations conducted by CH and MW, Ko maintained in her evidence that she was only acting on and following the instructions of either Wong, or Jessie. Ko maintained that only Jessie could contact Straits, and further, that Kao had prohibited Ko from contacting Straits directly. Even if there had been direct exchanges of emails between Ko and Straits’ staff such as Ms Tan, Ko’s evidence is that these emails were only sent on the direct instructions from Jessie, who would notify Ko in advance of Straits’ incoming emails, and advise Ko how to answer them.

115.  Although Siu had regarded Ko as one of the CH’s financial staff, Ko’s evidence is that it was in fact Jessie who oversaw CH/MW’s accounts with Straits. Ko maintained that she had no knowledge whether any of the invoices issued by Straits for the nickel payment had been paid by CH or MW. According to Ko, she only paid Straits’ monthly invoices on instructions from Jessie, who would check the figures every month.

116.  On behalf of the Plaintiff, it was submitted that the Court should not accept Ko’s assertions as to her ignorance and her alleged innocent role. According to Counsel for the Plaintiff, Ko had a sharp eye for detail and a sound grasp of the many financial transactions with which she was entrusted.

117.  I have considered the documents and emails available, and weighed the evidence of Ko in the context of the overall operations of CH and MW. The companies had very limited staff in Hong Kong, who obviously shared most of the duties. The available evidence shows the extensive and guiding role played by the Genesis US and Shanghai teams, which included Kao, Jessie and Betty, all of whom were clearly well-versed in the intricate details of the MCM Master Agreement, the MCM S&P Contracts and the trades made in the name of CH and MW under the advice of Genesis. As Counsel for the Plaintiff pointed out in relation to the transactions entered into between CH and Carlyle, the bulk of the money which CH received on the sale of the nickel was paid to Genesis, rather than to Straits from which the metal was purportedly purchased. This demonstrates and supports the role and interests of Genesis in the repo transactions entered into by CH and MW. In any event, given the fact that it was Kao and the Genesis team which had introduced CH and MW to MCM, Ko’s evidence on Genesis’ close involvement and on the instructions given to Ko by Genesis is not incredible, and more probably reflected the actual situation. Bearing in mind that the office in Shanghai was maintained jointly by Wong and Genesis, it is inherently probable and very likely that Ko’s and Siu’s work in relation to the warehouse receipts and the MCM S&P Contracts would be closely overseen by the Shanghai office.

118.  Both Ko and Siu maintained that they had no knowledge how the invoices issued by Straits to CH and MW were settled. As referred to in the earlier part of this Judgment, there is no evidence from the bank statements discovered that the Funds paid by MCM to CH and MW had been utilized to pay Straits for any purported purchase price of the nickel. Ko suggested in her evidence that payment for the nickel might have been arranged by Kao and his team, or by her superiors without her knowledge. There is however no claim by CH/MW or Wong, and no evidence to show, that Straits had somehow been paid by any means not revealed in the bank statements.

119.  The JC Camp suggested to Ko that full payment of the purchase price to Straits may not have been required due to their contractual payment terms which mentioned a “set-off” arrangement. However, Mr Chan pointed out that there is no evidence at all to show that any set-off was capable of making up the US$300 million for the shortfall between the total contract price supposedly due to Straits, and the total aggregate amount actually paid as monthly fees for Straits to keep the nickel in the warehouse. The monthly invoices issued by Straits show in fact that they were for a fee, based on the tonnage of nickel held for CH and MW in a particular month, at a rate of 3.5 points per day.

120.  In deciding the question of whether Ko and Siu knew, or ought to have known, that the warehouse receipts were not genuine, it is pertinent that the sale and repurchase of the nickel, as evidenced by the transactions under the MCM S&P agreements, are not by themselves unlawful or illegal, and it has not been alleged as such. Hence, even if Ko and Siu had knowledge that CH and MW had entered into these sale and repurchase contracts of nickel with Straits and with MCM, and did not have clear knowledge that full payment had been made for the purchase of the nickel, that cannot by itself put Ko and Siu on notice of any unlawful act or suspicious circumstances. As they claimed in their evidence, it may be that Wong had made arrangements with Genesis/Straits as to how settlement of the transactions was to be made.

121.  Specifically in relation to Siu, he played a lesser role so far as the correspondence on the transactions and paperwork was concerned. His main role was in taking delivery of the warehouse receipts when they were sent to CH/MW. He was an employee of CH from 2 October 2013 to 12 January 2017 and his work covered matters for both CH and MW as they shared the same office. Siu’s evidence is that he had come to work for Wong upon Kao’s introduction, and that he had encountered Kao in his previous employment in the metals related business. Although Siu had signed MW’s contracts with MCM, he maintained that he had only carried out work in accordance with and on instructions given to him by Wong, or as arranged by Ko. Siu was a signatory of two bank accounts of MW, but he claimed that he had never operated the accounts. Although he had visited London on behalf of CH to meet the counterparties, Siu claimed that he was only assisting Wong as translator. Like Ko, Siu maintained that he had no knowledge or suspicion that any of the warehouse receipts received by CH and MW were forged, and genuinely believed that they were authentic.

122.  Counsel sought to point out that, prior to joining MW, Siu had worked in the metal industry, but I accept Siu’s evidence that his former work experience had been in the purchase of scrap metal, which is totally different in nature to CH/MW’s and Genesis’ dealings in nickel. As highlighted above, what is alleged to be fraudulent in this case is not the fact that CH/MW had sold and then repurchased the nickel. The fact that Siu had attended a course given by Genesis on commodities trading, options and hedging, and the fact that he may have an understanding and had participated in CH/MW’s sales and repurchases of nickel, cannot constitute evidence of Siu’s knowledge, actual or constructive, of the forgery of the warehouse receipts or of the dishonest use of the scanned copies of the warehouse receipts.

123.  On the entirety of the available evidence, my conclusion on Ko is that she is more of a worker-bee type of employee, who had placed misguided loyalty and trust in her boss, Wong, and who blindly and faithfully carried out her duties by following the instructions from Wong and his associates/agents, as to how the documentation was to be dealt with in relation to the metal trades in question. Bearing in mind the high threshold required to establish fraud and forgery, I am not satisfied on the available evidence that either Ko or Siu had actual or constructive knowledge that the warehouse receipts were forgeries, or that CH/MW were dealing with the warehouse receipts received by CH and MW in a dishonest manner.

Conspiracy

124.  On the claim of conspiracy, it was explained in Kuwait Oil Tanker Co SAK v Al Bader [2000] 2 All ER (Comm) 271 that:

“... It is not necessary that every overt act is done by every conspirator, but the act must be done pursuant to the conspiracy or combination. (at page 312g)

... it is not necessary to show that there is anything in the nature of an express agreement, whether formal or informal. It is sufficient if two or more persons combine with a common intention, or, in other words, that they deliberately combine, albeit tacitly, to achieve a common end. (at page 312h)

... the origins of all conspiracies are concealed and it is usually quite impossible to establish when or where the initial agreement was made, or when or where other concentrators were recruited. The very existence of the agreement can only be inferred from overt acts. Participation in a conspiracy is infinitely variable: it can be active or passive ... Consent, that is agreement or adherence to the agreement, can be inferred if it is proved that he knew what was going on and the intention to participate in the furtherance of the criminal purpose is also established by his failure to stop the unlawful activity.’ (at page 312j-313b)

Thus it is not necessary for the conspirators to join the conspiracy at the same time, but ... the parties to it must be sufficiently aware of the surrounding circumstances and share the same object for it properly to be said that they were acting in concert at the time of the acts complained of. (at page 313c) …

In most cases it will be necessary to scrutinise the acts relied upon in order to see what inferences can be drawn as to the existence or otherwise of the alleged conspiracy or combination. It will be the rare case in which there will be evidence of the agreement itself. (at page 313d)

... in order to establish an unlawful means conspiracy, it is necessary to establish an intention to injure the claimant but not a predominant intention or purpose to do so. (at page 314j)

... in many contexts it will be necessary in order to prove intention to ask the court to infer the relevant intention from the primary facts ... in the case of most conspiracies to injure by tortious means it will be clear from the acts of the conspirators that they must have intended to injure the claimant. In the case of a conspiracy to defraud by wholesale misappropriation it would be absurd to argue that the conspirators did not intend just that.” (at page 315f-g) ((Emphases added)

125.  On the question of whether there was agreement between two or more of the Primary Defendants, and other persons or entities, to defraud and injure the Plaintiff by unlawful means, I am satisfied on the evidence that there was an agreement made amongst Wong of CH and MW, Kao, Jessie and Betty of Genesis, with the common intention to defraud and injure the Plaintiff by the dishonest use of the forged warehouse receipts. The existence of the agreement and the common intention can be inferred from the overt acts carried out, of the procuring of the PMA Letters, the dispatch of the endorsed and scanned color copies of the warehouse receipts from Straits to CH and MW, their dispatch to MCM, the correspondence exchanged, and the absence of payment to Straits of the full purchase price of the nickel. Wong had consented to the terms of the dealings with MCM and the Plaintiff and any claim that he did not know what was going on is incredible. By his participation and his procuring CH and MW to participate in the MCM Master Agreements and the MCM S&P Contracts, it can readily be inferred that Wong must have intended to injure MCM and the Plaintiff as the ultimate financier, and his intention can be imputed to CH and MW.

Whether defendants liable to pay damages for deceit/conspiracy

126.  As I find that CH, MW and Wong are liable in deceit and conspiracy to injure the Plaintiff by unlawful means, they are clearly liable to make reparation to the Plaintiff for all the damages directly flowing from and caused by the fraudulent transactions, as well as any consequential losses (Smith New Court Securities Ltd v Citibank NA [1997] AC 254). The Plaintiff claims, as damages, the Funds paid out by the Plaintiff under the Purchase Contracts, namely US$293,625,392.59 (Schedule 1 to the Re-Amended Statement of Claim), and these claims are allowed as against CH, MW and Wong.

The Plaintiff’s claims against ERO, JA and HE (JC Camp)

127.  On the Plaintiff’s pleaded case, the Plaintiff paid out a total of US$293,625,392.59 to MCM under the Purchase Contracts, out of which US$117,402,248.50 was paid by MCM to CH, and US$167,404,683.80 was paid by MCM to MW.

128.  As a result of various Norwich Pharmacal applications made by the Plaintiff against the banks, the Plaintiff was able to obtain evidence of the inward and outward remittances to and from the bank accounts of MW. The bank records reveal that the vast majority of the Funds received by MW were remitted on to the bank accounts of CH, ZH and ZT, and these are set out in Schedule 2 of the Re-Amended Statement of Claim (“Schedule 2”) (appended to this Judgment). This shows that at least a total of US$155,895,852.28 had been received by CH from MW, a total of US$3,597,759.85 and RMB 18,760,430 was received by ZH, and a total of US$6,670,676.57 and RMB 43,245,442.49 was received by ZT.

