CHINA MEDICAL TECHNOLOGIES, INC (IN LIQUIDATION) AND OTHERS v. WU XIAODONG AND OTHERS

HCA 3391/2016
& HCA 1417/2013

[2022] HKCFI 3237

HCA 3391/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3391 OF 2016

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HCA 1417/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1417 OF 2013

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(Consolidated by Order of Master Chow dated the 23^rd day of July 2018)

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JUDGMENT

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Introduction

1.  There is before this court an application by summons filed on 24 September 2021 by the 2^nd Defendant (“Mr Tsang”) for security for costs against the 1^st and 2^nd Plaintiffs under RHC O 23 r 1 and section 905 Companies Ordinance, Cap 622 (“CO”).

2.  Mr Tsang himself did not file any evidence in support of his application. Instead, the application is supported by his solicitor Mr Tang Shu Pui Simon (“Tang”) in his 2^nd and 4^th affidavits (“Tang 2” and “Tang 4” respectively). This is unusual since one of the main issues of the application is about the merits of the Plaintiffs’ claim and Mr Tsang’s defence and there is no suggestion that Mr Tsang is unable to make affirmation(s) or swear affidavit(s) to confirm his version of the facts, especially those which purportedly in reply to the summary of the Plaintiffs’ evidence against him in the 18^th affidavit of Cosimo Borrelli (“Borrelli 18”).[1]

3.  In Mr Tsang’s witness statement dated 16 June 2021, which is referred to in Tang 4, again curiously, Mr Tsang did not state his address when it is such a basic requirement. The only logical deduction from the above is that Mr Tsang does not wish to disclose his whereabouts and his unwillingness to state on oath the facts in support of his defence. All these will have a bearing when this court examines the merits of the case.

4.  The 1^st and 2^nd Plaintiffs have filed Borrelli 18 in opposition.

5.  There is no dispute that the 1^st and 2^nd Plaintiffs were incorporated in the Cayman Islands and the BVI and therefore come within RHC O 23 r 1(a). Further, the 1^st and 2^nd Plaintiffs, being insolvent companies, are likely to be unable to pay Mr Tsang’s costs from their own pockets and thus come within s 905(1). The only issue is whether that discretion should be exercised in favour of Mr Tsang, and if so, in what amount.

Background

6.  The 1^st Plaintiff, China Medical Technologies, Inc, was incorporated in the Cayman Islands in July 2004. Its shares were listed on NASDAQ in August 2005 and were delisted in February 2012. It was the holding company of a group whose principal business was said to be developing, manufacturing and marketing advanced surgical and medical equipment in the PRC. The 1^st Plaintiff was grossly insolvent with provable claims of over US$400 million. In July 2012, it was wound up by the Grand Court of the Cayman Islands. On 1 September 2014, Harris J made an ancillary winding up Order against it in HCCW 435 of 2012.

7.  The 2^nd Plaintiff, CMED Technologies Ltd, is the 1^st Plaintiff’s wholly‑owned subsidiary.

8.  The 3^rd Plaintiffs were appointed as the provisional liquidators of the 1^st Plaintiff by Order of Harris J in November 2012. On 5 February 2015, they became the Liquidators of the 1^st Plaintiff (“Liquidators”).

9.  The 1^st Defendant Mr Wu was at all material times the founder, Chairman, CEO, director and the largest shareholder of the 1^st Plaintiff. From January 2006 to July 2012, he was a director of the 2^nd Plaintiff.

10.  Mr Tsang was the 1^st Plaintiff’s director from June 2007 to December 2011 as well as its CFO from January 2005 to January 2012. He was also a director of the 2^nd Plaintiff from January 2006 to December 2011. He was the second most senior executive of the 1^st Plaintiff after Mr Wu. Mr Tsang is in contempt of a High Court Order that he should attend Court in person for examination, has absconded from Hong Kong and is subject to an outstanding warrant for his arrest. Mr Tsang is also said to be a fugitive from the United States criminal justice system.

