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

CACV 48 /2023, [2025] HKCA 701

On appeal from [2023] HKCFI 179

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 48 OF 2023

(ON APPEAL FROM HCCL NO 4 OF 2017)

________________________

________________________

________________________

J U D G M E N T

________________________

Hon Kwan VP (giving the Judgment of the Court):

1.  On 20 January 2023, Mimmie Chan J handed down a judgment in favour of the plaintiff after a 12-day trial (“Judgment”)[1]. This appeal is brought by the 1^st, 9^th and 10^th defendants to set aside the Judgment against them and for an order that the claims against them be dismissed. They are referred to in the Judgment as “ERO”, “JA” and “HE” respectively, and as “JC Camp” collectively. For ease of reference, the abbreviations and expressions in the Judgment are adopted here.

2.  The 2^nd, 3^rd, 4^th, 5^th and 6^th defendants are referred to as “CH”, “MW”, “Wong”, “Ko” and “Siu” respectively and as “Primary Defendants” collectively.  The 7^th and 8^th defendants are referred to as “ZH” and “ZT” respectively.  CH, MW, Wong, ZH and ZT were not represented and did not appear at the trial.  Ko and Siu appeared in person and took part at the trial.

3.  The plaintiff claimed to be defrauded in a large-scale commodities fraud involving forged warehouse receipts with losses of around US$300 million.  Its claims included a fraud and conspiracy claim against the Primary Defendants and a proprietary tracing claim in unjust enrichment against ERO, JA and HE on the basis that each of the JC Camp had received a specified portion of the defrauded funds or their traceable proceeds. These sums are referred to as “ERO Sum” (US$4,395,164.84), “JA Sum” (US$7 million)  and “HE Sum” (US$3,263,636.36).

4.  By the Judgment, the claims of conspiracy against CH, MW and Wong were upheld and damages of US$293,625,392.59 with interest were awarded against these defendants.  The claims against Ko and Siu were dismissed with costs.

5.  The plaintiff did not maintain its claim for a declaratory proprietary remedy against CH, MW, ZH and ZT since those parts of the defrauded funds these defendants had received had been dissipated and paid out by them.  The plaintiff only maintained its claim for personal remedy for restitution of the funds which each of them had received.  As the plaintiff’s claim for damages in conspiracy against CH and MW had included the funds paid out by the plaintiff, judgment for the sums received was given only against ZH and ZT.

6.  As against the JC Camp, judgment was given for the restitution of the ERO Sum, JA Sum and HE Sum with interest, with declarations that they hold the same with the fruits and proceeds thereof as constructive trustees for the plaintiff and for the necessary accounts and inquiries.

7.  Mr Kenny Lin and Mr Jason Kung appeared for the JC Camp below and on appeal.  Mr Charles Sussex, SC appeared on appeal for the plaintiff, with its trial counsel Mr Derek Chan.

Background

8.  The relevant background matters are taken from the Judgment and may be stated as follows.

(1)  The “repo” transactions and relevant parties

9.  This case involves metal “repo” transactions, which are made up of two legs of a sale and purchase of a commodity.  The bank or financier – the plaintiff in this instance – 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 price on the London Metal Exchange (“LME”)  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.

10.  By a Master Commodities Purchase Agreement (“Master Agreement”)  dated 8 December 2015 made between the plaintiff and ED&F Man Capital Markets Limited (“MCM”)[2], the plaintiff agreed to provide finance to MCM to enable it to purchase quantities of LME deliverable nickel, to be held by the plaintiff for up to six months but extendable, 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.  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 to be delivered to the plaintiff.

11.  Pursuant to the Master Agreement, the plaintiff entered into 31 individual purchase contracts with MCM (“Purchase Contracts”). 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.

12.  As a result of and back-to-back to the Purchase Contracts, MCM in turn purchased from CH and MW 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”).  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”).

13.  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 one was to the order of Genesis Resources Inc (“Genesis”).

14.  AW 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 operated 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.

15.  At the time when payment was made under the Purchase Contracts, the plaintiff believed it had 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 would 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.

16.  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.

17.  On the plaintiff’s case, the MCM Master Agreements between MCM and CH/MW, and the MCM S&P Contracts made thereunder, were all negotiated with the assistance of Genesis.  The trades between MCM and CH/MW were managed to a great extent, and were advised by Genesis, through the CEO of Genesis Steven Kao (“Kao”), his teams in the US (which included Steven Springer and Bill Silverstein)  and Shanghai (which included Betty Gu and Jessie Li).

18.  CH and MW are companies incorporated in Hong Kong.  Wong, a permanent resident of Hong Kong, is the sole director and shareholder of CH.  CH and MW shared the same registered office at the material time in 2016.

19.  Until 1 July 2016, the sole director of MW was Wu Yu, 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”; a cousin of Wong), who was replaced by Bian Yizhong (“Bian”)  as sole director from 18 January 2017.

20.  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 ZH on 25 October 2016.  ZH transferred the 200,000 shares 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.

21.  Ko was an employee and the operations manager of CH, and the authorized signatory for CH in its dealings with MCM.  Siu was the authorized signatory for MW in MW’s dealings with MCM.  Between 1 December 2016 and 12 January 2017, Siu was also authorized to act as a signatory for CH in its dealings with MCM.

22.  ZH and ZT are companies incorporated on the Mainland.  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.  ZT was at all material times the holder of 86.66% of the shares in ZH.  Between 17 May 2016 and 15 December 2016, the shareholding in ZT was held by Huang Zhiming and Zhao.

23.  ERO was 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.  According to JC, ERO is a corporate vehicle used to facilitate his business and his international investments and acquisitions, and he used ERO to transfer funding to target companies.  Bian, the owner of MW, was a friend and business partner of JC for more than 30 years, and they had closely cooperated in business dealings to the extent of making advances of several tens of millions of RMB.

24.  JA is also a BVI company.  Its sole director is Tadashi Koizumi (“TK”), who is also the sole registered shareholder of 5,000 shares in JA.  He is the brother-in-law of Madam Li Hong (“LH”).  TK is also the sole shareholder and sole director of HE, a company incorporated in Hong Kong.

25.  JC is the president of both JA and HE.  He acted as the managing director or president of JA, and had de facto control of JA and HE.  On 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.