129.  Schedule 3 to the Re-Amended Statement of Claim (“Schedule 3”) (also appended to this Judgment) sets out the remittances in and out of MW’s accounts, showing payments received by MW and made by MW to ERO, JA and HE. It is apparent from Schedule 3 that MW received on 4 November 2016 a sum of US$4,407,598.95 and on 7 November 2016 a sum of US$5,864,956.01. On 7 November 2016, MW paid a sum of US$7 million to JA, and a further sum of US$3,263,636.36 to HE. On 8 November 2016, MW received a sum of US$3,995,164.84, and (from CH) a further sum US$400,000. On 8 November 2016, a sum of US$4,395,164.84 was then paid out from MW’s account to ERO.

130.  The essential dispute between the Plaintiff and the JC Camp is the source of the remittances of US$4,407,598.95, US$5,864,956.01, US$3,995,164.84 and US$400,000. The Plaintiff maintains that they are sourced from the Funds paid by the Plaintiff to MCM, and paid by MCM to CH and MW. The JC Camp claim that the first 3 sums, which had been converted from funds received by ZH in RMB currency, were received by ZH from SWT, a company controlled by JC, and independently of MW.

131.  On the evidence, ZH and ZT were owned by Zhao and Huang Zhiming, who were relatives of Wong. On Siu’s evidence and the questionnaire completed for Freepoint, one of the financiers of MW/CH’s trades, it was represented that ZH was controlled by Wong, and that the reason why Wong was not directly holding the shares in ZH was simply not to trigger issues which would be created by Wong being a Hong Kong citizen. Zhao and Huang likewise held shares in ZT, until 15 December 2016. Bian was (as from 18 January 2017) the sole director and purported controller of MW, as well as the executive director of ZH. On the evidence, Wong, Bian and the companies they controlled including CH, MW, ZT and ZH (shares in which were held by ZT) were clearly associated parties.

Inferences

132.  The Plaintiff acknowledges that there is a gap in the evidence to directly link the payments received respectively by ERO, JA, and HE to the funds received by ZH and ZT (in their respective bank accounts) from CH/MW. On behalf of the Plaintiff, Mr Chan argued that adverse inferences may be drawn against the parties which failed to produce documents and/or witnesses which they may reasonably be expected to produce. Mr Chan referred to the decision of Godfrey Lam J (as His Lordship then was) in Cheung Ying Lun v Legal Way Ltd [2014] HKLRD 106 at para 28:

“While a defendant’s absence is not in itself evidence against him, if there is some evidence tending to establish the plaintiff’s case, albeit slender evidence, the defendant’s silence in circumstances in which he would be expected to answer might convert that evidence into proof.”

133.  Mr Chan also relied on Gleneagle Holdings Ltd v Tse Yue Fong, HCA 2807/2006, 12 May 2009, where To J cited the passage from the judgment of Le Pichon JA in Tullett & Tokyo International Securities Ltd v Apc Securities Co Ltd [2001] 2 HKC 713:

“24. The really more significant criticism of the Plaintiff’s case is its failure to call Chan. Miss Gwilt referred to the maxim omnia praesumuntur contra spoliatorem. The principle is set out in the Court of Appeal in the judgment of Le Pichon JA in Tullet & Tokyo International Securities Ltd v APC Securities Co Ltd [2001] 2 HKC 713 at 723A to F as follows:

‘In relation to the fourth point above, Mr Huggins SC prayed in aid the maxim omnia praesumuntur contra spoliatorem (the maxim) sometimes referred to as the principle in Armory v Delamirie (1722) 1 Str 505. Excerpts expounding that principle from Wigmore on Evidence (Chadbourn Revision, 1979) Vol 2, at paras 285 and 291 were quoted in the judgment of Fuad JA in Hongkong and Shanghai Banking Corp v Chan Yiu Wah [1988] 1 HKLR 457 at 467C-H:

285. Failure to produce evidence, as indicating unfavourable tenor of evidence:

(1) In general. … The failure to bring before the tribunal some circumstance, document, or witness, when either the party himself or his opponent claims that the facts would thereby be elucidated, serves to indicate, as the most natural inference, that the party fears to do so; and this fear is some evidence that the circumstance or document or witness, if brought, would have exposed facts unfavourable to the party. These inferences, to be sure, cannot fairly be made except upon certain conditions; and they are also open always to explanation by circumstances which make some other hypothesis a more natural one than the party’s fear of exposure. But the propriety of such an inference in general is not doubted.

The non-production of evidence that would naturally have been produced by an honest and therefore fearless claimant permits the inference that its tenor is unfavourable to the party’s cause. Ever since the case of Chimney Sweeper’s Jewel [Armory v Delamirie] this has been a recognised principle.’

The question is whether in all the circumstances adverse inference is to be drawn against a party for failure to produce document or witness when such production is reasonably expected. All the circumstances, in particular the lack of explanation, must be taken into account before such adverse inference is to be drawn.” (Emphases added)

134.  When the evidence available, or absent, at trial is considered in this case, Mr Chan highlighted the fact, which I acknowledge to be relevant, that the purported controller of MW and the executive director of ZH, namely, Bian, had at an early stage of these proceedings filed an affirmation dated 17 July 2017 in support of ERO, when ERO opposed the Plaintiff’s application for an injunction against ERO. Zhao, one of the shareholders of ZT which is the majority owner of ZH, also filed an affirmation dated 17 July 2017 in support of ERO’s opposition to the injunction. Bian and Zhao were persons who, on Ko’s evidence, gave her instructions in connection with the nickel transactions conducted by MW.

135.  Bian was in fact listed as an intended witness when ERO filed its Information Sheet for the Case Management Conference held in March 2019. ERO, JA and HE had reiterated their intention to call Bian as a witness in their Information Sheet of 30 May 2019. As Mr Chan submitted, the JC Camp are reasonably expected to be in a position to call Bian and Zhao as witnesses to support their case as to the origin of the ERO Sum, the JA Sum and the HE Sum, but neither Bian nor Zhao were ultimately called at trial as witnesses.

136.  Further, the JC Camp had had the assistance of Bian and Zhao at least during the time between July 2017 and May 2019, but they have failed to produce any bank statements or documents relating to the DBS (China) and CIITIC (Zhuhai) bank accounts of ZH, to establish the claim made by the JC Camp that the source of the ERO, JA and HE Sums derived not from the Funds obtained from the Plaintiff, but from SWT, or alternatively, that the portion of the funds received by ZH and ZT as detailed in Schedule 2 never found their way to the CITIC bank account of ZH, and did not form any part of the ERO, JA and HE Sums. As Mr Chan emphasized for the Plaintiff, if the sums derived from ZH and ZT were indeed unrelated to the Plaintiff’s Funds, the Court would expect that the clearest evidence which the JC Camp could produce would be the bank statements of ZH and ZT, or by calling Bian and Zhao to establish the fund flow of the amounts particularized in Schedule 2.

137.  JC was cross-examined on this at trial. He claimed that he had last discussed the action with Bian just a few months prior to trial, and he did not even consider asking whether Zhao would be willing to attend the trial as a witness. JC claimed that he had invited Bian to give evidence but Bian had rejected the idea of coming - despite the fact that he had made an affirmation in the action, in 2017. JC could not give any reason for Bian’s refusal.

138.  JC has claimed in his evidence that Bian has been his friend for 30 years, and that they had cooperated in their business dealings, and had entrusted each other with dealings in currency exchange or loans of over RMB 100 million without any form of written agreement or acknowledgement. If this is to be believed, as JC’s explanation why there were these large transfers of money between Bian and himself and the companies they control, then it is incredible that Bian would not assist JC further in the JC Camp’s defence, if not by attending trial then at least by providing JC with the relevant bank statements of ZH and ZT, the companies Bian controlled, which would conclusively establish the fund flow one way or the other. In cross‑examination, JC claimed that he never regarded the production of the bank statements of ZH and ZT to be necessary, but I find this hard to believe.

139.  JC claimed that the documents he had received and produced were sufficient. However, as Counsel for the Plaintiff pointed out, the documents relied upon by JC which show ZH’s applications for funds transfer, and which bear Zhao’s name chops, only show the transfer of sums from ZH to MW, which are not in dispute. The inevitable inference from all this is that the bank documents of ZH and ZT, and any evidence from Bian and Zhao, do not in fact support, but undermine, JC’s case and in truth establish the Plaintiff’s claim as to the source of the Funds, and in particular of the ERO Sum, being derived from the Plaintiff.

140.  The source of the remittances of (1) US$4,407,598.95 received in MW’s USD account, from MW’s RMB account on 4 November 2016 (and converted from the sum of RMB 30 million less remittance charges of RMB 1,000) received from ZH on 3 November 2016; (2) US$5,864,956.01 received from MW’s RMB account with DBS on 7 November 2016, which was converted from RMB 39,999,999 (net of charges) received from ZH on 4 November 2016; (3) US$3,995,164.84 received from MW’s RMB account on 8 November 2016 and which had been converted from RMB 27,267,000 (net of charges) received from ZH on 7 November 2016; and (4) US$400,000 received in MW’s account from CH on 8 November 2016 are disputed. They are claimed by the JC Camp to be unrelated to the Plaintiff’s Funds. The JC Camp claim that the 3 sums of RMB 29,999,000, RMB 39,999,000 and RMB 27,267,000 (net of charges) remitted to MW’s account by ZH are all traceable to the sums of RMB 30 million, RMB 40 million and RMB 30 million which were remitted to ZH by JC’s company, SWT, in early November 2016.

141.  The JC Camp’s case on the ultimate source of funds in respect of the remittances received by ERO, JA and HE was first revealed in JC’s third witness statement filed on 18 September 2021. There, JC claimed that the source of those funds was the transfer on 1 November 2016 of RMB 110,000,000 from a Mainland company known as 上海璞颂智慧科技有限公司 (“SPC”) which is an indirect subsidiary of SWT. JC claimed that the transfer was made by SPC from its Ping An Bank account to SWT’s account with China Construction Bank. However, as Counsel for the Plaintiff highlighted, no statements have been produced for SPC’s Ping An Bank account, and there is no evidence as to the source of SPC’s funds. When JC was cross-examined as to why he did not produce any of the relevant SPC bank statements, he simply claimed that there was no need for such evidence.