11.  The Plaintiffs claim that the former senior management of the 1^st and 2^nd Plaintiffs, assisted by their associates, perpetrated, participated in and/or benefited from the fraudulent misappropriation of US$521.8 million in cash (“Fraud”) through purported acquisitions (“Acquisitions”) from the 7^th Defendant, Supreme Well Investments Limited (“Supreme Well”), and its subsidiaries, of the following alleged medical technologies:

(1)  FISH, acquired pursuant to a contract dated 6 February 2007 for US$176.8 million; and

(2)  surface plasma resonance technology (“SPR”) acquired pursuant to a contract dated on or around 5 October 2008 for US$345 million.

12.  It is the Plaintiffs’ case that:

(1)  the FISH and SPR technologies were worthless in that they were not new technologies;

(2)  Supreme Well, the counter‑party to the Acquisitions, was in fact controlled by Mr Tsang, who was the sole authorised signatory of its bank accounts with Bank of China (Hong Kong) Limited (“BOC”) and The Bank of East Asia, Limited (“BEA”) into which US$355.5 million of the consideration paid by the 1^st and 2^nd Plaintiffs were deposited. The balance was paid to Supreme Well by other means;

(3)  Mr Tsang authorised the transfer of funds from Supreme Well to the bank accounts of other persons and entities (“Supreme Well Payees”) all of whom were associated with or controlled by Mr Wu, Mr Tsang and/or their associates; and

(4)  the Supreme Well Payees subsequently transferred all or some of the funds to the bank accounts of other persons and entities (“Further Supreme Well Payees”), some of whom were associated with or controlled by Mr Wu, Mr Tsang and/or their associates, and thereafter to further recipients.

13.  Mr Wu orchestrated, participated and conspired in the Fraud. The Plaintiffs claim US$524.6 million against Mr Wu:

(1)  US$521.8 million misappropriated from the 1^st and 2^nd Plaintiffs by reason of, inter alia, his breaches of duty and trust and unlawful conspiracy; and

(2)  US$2.8 million, being salary and bonuses paid to him from January 2006.

14.  Mr Tsang acted on both sides of the Acquisitions and directed payment of the consideration received by Supreme Well to the Supreme Well Payees. He received US$7.47 million directly and over US$379 million through entities controlled by him. The Plaintiffs claim US$524.7 million against Mr Tsang:

(1)  US$521.8 million misappropriated from the 1^st and 2^nd Plaintiffs by reason of, inter alia, his breaches of duty and trust and unlawful conspiracy; and

(2)  US$2.9 million, being salary and bonuses paid to him from January 2006.

15.  In this court’s Judgment in these proceedings dated 22 May 2019 where this court set aside a worldwide Mareva injunction granted against inter alia Mr Tsang, this court said at para 76:

“76. Mr Tsang is, in addition to Mr Wu, said to be the main perpetrator of the Fraud. The pleaded causes of action against him include fraudulent breach of fiduciary duty/trust, want of authority, conspiracy to defraud and knowing receipt. In his skeleton argument, there is no serious attempt to contest the good arguable case against him. Instead, Mr Tsang ‘is content to leave the matter in the Court’s hands’ for the limited purpose of this application. On the materials available, this court is satisfied that a good arguable case based on fraud/dishonesty has been made out.”

16.  In CACV 505 of 2019, an appeal from this court’s said Judgment dated 22 May 2019, the Court of Appeal (Hon Au and Chow JJA) had the following observations to make in relation to Mr Tsang at paras 40, 44 and 48:

“40. In so far as Mr Tsang is concerned, he was, on the Plaintiffs’ case, a prime mover behind the Fraud:

(1) He acted on both sides of the Acquisitions.

(2) Supreme Well was his agent, nominee, trustee, façade or alter ego, and was used by him for the purpose of perpetrating the Fraud.