26.  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.

(2)  The legal actions

27.  After MCM and the plaintiff were notified by AW in January 2017 that most of the 84 warehouse receipts had been cancelled upon presentation, the plaintiff took immediate steps from February 2017 to apply for Norwich Pharmacal orders to obtain discovery from banks and to trace the funds it had paid out to MCM under the Purchase Contracts, and which MCM had paid to CH and MW under the corresponding MCM S&P Contracts (“Funds”).

28.  After numerous applications for discovery orders against banks, the plaintiff was finally able in May 2017 to commence the present proceedings against ERO as a recipient of the funds traced.  CH and MW were joined by ERO as third parties, and ultimately joined by the plaintiff as defendants in this action, 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 seeks recovery of the Funds paid out under the Purchase Contracts.

29.  Contemporaneously with the plaintiff taking legal action in Hong Kong, MCM commenced proceedings in England in December 2017 against CH, MW, Kao, Genesis, Straits and others (“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, claiming deceit, fraudulent misrepresentation and rescission, and making other subsidiary and alternative claims[3].  Judgment was given by Calver J on 16 February 2022 (“MCM Judgment”)[4].  The English court found, inter alia, that CH and Genesis had supplied, as original warehouse receipts, counterfeits which had been derived from colour scanned copies supplied by Straits; that Wong/Kao of Genesis had used the colour 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, Genesis and Straits 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.

(3)  The plaintiff’s claims and the defences

30.  It is the plaintiff’s case in this action that in January 2017, MCM informed the plaintiff that MCM 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 the ability of CH and MW to repurchase the nickel from MCM.  The plaintiff ultimately discovered, through its investigations and inquiries 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.

31.  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 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.

32.  Upon 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 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 ZH, ZT, ERO, JA and HE.  In respect of ERO, CH, MW, ZH, ZT, JA and HE, the plaintiff asserts a proprietary tracing claim, seeking recovery of sums received by them on the basis of unjust enrichment and/or constructive trust, and on the basis of deceit and conspiracy in respect of CH, MW, Wong, Ko and Siu (the Primary Defendants).

33.  Although defences have been filed for all the defendants apart from ZH and ZT, only the JC Camp, Ko and Siu appeared at the trial.  CH, MW and Wong had been legally represented up to 18 June 2019, but no step had been taken by them in this 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 this action.

34.  On the part of the JC Camp, they claim that the plaintiff has not established 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 no claim of unjust enrichment can be asserted against them.

Relevant findings in the Judgment

35.  The Primary Defendants and the JC Camp put the plaintiff to proof that the warehouse receipts were forgeries.  The judge found on all the evidence adduced that the 83 warehouse receipts presented by CH and MW to MCM and to the plaintiff were forgeries and the forged warehouse receipts contained misrepresentations.  She found that Genesis, CH, MW and Wong (being the effective and practical controller of CH and MW)  clearly knew that the plaintiff was the ultimate purchasing party/financing banker of the nickel, that the PMA Letters (addressed to the plaintiff and procured by CH/MW)  and the warehouse receipts would be presented to the plaintiff, and they intended that the plaintiff would rely on both documents and the representations contained therein.  The plaintiff was induced by the fraudulent representations contained in the forged warehouse receipts to make payment to MCM and 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.

36.  The judge found 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, and 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.  She held there was an agreement made amongst Wong of CH and MW, Kao, Jessie Li and Betty Gu 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 colour 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.

37.  As CH, MW and Wong are held liable in deceit and conspiracy to injure the plaintiff by unlawful means, they are 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.  The judge awarded damages against CH, MW and Wong the amount of the Funds paid out by the plaintiff under the Purchase Contracts, namely US$293,625,392.59.

38.  Of the Funds paid out, US$117,402,248.50 was paid by MCM to CH, and US$167,404,683.80 was paid by MCM to MW.  As a result of various Norwich Pharmacal applications against the banks, the plaintiff obtained 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 was remitted to the bank accounts of CH, ZH and ZT, as set out in Schedule 2 (“Schedule 2”)  of the Re-Amended Statement of Claim (“RASOC”). 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.

39.  Schedule 3 (“Schedule 3”)  to RASOC 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 (JA Sum), and a further sum of US$3,263,636.36 to HE (HE Sum).  On 8 November 2016, MW received a sum of US$3,995,164.84, and from CH a sum of 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 (ERO Sum).

40.  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 (“Disputed Remittances”). The plaintiff maintains that they were sourced from the Funds.  The JC Camp claims that the first three sums, which had been converted from moneys received by ZH in RMB currency, were received by ZH from Shanghai World Trade Resource Group Co Limited (“SWT”), a company in Shanghai controlled by JC, and independently of MW.

41.  There is no evidence to directly link the ERO Sum, the JA Sum and the HE Sum (all had been converted from moneys in RMB currency received from ZH)  to the funds received by ZH and ZT (in their respective bank accounts)  from CH/MW.  The judge did not find the evidence of JC credible, as his explanation on the source and purpose of funds received by the JC Camp had evolved over time.  The JC Camp did not call Bian and Zhao to give evidence on the fund flow of the amounts in Schedule 2.  JC could not give any reason for Bian’s refusal to testify or at least to provide JC with the relevant bank statements of ZH and ZT, which would conclusively establish the fund flow one way or the other.

42.  Having considered all the evidence, the judge drew the inference 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.  The judge found the ERO Sum, the JA Sum and the HE Sum are traceable to, and were wholly 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.  She concluded on the evidence 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.

43.  The judge held there is a sufficient and proper basis to find that CH, MW, ZH and ZT held the Funds on constructive trust for the plaintiff.  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.  As the judge has held that the ERO Sum, the JA Sum and the HE Sum are traceable to and were derived from the Funds, the plaintiff can assert its beneficial interest in respect of such money and seek an equitable proprietary remedy.

44.  The judge rejected the contention of the JC Camp 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 plaintiff, and/or that the Purchase Contracts had not been rescinded by the plaintiff.  The judge found on the facts that 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, and there is no evidence of the plaintiff ever affirming the said transactions.