142.  The bank statements of SWT were produced for its account with Chinese Construction Bank. From these, it could be seen that there were three remittances of RMB 30,000,000, RMB 40,000,000 and RMB 30,000,000 made on 1, 4 and 7 November 2016 to ZH’s account number 7495010182600037452 (“7452 Account”) with CITIC Zhuhai.

143.  The JC Camp’s case is that the ERO, JA and HE Sums are sourced from SWT, and they rely upon the transfers from SWT's bank account with China Construction Bank to ZH’s China CITIC Bank Zhuhai account as the source of the funds for the three remittances received by the JC Camp.

144.  The three payments which ZH made to MW were made from the CITIC Zhuhai account in the same currency, but as Mr Chan highlighted, they were all from a different account number 8110901012000349332 (“9332 Account”). By reference to the document entitled “Applications for Funds Transfer Overseas”, the remittances from the 9332 Account were remitted to MW’s USD account with DBS in Hong Kong. The inward remittance advices for the three payments record ZH’s remitting banker as DBS Bank (China) Limited.

145.  According to the JC Camp, DBS Bank China was a correspondent bank only, and the funds remitted by China CITIC Bank came through DBS Bank China to DBS Bank Hong Kong, rather than ZH having its own account with DBS Bank in China. Mr Chan pointed out that without disclosure from ZH, the position is not clear but in any event, the funds received in RMB were subsequently converted by MW into US dollars (ie RMB 30,000,000 less bank charges to US$4,407,598.95), RMB 40,000,000 less bank charges converted to US$5,864,956.01 and RMB 27,268,000 (less bank charges) converted to US$3,995,164.84.

146.  As Mr Chan submitted, and as this Court had observed in a Decision handed down at an early stage of the proceedings on 19 July 2017, the evidence of JC and his explanation of the source of the funds received by the JC Camp had evolved over time, did not impress this Court at all in July 2017, and has not gained in credibility at trial after JC’s testimony.

147.  JC first claimed, in a draft affirmation which was produced to the Plaintiff at a hearing on 2 June 2017, that the ERO Sum was received by him pursuant to an oral loan made between him and Wong. It was said that the loan of RMB 30 million was advanced by him through SWT to ZH, as directed by Wong. The said loan was then repaid by Wong on 8 November 2016 in US dollars, on the basis that Wong had surplus funds and JC was not opposed to receiving repayment in US dollars by payment made in Hong Kong to ERO. However, based on the bank statements subsequently produced in evidence as a result of the discovery made by the banks, it transpired that MW did not in fact have any surplus funds in US dollars on 7 November 2016, as alleged by JC in June 2017, because its USD account with DBS only had USD 266,757.97 on that day.

148.  By the time JC signed his draft affirmation on 9 June 2017, the name of the lender had just, in a number of days, been changed from Wong to Bian. It was astonishing, that JC could not even recall and state the correct name and identity of the purported lender of a loan in excess of US$4 million, when the lender was supposed to be his friend and associate of 30 years.

149.  About 20 months later, in JC’s affirmation dated 2 February 2019, JC deposed to the fact that the two sums received by MW from ZH, of RMB 40 million and RMB 30 million, and paid out in US dollars to JA and HE, was a result of a “mutual financing collaboration” between JC and Wong. He described the arrangement as a private agreement made between Wong and himself, to exchange currencies of US dollars and renminbi as required by them.

150.  JC’s evidence as to whether his “loan” or lending of funds arrangement was made with Wong or Bian is revolving and unconvincing, but it does show that he had in fact treated Wong and Bian as the same source, and supports a conclusion that there was a close and indistinguishable relationship between Wong and Bian, and on the fluid arrangement amongst JC, Wong and Bian as to the use and transfer of funds amongst them.

151.  In his third affirmation made on 15 April 2020, JC set out an elaborate account of the ERO, JA and HE Sums and the remittances involved. In explaining the payments, he claimed that they were due to and were the outcome of an arrangement with Bian (rather than Wong) to convert CNY/renminbi to US dollars, allegedly using ZH’s “Cross-border Outbound Guarantee” (“OBG”). This reference to the OBG was also contained in JC’s second witness statement of June 2020, in relation to the transfer of the sums of RMB 40,000,000 and RMB 30,000,000 from SWT to ZH on 4 and 7 November 2016.

152.  On behalf of the Plaintiff, Counsel highlighted several points in relation to the OBG. The first is that a copy of the OBG has never been produced.

153.  In cross-examination, Mr Bitossi pointed out that the 9332 Account at CITIC Zhuhai, which ZH used to make the payments to MW, was different from the 7452 Account with CITIC Zhuhai, in which ZH received the payments from SWT. Counsel for the JC Camp accepted that there was such a difference.

154.  In his testimony, JC confirmed it was “99% correct” that an OBG involved making or placing a deposit with a Mainland bank to use as a collateral or security. On the basis of that collateral, the bank would issue a credit line (or “quota”) to allow for payments to be made in Hong Kong. JC confirmed in cross-examination that, by the very nature of an OBG, the sum of RMB 30,000,000 would have to stay with the bank in the Mainland, and that a different sum from a different branch or different bank would then be released in another jurisdiction.

155.  Mr Chan referred to paragraph 4.8 of the Amended Defence of JA and HE, in which it was pleaded that Bian had asked JC in October 2016 to make a short-term loan of RMB 30 million, to use as security money for ZH in respect of the OBG. JC confirmed in his testimony in court that all the three sums remitted to ZH by SWT were used as security for the OBG.

156.  On behalf of the Plaintiff, Mr Chan pointed out that if JC’s evidence on the so-called OBG is accepted, then it is clear that the inward payments remitted to the special 7452 Account which ZH maintained with its bank on the Mainland were held by the bank as collateral, and that ZH had to use its quota under the OBG to make remittances to MW from a different account, namely the 9332 Account, and this meant that ZH did not in fact use the funds from SWT in the 7452 Account. JC accepted in his evidence that the money which was received from SWT was for the purpose of the OBG collateral and could not be withdrawn until the bank facility was terminated.

157.  Mr Lin submitted that it was the 9332 Account which was the collateral account, and it was because of that, that the applications for overseas fund transfers were made on that 9332 Account. However, there is in fact no direct evidence from ZH the account holder on this. Nor is it clear from JC’s testimony that it supported Mr Lin’s argument. The pleading in paragraph 4.8 of the Amended Defence of JA and HE tends in my judgment to support Mr Chan’s submission.

158.  Moreover, although SWT made a third remittance of RMB 30 million, ZH could only remit RMB 27,268,000 from its 9332 Account, and there was a shortfall of RMB 2,732,000 (approximately US$401,764). JC agreed that the sum of US$3,995,164.84 which was converted from the RMB 27,267,000 MW received from ZH, plus the balance in MW’s US dollar account on 7 November 2016 of US$266,757.97, was insufficient to make the remittance of US$4,395,164.84 to ERO (ie the ERO Sum) on 8 November 2016. For that reason, CH had to remit US$400,000 to MW on 8 November 2016. As Mr Chan pointed out, this remittance of US$400,000 had not come from SWT.

159.  There are other anomalies in the claim made by the JC Camp that the ERO Sum, the JA Sum and the HE Sum were sourced from SWT, and that these receipts had nothing to do with MW, CH, Bian or any company of his.

160.  JC’s evidence is that he had no business dealings with Wong, and that JA and HE were investment vehicles used by JC for making and holding investments, and had no other business. JC also claimed that JA, HE and ERO did not have any actual business with Bian’s companies, although there might have been fund transfers between Bian’s companies and his. There were, according to JC, mutual fund transfers between Bian and himself, made as “favors” for each other. On JC’s evidence, neither JA nor HE had entered into any contract with Bian’s companies for any business or purpose.

161.  However, discovery obtained from the banks disclosed that there were at least two contracts made by MW with ERO and JA. These were dated November 2016, for the sale by JA and ERO respectively of LME registered nickel to MW. Significantly, these were produced by MW to its own banker in January 2017 in accordance with the bank’s compliance procedures, and in response to queries raised by the bank as to the purpose of payment of the significant sums of US$7,000,318.45 and US$4,395,164.84 to JA and to ERO respectively. It was in response to the bank’s request for the provision of relevant supporting documents, to prove that the payments were for genuine business transactions, that MW’s contracts with JA and ERO were produced to the bank.

162.  The contract between MW and JA was signed by TK and bore the name chop of JA. The contract between MW and ERO likewise bore the signature and name chop of ERO.

163.  According to JC, although the chops resembled those of his companies, and that the signature appearing with ERO’s name chop resembled his signature, he maintained that the contracts were not made by JA and ERO. JC also claimed that the signature of TK which appeared with JA’s name chop was not genuine, as it was dissimilar to the signature of TK which appeared in the account opening form when JA’s bank account was established with DBS in September 2016. JC further maintained that he had never signed the contract with MW, as his companies had never engaged in metal business.

164.  JC’s denials of the contracts made by JA and ERO with MW cannot be accepted on his bare assertions. As the Plaintiff has pointed out, ERO and JA are BVI companies. Directors of the companies cannot be identified from a public search, and on a balance of probabilities, it is not likely that MW, or anyone on its behalf, could have on its own produced a contract with the name and signature of TK, JA’s director – without any input from JA. It was JC’s pure speculation that TK must have given to Bian a name card which identified himself as a director of JA. This is more incredible given JC’s own evidence that JA was a pure investment vehicle used solely by JC for making and holding his investments, and allegedly had no other business, such that it would make no commercial sense for TK to produce a name card for JA and to show himself as director of JA. JC admitted in his evidence that he was the person who actually controlled and operated JA – despite his claim that some time “later”, after the initial incorporation of the company, he ceased to have beneficial interests in JA as a result of a division of ERO, JA and HE between himself and LH.

165.  If JC’s dissociation of the contracts MW had made with JA and ERO are true, then on the face of the correspondence between MW and its bank, MW had forged contracts with JA and ERO in order to deceive and mislead its bank. If however the contracts MW produced were actually signed by and on behalf of JA and ERO, then JA and ERO were parties to the deception on the bank as to the purpose of the payments made by MW to JA and ERO for the alleged sale of nickel to these companies, as neither JA nor ERO ever carried on any trading in metal. That would suggest that JC and his companies, at the least, had knowledge that they had no right to payment of the relevant sums from MW to them, and knowledge of the fact that MW was producing and procuring documents to deceive the bank, and making misrepresentations to the bank as to the nature and purpose of the payments made by MW to JA and ERO.

166.  I am not satisfied on the available evidence that MW’s contracts with JA and ERO were forged, simply on the basis of JC’s claim that he had no knowledge of their having been made in the name of JA and ERO, and his assertion of the alleged differences in the signatures of TK. In fact, his assertion that he was not aware of the company chops having been supplied to Bian was only on the basis that he was not of such a low level in the hierarchy of the relevant companies, to have been involved in the supply and use of the company chop of JA and ERO.