(3) He directly received at least US$7.47 million of funds allegedly stolen from the Company/CMED.

(4) He controlled Supreme Well (the 7^th Defendant), East Hope International Limited (the 8^th Defendant), Cheer Link Technology Investment Limited (the 9^th Defendant), Innovative (the 10^th Defendant), Worldpro Investments Limited (the 14^th Defendant), Long Chart (the 15^th Defendant), and Global Flash Limited (the 23^rd Defendant) (collectively ‘the Tsang Entitles’), which received over US$379.32m of funds allegedly stolen from the Company/CMED.

(5) He directed payment of the consideration received by Supreme Well to the Supreme Well Payees.

(6) In Re China Medical Technologies, Inc (HCCW 435/2012, unreported, 28 August 2014), in the context of an application to re-open the trial of a petition to wind up the Company in Hong Kong based on new evidence, Harris J had the following to say about Mr Tsang:

‘[6] … in the light of the new evidence it was quite clear that Mr. Tsang’s evidence was self‑serving, could not be relied on and that Mr. Tsang, as opposed to his lawyers, was intent not on assisting the Court determine the jurisdiction issue properly, but [on] avoiding his conduct being investigated.

[10] The transaction between the Company and Supreme Well and Molecular was, according to public announcements made by the Company at the time, an arm’s length transaction. However, the new documents obtained by the liquidators show that the 2 accounts into which US$355,000,000 was deposited with Bank of China Hong Kong and the Bank of East Asia respectively, had as their sole authorised signatory Mr. Tsang. The shareholder of the account opening documents is a Mr. Chen Zhong, who was allegedly the developer of the technology sold to the Company. However, through a series of transfers made initially out of the Supreme Well accounts to various other accounts the large majority of the proceeds, US$294,500,000, ended up in accounts controlled by Mr. Tsang and the Company’s former Chairman and Chief Executive Officer Mr. Wu…

[14] There is now reason to think that a very large part of the Company’s assets has been misappropriated through a scheme operated in Hong Kong involving various persons who themselves are normally resident here (Mr. Tsang, Mr. Kwan and Mr. Chong Wing Hip) and using bank accounts in Hong Kong which were operated personally by Mr. Tsang in Hong Kong.

[16] In the present case the evidence that has come to light since July of last year makes it clear there are strong prima facie grounds for suspecting that a very significant part of the Company’s assets have been misappropriated in Hong Kong using a number of Hong Kong bank accounts operated by persons in Hong Kong …’

44. The Judge was satisfied that the Plaintiffs had established a ‘good arguable case’ of fraud against the Opposing Defendants (see §§76-88 of the Main Judgment). Given this finding, as well as the nature of the Fraud itself, we consider that there was clearly a solid basis for concluding a risk of dissipation of assets by the Opposing Defendants,…

48. In the present case, the Fraud is in substance a massive scheme of wrongful misappropriation and dissipation of the Company/CMED’s assets through the extraction of very substantial funds (in the region of US$524.6m) belonging to the Company/CMED purportedly as purchase monies for worthless assets sold by Supreme Well, and the siphoning off of the funds to a large number of persons (ie Supreme Well, the Supreme Well Payees and the Further Supreme Well Payees) using more than 50 bank accounts across at least 5 jurisdictions. Viewed in this light, it seems to us that the nature of the Fraud itself ought to be regarded as being highly relevant to a proper assessment of the risk of dissipation…” (emphasis added)

Deliberation

17.  The applicable principles governing security for costs applications are well-established.

18.  As far as RHC O 23 r 1 is concerned, the principles are summarized in Hong Kong Civil Procedure 2022 at para 23/3/3.

19.  RHC O 23 r 1(1) provides that the court may order security for costs “if, having regard to all the circumstances of the case, the court thinks it just to do so”. These words have the effect of conferring upon the court a real discretion, and indeed the court is bound, by virtue thereof, to consider the circumstances of each case, and in the light thereof to determine whether and to what extent or for what amount a plaintiff may be ordered to provide security for costs. It is not an inflexible or rigid rule that a plaintiff resident abroad should provide security for costs. The court has to strike a balance between what would be too oppressive to the plaintiff and what would give the defendant a measure of security.