45.  The judge rejected the contention of the JC Camp there had been no direct transfer of value or benefit from the plaintiff to the JC Camp to found a claim of unjust enrichment.  Having considered the judgment of Lord Reed in Investment Trust Companies v Revenue and Customs Commissioner [2018] AC 275, the judge did not think there must be a direct transfer of value, before any enrichment can be regarded as at the plaintiff’s expense.  Although the requirement that the enrichment was at the plaintiff’s expense would normally be satisfied if the transfer is direct, there may also be other situations where an indirect transfer would suffice, such as a set of related transactions which operated in a coordinated way as forming a single scheme or transaction that it would be unrealistic to consider each of the individual transactions separately, or where the property received by the defendant from a third party is one that the plaintiff can trace an interest into.

46.  On the entirety of the available evidence, the judge found that the transactions between the plaintiff and MCM, and between MCM and CH/MW, formed 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.  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.  She concluded from the evidence 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.

47.  The judge was not satisfied that ERO, JA and HE have established 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, and rejected their defence of change of position.

This appeal

48.  Mr Lin advanced four main grounds on appeal for the JC Camp.

49.  First, he challenged the finding of forgery of the 83 warehouse receipts as plainly wrong (grounds 1 to 3 in the notice of appeal).

50.  Second, he contended that the proprietary claims against the JC Camp are unsustainable in that it has never been the plaintiff’s case that it had rescinded the Purchase Contracts with MCM and the plaintiff has never pleaded such rescission (grounds 4 to 5).

51.  Third, he submitted that the judge erred in holding that the ERO Sum, the JA Sum and the HE Sum are traceable proceeds to the Funds (ground 6).

52.  Fourth, by reason of the above three grounds, the judge erred in finding that any enrichment by the JC Camp was at the expense of the plaintiff to found a claim in unjust enrichment (ground 7).

53.  These grounds of appeal will be considered in the order mentioned above.

The finding of forgery

54.  To successfully challenge a finding of fact made by a trial judge, the appellant has to meet a high threshold.  It has to be borne in mind that the trial judge is the primary judge for the assessment of the evidence and making the relevant findings of fact.  The appeal court may overturn the primary judge’s finding of fact only if the finding is plainly wrong.  It has been mentioned many times that the appellate process is not designed to give a litigant a platform for repeating his submissions on the evidence and factual aspects, with the hope that the appeal court might be persuaded to come to a different view.  It is not a ground for intervention that the appeal court may reach a different conclusion, as judges may reasonably and legitimately differ on the conclusion in respect of a finding of fact.  The appeal court’s focus is on the identification of palpable errors sufficiently material to undermine the conclusion of the primary judge on his evaluation of the evidence.  The kinds of mistake which could engage appellate intervention are where the conclusion on primary facts is one which there was no evidence to support, or was based on a misunderstanding of the evidence, or one which no reasonable judge could have reached[5].

55.  The appeal court exercises similar restraint in respect of findings of secondary fact based on inference drawn from findings of primary fact.  The plainly wrong test is applicable unless the finding of fact is based purely on inferences, or otherwise has nothing to do with the witnesses’ demeanour or the trial judge’s having received the evidence at first hand.  “Plainly wrong” in the context of an appeal against a finding of fact directs the appeal court to consider whether it was permissible for the trial judge to make the findings of fact which he did in the face of the evidence as a whole[6].

56.  Mr Lin’s arguments may be summarised as follows.

57.  First, he contended there was no proper foundation of primary facts to provide a reasonable basis for an inference of forgery[7]. The findings were “materially influenced” by inadmissible materials and “largely based” on unverified or unverifiable evidence.  The “main basis” for the plaintiff’s contention the warehouse receipts were forgeries was that another version bearing the same serial numbers were cancelled by AW.  However, the plaintiff’s witness James Bitossi[8] was unable to tell whether the warehouse receipts the plaintiff received were genuine or not[9]; only two out of the 84 warehouse receipts were sent by the plaintiff to AW for authentication[10]; the plaintiff did not directly approach AW to obtain information, it was unable to verify AW’s claim the original authentic warehouse receipts were presented and the identity of the person who took delivery of the nickel.  Further, Mr Bitossi accepted that in respect of 14 warehouse receipts sent to AW for authentication which were the subject of other proceedings[11] and AW was found to have wrongly authenticated those 14 warehouse receipts[12], the judgment of AW in authenticating those receipts which turned out to be forgeries was highly questionable.  In light of the above, the judge’s finding that AW had correctly authenticated the genuine warehouse receipts retained by Straits[13] is unsupported by evidence.

58.  Second, the primary evidence adduced by the plaintiff is not commensurate with the seriousness of the allegation of forgery.  Mr Lin submitted that the “only” primary evidence adduced to prove forgery was the 83 impugned warehouse receipts.  However, not a single authentic warehouse receipt was produced, nor was there any forensic evidence.  There is no basis to assume that the scanned colour copies from Straits must be genuine.  Even if there were differences between the impugned warehouse receipts and the scanned colour copies, it still does not provide a basis for inferring that the impugned warehouse receipts were forgeries.

59.  Third, the judge erred in law in relying on the findings of forgery in the MCM Judgment and fell foul of the principle in Hollington v F Hewthorn & Co Ltd [1943] KB 587.  Under the guise of referring to the evidence in the MCM Judgment, the judge was effectively relying on the findings that the original warehouse receipts remained with Straits, and this led her to accept the assertion in the defence of Straits in the MCM Proceedings to that effect notwithstanding Mr Bitossi was in no position to verify this.  She referred to the finding in the MCM Judgment that “CH and Genesis had supplied, as original warehouse receipts, counterfeits which had been derived from colour scanned copies supplied by Straits”[14], and this led her to find it likely that the warehouse receipts were forged in Shanghai using the scanned colour copies from Straits[15].  Had the judge not been materially influenced by inadmissible findings in the MCM Judgment, she should have found that the plaintiff has failed to adduce sufficiently cogent evidence to prove forgery.

60.  Mr Lin further complained that the MCM Judgment was handed down after the parties closed their cases[16].  Although both parties had addressed the judge on the MCM Judgment, in the absence of a re-opening of the evidence, the MCM Judgment should not be admitted for evidential purpose.  The judge did not alert the parties of her intention to take into account certain aspects of the evidence referred to in the MCM Judgment, and the JC Camp had no opportunity to deal with those matters in cross-examination “or otherwise”.

