LIU CHUNG YAN v. MAK TSZ CHING ENOCH AND OTHERS

HCA 1508/2021

[2023] HKCFI 2577

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1508 OF 2021

_________________

________________

________________

JUDGMENT

________________

1.  The Plaintiff (“P”) commenced this action on 4 October 2021 against the 1^st, 2^nd and 3^rd Defendants (respectively “D1”, “D2” and “D3”) to recover a total sum of HK$3,841,841 based on fraud, conspiracy to defraud, breach of fiduciary duties, unjust enrichment and a number of other causes of actions.

2.  D1 and D2 filed their respective Defence in person on the same day on 15 February 2022. Thereafter, they no longer participated in this action. D3 did not file an Acknowledgement of Service in time or at all.

3.  D1 and D2 both defaulted the unless orders of the Master in similar terms made respectively on 24 October 2022 and 6 December 2022 by failing altogether to file and serve their respective Lists of Document and witness statements. They were thereby debarred from doing so.

4.  On 15 August 2023, upon abandoning her claim for all other reliefs against D3, P obtained a default judgment against D3 in respect of Transfer 5 (defined below) in the sum of HK$517,391.

5.  This trial therefore concerns only P’s claim against D1 and D2 and, as confirmed by Mr Poon at trial, only in respect of P’s claim over Transfers 1 to 4 (defined below) and Transfer 6 (defined below).

6.  Not surprisingly, D1 and D2 did not appear at trial to contest. I was satisfied that they had had notice of the trial dates and the trial therefore proceeded in their absence.

The 6 Transfers

7.  It is convenient for me to first set out the 6 bank transfers made by P totalling to the said sum claimed of HK$3,841,841. Their details are:

(1)  On 25 January 2018, P, via her sister-in-law’s HSBC account no 559-339130-833, transferred HK$1,000,000 to D2’s HSBC account number no 591-8-018887 (“Transfer 1” and “D2’s HSBC Account” respectively);

(2)  On 22 February 2018, P transferred HK$300,000 from her HSBC account no 828-335604-833 (“P’s HSBC Account”) to D2’s HSBC Account (“Transfer 2”);

(3)  On 12 March 2018, P transferred HK$700,000 from P’s HSBC Account to D2’s HSBC Account (“Transfer 3”);

(4)  On 15 March 2018, P transferred HK$324,450 from P’s HSBC Account to D2’s HSBC Account (“Transfer 4”);

(5)  On 20 March 2018, P transferred HK$517,391 from P’s HSBC Account to D3’s HSBC account no 780-238150-888 (“Transfer 5” and “D3’s HSBC Account” respectively); and

(6)  On 17 May 2018, P transferred online HK$1,000,000 from her Citibank account no 0046112421 to the joint bank account of D1 and D2 in Citibank no 0048490687 (“Transfer 6” and “D1D2’s Citibank Joint Account” respectively).

Principles relevant to a claim based on fraud, conspiracy and unjust enrichment respectively

8.  In her Closing Submissions, Mr Poon, counsel for P, expressly indicated that instead of pursuing the numerous pleaded causes of action and their various permutations according to which defendant and which particular Transfer, P would give her claim some focus by abandoning the others and pursue only her claim based on fraud, unjust enrichment and debt. I need therefore only set out the principles relating to these causes of action.

9.  To sustain a claim based on fraud, a plaintiff must prove the following elements:

“1. There must be a representation of fact made by words or conduct.

2. The representation must be made with knowledge that it is or may be false. It must be wilfully false, or at least made in the absence of any genuine belief that it is true.

3. The representation must be made with the intention that it should be acted upon by the claimant, or by a class of persons which includes the claimant, in the manner which resulted in damage to him.