20.  A major matter for consideration is the likelihood of the plaintiff succeeding. In exercising its discretion, the court may take into account the merits of the plaintiff ’s claim. If the case of the plaintiff is genuine and strong, no order for security would be granted. On the other hand, an order for security would usually be granted if the plaintiff cannot clearly demonstrate that it has a high degree of probability of success at trial.

21.  This is not to say that every application for security for costs should be made the occasion for a detailed examination of the merits of the case. It is not the function of the court, when faced with an application for security for costs, to make a “preliminary run” at deciding the ultimate success or failure of the claim.

22.  As for s 905, the court’s jurisdiction is engaged once it is established that a plaintiff company will be unable to meet an adverse costs order. The court then has a discretion under s 905, just as under RHC O 23 r 1, whether to order security for costs having regard to all the circumstances. Among the circumstances which the court might take into account include inter alia whether the plaintiff has a reasonably good prospect of success, whether the application for security is being used oppressively eg so as to stifle a genuine claim and whether the plaintiff’s lack of means has been brought about by any conduct of the defendant: Hong Kong Civil Procedure 2022 para 23/3/14 at p 661.

23.  Mr Manzoni SC’s primary submission in opposing security for costs is that the justice of this case demands that no order of security should be made because to do so would be to require the victims of a theft to pay security in order to protect the interests of the thief. This submission must be looked at in light of Mr Manzoni SC’s next submission that the 1^st and 2^nd Plaintiffs’ evidence that Mr Tsang breached his fiduciary duties in respect of the FISH and SPR transactions and his involvement in the theft of over US$521.8 million is overwhelming.

24.  A brief summary of the evidence against Mr Tsang is set out at para 14 of Borrelli 18 as follows:

“14.1. The Liquidators have obtained the banking documents for Supreme Well’s bank accounts at Bank of China and Bank of East Asia, which show that Mr Tsang was the sole authorised signatory of these accounts (Borrelli WS at [30.1]). There was no legitimate reason for Mr Tsang to be the authorised signatory on Supreme Well’s bank accounts. Indeed, Mr Tsang does not dispute that he was the account signatory.

14.2. The individuals who were recorded in company documents as the ultimate shareholders of Supreme Well have all confirmed that they knew nothing of the Supreme Well Group, that their signatures on company documents were forged, and that their ID documents were used without their knowledge (Borrelli WS at [50]). Accordingly, the Supreme Well Group had been set up fraudulently and in a manner that obscured the true ownership and control of Supreme Well. A witness statement has been provided by Kwan Po Ming, who was the accountant who filed the documents to set up and maintain companies involved in the Theft (‘Kwan WS’). He confirms that it was Mr Tsang who gave him the ID documents and who obtained the signatures of these individuals (Kwan WS at [20]-[22]).

14.3. Mr Tsang attended all Board meetings at which the FISH and SPR transactions were discussed and was one of the individuals who proposed the FISH and SPR transactions to the Board (Borrelli WS at Annexure 12 at [13]). Witness statements have been provided by non-executive directors (‘Crum WS’ and ‘Capener WS’) which confirm that Mr Tsang never disclosed his involvement in Supreme Well to the Board.

14.4. All of the payments to Supreme Well for the FISH and SPR transactions in Hong Kong were made by Mr Tsang by way of cashier’s order (55 in total), often splitting a single payment into smaller cashier’s orders. There was no legitimate commercial reason for effecting transfers in this unusual manner. The only possible purpose for Mr Tsang to make payments in this manner was an attempt to conceal the nature and purpose of the payments, including in an attempt to avoid red flags for money laundering regulations (Borrelli WS at [31.2]).

