PURPLE SURGICAL UK LTD v. WIN BILLION INVESTMENT GROUP LTD AND OTHERS

HCA 1600/2020

[2021] HKCFI 430

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1600 OF 2020

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JUDGMENT

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Background

1.  The issues which underly these proceedings arise out of what is described by the plaintiff (“Purple Surgical”) as a fraud perpetrated on it in relation to the purchase of medical masks. Purple Surgical’s business includes the supply of medical instruments and other supplies to the NHS in UK, and it won a contract to supply the NHS with 5 million “3M 9332+” type masks in April 2020 for delivery by the end of June 2020 (“the Masks”).  Since, it appears, the 3M Company do not deal directly with purchasers, it was necessary for a would-be customer such as Purple Surgical to source a supply from a distributor or broker, and Purple Surgical initially attempted to source these masks from other distributors, but with no success.  Purple Surgical was then introduced to the 1^st and 2^nd defendants (“Win Billion”, and “Wu” respectively).  Purple Surgical’s case is that Wu represented that he was able to source masks through a company known as “YG Tech”, whom he described as an associated company. If the representation was made, then it appears it may not have been true since the evidence shows that YG Tech is a sole trader in South Korea, with no apparent connection with the medical supply business.

2.  Win Billion is a BVI company whose sole director and shareholder is Wu.  The 4^th defendant (“Smart Up”) is also a company controlled by Wu.

3.  In any event, a sale and purchase agreement (“SPA”) was agreed by Purple Surgical with Win Billion, this including provision that the Masks were to be sourced from the United States, and this was entered into on 20 May 2020.  Under this Win Billion was to supply the Masks, at an agreed price of US$27 million, for delivery (cif) to Birmingham in England.

4.  In due course, and as expanded on below, the SPA was not fulfilled, despite the fact that Purple Surgical had paid in advance for the Masks.  Purple Surgical accepted what it considered to be Win Billion’s repudiatory breach on 31 July 2020, and now seeks recovery of the purchase price by way of claims both in contract and those arising from the alleged fraudulent conduct.

5.  Ex parte injunctions were granted on 18 September 2020 comprising a Mareva injunction against Win Billion up to the value of US$27 million; a Mareva injunction against Wu in the same amount; a proprietary injunction against Wu in respect of a specific sum of US$1,413,650.47; a proprietary injunction against Smart Up in the sum of US$100,000; and a proprietary injunction against the third defendant, “Strongjet” in respect of a sum of US$6,525,000.

6.  A disclosure order was made on 25 September 2020. Further, and by consent, Strongjet made a payment into court of the sum of US$6,525,000, being the amount claimed against it. That order provided for the payment in to remain in court up to the date of the hearing or further order.

7.  At the hearing before me, there were 5 matters, some of which were agreed between the parties as to their disposition. The hearing was primarily to address the continuation of the earlier injunction orders, i.e. the Mareva against Win Billion; the proprietary injunction against Wu; the Mareva injunction against Wu; and the proprietary injunction against Smart Up.  Summonses had been issued resulting in matters requiring resolution comprising applications for the variation of the Injunction Order against Wu, Strongjet and Smart Up, and Additional Disclosure.

8.  Win Billion, Wu and Smart Up were all represented jointly at the hearing by counsel, and will be referred to collectively as “the Win Billion defendants”. Strongjet was separately represented.

The Transactions

9.  Returning to the transaction history, Purple Surgical and Win Billion agreed in the SPA that payment for the Masks was to be made up-front with the consideration (described by Purple Surgical as “Earnest Money”) to be held in an escrow account under the control of an individual named Jody Wong.  It appears he is a lawyer based in California. It was however part of the agreement that once received into the escrow account an instalment payment (of 35%) was to be made to Win Billion out of the escrow account. The balance of the funds was to be retained in the escrow account pending delivery of the masks to UK. 

10.  Purple Surgical made the payment to Jody Wong on 22 May 2020 in his capacity as escrow agent.  The SPA has never been fulfilled however, and not only were the masks never delivered, the funds paid into the escrow account, including those paid to Win Billion, have been dissipated or disbursed out of that account, part going to Win Billion, part to the third defendant, Strongjet, and part to Smart Up.  The evidence at this stage shows that (in round numbers) Win Billion have received US$12.45 million; Strongjet US$6.525 million; and via Win Billion Wu has received US$3.766 million, and Phase Scientific International Limited, US$2 million.  Smart Up have received US$100,000.

11.  Other than the initial payment to Win Billion, none of those fund transfers have been approved by Purple Surgical.

12.  Much of the background is not in dispute.  The main evidence filed on behalf of the defendants is contained in the 6^th affirmation of Wu dated 20 November 2020, where he relates how Win Billion (which was incorporated in May 2018) has been operated by him and his business partner, Mr Xie, as “an investment vehicle for overseas business”.  Win Billion appears to have decided to branch out into the trading of medical equipment, including PPE products after the outbreak of the Covid pandemic. Wu describes in his affirmation a series of successful transactions of this nature undertaken by Win Billion during 2020 as part of his rebuttal of the suggestion by Purple Surgical that the defendants have taken part in a fraud against Purple Surgical.  There is limited corroborative material relating to these other transactions.