167.  Further, as pointed out by Counsel for the Plaintiff, the Applications for Fund Transfers Overseas, in respect of the 3 transfers made by ZH, on 2 November 2016, 4 November 2016 and 7 November 2016, to MW’s bank account with CITIC Bank, have a similar “transaction remark” made, that the remittance was a “loan to an offshore subsidiary”. If that was the actual case, then it would have been a far simpler matter for MW to state to its bank, when asked to provide supporting documents for the payment of the JA Sum and the ERO Sum, that they were repayments of loans, rather than to go through the process of creating false documents purporting to show the sale of nickel from ERO and JA to MW.

168.  I do not consider JC as a forthright witness. His evidence had changed in the course of time, as to the source and purpose of the money received in the bank accounts of ERO, JA and HE. Its evolution was partly due to the fact that it had not been envisaged that the Plaintiff would be able to obtain documents and information from the banks. In the course of his cross-examination, JC himself had expressed frustrations as to the documents revealed from the discovery made by the banks.

169.  I do not regard the evidence of LH to be of value in any way in corroborating JC’s evidence. She was only repeating the matters stated in the witness statements drafted by her lawyers without her own scrutiny or apparent understanding. She parroted the claim made by JC as to her 50% ownership of SWT, without being able to explain why she had stated in her witness statement that her interest in SWT was held on trust for JC. Her testimony in cross-examination, that she had never met and had not even heard of Bian’s name, contradicted the claim made in her witness statement that there was a purported loan from JC to Bian.

170.  Having considered in entirety the evidence adduced in this case, and taking into account all the matters set out above, I am prepared also to infer that any evidence from Bian, Zhao, ZH and ZT, whether in the form of bank statements or testimony, would be adverse to the case of ZH, ZT and the JC Camp as to the source of the funds received by them being any entity other than the Plaintiff/MCM.

Whether the ERO, JA and HE Sums represent part of the Funds paid out by Plaintiff

171.  I accept the submissions made by Counsel for the Plaintiff in relation to the remittances of funds as set out and particularized in Schedule 2 and Schedule 3, and agree that the ERO Sum, JA Sum and the HE Sum are traceable to, and were derived from, the Funds paid out by the Plaintiff to MCM, which were then utilized by MCM to make the various payments to MW and CH for the nickel. As Mr Chan pointed out, MW’s US dollar account with DBS had a zero balance before the receipt of US$9,660,547.53 from MCM on 28 September 2016, and as at 31 October 2016, only US$257,839.37 remained from the initial remittance of US$9,660,547.53, and US$257,839.37 was the lowest intermediate balance directly traceable to the remittance, before the JA Sum and the HE Sum were paid into MW’s account.

172.  From Schedule 2, it is clear that ZH and ZT received from MW a total of US$10,268,436.42 and RMB 62,005,872.49 (equivalent to approximately US$8.87 million), for no commercial reason made apparent by any party. The Plaintiff pointed out that by adopting the exchange rate in November 2016, the total amount received by ZH and ZT was RMB 131,831,240.14 or US$19,386,947.08, for exceeding the total of the three RMB remittances MW had received from ZH. The balance of US$400,000 was also received from CH.

173.  As Counsel for the Plaintiff submitted, and I accept, there is no evidence whatsoever that ZH and ZT had at any time been trading. JC confirmed that, having known Bian for 30 years, he was not aware that Bian had been involved in trading metal commodities. That gives weight to the probability that the funds received by ZH and ZT from MW were not further disbursed by either company. Given the close relationship between ZT and ZH, the funds received by ZT were likely to have been utilized, together with the funds received directly by ZH itself, to make the remittances to MW in early November 2016. There was only 2 ½ months between the receipt of payments by ZH in mid‑August 2016 and by ZT in mid-October 2016, and less than one month before the remittances made by ZH and MW in early November 2016, such that the payments made by ZH are likely to be sourced from the payments which had been made by MW to ZH and ZT.

Clayton’s rule

174.  With regard to the payments made and transfers out of MW’s account in November 2016, Mr Lin placed emphasis on the fact that as at 31 October 2016, there was a balance of US$257,839.37 (the Lowest Intermediate Balance “LIB”) in MW’s account (as shown in Schedule 3), and that after the transfers made into MW’s account on 4 and 7 November 2016, and the payments out of the JA Sum and the HE Sum on 7 November 2016, only US$266,757.97 remained in MW’s account. Mr Lin contended that the LIB which remained from the transfer of the Plaintiff’s Funds was not used to make the remittances to JA and HE, on the basis of the so-called default rule of In re Hallett’s Estate (1880) 13 Ch D 696.

175.  I do not agree that the rules laid down in Clayton’s Case, In re Hallett’s Estate and in re Oatway can be operated to assist the Defendants. In re Hallett’s Estate made it clear that the “first in first out” rule in Calyton’s Case does not apply where a trustee or a person in fiduciary position has mixed his own money with money which he should hold on trust. Mr Lin sought to contend from that, that because it should be presumed that the wrongdoer’s own funds would have been transferred out first, the trust fund should be presumed to have remained in MW’s account, and so the JA Sum, the HE Sum and the ERO Sum were payments made from MW’s own funds, and not the Plaintiff’s. He pointed to the fact that even after the remittance of the JA, HE and ERO Sums on 7 and 8 November 2016, there was a balance of US$266,750.89 in MW’s account, which was higher than the LIB on 31 October 2016.

176.  Mr Lin’s legal argument on presumption ignores the actuality that on 31 October 2016, the LIB remaining in MW’s bank account was in fact used by MW, together with a mixed fund comprising the incoming remittances of US$4,407,598.95 on 4 November 2016 and US$5,864,956.01 on 7 November 2016, to make payments of the JA Sum and the HE Sum on 7 November 2016. On Mr Chan’s case, the balance remaining on 8 November 2016, of US$266,750.89, does not actually represent the balance of any of the Funds which originally constituted the LIB.

177.  As this Court held in Americhip v Zhu Hongling [2021] 4 HKLRD 490, if funds stolen from a plaintiff had been mixed in a bank account with monies which had not been stolen, the plaintiff is entitled to trace its money in the manner most advantageous to it by application of the rules in Clayton’s Case and In re Hallett’s Estate.  To preserve the value of the victim’s assets which had been paid into a mixed fund, the order of priority in which the various withdrawals and investments had prospectively been made is irrelevant (Re Oatway [1903] 2 Ch 356, Essilor Manufacturing (Thailand) Co Ltd v G Doulatram and Sons (HK) Ltd [2020] HKCFI 2489). These rules and presumptions all operate in favour of the innocent claimant as opposed to the wrongdoer. In Essilor, the Court accepted that the plaintiff is entitled to elect between the rule in Clayton’s Case, or the rule in Re Hallett’s Estate, and permitted the Plaintiff to apply the Hallett rule which was to its advantage.

178.  Having considered the bank statements and documents relating to the remittances in this case, and having weighed the evidence of JC in these proceedings, I conclude on the facts and evidence that the ERO, JA and HE Sums were wholly derived from the Funds which the Plaintiff had paid MCM, and which had been paid onward to CH and MW pursuant to the fraud. There is no clear transactional link between the SWT remittances to ZH, and ZH’s onward remittances to MW, given that there is evidence to suggest that the three remittances from SWT were asked for as security money and were held as collateral, and that the transfers from SWT to ZH, and the transfers from ZH to MW, were from different numbered accounts.

Whether the ERO, JA ad HE Sums and their traceable proceeds are held on constructive trust

179.  The JC Camp contend that, as a matter of law, no constructive trust can be held to exist in relation to the Plaintiff’s Funds, as a constructive trust can only be imposed if there is a relevant fiduciary relationship, such that the Plaintiff’s equitable proprietary claim must fail. Reliance was placed on the judgment of Lord Sumption in Xiamen Xinjingdi Group Co Ltd v Eton Properties Ltd (2020) 23 HKCFAR 348, where he stated (at paragraph 174):

“A constructive trust can exist only if there is a relevant fiduciary relationship. It may arise on either of two juridical bases. It may be derived from the character of the relationship between the beneficiary or the trustee, where the court recognizes that relationship as fiduciary. In such a case the trust gives rise to a true proprietary interest in equity. Or it may be imposed by the court on a purely remedial basis in the case where there is no subsisting proprietary interest (usually because it has been extinguished) but the relevant party is a fiduciary and is before the court.”

180.  I agree with Counsel for the Plaintiff, that the submission of Mr Lin is an over-simplification of the principles set out in the judgment in Xiamen Xinjingdi.  The distinction between constructive trust as an “institutional” and remedial trust has been recognized in cases such as Paragon Finance plc v DB Thakerar & Co [1999] 1 All ER 400. In Paragon, the expressions “constructive trust” and “constructive trustee” were amply explained in the judgment of Millett LJ:

“Regrettably, however, the expressions ‘constructive trust’ and ‘constructive trustee’ have been used by equity lawyers to describe two entirely different situations. The first covers those cases already mentioned, where the defendant, though not expressly appointed as trustee, has assumed the duties of a trustee by a lawful transaction which was independent of and preceded the breach of trust and is not impeached by the plaintiff. The second covers those cases where the trust obligation arises as a direct consequence of the unlawful transaction which is impeached by the plaintiff.

A constructive trust arises by operation of law whenever the circumstances are such that it would be unconscionable for the owner of property (usually but not necessarily the legal estate) to assert his own beneficial interest in the property and deny the beneficial interest of another. In the first class of case, however, the constructive trustee really is a trustee. He does not receive the trust property in his own right but by a transaction by which both parties intend to create a trust from the outset and which is not impugned by the plaintiff. His possession of the property is coloured from the first by the trust and confidence by means of which he obtained it, and his subsequent appropriation of the property to his own use is a breach of that trust. Well-known examples of such a constructive trust are McCormick v Grogan (1869) LR 4 HL 82 (a case of a secret trust) and Rochefoucald v Boustead [1897] 1 Ch 196 (where the defendant agreed to buy property for the plaintiff but the trust was imperfectly recorded). Pallant v Morgan [1952] 2 All ER 951, [1953] Ch 43 (where the defendant sought to keep for himself property which the plaintiff trusted him to buy for both parties) is another. In these cases the plaintiff does not impugn the transaction by which the defendant obtained control of the property. He alleges that the circumstances in which the defendant obtained control make it unconscionable for him thereafter to assert a beneficial interest in the property.