61.  Fourth, the judge erred in relying on the security checking features adopted by AW in its authentication of warehouse receipts as mentioned in the Marex Judgment to find that 83 warehouse receipts accepted by AW upon presentation (before the plaintiff presented those receipts it had received from CH and MW through MCM)  were authentic[17].  The absence of security checking features in the impugned warehouse receipts received by the plaintiff does not form part of its pleaded case.  There is no proper foundation for the judge to rely on those features.

62.  Whether the relevant warehouse receipts were forgeries was hotly contested at the trial.  The judge’s analysis of the evidence and findings appeared in §§44 to 84 of the Judgment.  She emphasised more than once that her finding of forgery was based on the totality of the evidence adduced[18]. On a close reading of those parts of the Judgment, it is fair to say that her finding of forgery was indeed based on all the evidence.  She set out seven matters that she had taken into consideration and formed the basis of her decision.  Mr Lin accepted that he cannot identify any particular part of the Judgment showing that the forgery finding was “materially influenced” by or “largely based” on the cancellation by AW of another version of the 83 warehouse receipts.  Cancellation in AW’s system and rejection by AW is just one of the seven matters considered by the judge as stated in §§44 to 50 of the Judgment. Mr Lin’s contention seems to be an attempt to pick holes in the Judgment by focusing on certain lines pursued in the cross-examination of Mr Bitossi and repeating some of his submissions made to the judge.  The evidence of this witness must be read in context and considered with other evidence as a whole.

63.  The finding of forgery was an inference drawn from the primary facts found, and most of the primary facts are not challenged on appeal or not capable of serious challenge.  Of particular relevance are these findings of primary facts:

(1)  According to the bank statements of CH and MW, there was no evidence of any payment having been made by CH or MW to Straits (the original party to whom the warehouse receipts were issued)  for the purchase price of the subject nickel.  Straits was never paid in full or at all for any of the invoices it had issued to CH and MW[19]. It is incredible that Straits would have sent original warehouse receipts to CH/MW when it did not receive full payment of the purchase price[20].

(2)  Straits sent colour scanned copies of the original of 83 warehouse receipts to CH/MW by email.  There was no evidence of any document evidencing the dispatch of the original warehouse receipts from Straits to Ko, CH or MW.  There was only evidence of the dispatch and receipt of the original PMA Letters from AW to the plaintiff, 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[21].

(3)  There was evidence from DHL that the hard copies of the warehouse receipts which had been dispatched to and received by CH/MW were sent by a shipper with an address in Shanghai for one delivery, and an address in Wulumuqi, Xinjiang for another delivery.  It was unusual for any original warehouse receipt to be dispatched from Shanghai, and the address in Wulumuqi was “highly unusual and suspect”, when Straits was based in Singapore and none of the subject nickel was stored in Shanghai or anywhere in the Mainland.  There was no logistical basis for hard copies of the warehouse receipts to be dispatched from Shanghai. Ko’s testimony as to the dispatch of the original warehouse receipts by Straits to CH was incredible.  It was “extremely likely” that hard copies of the warehouse receipts were forged in Shanghai, using the scanned copies sent by Straits[22].

(4)  There were discrepancies between the PDF scanned copies and the hard copies of the 83 warehouse receipts sent by CH/MW to MCM and the plaintiff, even to the untrained eye[23].

(5)  There was no evidence of payment of storage charges by CH or MW to AW in respect of the impugned warehouse receipts, in contrast with the payment by CH of such charges in two other transactions which involved genuine warehouse receipts[24].

64.  On the totality of the evidence and the primary facts as found, the judge was entitled to draw the inference that the warehouse receipts which were delivered to MCM and the plaintiff were forgeries.  The plainly wrong test is just not met in this situation.

65.  As for the finding that genuine warehouse receipts bearing the same serial numbers were presented by another party and cancelled by AW (the first of the seven matters the judge took into account), it is speculative to say that the judge had relied on the findings in the MCM Judgment (impermissible under the principle in Hollington)  rather than the evidence and pleadings referred to in that judgment (which is admissible)[25]. To the contrary, it is clear from §48 of the Judgment that in making the finding “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”, the judge did so on a balance of probabilities and applying common sense, with regard to the context which included relevant evidence (the fact that by January 2017 AW had been made aware there were forged warehouse receipts in circulation and so must have been put on guard as to the likelihood of forgeries; that none of the subject nickel represented by the warehouse receipts presented to MCM and the plaintiff had remained in AW’s warehouses at the relevant time; and the evidence that Straits never received the full purchase price from CH or MW).

66.  There is nothing in the complaint that the JC Camp was not given an opportunity to re-open the evidence after the MCM Judgment was handed down.  All parties were at liberty to address the judge on that judgment in the closing submissions, and both the plaintiff and the JC Camp did so.  That Mr Lin did not see fit to apply to re-open the evidence is beside the point.  Had such an application been made it is doubtful whether leave would have been granted, as he was not able to specify with any degree of reasonable clarity which particular aspect of evidence he would like to be re-opened in light of the MCM Judgment, except to say that he would wish to cross-examine further (this sounds like fishing for evidence)  or “or otherwise” deal with “new matters” arising in that judgment.  There is no unfairness to the JC Camp. 

67.  The high threshold for the appeal court to interfere with the finding of forgery is plainly not met.  This ground of appeal is entirely without merit.

The issue of rescission

68.  The arguments on rescission were made by Mr Lin before the judge in this manner:

“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.”[26]

69.  He repeated the same contention before us.

70.  This is how the judge dealt with his contention:

(1)  “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 [2001] 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.”[27]

(2)  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 judge referred to the judgment of Sir Terence Etherton C in The National Crime Agency v Robb [2014] EWHC 4384 (Ch)  at §§43, 44 and 47, the salient parts of which read as follows:

“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 …

44. … 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 … The additional claimants plainly gave that indication when they joined these proceedings in order to claim a declaration under section 281[28] that part of the Fund belongs to each of them.”