13.  There is some disagreement between the parties as to how Purple Surgical came into contact with Win Billion, but it does not appear to me that much turns on this, for present purposes at least. There is no dispute over the terms of the SPA, or that payments would be made via the escrow arrangement involving Jody Wong. He appears to have played a central role in the apparent dissipation of the funds.

14.  There is a dispute as to the relationship, if any, between Jody Wong and Wu, with the latter being at pains to distance himself from the former, stressing that Jody Wong had not acted for Win Billion or Wu, and nor had he represented that Jody Wong was his “lawyer”.  That is an issue which may require determination on another occasion.

15.  The escrow arrangement itself was the subject of a formal written agreement which was also made on 20 May 2020. The parties to this were Purple Surgical, as buyer, Win Billion, as seller, and Jody Wong as escrow agent.

16.  Very little further need be recorded about the terms of the SPA for present purposes save that of the agreed purchase price of US$27 million which was paid upfront into the escrow account, other than the initial 35%, none was to be released until after a satisfactory ‘SGS’ report verifying the quality of the masks was produced by Win Billion. No such report has ever been produced however.

Efforts to Procure the Masks

17.  As noted, these ‘ought’ to have been delivered by end June 2020, but they were not delivered, and the evidence is clear that Win Billion themselves have not, in any sense, received any such Masks.  By way of explanation, Win Billion say in submissions that since Purple Surgical itself had difficulty in sourcing the Masks due to the extraordinary demand in the early stages of the pandemic no criticism should be levelled at Win Billion for having experienced similar problems in seeking to perform the SPA. 

18.  Win Billion’s case is that it has sought to fulfil the SPA, and in fact became involved with three companies in so doing. Its initial efforts involved sourcing the masks from one Utility Sugar Trading Ltd, and an unsigned contract in respect of the Masks dated 19 May 2020 to the value of US$24.5 million is exhibited by Wu. That potential contract involved Utility Sugar sourcing the Masks from YG Tech, and Win Billion decided, Wu says, to ‘deal directly’ with YG Tech so as to reduce the price it paid for the Masks.  Thus, the ‘Utility Sugar’ arrangement was replaced with a sale agreement made between Win Billion and YG Tech on 25 May 2020.

19.  Wu describes in his evidence how Win Billion came to be in contact with YG Tech through his business partner, (Mr Xie), and exhibits a copy of YG Tech’s Business Registration Certificate which describes its business as being “electronic commerce on a fee or contract basis via Internet; LED; manufacture of liquid-crystal display components.”

20.  In any event, it is said that Win Billion entered into an SPA with YG Tech on 25 May 2020 for the purchase of the Masks for delivery to Birmingham at a cost of US$14.5 million. That agreement provided for an initial payment by Win Billion of US$247,500 following production of a “3M invoice” by the seller (i.e. YG Tech).

21.  Subsequently, it is said, a further replacement contract agreement was made between Win Billion and one Dumb & Dumber (“D&D”) on 16 June 2020, it is said at the instigation of YG Tech, who were to guarantee the revised arrangement.

22.  Purple Surgical were expecting delivery at end June 2020, and it appears to be common ground that there was communication between Purple Surgical (through Sharpe) and Win Billion (Wu) throughout June 2020, although the deponents disagree as to the nature of those communications. Purple Surgical say they were chasing for news of progress, without satisfactory feedback from Win Billion, whereas Win Billion submit that they were making reasonable efforts to keep Purple Surgical informed of progress.

23.  The Win Billion defendants contend the evidence demonstrates a consistent follow up with YG Tech and D&D to obtain details of the supply of the Masks and proof of supply. The Win Billion defendants point to a series of emails between 17 June 2020 and 28 July 2020 in which Xie of Win Billion pressed YG Tech for proof that payment had been made to 3M and pressed for the SGS inspection to be arranged.

24.  After having been chased by Purple Surgical throughout June for news of progress on the delivery of the masks Wu sent a heavily redacted remittance advice said to show Win Billion’s deposit payment (of US$247,545) to “3M Georgia” on 30 June 2020.  This clearly does not sit well with the evidence now proffered as to Win Billion’s contract arrangements, and in his evidence Sharpe understandably comments that he cannot see “any honest or sensible reason” why that was sent in light of Wu’s evidence that an SPA had been entered into with D&D on 16 June 2020. There is no evidence that 3M Georgia has anything to do with the 3M Company, or anything to do with the manufacture or sale of PPE. The deposit payment was later refunded.