4. It must be proved that the claimant has acted upon the false statement.

5. It must be proved that the claimant suffered damage by so doing.”

(per Cheung JA at §15 in Haifa International Finance Co Ltd v Concord Strategic Investments Ltd [2009] 4 HKLRD 29)

10.  P’s claim of fraud against the defendants (especially in relation to her claim against D2) also consists of the allegation that they “wrongfully conspired with each other to participate in or perpetrate the fraudulent investment scheme”[1]. What is thus alleged is an “unlawful means” conspiracy. To sustain such a claim of conspiracy, P must prove the following necessary elements:

(1)  a combination or agreement between 2 or more individuals;

(2)  an intent to injure;

(3)  pursuant to which combination or agreement and with that intention certain acts were carried out; and

(4)  resulting loss and damage.

(Total Lubricants Hong Kong Limited & Ors v Christopje de la Cropte de Chanterac & Ors HCA1694/2008, unrep., Poon J (as the CJ then was), 15 December 2009 at § 81; Chan Shu Chun & Others v Dr Kung Yan Sum & Others HCA 832/2014, unrep., Marlene Ng J, 18 May 2017 at §102).

11.  Fraud is a serious allegation of misconduct. The person alleging fraud has the burden of proof. The standard of proof is still the civil standard of proof on balance of probabilities. However, the evidence need to be commensurate with the seriousness and nature of the allegation, in that “the more inherently improbable the act in question, the more compelling will be the evidence needed to satisfy the court on a preponderance of probability” (Aktieselskabet Dansk Skibsfinansiering v Brothers & Others (2000) 3 HKCFAR 70, 77J-78F, per Lord Hoffman NPJ at 78G).

12.  As P’s claim of conspiracy to participate and perpetrate the fraudulent scheme is, in my view, equally a serious allegation of misconduct, the same consideration should apply.

13.  To determine a claim based on unjust enrichment, it involves asking four questions:

“A useful framework for approaching such claims, …, involves asking 4 questions:

(a) Was the defendant enriched?

(b) Was the enrichment at the plaintiff’s expense?

(c) Was the enrichment unjust?

(d) Are any of the defences applicable?”

(Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79 at 104G, per Ribeiro PJ)

The facts

14.  In her Statement of Claim, P pleaded her case of fraud distinctly and extensively. The supporting facts and allegations in P’s witness statement were similarly set out, particularly regarding the allegedly false and/or fraudulent representations made by D1 to her from January to May 2018. Yet and as mentioned, D1 and D2 chose not to contest. As P’s evidence was not contested, and there is no reason for me to find her otherwise than a truthful and reliable witness, I so find and accept her evidence given in her witness statement and orally at trial. Based on her evidence, I find as facts the following.

15.  At the material time, P has been qualified as a solicitor for several years and worked in a solicitors’ firm (“the Firm”). In early 2017, P acquainted D1 who then worked in the Firm as a paralegal. D1 told P that he was qualified as a lawyer in Australia. They worked together in the corporate finance projects undertaken by the Firm. They had been close from June 2017 until June 2018 when D1 could no longer be contacted.

16.  D1 had been talking to P about various types of investments, his own investments and investment opportunities, including those in crypto-currencies. D1 had taken P to various social occasions to introduce her to his “rich friends”. D1 claimed that through various connections he had access to various investment opportunities that could fetch a return of over 20% a year.

17.  D2 was introduced by D1 in late 2017 on one of those social occasions. P understood that D1 and D2 were close.

18.  Some time ago, P inherited from the estate of her late mother cash in the sum of about HK$4,000,000 and this fact she had made known to D1. P intended to use the sum as part payment to purchase a flat in Hong Kong for her own use.

19.  Since then, D1 had been mentioning orally and by Wechat messages (written in romanized Punti) that he could find investment opportunities for P that would fetch 20% return a year[2].

20.  On 24 January 2018, upon invitation by D1 by a Wechat message[3], P, who was then working overseas, called D1 to discuss an investment opportunity. In the telephone conversation, D1 represented that he had an investment opportunity for P to invest HK$1,000,000 and he guaranteed it would yield a return of HK$200,000 in a year.