71.  The judge mentioned the measures taken by the plaintiff upon discovery of the forgery of the warehouse receipts in January 2017, the commencement of the present proceedings in May 2017 against ERO as a recipient of the funds traced, the joinder of CH and MW by ERO as third parties, the ultimate joinder of CH and MW by the plaintiff as defendants, the contemporaneous proceedings in England by MCM against CH and MW relating to the same forgery of the warehouse receipts, and came to the view “[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.”[29]

72.  The judge held at §§194 and 195:

“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 Plaintiff, 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.”

73.  In his submissions before us, Mr Lin attacked the finding of rescission as unsustainable because it is “unpleaded and un-run” that the Master Agreement and the Purchase Contracts have been rescinded by the commencement of the present proceedings.  The plaintiff has not pleaded in RASOC any ground for rescission, or the manner, time and communication of rescission.  Further, as MCM is not a party to these proceedings, the plaintiff could not ask for any relief for rescission of the Purchase Contracts in this action.  He emphasised that the issue of rescission has not been raised at all. The plaintiff was silent on this issue in its opening and closing submissions and did not adduce any evidence of rescission.  Due to the failure to plead rescission, this has prevented the issue of rescission and consequential issues such as equivocality of the act of rescission, communication with the counterparty, any bar to rescission, from being properly explored and debated at trial.

74.  Mr Lin sought to distinguish The National Crime Agency v Robb in that counsel for the National Crime Agency had conceded for the purpose of the proceedings that the lead claimants rescinded their contracts at the latest when they joined the proceedings and it was held that the concession was rightly made (at §45)[30].

75.  He submitted that the judge failed to appreciate the significance of MCM which had the rights and standing to make an equitable proprietary claim in respect of the same funds in the MCM Proceedings.  If there was rescission of the Master Agreement and the Purchase Contracts as found by the judge, this would have re-vested the interests in the Funds in the plaintiff and MCM could not have maintained its proprietary claim.  As MCM had successfully maintained its proprietary claim in the MCM Proceedings, this provides support for his contention there was no rescission by the plaintiff of the Master Agreement and the Purchase Contracts.

76.  He asserted that the judge was wrong to hold there was no evidence of affirmation by the plaintiff of the Master Agreement and the Purchase Contracts in that Mr Bitossi had agreed under cross-examination that “if there’s anything went wrong, [the plaintiff] would look to MCM for whatever compensation”[31] and in view of provisions for indemnity in the Master Agreement and Purchase Contracts[32].

77.  Mr Sussex’s answer regarding the absence of pleading of rescission is two-fold.

78.  First, he submitted that it is not necessary to establish rescission in the circumstances of this case.

79.  The principle that fraud renders a contract voidable, not void, is not absolute.  There is an exception to this principle “where a contract is not merely induced by fraudulent misrepresentation but is itself the instrument of fraud and no more than a vehicle for obtaining money by false pretences” (Lewin on Trusts, para 7-031)[33].  This was quoted in Global Currency Exchange Network Ltd v Osage 1 Ltd [2019] 1 WLR 5865 at §41, which continues as follows:

“… the contract would have been merely a dishonest device to obtain money for which ‘it is meaningless to impose a requirement for the fraudster to be notified as “rescission” ’: Halley v Law Society [2003] WTLR 845, para 48. The situation would be ‘not simply a case of a valid contract being induced by fraud; but that the fraud so infected the whole transaction that it had no legal effect at all’, ie where ‘The “agreements” were fictitious contracts … merely part of an elaborate charade (or mechanism)  by which the loser was persuaded to part with his money’: ibid, para 45. On that basis, the position would be ‘akin to theft’ with the result that the Funds would be immediately traceable by investors: Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669, 705C-D, 715H-716D.”

80.  Thus, where the transaction itself is nothing more than a vehicle for fraud and the counterparty parted with nothing of value, it would be meaningless to impose a requirement for the counterparty to be notified of ‘rescission’.  As the position is ‘akin to theft’, no beneficial interest passes to the thief where property is obtained by false pretences.  The court is entitled to disregard the apparent effect of that fraudulent contract and hold that the beneficial interest remained with the transferor throughout.

81.  The judge found that the Purchase Contracts between the plaintiff and MCM were made back-to-back with the MCM S&P Contracts, that on each occasion MCM paid CH/MW from funds remitted by the plaintiff, and that CH/MW knew that the transactions were financed by the plaintiff by virtue of the PMA Letters issued to the plaintiff[34].  The judge looked to the substance and reality of the transactions and formed the view there is no evidence to support a finding that the transactions were separate and unconnected.  She found that MCM was interposed as part of the conduit for the Funds to be transferred to CH/MW.  On the entirety of the available evidence, she considered that the transactions between the plaintiff and MCM, and between MCM and CH/MW, formed 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[35].

82.  Mr Sussex submitted that given the finding of forgery and fraud perpetrated by CH/MW, the Purchase Contracts and the MCM S&P Contracts may be regarded as no more than a vehicle for obtaining money from the plaintiff by false pretences.  The plaintiff has received nothing of value and was left with forged warehouse receipts which are worthless.  To require the transferor to elect whether to affirm or avoid the transaction in this situation is not a real option.

83.  Mr Lin objected to the above submissions as these legal arguments were not raised before the judge, nor are they covered in the respondent’s notice served by the plaintiff in this appeal which was not settled by Mr Sussex.

84.  Second, even if rescission was required, Mr Sussex submitted that the plaintiff has clearly indicated its intention to rescind and to assert a proprietary interest in the Funds.

85.  We will deal with the second submission of Mr Sussex first.

86.  The state of the pleadings is as follows.

87.  §20 of RASOC averred that CH and MW and/or persons who controlled these entities and their bank accounts in their dealings with MCM “fraudulently induced the Plaintiff into remitting the Funds to MCM which in turn remitted the same to [CH] and [MW] in the mistaken belief that it was in exchange for genuine warehouse receipts.”  §21 pleaded as follows: “In the premises, the Plaintiff retains and asserts a proprietary interest in the Funds which it was wrongfully deceived into paying and is entitled to trace the Funds into the hands of any subsequent recipients which hold the traceable proceeds of the Funds on constructive trust for the Plaintiff.”

88.  In §§29c and d of the amended defence of ERO (not settled by Mr Lin), it is denied that ERO held the ERO Sum and/or the traceable proceeds on constructive trust for the plaintiff and that the plaintiff is entitled to trace into and claim equitable title over the ERO Sum.