14.5. The bank account transaction documents disclose that Mr Tsang was also the primary individual who laundered the Stolen Funds, having executed over 140 of the transactions by which the Stolen Funds were laundered through numerous companies involved in the Theft (Borrelli WS at [66]).

14.6. Mr Kwan also confirms that Mr Tsang provided all instructions and paid all invoices in respect of a number of the companies used in the laundering of the Stolen Funds, including East Hope International Ltd (‘East Hope’) and Cheer Link International Ltd (‘Cheer Link’) (Kwan WS at [37]-[39]). The banking documents of these companies confirm that Mr Tsang was an account signatory on these accounts (Borrelli WS at Annexure 18 at [5.3] and Annexure 19 at [5.3]).

14.7. In addition to having laundered hundreds of millions of US dollars through shell corporations beyond the reach of the Plaintiffs, the banking documents reveal that Mr Tsang received in his own name at least US$7.61 million in cash or as funds paid directly into his own personal bank accounts (see Borrelli WS at Annexure 12 and funds flow chart at Tab 1).

14.8. On 20 March 2017, following investigations by the Federal Bureau of Investigation and the United States District Attorney’s office for the Eastern District of New York, Mr Tsang, along with Mr Wu, was indicted on three counts of criminal charges in the criminal division of the United States District Court, Eastern District of New York. The charges relate to the same conduct as is alleged in this case. A copy of the indictment is at Tab 2. Mr Tsang tries to undermine the importance of the US indictment on the basis that the charges are only allegations (Tang 2 at [24]), however this ignores the fact that the indictment was issued following a hearing before a Grand Jury (Indictment at page 1). Accordingly, there has been a finding that there is sufficient evidence obtained by US authorities for Mr Tsang to stand trial if he can be extradited to the US.” (emphasis added)

25.  Mr Borrelli went on to say at para 15 that the above summary demonstrates that the Plaintiffs have substantial documentary and witness evidence that establishes Mr Tsang’s primary role in the Theft. There is no credible alternative explanation for this evidence except that the Theft was conducted by Mr Tsang. In this regard, it is important to note that Mr Alder, very properly, does not dispute the fund flow Diagrams concerning funds received by Mr Tsang and East Hope which have been annexed to Mr Borrelli’s witness statement. The 2 annexures show that the net amount received by Mr Tsang and East Hope International Ltd (“East Hope”) was US$7.61 million and US$231.5 million respectively which originated from the 1^st Plaintiff’s bank accounts. In respect of East Hope’s bank accounts, Mr Tsang and Mr Wu were authorised signatories. Mr Alder, also very properly, does not dispute that Mr Tsang did not disclose to the 1^st and 2^nd Plaintiffs his receipt of the US$7.61 million.

26.  This is not the occasion for a detailed examination of the merits of the case and this court is not going to conduct a mini-trial or to make a “preliminary run” at deciding the ultimate success or failure of the claim. Indeed, it is quite impossible to conduct a mini-trial or to make a “preliminary run” given the voluminous evidence (from multiple independent sources) relied upon by the Plaintiffs in support of their case against Mr Tsang. But this does not mean that the court will simply ignore the merits of the case altogether when the terms of RHC O 23 r (1) and s 905 CO mandate the Court to have regard to all the circumstances of the case and decide whether it is just to order security for costs. Hence, this court is entitled, in the exercise of its discretion, to take into account the merits of the Plaintiffs’ claim. In so doing, this court will concentrate on the evidence filed by the parties in relation to this application.

27.  Now that this court has set out a summary from Borrelli 18 of the evidence against Mr Tsang, this court will next consider Tang 4 in reply. At paras 6 - 10 of Tang 4, Tang says this:

“ Plaintiffs’ primary ground based on merits of their case to refuse to provide security

6. The Plaintiffs assert in Borrelli 18 at §7 that they have a strong claim against Mr. Tsang with a high probability of success and overwhelming evidence which are simply based on their selected evidence and allegations at §§14.1-14.8 of Borrelli 18 and their disputes and criticisms on selected facts from Mr. Tsang’s Amended Defence and Witness Statement at §§16-20 of Borrelli 18.