21.  In the morning the next day, ie. 25 January 2018, D1 sent to P many Wechat messages[4], asking when P would transfer the money, saying that the “buy-in” price would increase drastically in a day or two, that he would explain to P the details after P’s return and that he might consider giving P extra 5% to 10% return. Trusting D1, being lured, and relying on D1’s representation and as instructed by D1 to transfer the money into D2’s HSBC Account, P caused Transfer 1 to be made in the early afternoon on 25 January 2018.

22.  D1 did not explain to P what investment Transfer 1 was used to pay for. Trusting D1 and in tone with D1’s communications so far that he would not reveal the details of his “investments”, P did not ask.

23.  By Wechat messages sent on 22 February 2018[5], D1 asked P to invest another HK$300,000, and sent to P a capture of a computer screen showing an excel sheet (“the Excel Sheet”) recording the amount invested by P, the duration of the investment and the return to be obtained upon the expiry of that duration[6]. It was there represented that this HK$300,000 would fetch a return of HK$30,000 in 6 months. Again, trusting D1 and acting on the representation, P made Transfer 2 on the same day.

24.  D1 then sent a series of Wechat messages to P in the evening of 22 February 2018[7] in which he claimed that it was “embarrassing” to invest an amount of HK$4,000,000 but if the amount invested was up to or over HK$10,000,000, it could easily earn over 100% return. P replied that she would think about it.

25.  On 12 March 2018, D1 asked P to invest another HK$1,024,450 with a promise of higher return. Acting on the representation, P made Transfer 3 in the sum of HK$700,000 as part payment of this HK$1,024,450.

26.  The next day, ie. 13 March 2018, D1 via Wechat sent a screen capture of an updated version of the Excel Sheet[8] showing that this investment of HK$1,024,450 would grow to HK$1,200,000 in 6 months (a yield of 17% in 6 months).

27.  On 15 March 2018, P transferred the balance of the HK$1,024,450 investment, ie. HK$324,450, by way of Transfer 4.

28.  By a number of Wechat messages sent by D1 to P from 17 to 19 March 2018[9], D1 asked P to invest in certain crypto-currency, which P did by way of Transfer 5.

29.  Since early March 2018, D1 had been talking to P about an investment opportunity by way of an initial coin offer from a company or project called “Infinocity” involving certain crypto-currency called “TPC” and sent a powerpoint about it to P via Wechat on 19 March 2018[10]. On divers occasions in April 2018, D1 shared with P information about, and the progress concerning, the business of “Infinocity”. On 8 May 2018, D1 told P that she could earn much better and faster return by purchasing in the “secondary market” the said crypto-currency in that she could sell the crypto-currency for a high profit (over 20%) once the crypto-currency was on offer for public sale.

30.  On 17 May 2018, trusting D1, being lured and acting on his representation, and as instructed by D1 to transfer the money into D1D2’s Citibank Joint Account, P made Transfer 6 on 17 May 2018 believing that she was investing in the “TPC”.

31.  Shortly after, D1 informed P that he had to travel to various countries to “develop his new business”. D1 then left the employ of the Firm.

32.  Since mid-June 2018 to date, D1 did not respond to P’s Wechat or Whatsapp messages, or telephone calls and he could not be reached by P.

33.  Since 6 July 2018, P has been chasing D2 through Whatsapp for updates of her investments[11].

34.  According to D1’s representations and promises, the investment supposedly made by Transfer 2 was due to be returned to P with the promised earnings in September 2018. However, D1 and/or D2 never returned the same to P at that time or at all.

35.  In the Whatsapp messages between P and D2:

a.  D2 on 26 November 2018 said to P “Yes money will be out on December 20”[12].

b.  Then on 3 December 2018, D2 asked P for the records of all the transfers into D2’s account for the reason that “我 [D2] 要證明借你錢還你錢費事到時俾人問”[13]

c.  On 11 April 2019, P informed D2 that she received a letter from Inland Revenue Department of Hong Kong formally enquiring P about P’s relationship with D2 and about the transfers to D2. On the same day, D2 said he would draft 4 loan agreements for P to sign, therein acknowledging that D2 had borrowed from P money by way of Transfers 1 to 4[14].