89.  In §4.16 of the amended defence of JA and HE (settled by Mr Lin), it is pleaded as follows:

“Further the Plaintiff’s claims herein are premised on its entering into the [Master Agreement] and the Purchase Contracts with MCM. However, MCM has not been joined as a party (be it a plaintiff or a defendant)  in this action. As the [Master Agreement] and the Purchase Contracts remain valid and binding contracts made between the Plaintiff and MCM.”

90.  §4.18 averred that the plaintiff “has no locus standi in commencing this action against [JA] and [HE] as well as [ERO].”

91.  In its reply to the defence of ERO, the plaintiff joined issue with ERO upon its defence.  In its reply to §§4.16 to 4.18 of the defence of JA and HE, the plaintiff pleaded:

“9.1 It is denied that the [Master Agreement] and the Purchase Contracts entered with MCM pose any impediment to the Plaintiff’s claim against [JA] and [HE], or that it has any relevance to ‘locus standi’ of the Plaintiff to pursue this action.

9.2  Further and in any event, the Plaintiff asserts a proprietary claim against [JA] and [HE] in this action for the recovery of assets in which it has a traceable beneficial interest, which claim is not dependent upon proof of loss or damage.”

92.  At the trial, Mr Lin appeared for ERO, JA and HE. Among the agreed issues for determination at the trial are the following: whether the plaintiff retains a proprietary interest in the ERO Sum, and whether the plaintiff retains a proprietary interest in the JA Sum and the HE Sum together with traceable fruits and proceeds[36]. 

93.  The plaintiff’s trial counsel did not deal with rescission in his written opening or closing submissions.  Mr Lin specifically raised his arguments on rescission as summarised in §185 of the Judgment, which we have set out earlier.  He argued that a claim of restitution is not open to the plaintiff because its contractual relationship with MCM still subsists and the plaintiff has not pleaded that the Master Agreement ceased to be valid and binding.  He submitted that the “fundamental question” that needs to be answered in the trial is “whether the Funds to MCM should be regarded as the property of [the plaintiff] or the property of MCM”[37].

94.  The issue of rescission has clearly been raised and it cannot be said that this issue was not properly canvassed or debated at the trial.  The attack on the plaintiff’s lack of pleading of rescission or of particulars or relief for rescission is misconceived in the circumstances here. Even if the plaintiff has not pleaded a positive case on rescission, it has averred in its pleading that it “retains and asserts a proprietary interest in the Funds” and is “entitled to trace the Funds into the hands of any subsequent recipients which hold the traceable proceeds of the Funds on constructive trust for the Plaintiff.”  In its separate replies to the defences of ERO, JA and HE, the plaintiff has joined issue with these defendants on their defences.

95.  As it was pleaded by JA and HE that the Master Agreement and the Purchase Contracts remain valid and binding contracts between the plaintiff and MCM, and persistently argued by Mr Lin that the legal and beneficial title in the Funds had passed from the plaintiff to MCM so that the plaintiff had retained no interest as the Master Agreement and the Purchase Contracts had not been rescinded or avoided, the judge would need to resolve the dispute arising from these arguments.

96.  The judge found on the facts that MCM and the defendants in this action “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 this action on the basis of the claims made under the forged warehouse receipts, that the plaintiff was rescinding the Purchase Contracts.  She regarded it as “inconceivable” that MCM or any of the defendants in this action “would have been under any misunderstanding or illusion that the Plaintiff treated the Purchase Contracts and any transaction thereunder as valid and still subsisting”.  The judge is perfectly entitled to make these findings of fact.  It cannot be seriously suggested that she is precluded from making these findings of fact merely because there is no express or clear pleading by the plaintiff that the Master Agreement and/or the Purchase Contracts had been rescinded or avoided, as argued by Mr Lin.  In making her findings of fact on the evidence, the judge is not constrained by the absence of averment or particulars of rescission in the plaintiff’s pleadings.  She has found there is no evidence of the plaintiff ever affirming the transactions.

97.  Mr Lin’s argument to the contrary that there is evidence of the plaintiff affirming the Master Agreement and the Purchase Contracts is without merit.  Those parts of Mr Bitossi’s testimony that he relied on are taken out of context.  As rightly pointed out by Mr Sussex, the witness was apparently answering questions on what the plaintiff’s contractual rights were under the Master Agreement, not whether those rights had been or would be asserted.  It should also be noted that in Mr Bitossi’s answer to interrogatories, he has confirmed that the plaintiff has not commenced any civil proceedings in any jurisdiction against MCM in relation to the nickel fraud.

98.  As for Mr Lin’s argument that based on MCM’s successful pursuit of its proprietary claim in the MCM Proceedings, there is support for his contention there was no rescission by the plaintiff, the judge had dealt with this in §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.”

99.  We agree with the judge.  We do not think any particular holding in the MCM Proceedings, to which the plaintiff, ERO, JA and HE were not parties, can assist the JC Camp vis-à-vis the claims made by the plaintiff against them in this action.

100.  On the premise that rescission was required, the judge’s holding that the Purchase Contracts had been rescinded by the plaintiff cannot be impugned.

101.  We turn to Mr Sussex’s first submission that it is not necessary to establish rescission in this instance.  Mr Lin did not challenge the correctness of the exception to the legal principle mentioned in Lewin on Trusts at §8-031 and discussed in cases such as Halley v Law Society at §§39 to 54 and Global Currency Exchange Network Ltd v Osage 1 Ltd at §§40 to 48.  His answer to this is that this is a new point not raised before the judge and not even covered in the respondent’s notice.  He also took the point that the Halley exception should not apply as there is no evidential basis to establish that the transactions are in effect unreal or purely instruments of fraud, so that the “election” to rescind is unreal[38].

102.  The Halley exception is a point of law not taken before the judge.  A point of law may be pleaded but it is not required to be pleaded.  As for the lack of mention in the respondent’s notice, the appeal court has discretion to allow a point of law to be raised as additional support for the judge’s holding, if satisfied that no prejudice or unfairness would be occasioned to the appellant and there is no likelihood of any new evidence relevant to the new point not canvassed in the court below.  There is no suggestion by Mr Lin of any real prejudice or any further evidence he may wish to adduce on the topic.  His attack is that the evidence relied on by the plaintiff is insufficient to support a conclusion that the transactions are in effect unreal.  We are satisfied that in these circumstances it is appropriate to exercise our discretion to allow this point to be taken by the plaintiff on appeal notwithstanding it was not mentioned in the respondent’s notice.