7. The Plaintiffs’ assertion of strong claim against Mr. Tsang is misconceived when proper consideration has been taken on facts from Mr. Tsang’s Amended Defence at §§3-76 and my 2^nd Affidavit at §§9-20.

8. The Plaintiffs’ assertion is further undermined when they have to rely on selected statements of Mr. Borrelli’s witness statement [Borrelli 18 at §§12, 14.1-14.7], Mr. Crum’s witness statement [Borrelli 18 at §14.3], Mr. Capener’s witness statement [Borrelli 18 at §14.3] and Mr. Kwan’s witness statement [Borrelli 18 at §§14.2 and 14.6] to support their alleged strong claim with a high probability of success and overwhelming evidence.

9. Pursuant to rules 1 and 2A(6) of Order 38 of the Rules of the High Court (Cap. 4A), the Plaintiffs must call their witnesses at trial to be examined orally to prove the facts contained in their witness statements. It is uncertain whether all the Plaintiffs’ witnesses will be available to attend before this Court to give oral evidence at trial. If any of the Plaintiffs’ witnesses will not be available to give oral evidence at trial, the witness statement of such unavailable witness will be disregarded by this Court and no other party may put such witness statement in evidence at trial. As such, it is premature for the Plaintiffs to rely on these witness statements to assert their alleged ‘strong’ claim or to demonstrate their alleged ‘overwhelming’ evidence when these witness statements have not been admitted by this Court as evidence. It is also premature for the Plaintiffs to reject Mr. Tsang’s witness statement before his cross-examination.

10. Based on the above and my 2^nd Affidavit, the Plaintiffs’ claims against Mr. Tsang is far from their asserted strong claims. Despite using tactical characterization of ‘Theft’ and ‘Stolen Funds’ repeatedly in Borrelli 18, the Plaintiffs’ claims are obviously complicated with substantial disputes of facts by Mr. Tsang in these consolidated proceedings [My 2^nd Affidavit at §§9-20]. As stated at §§12 and 20 of my 2^nd Affidavit, these disputes of facts should only be resolved at trial by the cross-examination of witnesses in these consolidated proceedings.”

28.  It would appear from paras 6 and 8 of Tang 4 that Mr Tsang, through Tang, is complaining that the Plaintiffs are simply relying their “selected” paragraphs of Borrelli 18 and the statements of 3 independent witnesses for the Plaintiffs, as well as his criticism on the Plaintiffs’ choice of “selected facts” from Mr Tsang’s Amended Defence and witness statement. But Mr Tsang fails to explain how the “unselected” parts of the Amended Defence or evidence might answer or “neutralize” the Plaintiffs’ overwhelming and compelling evidence supporting their claims. In this court’s view, if the “unselected” part of the pleadings or evidence can answer or “neutralize” the Plaintiffs’ evidence supporting their claims, Mr Tsang would have instructed Tang to say so, together with a proper explanation as to why that is so.

29.  At para 7 of Tang 4, Tang simply made a bare assertion that the Plaintiffs’ assertion of strong claim against Mr Tsang is misconceived when proper consideration has been taken on the facts from Mr Tsang’s Amended Defence at paras 3-76 and Tang 2 at 9-20. Tang did not even bother to identify which paras of Mr Tsang’s Amended Defence and Tang 2 are able to render the Plaintiffs’ claim misconceived. This is highly unsatisfactory as it amounts to telling the Court either to take Mr Tsang’s words at face value alternatively to look at everything and decide for itself which paras of Mr Tsang’s Amended Defence and Tang 2 can explain why the Plaintiffs’ claims are misconceived.