36.  At the time, D2 promised that P would be receiving all her investment back with income by end of May 2018. Based on the promise, P cooperated and signed the 4 loan agreements[15]. The promise did not materialize.

37.  Then after, D2 gave one reason or another why P’s investments and income could not be returned to her.

38.  P issued letters before action to D1 and D2 by her solicitors’ letters both dated 21 April 2021. These letters were ignored by D1 and D2.

39.  On 18 August 2021, P reported the matter to the police. As said, in October 2021, P commenced this action.

40.  As revealed by company searches made by P’s solicitors after the commencement of this action, (a) D1 and D2 were the shareholders and directors of one Ferrox Fintech Company Limited, (b) D1 was the sole shareholder and director of one Ferrox Company Limited, (c) both the aforementioned companies engaged the same secretarial service company as their secretaries, and (d) D2 was the only director, and D3 the sole shareholder of one Infino Exchange Limited.

41.  To date, D1 and D2 did not, or refused to, state clearly where and how P’s monies were invested, or to provide to P any documents relating thereto (except the Excel Sheet which was made by D1).

Discussion

42.  As shown by the above-mentioned Wechat messages and the Excel Sheet, D1 clearly had made many representations to P that he could invest on P’s behalf, which investment could earn incomes over 20% per annum; and he did solicit and ask, and on occasions chased after, P to deposit the above-mentioned transfers into D2’s HSBC Account, D3’s HSBC Account and D1D2’s Citibank Joint Account. I find what D1 repeatedly alleged in his Defence – to the effect that he only “help[ed] [P] on the logistics and administrations as a favour”[16] regarding the investments - is clearly contradicted by the contemporaneous communications, and I reject it.

43.  The facts are that after having known that P had received about HK$4,000,000 cash by way of inheritance, (a) D1 repeatedly made very definite representations to P regarding the amounts of earnings the investments through him could earn and regarding the dates those earnings and the principal would be returned to P, (b) based on these representations, D1 repeatedly solicited and asked P for sums to be transferred per his instructions purportedly for such investments, (c) relying on D1’s such representations, P made Transfers 1 to 6, (d) but D1 disappeared very shortly after P had transferred altogether about HK$4,000,000, the amount of cash P informed D1 that she had inherited, (d) since then, D1 did not respond to P’s call and messaging and could not be reached, (e) D2 then kept delaying and making empty promises to P regarding the return of P’s investments and earnings, (f) to date and despite much chasing and demand by P, D1 and D2 did not, were unable to, or refused to, divulge any details or produce any documents regarding where and how P’s monies were “invested” or what have become of them, or to return them. All D1 and D2 said in their respective Defence was that the money was used for crypto-currency investment, but again with no details or any information about the purported investment, or about what has become of the investment.

44.  Considering the circumstances and the facts mentioned above, in my judgment, the irresistible inference is that D1 knew his representations were wilfully false, or at least that he made them in the absence of any genuine belief that they were true, and he clearly intended that they be acted on by P. P did act on them, and as a result P clearly suffered loss. In my judgment, P has satisfactorily proved that D1 has defrauded her.

45.  I also take the view that P has satisfactorily proved that D2 conspired together with D1 to defraud her, for the following reasons and considerations:

(1)  D2 and D1 were shown to be working very close together in their “business” undertakings as mentioned in paragraph 40 above, and that D1 and D2 together opened the D1D2’s Citibank Joint Account which received Transfer 6.

(2)  D2 admitted in his Defence that he received Transfers 1 to 4 in D2’s HSBC Account and Transfer 6 in D1D2’s Citibank Joint Account.

(3)  While pleading that he did not make the representations to P, however, when D2 received from P the Excel Sheet by Whatsapp on 24 August 2018[17] (which set out the earnings promised by D1 and when those earnings would be returned), D2 did not express any surprise, or questioned them, or said that he received Transfers 1 to 4 and 6 under a different understanding. Instead, he kept promising P that the monies and their earnings would be returned at some future time. I find that D2 thereby acknowledged, and was shown to have known, that the said Transfers were received under the representations that they would fetch those returns within those times.