103.  Turning to the evidence, the judge did not specifically find that the transactions are in effect unreal or purely instruments of fraud, as her attention was not directed to the law on the Halley exception.  Nevertheless, in considering whether there was enrichment at the plaintiff’s expense for the claim of unjust enrichment against the JC Camp where there had been no direct transfer of value or benefit from the plaintiff, her attention was drawn to the situation where an intervening transaction is found to be a sham and to co-ordinated transactions as discussed in Investment Trust Companies v Revenue and Customs Commissioner at §§48, 49, 61 to 66[39].  In that context, the judge found that the transactions among the plaintiff, MCM, CH and MW were on a back-to-back basis, that MCM was interposed as a conduit for the Funds advanced by the plaintiff to be transferred to CH/MW to finance their purchases in circumstances when CH and MW knew that warehouse receipts would be presented to the plaintiff for the release of the Funds to be received by CH and MW.  On the entirety of the available evidence, the judge found that the successive transactions are all sufficiently and causally connected and the transactions between the plaintiff and MCM, and between MCM and CH/MW, formed a single transaction or scheme[40].

104.  The judge had also made findings in respect of forgery, deceit and conspiracy.  She 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 the 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[41].

105.  On the basis of all the findings mentioned above, we think it is a compelling inference that the co-ordinated transactions are instruments of fraud and an elaborate mechanism to obtain money by false pretences, such that the court is entitled to disregard the apparent effect of the transactions which are fictitious and nothing more than a vehicle for fraud. We agree with Mr Sussex that the judge’s holding can also be supported on the ground that rescission is not required in this situation.

106.  The ground of appeal on rescission must be rejected.

The issue of tracing

107.  The judge made findings of fact that the ERO, JA and HE Sums represent traceable proceeds of the Funds[42].  Her analysis of the evidence and reasoning in making those findings have been summarised in the earlier part of this judgment.  Mr Lin has to meet a high threshold and satisfy this court that the judge’s findings of fact are plainly wrong for us to interfere.

108.  He argued that the judge’s approach in applying the tracing rules is erroneous, and that the correct rule of tracing should be that applied by Calver J in the MCM Judgment at §§647 to 685.  He contended that the punitive presumption in In re Hallett’s Estate (1880)  13 Ch D 696 applies (ie the withdrawal by the wrongdoer from the mixed fund shall be presumed to be his own money)  and a claimant should not be allowed to cherry pick arbitrarily every single payment out of a mixed account.

109.  He repeated his argument before the judge in respect of the plaintiff’s right to trace the sum of US$9,660,547.53[43], which was summarised in §174 of the Judgment:

“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 …”

110.  The judge rejected his argument for the reasons in §§175 to 178:

“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 Clayton’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[44], to make payments of the JA Sum and the HE Sum on 7 November 2016. On [the plaintiff’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.”

111.  Seeking to maintain his arguments rejected by the judge, Mr Lin contended that the judge’s finding that three of the Disputed Remittances (US$4,407,598.95, US$5,864,956.01 and US$3,995,164.84)  are traceable proceeds is plainly wrong in that it is unsupported by evidence.  He claimed there is no evidence to show that the 9332 Account[45] was ever mixed with the plaintiff’s trust fund, and submitted that the judge’s finding it was likely for ZH to have utilised the funds received by ZT to make remittances to MW in November 2016[46] was “nothing but a speculation”.  He criticised her drawing of adverse inference as wrong since there was no prima facie case for the JC Camp to answer (that the 9332 Account was a mixed fund account)  and her conclusion was not one which a reasonable judge could have reached.  He asserted that as ZH also received from SWT the sums of RMB 30,000,000, RMB 40,000,000 and RMB 30,000,000 into its 7452 Account[47] on 1, 4 and 7 November 2016 only a couple of days prior to the remittances from ZH to MW who then remitted the JA, HE and ERO Sums to these defendants, this would strongly militate against an inference that the sums received by these defendants comprised the total sums received by ZH and ZT.

112.  As for the remaining Disputed Remittance of US$400,000 (received by MW from CH on 8 November 2016), Mr Lin submitted that this is not traceable to the Funds and there is nothing to displace the Hallett presumption.  The remittance into CH’s account with DBS which was said to be traceable to the Funds was US$7,556,788 on 29 September 2016.  By 14 October 2016, the LIB in CH’s account was reduced to US$26,949.35.  Between 14 October 2016 and 2 November 2016, there were replenishments in CH’s account of US$2,599,990, US$8,804,625.36 and US$5,884,083.55.  Mr Lin submitted that none of these replenishments were traceable to the Funds.  After the transfer of US$400,000 to MW on 8 November 2016, CH’s account still retained US$2,008,568.58.  Applying the Hallett presumption, the traceable proceeds to the extent of the LIB of US$26,949.35 should be treated as remaining in the account of CH, to which the plaintiff can trace, and the entirety of US$400,000 remitted to MW should be presumed to be CH’s own money and is not traceable to the Funds.  

113.  Mr Sussex submitted that the debate on which of the tracing rules should apply is a red herring, once the judge’s findings of fact are properly understood.  There is no basis to impugn the findings and inferences drawn that the ultimate source of the Disputed Remittances was the Funds and that the mixed fund in MW’s USD account with DBS, from which the ERO, JA and HE Sums were transferred, was effectively entirely composed of the Funds.

114.  We agree with his submissions.  As the judge observed at §176, Mr Lin’s legal argument on presumption “ignores the actuality”.  Having considered the bank statements and documents relating to the remittances, and having weighed the evidence of JC, she is entitled to conclude on the facts and evidence that the ERO, JA and HE Sums were wholly derived from the Funds which the plaintiff paid MCM, and which had been paid onward to CH and MW pursuant to the fraud.  In circumstances where the defrauded funds have been misapplied and laundered through a series of bank accounts in a coordinated scheme designed to obscure their movements in an “evidential black hole”, the claimant may succeed even without proof of each transactional link between him and the defendant (Snell’s Equity (34^th ed)  at [30-061]).