The second class of case is different. It arises when the defendant is implicated in a fraud. Equity has always given relief against fraud by making any person sufficiently implicated in the fraud accountable in equity. In such a case he is traditionally though I think unfortunately described as a constructive trustee and said to be ‘liable to account as constructive trustee’. Such a person is not in fact a trustee at all, even though he may be liable to account as if he were. He never assumes the position of a trustee, and if he receives the trust property at all it is adversely to the plaintiff by an unlawful transaction which is impugned by the plaintiff. In such a case the expressions ‘constructive trust’ and ‘constructive trustee’ are misleading, for there is no trust and usually no possibility of a proprietary remedy; they are ‘nothing more than a formula for equitable relief’: Selangor United Rubber Estates Ltd v Cradock (No 3) [1968] 2 All ER 1073 at 1097, [1968] 1 WLR 1555 at 1582 per Ungoed-Thomas J.

The constructive trust on which the plaintiffs seek to rely is of the second kind. The defendants were fiduciaries, and held the plaintiffs’ money on a resulting trust for them pending completion of the sub-purchase. But the plaintiffs cannot establish and do not rely upon a breach of this trust. They allege that the money which was obtained from them and which would otherwise have been subject to it was obtained by fraud and they seek to raise a constructive trust in their own favour in its place.”

181.  This categorization of constructive trust is referred to in Lewin on Trusts 17^th edition at paras 7-08 to 7-21. In the context of compensatory remedial trusts, the learned editors observed at para 7-20 that trusts are misleadingly said to arise when a defendant is compelled in equity to compensate a claimant out of the defendant’s own pocket. The learned editors pointed out that “there need be no trust property vested in the defendant in these cases, but the defendant is said to have to account as constructive trustee”. It was further explained that an order to account may also be made in the exercise of equity’s concurrent jurisdiction to award compensation for an ordinary common law fraud (citing Selangor United Rubber Estates Ltd v Cradock (No 3) [1968] 1 WLR 1555, and Paragon Finance plc v DB Thakerar & Co [1999] 1 All ER 400).

182.  When explaining the proprietary remedies available, the learned editors of Lewin on Trusts also made it clear (at para 41-11) that in respect of the identification of the “trustee” and “trust property”:

“There is no need for the fiduciary relationship to precede the disposal of the property complained of, and so proprietary remedial constructive trusts enable the proprietary remedy to be obtained and the value inherent in property which becomes subject to such trust to be traced in accordance with the rules developed for trusts in the strict sense, a fiduciary relationship in this context meaning no more than the duty to restore the property concerned imposed on the person whose conscience is sufficiently affected to justify the intervention of equity.” (Emphasis added)

183.  On the facts, I have found that the Plaintiff had been deceived and defrauded by CH, MW and Wong and their presentation of the forged warehouse receipts into parting with their Funds which were paid to MCM, and then paid by MCM under the back-to-back arrangement with CH and MW, to parties which included ZH, ZT, ERO, JA and HE. On the evidence, CH was controlled by Wong and MW was controlled by Bian, who also controlled ZH and ZT. CH, MW, ZH and ZT were the fraudulent recipients of the Plaintiff’s Funds. There is sufficient and proper basis to find that CH, MW, ZH and ZT held the Plaintiff’s Funds on constructive trust for the Plaintiff.

184.  As against ERO, JA and HE, even if they are not alleged to be the fraudulent parties actually involved in the fraud, the question is whether the Funds received by CH, MW, ZH and ZT (or the value thereof) and paid out by them can be followed or traced to the money received by ERO, JA and HE. If they can, the Plaintiff can assert its beneficial interest in respect of such money and seek its equitable proprietary remedy.

185.  In seeking to argue that no constructive trust can arise against ERO, JA and HE in circumstances when they were not the alleged fraudster nor implicated in the alleged forgery of the warehouse receipts and their presentation, Counsel relied on R Stahl Inc v AJ Development Ltd [2021] 6 HKC 162 and Zief Incorporated v Tekchandani Ajai Mohan [2021] 3 HKC 69, and on the original observation of Lord Browne-Wilkinson in Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669, that the constructive trust imposed by equity is on the “fraudulent recipient” of property. Mr Lin emphasized that the Plaintiff had paid money under a valid contract made between the Plaintiff and MCM, which contract has not been impeached by the Plaintiff as there is no plea that the Purchase Contracts and the Master Agreement had been discharged or avoided by the Plaintiff. It was argued that the legal and beneficial title in the Funds paid had passed from the Plaintiff to MCM, so that no interest whatsoever had been retained by the Plaintiff. Emphasis was also made on the fact that a contract induced by fraudulent misrepresentation is at most voidable, and not void.

186.  The facts and claims made in R Stahl and Zief are of course distinguishable. In Zief, the Court found that the plaintiff in the case had failed to establish that a credit balance standing in the defendant’s account was the traceable proceeds of money which the plaintiff had mistakenly paid to the defendant, such that the recipient’s conscience was not affected, as it had no knowledge of the plaintiff’s mistake in making the payment. On such findings, there was no proper basis for the Court to impose a constructive trust on the facts of the case.

187.  In R Stahl, the Court referred to Westdeutsche, and observed that the defendant as recipient was not claimed to be fraudulent, but that irrespective of the proper legal basis of the plaintiff’s claim, it was necessary to establish that the defendant had received the funds, and as that was in dispute, summary judgment should not be granted.

188.  In relation to Mr Lin’s emphasis, that the ownership of the Funds had passed from the Plaintiff to MCM, and thereafter from MCM to CH and MW, it has to be borne in mind that the Plaintiff’s primary claim against ERO, JA and HE in this action is unjust enrichment. A plaintiff claiming unjust enrichment must show that the defendant has been enriched at the plaintiff’s expense, but as Lord Millett pointed out in Foskett v McKeown [2011] 1 AC 102 (at p129E):

“...the plaintiff is not concerned to show that the defendant is in receipt of property belonging beneficially to the plaintiff or its traceable proceeds. The fact that the beneficial ownership of the property has passed to the defendant provides no defence; indeed, it is usually the very fact which founds the claim (in unjust enrichment).”

This, in my judgment, affords the answer to the challenge made by Mr Lin for the JC Camp.

189.  In relation to the emphasis made by Mr Lin that there is no plea of rescission of the Master Agreement or the Purchase Contracts, such that a constructive trust cannot be imposed against the JC Camp in respect of the fraud of the of the Defendants, the judgment in The National Crime Agency v Robb [2014] EWHC 4384 (Ch) contains a helpful analysis of the position. In that case, Sir Terence Etherton in his judgment referred to the fraud constructive trust as described in Westdeutsche, and then to criticism directed against the statement of Lord Browne-Wilkinson which focused on the conceptual difficulty of finding a constructive trust in the case of theft, where the stolen goods are identifiable and the victim has not lost legal title. The Chancellor then observed that such issue does not arise in the usual case of fraud, where title has passed to the criminal. From paragraph 43 of the judgment, he explained:

“43. In the context of transactions impeachable for fraud, objection to the proposition that a constructive trust in favour of the victim arises immediately upon the commission of the fraud has focused on the difference between a void and a voidable transaction. The overall consensus, both judicial and academic, is that where a transaction is not void but is voidable for fraud, the fraudster acquires legal and beneficial title to the victim's property and when the transaction is rescinded or set aside, but not before then, the equitable title to that property revests in the victim: see Russo v Shalson at [120] to [127] and the cases cited there; cf the analysis of Ben McFarlane in ‘The Structure of Property Law’ (2008) at p. 302 of a distinction between a trust immediately imposed on the fraudster and rescission necessary for the victim to assert his power, as beneficiary of the trust, to impose a duty on the fraudster to transfer the right held on trust to the victim.

44. Although there are judicial statements and arguments to the contrary, sitting as I am at first instance I am bound to follow the approach of Atkin LJ and Bankes LJ in Banque Belge pour l'Etranger v Hambrouck [1921] 1 KB 321 at 332 and 325, Rimer LJ in Russo v Shalson, and Millett J in El Ajou v Dollar Land Holdings plc [1993] 3 All ER 717, 734, that in the case of a voidable transaction a property interest only revests in the victim of fraud when the transaction is rescinded. Prior to that event, the victim's power to rescind constitutes a ‘mere equity’.

...

47. There is authority binding on a first instance court that rescission for fraud is effected when the innocent party clearly indicates that he or she is rescinding the contract: Car and Universal Finance Ltd v Caldwell [1965] 1 QB 525; Shalson v Russo at paragraph [120]; and generally O'Sullivan, ‘Rescission as a self-help remedy: a critical analysis’ [2000] 59 CLJ 509. The additional claimants plainly gave that indication when they joined these proceedings in order to claim a declaration under section 281 that part of the Fund belongs to each of them.” (Emphases added)

190.  The above is consistent with the approach of the Court in Lonrho Plc v Fayed and others (No 2) [1992] 1 WLR 1. The Court held in that case that a contract induced by fraudulent misrepresentation was voidable rather than void, and could not retrospectively subject the defendants to a fiduciary obligation to act as a trustee. As Millett J (as he then was) explained in his judgment:

“A contract obtained by fraudulent misrepresentation is voidable, not void, even in equity. The representee may elect to avoid it, but until he does so the representor is not a constructive trustee of the property transferred pursuant to the contract, and no fiduciary relationship exists between him and the representee: see Daly v Sydney Stock Exchange Ltd (1986) 160 CLR 371, 387-390, per Brennan J. It may well be that if the representee elects to avoid the contract and set aside a transfer of property made pursuant to it the beneficial interest in the property will be treated as having remained vested in him throughout, at least to the extent necessary to support any tracing claim…”

191.  It is pertinent that in NCA v Robb itself, the Court accepted that the relevant claimants in the case had rescinded their contracts, at the latest, when they joined the proceedings, and that, if it had not already arisen, a trust of any traceable proceeds of the claimants’ payments then arose in their favour. The judgment cited Car and Universal Finance Ltd v Caldwell [1965] 1 QB 525, where rescission was held to have been effected when the innocent party clearly indicated that it was rescinding the contract.

192.  The forgery of the warehouse receipts was discovered by MCM and the Plaintiff some time in January 2017. The Plaintiff took immediate steps from February 2017 to apply to the courts for Norwich Pharmacal relief to obtain information and to trace the Funds it had paid out to MCM, and which MCM had paid to CH and MW. After numerous applications for discovery orders against banks, the Plaintiff was finally able in May 2017 to commence these proceedings against ERO as recipient of the funds traced. CH and MW were joined by ERO as third parties, and ultimately joined by the Plaintiff as defendants in the action in August 2019, with an Amended Writ filed on 11 September 2018. At the heart of the claims made against all defendants in these proceedings is the claim that the warehouse receipts presented were forgeries, that the Plaintiff had been deceived, and that it seeks recovery of the Funds paid out under the Purchase Contracts.