30.  At para 9 of Tang 4, Tang makes the point that a finding of a high probability of success would be premature because some of the Plaintiffs’ witnesses may not turn up at trial, and Mr Tsang has not yet been cross examined and his witness statement should not be rejected. This argument is a red herring since in every application for security for costs, the trial has yet to come up so it cannot be absolutely certain whether the Plaintiffs’ witnesses would or would not turn up at trial and at that point, Mr Tsang obviously has not been cross-examined, if he does turn up at trial. If Mr Tsang’s argument is sound, then the court will never be able form a view on the merits and all resistance to an application based on the Plaintiffs’ high probabilities of success must fail. The court’s task, as I see it, is to examine the merits of the case based on the evidence filed in support/opposition of the application.

31.  At paras 16 - 20 of Borrelli 18, Mr Borrelli says Mr Tsang’s purported explanations in his witness statement are internally inconsistent, inconsistent with the contemporaneous documents, inconsistent with the accounts of the other defendants and witnesses, and/or are inherently implausible. In particular, Mr Borrelli points out inter alia that, on Mr Tsang’s case, these FISH and SPR transactions were at arm’s length. If that were so, there was no legitimate commercial reason why the 1^st Plaintiff’s money should have gone to him or Mr Wu. However, Mr Tsang accepts that he and Mr Wu received such money: see Mr Tsang’s witness statement at [107].

32.  Mr Tsang’s explanation for receiving the Stolen Funds is that the payments to him related to monetary rewards for respective services to East Hope and Mr Wu: see Mr Tsang’s witness statement at [107]. Mr Manzoni SC submits and this court agrees that this is obviously an insufficient and incredible explanation, particularly given the serious allegations against him and his role as CFO and director of a publicly listed company at the material time. Mr Borrelli then makes the point that the absence of any legitimate reason for Mr Tsang and Mr Wu to be the recipients of millions of US dollars from a purportedly arm’s length transaction demonstrates that Mr Tsang has no credible defence to this claim.

33.  Tang has simply failed to respond substantively to paras 16-20 of Borrelli 18 in his Tang 4.

34.  In Mr Alder’s Skeleton and Reply Skeleton, he has made some efforts in responding to Borrelli 18 in Annex A of his Skeleton. Having considered those points in “rebuttal” of the Plaintiffs’ claims, this court does not find them sufficient to undermine the Plaintiffs’ claims in any substantial sense.

35.  For instance, in response to para 14.1 of Borrelli 18, Mr Alder’s rebuttal was that fund transfers from Supreme Well to the bank accounts of other companies such as East Hope[2] were commercial transactions between them instead of alleged money laundering. But that still does not answer the point that there was no legitimate commercial reason for Mr Tsang to act as the sole bank signatory of Supreme Well’s accounts with BOC and BEA.

36.  According to Mr Tsang’s witness statement at para 28, the so-called reason was that Mr Tsang agreed to act as the sole bank signatory for Supreme Well at the request of Mr Wu which in turn was at the request of the 3^rd Defendant in this case viz Dr Chen Zheng. Dr Chen was said to consider Mr Tsang an appropriate, trustworthy and helpful person as he was unconnected to Dr Chen and could be entrusted with substantial amounts of money in order for Dr Chen to minimize US tax. Mr Tsang also says apart from acting as bank signatory under the instructions of a Mr Li Hongzeng, apparently Supreme Well’s general manager, to operate the accounts, he did not take part in any business/management decisions of Supreme Well Group. In fact, according to Mr Alder’s Annex A, Mr Tsang had no other involvement in the Supreme Well Group. In this court’s view, it is curious to say the least why Dr Chen would entrust substantial amounts of money to someone who was unconnected to him but did not give him a role, such as a full-time or part-time employee or a consultant, in the Supreme Well Group when Mr Tsang was such a trustworthy and helpful person.

37.  Take another example. In response to para 14.4 of Borrelli 18, Mr Alder’s rebuttal is that cashier orders were legitimate and all were payable to Supreme Well. That really does not answer the question why Mr Tsang did not use some more conventional and convenient method of payment to Supreme Well such as bank transfers since both the 1^st Plaintiff and Supreme Well had accounts with BOC.