115.  We endeavour to set out the steps taken by the judge in making those findings and inferences as succinctly as we can.  For ease of reference, we attach to this judgment a schedule which Mr Sussex modified from Schedule 3 setting out the movement of funds in MW’s USD account with DBS from 28 September 2016 to 8 November 2016 with the Disputed Remittances highlighted in yellow.

116.  As found by the judge at §140, the source of the Disputed Remittances were:

(1)  US$4,407,598.95 received in MW’s USD account was from MW’s CNY account with DBS on 4 November 2016, having been converted from the sum of RMB 29,999,000 (net of charges)  received from ZH on 3 November 2016;

(2)  US$5,864,956.01 received in MW’s USD account was from MW’s CNY account with DBS on 7 November 2016, having been converted from RMB 39,999,000 (net of charges)  received from ZH on 4 November 2016;

(3)  US$3,995,164.84 received in MW’s USD account was from MW’s RMB account with DBS on 8 November 2016, having 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 USD account was from CH’s USD account with DBS on 8 November 2016.

117.  Contrary to Mr Lin’s contention, there is evidence establishing that the sum of US$400,000 was ultimately derived from the sums remitted by ZH to MW:

(1)     CH’s statement of its USD account with DBS showed it had a balance of US$2,408,568.59 when the remittance of US$400,000 was made on 8 November 2016.

(2)  The two most recent deposits in that account before 8 November 2016 were US$8,804,625.36 (28 October 2016)  and US$5,884,083.55 (2 November 2016).

(3)  These two deposits were converted from RMB 60,000,000 and RMB 40,000,000 respectively, and derived from inward remittances from MW’s account with DBS to CH.

(4)  In turn, MW received those two sums of RMB 60,000,000 and RMB 40,000,000 from ZH on 28 October 2016 and 2 November 2016.

118.  The bank records reveal that the vast majority of the Funds received by MW were remitted to the bank accounts of CH, ZH and ZT, as set out in Schedule 2.  The evidence shows that (A)  substantial sums (far exceeding the Disputed Remittances)  were paid to ZH and ZT in the Mainland, and (B)  ZH shortly thereafter made the Disputed Remittances to MW, which in turn funded the ERO, JA and HE Sums.  The evidential gap lies in the fact that bank accounts of ZT and ZH in the Mainland could not be made the subject of Norwich Pharmacal applications.  The absence of bank records from ZH and ZY means that there is no direct evidence on the transactional link between (A)  and (B)[48].

119.  As summarised in the earlier part of this judgment, having considered JC’s evidence and the failure of the JC Camp to call witnesses from ZH and ZT (Bian and Zhao)  or at least adduce bank records on the remittances made by ZH and ZT, the judge decided to draw the adverse inference that the evidence the JC Camp failed to adduce would not support, but would undermine, the defendants’ case and establish the plaintiff’s case as to the source of funds received by the JC Camp being any entity other than the plaintiff/MCM.

120.  Mr Lin’s contention that there is no prima facie case for the defendants to answer for the judge to draw adverse inference from their failure to adduce evidence flies in the face of the findings in §§172 and 173 of the Judgment: there is no evidence that ZH and ZT had been trading at any time; it is clear from Schedule 2 that ZH and ZT received from MW a total of US$10,268,436.42 and RMB 62,005,872.49 for no commercial reason made apparent by any party; JC 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 ZH and ZT, the funds received by ZT were likely to have been utilised, 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 payments which had been made by MW to ZH and ZT.

121.  The judge is plainly entitled to draw the adverse inference.  As stated by Lord Leggatt JSC in Efobi v Royal Mail Group Ltd [2021] 1 WLR 3863 at §41:

“The question whether an adverse inference may be drawn from the absence of a witness is sometimes treated as a matter governed by legal criteria … I think there is a risk of making overly legal and technical what really is or ought to be just a matter of ordinary rationality. So far as possible, tribunals should be free to draw, or to decline to draw, inferences from the facts of the case before them using their common sense without the need to consult law books when doing so. Whether any positive significance should be attached to the fact that a person has not given evidence depends entirely on the context and particular circumstances.”

122.  We note further there is no challenge on appeal of the judge’s rejection of JC’s evidence that the ERO, JA and HE Sums were sourced from funds made available by SWT[49].

123.  We reject the ground of appeal on the tracing issue.

Other grounds of appeal

124.  As we have upheld the judge’s holdings that the benefits were transferred through co-ordinated transactions and that the ERO, JA and HE Sums are traceable to the Funds, the ground of appeal that there is no basis for finding enrichment by the JC Camp was at the plaintiff’s expense must be rejected.  Mr Lin accepted that if the ERO, JA and HE Sums are traceable to the Funds, this would provide the basis for the plaintiff’s proprietary claim in unjust enrichment[50].

125.  The other remaining ground of appeal may be dealt with succinctly.  Mr Lin contended that no constructive trust may be imposed upon ERO, JA and HE based on the dictum of Lord Browne-Wilkinson in Westdeutsche Landesbank Girozentrale v Islington London Borough Council at 716C to D[51]. He submitted that “fraudulent recipient” in that dictum does not refer to a mere recipient of property obtained by fraud.  Hence, the dictum does not assist the plaintiff if the recipient was not the fraudster or was not alleged to be fraudulent.  This seems to be a repetition of his argument in §185 of the Judgment.

126.  The judge held there is sufficient and proper basis to find that CH, MW, ZH and ZT held the Funds on constructive trust for the plaintiff[52]. As for ERO, JA and HE, she correctly stated that as against these defendants, “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.”[53]

127.  For a proprietary claim to be maintained against the recipient of property obtained by fraud, what is required to be established is that the recipient has received property traceable to the fraudster.  It is not necessary to establish that the recipient must have committed fraud.  The claim made by the plaintiff against the JC Camp is not of knowing receipt or dishonest assistance.  Mr Lin’s arguments on constructive trust are of little moment.

Conclusion

128.  For the above reasons, none of the grounds of appeal are of merit.  We have heard the parties on costs.  We dismiss the appeal of ERO, JA and HE with costs to the plaintiff.

Appendix