193.  Contemporaneously with the Plaintiff taking legal action in Hong Kong, MCM also commenced the English proceedings against CH and MW in December 2017, claiming deceit, fraudulent misrepresentation and rescission, and making other subsidiary and alternative claims. MCM’s Commodities Operations Manager (Mr Dyke) made a witness statement for the Plaintiff for use in these proceedings in June 2020, and he gave evidence for the Plaintiff at trial. MCM was clearly aware of the Plaintiff’s actions and claims made in these proceedings for recovery of the Funds on the basis of the forged warehouse receipts, and MCM had assisted the Plaintiff in this regard. The MCM Proceedings and these proceedings relate to the same facts and concern the same warehouse receipts presented by CH and MW to the Plaintiff, via MCM, under the purported sales made under the back-to-back MCM S&P Contracts and the Purchase Contracts, all financed by the Plaintiff as CH and MW knew. It is inconceivable that MCM, CH, MW, Wong or any other defendant would have been under any misunderstanding or illusion that the Plaintiff treated the Purchase Contracts and any transaction thereunder as valid and still subsisting.

194.  If it is necessary to decide the question of whether the Plaintiff had equitable title to the Funds paid out to the JC Camp, I am prepared to find that on the facts of this case, MCM and the Defendants in these proceedings well knew and understood from the actions taken by the Plaintiff, at the very latest by the Plaintiff’s joinder of CH and MW in these proceedings on the basis of the claims made under the forged warehouse receipts, that the Plaintiff was rescinding the Purchase Contracts. There is no evidence of the Plaintiff ever affirming the said transactions.

195.  For all the reasons set out in the preceding paragraphs, I reject the contention that no constructive trust can arise in respect of the Funds by reason of the fact that there was no prior fiduciary relationship between the Plaintiff and the Defendants, and/or that ERO, HE and JA are not pleaded to be parties to the fraud against the Plaintff, and/or that the Purchase Contracts had not been rescinded by the Plaintiff. Whether or not the Plaintiff seeks remedies against MCM is for it to decide, but the fact that the Funds had initially been paid out to MCM as a result of the presentation of the forged warehouse receipts, before the Funds were disbursed down to the Defendants in this case, provide no defence to any of the Defendants once the fraud has been established, and the Funds can be followed and traced to the Defendants.

196.  Despite their objection to the admissibility of the MCM Judgment, the JC Camp argued that the English Court has held that the Funds paid out by MCM (the plaintiff in the MCM Proceedings) are held by CH and MW on constructive trust for MCM. In my judgment, whether or not MCM resists the Plaintiff’s claim to the money paid out and recovered (if at all) from CH and MW, and whether MCM acknowledges that it holds the Funds as constructive trustee for the Plaintiff, are matters between MCM and the Plaintiff, and cannot assist the Defendants vis-à-vis the claims made by the Plaintiff against them. As Mr Chan pointed out for the Plaintiff, MCM did not in the MCM Proceedings seek any form of equitable relief against the JC Camp, nor in relation to the Funds which the JC Camp have received. Nor is the Plaintiff in these proceedings maintaining its claim for declaratory proprietary remedy against CH, MW, ZH and ZT since the part of the Funds these defendants had received had been dissipated and paid out by them.

Unjust enrichment

197.  The crux of the matter is the Plaintiff’s primary claim of unjust enrichment against ERO, JA and HE, which is described by Mr Chan as the root of its equitable proprietary claim against these Defendants. In relation to unjust enrichment, there is no dispute that the questions to be asked by the Court as a structured approach in the determination of the claim are: (1) was the defendant enriched? (2) was the enrichment at the plaintiff’s expense? (3) was the enrichment unjust? and (4) are any of the defences applicable to the defendant. It is not disputed that if the first three elements can be established, it is then for the defendant to prove that there is a defence.

198.  In opposition to the Plaintiff’s claim, Mr Lin argued for the JC Camp that there had been no direct transfer of value or benefit from the Plaintiff to the JC Camp. Reliance was placed on the judgment of Lord Reed in Investment Trust Companies v Revenue and Customs Commissioner [2018] AC 275, where His Lordship observed at paragraph 51:

“Where, on the other hand, the defendant has not received a benefit directly from the claimant, no question of agency arises, and the benefit does not consist of property in which the claimant has or can trace an interest, it is generally difficult to maintain that the defendant has been enriched at the claimant’s expense…”

The example, of a claimant making a mistaken payment to a third party, who in consequence makes a gift to the defendant out of property in which the claimant has no interest, and into which he is unable to trace, was then given in the judgment of Lord Reed, with the conclusion:

“A claim in unjust enrichment therefore lies against the third party (subject to any defences available). But no claim of personal nature lies at the instance of the claimant against the defendant: the claimant has not incurred any loss through making of the gift.”

199.  However, as Counsel for the Plaintiff made clear, the judgment in Investment Trust Companies does not set out any general proposition that there must be a direct transfer of value, before any enrichment can be regarded as at the plaintiff’s expense. In his judgment, Lord Reed had referred to different situations in which parties have not dealt directly with one another, but in which the defendant has nevertheless received a benefit from the claimant and the claimant has incurred a loss through the provision of that benefit. He referred to these situations as those in which the difference from the direct provision of a benefit by the claimant to the defendant is “more apparent than real” (at paragraph 47). Amongst such examples are where an agent of one of the parties is interposed between them, or where an intervening transaction is imposed but found to be a sham in order to conceal the connection between the claimant and the defendant. The judgment also referred to situations where the defendant receives property from a third party into which the claimant can trace an interest. His Lordship pointed out that in such situation, the property is, in law, the equivalent of the claimant’s property, and the defendant is therefore treated as if he had received the claimant’s property.

200.  At paragraph 50 of his judgment, Lord Reed then stated:

“It has often been suggested that there is a general rule, possibly subject to exceptions, that the claimant must have directly provided a benefit to the defendant. The situations discussed in the two preceding paragraphs can be reconciled with such a rule, if it is understood as encompassing a number of situations which, for the purposes of the rule, the law treats as equivalent to a direct transfer, in the sense that there is no substantive or real difference. So understood, the suggested rule is helpful. It may nevertheless require refinement to accommodate other apparent exceptions, and it would be unwise at this stage of the law’s development to exclude the possibility of genuine exceptions, or to rule out other possible approaches.”

In short, there is no hard and fast or inflexible rule that there must be a direct transfer or provision of benefit from the claimant to the defendant.

201.  Mr Chan referred instead to the judgment of DHCJ Eva Sit SC in AXHT Co Ltd v Freeway Finance Co Ltd [2020] 4 HKLRD 133, and the useful summary contained therein:

“39. Whether a transfer of value is ‘at the expense of’ the plaintiff is not a question of fact but a question of combined fact and law: Goff & Jones paragraph 6-02.

40. The question is what is the legal test to be applied for the purpose of determining whether the plaintiff has suffered a loss that is sufficiently closely linked with the defendant’s gain for the law to hold that a benefit has been transferred from the plaintiff to the defendant.

41. It is clear from the authorities that direct transfer from the plaintiff to the defendant is not necessary for this purpose, though it would no doubt satisfy the requirement. In Shanghai Tongji, the Court of Final Appeal rejected an argument advanced by the defendant (Casil), who received the proceeds of a sight letter of credit the plaintiff (Shanghai Tongji) caused its bank to issue, through negotiation of the draft with Casil’s own bank, that the enrichment of Casil was not at the expense of Shanghai Tongji. It held that Casil’s enrichment was undoubtedly at the expense of Shanghai Tongji, for (i) the letter of credit was merely the mechanism whereby Casil received payment against tender of conforming documents at the direction and for the debit of Shanghai Tongji (paragraph 71), and (ii) the interposed issuing and negotiating banks merely provided the mechanism for making payment to Casil under the letter of credit; they were not intermediate recipients unjustly enriched but more than ‘a mere conduit-pipe’ for payment to the ultimate recipient (paragraph 73).

42. In Khan v Permayer [2001] BPIR 95, the English Court of Appeal applied the test of ‘at whose ultimate expense’ the payment was made. In that case, Khan was indebted to Permayer. Khan subsequently proposed an individual voluntary arrangement under the Insolvency Act 1986, which Permayer as creditor voted in favour of, and was ultimately approved. Khan performed his obligations under the arrangement, including making payment to Permayer as provided thereunder (being 12% of the debt). Thereafter, in exchange for his consent to the sale to a third party of the reversion of a property in which Khan operated his restaurant business, Permayer demanded that the outstanding debt owed by Khan to him should be repaid in full. An arrangement was made whereby the third party would pay the outstanding sum to Permayer, who would thereafter recoup the same from Khan. The payment was made by the third party, and Khan also reimbursed the third party. It was then discovered that by concurring in the individual voluntary arrangement and accepting payment in performance thereof, Permayer’s debt had been discharged, and there was no debt due by Khan to Permayer at the time the third party made payment to Permayer. The English Court of Appeal rejected Permayer’s argument that his enrichment, which came from the third party, was not at the expense of Khan. At paragraph 40, Morritt LJ held that:-

‘... a payment made by a third party under a mistaken belief which gives rise to unjust enrichment of the defendant may be recoverable by the person at whose ultimate expense it was paid if that person is also acting under the same mistake as the third party.’

43. In Investment Trust Companies v Revenue and Customs Commissioners [2018] AC 275, the United Kingdom Supreme Court provided ‘more precise criteria’ in response to the uncertainty in the approach to be adopted in determining whether an enrichment was ‘at the expense of’ the plaintiff. Bearing in mind that the purpose of the law of unjust enrichment is to correct normatively defective transfers of value, usually by restoring the parties to their pre-transfer positions, it held that:-

(1) Whether a defendant has been enriched ‘at the expense of’ a plaintiff depends on whether there has been a transfer of value between the parties in the sense that the defendant has received a benefit from the plaintiff and the plaintiff has suffered some form of economic loss through his provision of the benefit (paragraphs 43 to 44).

(2) The requirement that the plaintiff must also incur a loss through the provision of the benefit means that where the provision of the benefit is merely an incidental or collateral result of the expenditure, it would not normally satisfy such requirement. A ‘but for’ causal connection between the plaintiff’s being worse off and the defendant’s being better off is not sufficient in itself to constitute a transfer of value (paragraph 52).

(3) Nor is the requirement satisfied by a connection between the parties’ respective benefit and loss merely as a matter of economic or commercial reality (paragraph 59).