(4)  Moreover, and as mentioned in paragraph 35 above, D2 anticipated that he would be questioned regarding the receipt of Transfers 1 to 4 and asked P to sign the 4 loan agreements and secured P’s cooperation by the false promise of returning P’s monies by end of May 2018.

(5)  I find that these false promises made to P together with receiving the monies in D2’s HSBC Account and D1D2’s Citibank Joint Accounts were overt acts showing that D2 was acting in the same combination or agreement with D1.

(6)  To date, D2, like D1, did not, was unable to, or refused to, divulge any details or produce any documents regarding where and how P’s monies were “invested”. All D2 said in his Defence was that the money was used for crypto-currency investment, but with no details or information whatsoever. Had D2 received the money under circumstances other that what P alleged, or under innocent circumstances, one would expect D2 to respond with his own version, and D2 did not. In the circumstances, I would draw an adverse inference against D2.

46.  Moreover and in the circumstances, D2 is clearly liable to P under the principles of unjust enrichment for the return of the monies transferred to D2’s HSBC Account under Transfers 1 to 4, while D1 and D2 are jointly and severally liable under the principles of unjust enrichment for the return to P of HK$1,000,000 transferred into D1D2’s Citibank Joint Account by Transfer 6.

47.  As D2 signed the 4 loan agreements, I also conclude that he thereby acknowledged that he was indebted to P in the amounts of Transfers 1 to 4. D2 is thus also liable to P in debt for the 4 sums so transferred into D2’s HSBC Account.

48.  As it is trite that the court would impose a constructive trust over money defrauded held by one who knowingly received it, I conclude that P is entitled to trace the monies transferred into (a) D2’s HSBC Account by way of Transfers 1 to 4, and (b) D1D2’s Citibank Joint Account by Transfer 6, and consequently D2 in respect of the former, and D1 and D2 in respect of the latter, are liable to discover to P information and documents relating to what has become of the monies and their present whereabouts.

Reliefs and disposal

49.  In the premises, I give judgment to P against D1 and D2. Having heard Mr Poon regarding the relief sought by P, I order the following reliefs:

(1)	D1 and D2 are liable jointly and severally to repay to P the sum of HK$3,324,450, being the total sum transferred by Transfers 1 to 4 and 6 (ie. HK$1,000,000 + HK$300,000 + HK$700,000 + HK$324,450 + HK$1,000,000);
(2)	(a)  A declaration that D2 has been holding the 4 sums transferred to D2’s HSBC Account by way of Transfers 1 to 4 (namely, HK$1,000,000 + HK$300,000 + HK$700,000 + HK$324,450) on trust for P, the true beneficial owner thereof;
	(b)  Within 21 days, D2 do by affirmation disclose to P what have become of the said 4 sums (or their traceable proceeds) and their present whereabouts, and produce all the relevant bank and other documents relating to the above;
(3)	(a)  A declaration that D1 and D2 have been holding the sum of HK$1,000,000 transferred to D1D2’s Citibank Joint Account by way of Transfer 6 on trust for P, the true beneficial owner thereof;
	(b)  Within 21 days, D1 and D2 do by affirmation disclose to P what has become of the said sum (or its traceable proceeds) and its present whereabouts, and produce all the relevant bank and other documents relating to the above;
(4)	Alternatively, D2 do repay to P the sum of HK$2,324,450 (ie. HK$1,000,000 + HK$300,000 + HK$700,000 + HK$324,450) as debt owed;
(5)	D1 and D2 do pay to P interest on the above sum of HK$3,324,450 at prime lending rate + 1% per annum from the day of the Writ herein to the date of this judgment, and thereafter, at judgment rate until full payment; and
(6)	Cost of this action be paid by D1 and D2 to P to be taxed on an indemnity basis, to be taxed if not agreed.

50.  I thank Mr Poon for his assistance.