38.  Importantly, the Plaintiffs’ claims are in fact quite simple ie Mr Tsang breached his fiduciary duties by causing the 1^st and 2^nd Plaintiffs to enter into the FISH and SPR Transactions[3]. The claims are supported by evidence from multiple independent sources and documents obtained from inter alia the banks in question. On the other hand, Mr Tsang’s “defence” depends on the Court’s acceptance of the explanation provided by himself, not on oath, as justification for the transfer of funds summarised in the fund flow diagrams which Mr Alder does not dispute.

39.  Further, the Plaintiffs’ claims have been examined over the years by Harris J in HCCW 435/2012 and this court in the present proceedings concerning the Mareva application. In the Mareva application before this court, Mr Tsang did not even bother to go on oath to challenge the Plaintiffs’ claim on the merits. Indeed, he did not go on oath at all to oppose the continuation of the Mareva injunction - his main affirmation in opposition was made by a partner of Messrs PC Woo & Co viz George Sit. Instead he simply conceded there was a good arguable case for the purpose of the Mareva application.

40.  In the hearing before Hon Au and Chow JJA in the present proceedings, while the good arguable case requirement was not an issue in the appeal, it is obvious from the Judgment that the learned Justices had examined and accepted the nature of the Fraud relied upon by the Plaintiffs which led to their decision that there was a real risk of dissipation of assets.

41.  The Judgment of Harris J in HCCW 435/2012 quoted above, especially [6] and [14] are extremely damning on Mr Tsang’s integrity and credibility.

42.  To conclude, looking at the matter in the round, on the available evidence filed in this application, this court is of the view that the case of the Plaintiffs is genuine and strong. If so, there is nothing untoward with Mr Manzoni SC’s submission that the 1^st and 2^nd Plaintiffs’ impecuniosity is a direct cause of Mr Tsang’s wrongdoing and the justice of this case demands that no order of security should be made because to do so would be to require the victims of a theft to pay security in order to protect the interests of the thief.

43.  Lastly, Mr Tsang remains in contempt of an order of the High Court of Hong Kong dated 15 September 2014 that he should attend before a Master in person for a section 221 examination, has absconded from Hong Kong, and a warrant for his arrest remains outstanding. He is also a fugitive from the United States criminal justice system, having been indicted for offences related to the subject matter of these proceedings, by the criminal division of the United States District Court for the Eastern District of New York on 20 March 2017: see Amended Statement of Claim at para 41.6. In Mr Tsang’s Amended Defence at para 95, his response is that he did not return to Hong Kong with justifiable reasons including his concerns of potential extradition to US from Hong Kong and had offered an alternative solution to the Liquidators to conduct the examination via video link which was unreasonably rejected by the Liquidators. In fact, examination by video link was rejected by Harris J, hence the warrant of his arrest.

44.  Mr Manzoni SC strongly relies on the fact that Mr Tsang is currently in contempt of an order of the Court, and there is an extant warrant for his arrest to appear before the Court and answer questions about his conduct in respect of the Theft. Mr Tsang is also wanted in the US pursuant to a Grand Jury Indictment in respect of the Theft. Mr Tsang’s behavior is another factor which this court has taken into account as militating against an Order for security for costs. Importantly, Mr Tsang has failed to come back to Hong Kong to purge his contempt. It is therefore not unreasonable to think that he might not come back to Hong Kong at all to testify at the trial, in which case any defence he has put up in his Amended Defence would not be supported by his witness statement.

Disposition and costs order nisi

45.  Mr Tsang’s summons for security for costs is hereby dismissed.

46.  There shall be an order nisi that costs of and occasioned by the summons be to the Plaintiffs, to be taxed if not agreed, and paid by Mr Tsang forthwith, certificate for senior counsel.