(4) The requirement would normally be satisfied if the transfer is direct, but there may also be other situations where an indirect transfer would suffice, for example through an agent, or the intervening transaction is found to be a sham, or that a set of related transactions operated in a coordinated way as forming a single scheme or transaction such that it would be unrealistic to consider each of the individual transactions separately, or the property received by the defendant from a third party is one that the plaintiff can trace an interest into, or where the plaintiff discharges a debt owed by the defendant to a third party (paragraphs 48, 49, 61 to 66).

(5) When the defendant has not received a benefit directly from the plaintiff, no question of agency arises, and where the benefit does not consist of property in which the plaintiff has or can trace an interest, it will generally be difficult to maintain that the defendant has been enriched at the plaintiff’s expense (paragraph 51).” (Emphases added)

202.  I agree with Mr Chan, that the Court looks to the substance and the reality of the transactions, as opposed to their mere form. There is no independent evidence adduced to challenge the Plaintiff’s case, that the transactions amongst the Plaintiff, MCM, CH and MW were on a back‑to‑back basis, and there is no factual basis to support a finding that these transactions were distinct and independent, and should be considered as separate and unconnected dealings.

203.  On the entirety of the available evidence which is considered as a whole, the transactions between the Plaintiff and MCM, and between MCM and CH/MW, form a single transaction or scheme whereby credit was granted and funds advanced by the Plaintiff to MCM, and then to CH and MW, purportedly for their acquisition and sale of metal. MCM was interposed as part of the conduit for the Funds to be transferred to CH/MW to finance their purchases, in circumstances when CH and MW knew that the Funds came from the Plaintiff as the ultimate financier, and that the warehouse receipts would be presented to the Plaintiff, for the release of the Funds to be received by CH and MW. It would be against commercial and common sense to segregate the transactions, and to regard the individual transactions separately, ignoring the fact that they were made back-to-back, and known by the parties to be so. The inevitable conclusion from the evidence is that the benefit and Funds received by the Defendants consist of property or funds sourced from and provided by the Plaintiff, to which the Plaintiff can trace and has traced its interest, such that the Defendants can be said to have been enriched at the Plaintiff’s expense. The necessary transactional link can be established, and my finding is that the successive transactions between the multiple Defendants in this case are all sufficiently and causally connected. The substance and effect of these transactions is that the Plaintiff financed the acquisition by CH and MW of the metal which is represented by the warehouse receipts, and it was as a result of the Plaintiff’s financing that the Defendants received the benefit of the Funds transferred to them.

204.  On my finding, ERO, JA and HE were enriched, and had been enriched at the Plaintiff’s expense.

Any defence available to the JC Camp against unjust enrichment?

205.  Having found that the JC Camp had received funds which were sourced from the Plaintiff’s payment, and that they had been enriched at the Plaintiff’s expense, the next issue is whether they can establish a defence of change of position, as alleged.

206.  The JC Camp’s case is they had in bona fide changed their position upon receipt of the ERO, JA and HE Sums. Of the ERO Sum of US$4,395,164.84 received, ERO had utilized US$1.75 million to purchase 1.75 million shares in Dew Point Manufacturing Limited (“Dew Point”); put US$2.65 million on fixed deposit to finance a private placement of shares in a Taiwanese company UBP; and spent CA $48,161.95 to purchase wine from Enotecca Wineries and Resorts Inc. On its part, JA had utilized US$6,999,989 of the JA Sum (of US$7 million) to purchase 5,440,000 shares in UBP. HE utilized US$2,999,989 of the HE Sum (of US$3,263,636.36) to purchase 1,810,000 shares in UBP. According to the JC Camp, UBP was delisted in October 2018, and the UBP shares they acquired had been converted into shares of a Cayman Islands company (“UBP Cayman”).

207.  Although the final pleaded position of JA and HE makes no dispute of the fact that the JA Sum and the HE Sum had been used to acquire the UBP shares, I have been urged by Counsel for the Plaintiff to bear in mind that at the time when these proceedings were first commenced, the Plaintiff had no knowledge as to either the whereabouts of the Funds after they were remitted to the accounts of JA and HE, or that they had been used to acquire the UBP shares. The JC Camp had initially denied that JA and HE had used the Funds remitted to them by MW, claiming instead that the source of the funds for the acquisition of the UBP shares was ZH. It was only after several discovery orders made by the Court that the JC Camp finally accepted and disclosed the manner in which the JA and HE Sums were utilized, and when the UBP shares were actually acquired with the Funds. As Mr Chan submitted, these attempts to hide the manner of use of the Funds and the shares acquired reflect the unreliability of the evidence adduced by JC and his camp, and cast doubts on their credibility.

208.  The defences available to a defendant in a claim of unjust enrichment was explained in the judgment of Au-yeung J in Arrow ECS Norway AS v Sin Cheng Holding (Intl) Co Ltd HCA 239/2016, 12 May 2016:

“13. Victims of a fraud would have a good arguable case against the recipient of funds for money had and received and constructive trust. They may assert a proprietary claim to the extent that their funds can be traced and identified as representing recognizable assets of the recipient, unless the recipient can establish the defence of bona fide purchaser for value without notice: Leonard Koutsomihalis & anor v Aki Enterprises & anor, HCA 2509/2014, 16 June 2015, per Chow J at para 22; Zimmer Sweden AB v KPN Hong Kong Limited & anor HCA 2264/2013, 2 May 2014, per DHCJ Kent Yee at paras 71, 89-94; Cheer Signal Development Limited v Wong Siu Fan & ors HCA 780/2015, 27 April 2015, per Au-yeung J at para 22.

…

29.  The next question is whether, the defence of bona fide purchaser for value without notice applies. Alternatively, in an unjust enrichment claim, the defence of change of position in good faith might be available to a person whose position had so changed that it would be inequitable in all the circumstances to require him to make restitution in whole or in part: Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548, per Lord Goff of Chieveley at 580E-F.”

209.  In Goff & Jones: The Law of Unjust Enrichment (9^th ed), the learned editors explained (at para 27-03) that the defence of change of position generally applies “where the benefit transferred from the claimant to the defendant has been irretrievably lost” so that the courts must choose which of the parties should bear the loss. In such process, the courts must strike a fair balance between the claimant’s interest in restitution and the defendant’s interest in making spending decisions freely, without fear that a claim in unjust enrichment might later invalidate his assumptions about the means at his disposal. The learned editors further observed, at para 27-07:

“Defendants might feel themselves worse off if he (sic) has to repay money they would rather keep, but their disappointment on this score ‘is a hardship which every defendant to a restitution claim has to face, and by itself it is no defence’”.

210.  It is pertinent that in Lipkin Gorman (A Firm) v Karpnale Ltd [1991] 2 AC 548, Lord Goff held that where a defendant has been paid money, the mere fact that he has spent the money, in whole or in part, does not of itself render it inequitable that he should be called upon to repay, “because the expenditure might in any event have been incurred by him in the ordinary course of things”. In Dextra Bank & Trust Co Ltd v Bank of Jamaica [2001] UKPC 50, the point was restated by Lord Goff where he observed that a defendant must have incurred “extraordinary expenditure”. At paras 27-08 to 27-10 of Goff & Jones: The Law of Unjust Enrichment (9^th ed), the learned editors pointed out that the test is whether the defendant had entered a transaction that he would not have entered but for his enrichment, and is a matter of establishing causation, but that even when a causal link can be established between the defendant’s enrichment and his expenditure, there are some types of spending which do not count as a detriment because they do not reduce the defendant’s overall wealth, such as payment of debts, and purchase of assets which remain in the defendant’s hands at the time of the action.

211.  Counsel for the Plaintiff relies on authorities which suggest that transactions entered into by a defendant which can be unwound will not be considered as detriment (cases cited at paras 27-21 of Goff & Jones). In the case of Alpha Wealth Financial Services Pty Ltd v Frankland River Olive Co Ltd (2008) 86 SASR 312, the Australian Court observed that a qualifying change of position must be “legally or practically irreversible or there must be significant difficulties in reversing the change”. The Court also held in K & S Corp Ltd v Sportingbet Australia Pty Ltd (2003) 86 SASR 312 that if the defendant will have a right of recovery against the ultimate fraudster or wrongdoer, then there is no change of position because any expenditure made or loss sustained is reversible.

212.  In Australian Financial Services & Leasing Pty Ltd v Hills Industries Ltd [2014] HCA 14, the High Court of Australia held that “irreversible detriment” should itself be the test to determine whether a defendant’s circumstances have changed to such an extent that he should be entitled to the defence of change of position. In this context, the English court observed in Test Claimants in the FII Litigation v HMRC (No 2)[2014] EWHC 4302 (Ch) that:

“… it may be relevant to consider whether the expenditure or loss relied upon is reversible, and (if so) how easily the defendant could take steps to reverse it... But it would be wrong to elevate this consideration into a general test of irretrievability. Expenditure may well be irretrievable, for example because it is immediately consumed, or for some other reason cannot be recouped from the payee, but that fact alone does not stamp the expenditure as a relevant disenrichment. Amongst other things, it also has to satisfy the causal ‘but for’ test if the defence is to be made out.”

Any change of position?

213.  In relation to the ERO Sum received from MW, the change of position relied upon by ERO is its remittance of a sum of US$1,750,000 out of the US$4,395,164.84 to Canada, for an investment in Dew Point (either by private placement or purchase of shares) in January 2017 (“DP Acquisition”), and a further sum of US$36,130.50 to Enotica Wineries and Resorts Inc for the purchase of red wine.

214.  Mr Chan pointed out that JC’s evidence on the DP Acquisition had been fluid and changing. The initial claim made in his affirmation of June 2017, in opposition to the Plaintiff’s application for a Mareva injunction, was simply that his Canadian lawyer/business partner Richard Coglon had given him “bridging capital” of US$1,750,000 previously, and that he had repaid this sum to Coglon (through ERO) on 29 December 2016 (ie after receipt of the ERO Sum). JC later produced an email from Coglon, whereby Coglon confirmed that he had advanced US$1,750,000 to JC in September 2016, and that in January 2017 JC agreed to repay the advance by way of a private placement of 1,750,000 shares of Dew Point.

215.  In his witness statement made a year later in June 2018, JC claimed instead that the sum of US$1,750,000 was paid to Coglon in December 2016 to purchase 1,750,000 shares in Dew Point, with no further mention of the bridging loan or private placement.

216.  In cross-examination, JC explained that the loan had indeed been made by Cogloan to him for the DP Acquisition, and that the references to private placement and the purchase from Coglon was the one and same thing. According to JC, the discrepancies in the terms used represented a convoluted mechanism for Coglon to secure JC’s repayment of the loan by having the shares subscribed issued to himself first, to be transferred to JC upon his repayment.

217.  Even accepting JC’s evidence as to the use of the money received for the DP Acquisition, I accept the submissions of Mr Chan that the expenditure for the same, and for the purchase of the wine, do not on JC’s evidence amount to a bona fide change of position on the part of ERO. It is not claimed, and the evidence does not show, that the value of either the DP shares obtained or the wine purchased, delivered to ERO, and (on JC’s evidence) consumed or gifted, had been lost. Further, even on JC’s case, it had always been his intention to acquire the shares in Dew Point, to the extent that he took a loan from Coglon to do so despite his shortage of funds, and there is no evidence at all that but for the ERO Sum received from MW, ERO would not have paid for the Dew Point Shares or repaid the loan received from Coglon. Nor is there any suggestion that JC/ERO would not have purchased the wine but for the benefit of the ERO Sum received.

218.  JC’s evidence highlighted the fact that he dealt with business and other transactions involving several billions every year, and that transactions which involve a sum less than US$10 million were regarded by him as “small amounts”, to which he gave small attention and placed little significance. This can be seen from the way in which he had conducted his affairs and made the “mutual advances” and transfers with Bian. It would appear from JC’s evidence that he would have no hesitation in paying US$36,130.50 for the wine, whether or not he had received the ERO Sum.

219.  As for JA and HE, Mr Chan pointed out that it is unclear from their Defence how they had allegedly changed their positions. They claimed in evidence that they had purchased shares in UBP with the money received in their accounts. I accept Mr Chan’s submissions, that there is no suggestion or evidence that the value of the UBP shares acquired has been irretrievably, or in any way, lost. Further, as Mr Chan also pointed out, the remittances made by SWT were made before JA/HE had paid out the sums for the UBP shares, and cannot constitute a change of position.

220.  It is blatantly obvious from the evidence that JC had throughout turned a blind eye to the source of the large remittances he had received from Bian or through his companies. He accepted in evidence that he knew nothing about MW, and was not interested to find out anything about MW or what business it conducted. All he knew was Bian, and JC agreed that he did not care where the money he and his investment holding companies(JA/HE/ERO) received came from, so long as the money was received from Bian. Mr Lin emphasized that as against the JC Camp, the Plaintiff has not pleaded any case of bad faith, or that they had been put on notice that the ERO, JA and HE Sums might have been tainted with fraud. I accept this. However, when balancing the justice and fairness of the case in all the circumstances, and in determining which of the parties should bear the loss (the exercise referred to at para 27-03 of Goff & Jones: The Law of Unjust Enrichment (9^th ed), I cannot ignore the entirety of JC’s evidence and the impression he gave of the manner in which his affairs were conducted, and the expenses incurred.

221.  The claim made by the Plaintiff against the JC Camp is not of knowing receipt or dishonest assistance. It is not necessary to prove that the JC Camp had actual or constructive knowledge of the fraud perpetrated against the Plaintiff. All that is required for the claim of undue enrichment is for the plaintiff to show that the defendant had been unjustly enriched at its expense, and it is then for the defendant to show that because it had changed its position in good faith, it would be inequitable to require it to repay the benefit.

222.  In my judgment, it is clear from all the evidence of the dealings between JC, Bian and their companies that JC had consciously decided and was prepared to take the risks of any consequences that may follow from the transfers of significant amounts from Bian and his companies, simply because Bian was his friend, he was willing to make the advances as favors to Bian, and the mutual advances and transfers between them were convenient to both JC and Bian. I am of the view that JC knew what he was doing and what risks he was running by accepting payments from Bian and his companies without any questions asked, in blind faith, or turning a blind eye to the source and legitimacy of the funds received. It may be true that JC was prepared to do this because of his trust in his friend, and his belief that Bian had a legitimate source for the Funds transferred, but if JC had been prepared to take these risks for his friend, I see nothing unjust to make him bear those precise risks and the consequences which now follow from the fact that the source of Bian’s funds turned out to be improper.

223.  In conclusion, I am not satisfied that ERO, JA and HE have established that there was bona fide change of position on their part which was caused by their receipt of the ERO Sum, the JA Sum and the HE Sum. Their defence of change of position is rejected.

Alleged ministerial receipt

224.  Although the claim of ministerial receipt was made in ERO’s Defence, and briefly mentioned in Counsel’s Closing Submissions, this was never argued or seriously pursued at the hearing.

225.  In its Defence, ERO pleaded the oral loan agreement between Bian and JC made in October 2016, whereby Bian asked JC for bridging capital of RMB3 million, which was transferred by JC through SWT to ZH, as directed by Bian. It was pleaded that on 8 November 2016, Bian repaid the loan with “surplous” US dollars which he claimed to have, by arranging for MW to transfer US$4,395,164.84 (the ERO Sum) to ERO at JC’s direction. It was claimed that ERO had not been unjustly enriched as it had only received the ERO Sum in a ministerial capacity.

226.  There is nothing in the evidence as to the substance of the alleged agency between JC and ERO, whether it was a specific agency in relation to the receipt of the ERO Sum only, or if it was wider in scope. There is however ERO’s pleaded case, and the evidence from JC himself, that he solely owned and controlled ERO, which was a holding company and a corporate vehicle used to facilitate his business in international investments and acquisitions. ERO may have been used to transfer funding to target companies of JC, but on his case, ERO as an investment vehicle was also to hold JC’s business interests and investments, and on JC’s evidence as a whole, it is clear that ERO was treated as JC’s alter ego. By its existence as a holding company, part (if not the entirety) of ERO’s purpose and raison d’etre was to act as the legal or registered owner of investments and funds, albeit for and on behalf of JC, with interests in the property or money held in its name. My understanding of JC’s pleading and my impression from his evidence is that ERO, as his holding and investment company, was intended to have beneficial interest in the investment and assets held, but that ERO’s beneficial interest was equated with JC’s beneficial interest.

227.  Without further and clearer evidence on the terms of ERO’s agency for the mere receipt of the ERO Sum, I do not accept that ERO had only acted in a ministerial role in respect of the receipt of the ERO Sum, and that it was not entitled to use or deal with the ERO Sum, for any purpose or benefit of its own.

Should the restitution claim be excluded as undermining contractual regime?

228.  On behalf of the JC Camp, it was argued that it was not open to the Plaintiff to make any claim of restitution because of the subsisting and continuing contractual relationship between the Plaintiff and MCM, as MCM was contractually bound under the Master Agreement to indemnify the Plaintiff for any loss or damages arising out of any breach of representations, warranties or obligations in the relevant transaction documents.

229.  Reliance was placed on the judgment in Shanghai Tongi Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79, and Pan Ocean Shipping Ltd v Creditcorp Ltd (The Trident Beauty) [1994] 1 WLR 161. I do not agree that these cases can assist the JC Camp, to the extent that it is contended that they are authorities for the proposition that a restitution claim is excluded during the subsistence of a contract.

230.  As Mr Chan pointed out, Shanghai Tongi concerned a claim for restitution based on total failure of consideration, and the discussion from paragraph 87 of the judgment concerned the distinction between cases where the plaintiff makes payment to the defendant pursuant to a subsisting contractual obligation owed by him to the defendant, and cases where the plaintiff makes payment to the defendant pursuant to a contractual obligation owed by the plaintiff to a third party. Ribeiro PJ explained that in relation to the first category, a restitution claim based on total failure of consideration is excluded during the subsistence of the contract, because the underlying principle is that the party claiming failure of consideration must establish that he has no contractual obligation to confer the benefit on the defendant, and the relevant subsisting contract must be ineffective because it is void, or had been discharged. The judgment referred to the passage in Burrows, The Law of Restitution (2^nd ed, 2002), at pp 323-324:

“It is by this principle that an undermining of contract of restitution is avoided and restitution is made subservient to contract. It is only when the parties’ own allocation of risk is ineffective that the imposed standards set by the law of restitution can step in.”

231.  Ribeiro PJ went on to reject Pan Ocean Shipping Ltd v Creditcorp Ltd as authority for the proposition that the right to restitution is equally excluded in the cases where the plaintiff confers a benefit on the defendant pursuant to a contractual obligation owed by the plaintiff to a third party. His Lordship highlighted that in Pan Ocean, the defendant (and third party to the contract made between the plaintiff and the owner of vessel) was on the facts an assignee of the rights of the owner, and the plaintiff had notice of the assignment. In such circumstances, the plaintiff in Pan Ocean was held to have been in the same position as against the owner under the contract, as if there had been no assignment, and hence cannot mount a restitution claim which would cut across the agreed contractual regime.

232.  At paragraph 100 of the judgment, Ribeiro PJ observed and concluded:

“One can easily understand the need to prevent subversion of contracts subsisting between the person conferring and the person receiving the benefit under the contract. But on what, if any, grounds should a restitution claim be excluded against an unjustly enriched recipient who is not party to any contract pursuant to which the benefit was conferred?”

233.  These observations are applicable to the facts of the present case. The only contract made by the Plaintiff was the one made with MCM. There is no contract between the Plaintiff and any company within the JC Camp. There is accordingly no basis for the Court to exclude the Plaintiff’s restitution claim against ERO, JA and HE, as there is no contractual mechanism agreed between the Plaintiff and these companies which can be disturbed.

Disposition

234.  As against CH, MW, ZH and ZT, the Plaintiff only maintained at trial its claim for a personal remedy for restitution of the Funds which each of these Defendants had received: namely the sum of US$117,402,248.50 against CH; US$167,404,683.80 against MW; US$3,597,759.85 and RMB 18,760,430 against ZH; and US$6,670,676.57 and RMB 43,245,442.49 against ZT. Mr Chan pointed out that the Plaintiff’s claim for damages in conspiracy would include the Funds paid out by the Plaintiff, the costs of investigating the fraud and the Plaintiff’s legal expenses, which would exceed the amount of restitution for each party.

235.  I have made findings in favour of the Plaintiff on its claims of conspiracy made against CH, MW and Wong, and I therefore grant the relief for damages sought against them, in the sum of US$293,625,392.59.

236.  As against the JC Camp, I grant orders in terms of those sought in the Re-Amended Statement of Claim, for restitution of the respective ERO Sum, the JA Sum and the HE Sum, with the declarations that they are held as constructive trustees, and for the necessary account.

237.  The Plaintiff’s claims allowed include interest, at 1% above the HSBC best lending rate from the date of the Writ until judgment, and thereafter at judgment rate until payment.

238.  The claims against Ko and Siu are dismissed, with costs against the Plaintiff.

239.  Costs orders nisi are also made for ERO, CH, MW, Wong, ZH, ZT, JA and HE to pay the Plaintiff’s costs of the main action, with Certificate for Counsel, which order shall be made absolute unless application for variation is made within 14 days.

Schedule 2 & 3