25.  It is however submitted that Win Billion continued to try to source the Masks for supply to Purple Surgical even after termination of the SPA, and  the Win Billion defendants point to both a pro forma invoice issued by Dumb and Dumber to “Win Billion Investment Group” in the amount of US$725,000, representing 5% of a purchase price of US$14.5 million, and to a bank statement showing a transfer of that deposit amount to D&D on 7 August 2020.

26.  It is submitted that, after the injunction orders were granted Wu procured another of his companies, one Sing Kong Supply Chain Management Company Ltd, to purchase approximately 850,000 masks in about November 2020.  According to Wu this was so that these could be supplied to Purple Surgical, if Purple Surgical remained willing to accept them.  It may be noted that this was two months after the writ had been issued, and represented only a fraction of the number of masks required under the SPA.

27.  That evidence also does not sit happily with evidence contained in the 2^nd affidavit of Sharpe in which he describes how he was informed by his son of an offer on the internet for the sale of 5 million of the relevant masks. A friend of Mr Sharpe’s followed up on this advert, and it transpired that the seller was Sing Kong.  Purple Surgical submit that, having cheated them, Wu was set on repeating the scam on others.

28.  There are therefore several important areas of disagreement between the parties as to the integrity, or otherwise, underlying these transactions.  Those issues are for determination at a trial, not on affidavit.  What is clear to me on the evidence so far is that there are very serious questions facing the Win Billion defendants.

The Amendment Summons

29.  Purple Surgical seek leave to amend the writ of summons pursuant to Order 20 rules 1 (3), 5 of the RHC. Pleadings are not yet closed in this matter, but the proposed amendments include the addition of causes of action, hence the need for leave on the part of Purple Surgical.

30.  A draft of the proposed amendment was supplied together with the summons of 8 January 2021, but this was replaced by leading counsel for Purple Surgical at the hearing. That revised draft added causes of action against the defendants broadly in respect of alleged dishonest assistance in respect of the breach of fiduciary duty of Jody Wong owed to the plaintiff arising from his role as Escrow Agent; knowing receipt of funds; money had received from the Earnest Money; conspiracy amongst the defendants and/or with Jody Wong to use unlawful means to injure Purple Surgical; and breach of fiduciary duty. The relief claimed was expanded to include declarations that monies transferred from the Earnest Money were funds belonging to the plaintiff; that any such monies as were received were/are held on constructive trust for the plaintiff; that the plaintiff is entitled to trace into such funds; and an order that the relevant defendant return such of those funds as it retains.

“Late Applications”

31.  The applications made by the summons of 8 January 2021 are described by the defendants as “late applications”.  In addition to the amendment application, these are an application to increase the sum of the proprietary injunction against Wu to US$3,766,591.74; an application to include two additional sums in the proprietary injunction against Smart Up, (US$1 million and HK$3,300,380); and an entirely new application for a Mareva injunction against Smart up for HK$5,080,000.

32.  The Win Billion defendants’ primary position in relation to these applications is that they should not be entertained “at the 11^th hour”. The application for the Mareva against Smart Up, made only two weeks prior to the hearing is the subject of particular objection. The Win Billion defendants submitted that these applications are late, but without any adequate explanation for the lateness. The relevant evidence underpinning the applications was available to Purple Surgical by late November. Therefore, it is submitted, without an explanation for the 1½ months taken to propose amendments to the statement of claim, it would be unfair for the late applications to be determined without affording Wu and Smart Up “the opportunity to respond”.

33.  I reject any suggestion of an inability to respond on the part of the Win Billion defendants, given that the summons was taken out two weeks prior to the return date, and particularly when no application for an adjournment of the summons was made.  There is some difficulty in seeing what evidence might be required from those parties in these circumstances, particularly as regards the application to amend the Statement of Claim, and no submissions by counsel were directed to explaining this. Given the relative complexity of the matter I also reject any suggestion of delay by Purple Surgical.

34.  Moreover, submissions were made by counsel (albeit on a without prejudice basis) to the effect that the proposed pleadings of unjust enrichment, constructive trust, and knowing receipt were all effectively  “doomed” being based on insufficient and defective allegations of fraud.  Further, there was no evidence that either Win Billion or Wu could have known that Jody Wong acted in breach of the SPA in transferring traceable proceeds of the Earnest Money to Win Billion.

35.  Counsel submitted therefore that even if these applications were to be considered, they should be dismissed for the above reasons.

36.  Although counsel for the Win Billion defendants had little notice of the final form of the proposed amendments, I find the objections advanced in opposition to the proposed amendments wholly unpersuasive. The causes of action now alleged are consistent with the evidence as it appears to date, and accordingly leave to amend is granted.

37.  The arguments of the parties in regard to the injunction and disclosure applications have been considered in the context of that amended writ.

The Other Applications

38.  The three summonses remaining for determination issued by the plaintiff are the summons dated 21 September 2020 for the continuation of the injunction orders dated 18 September 2020 and for disclosure; a summons dated 2 November 2020 in regard to a continuation of a payment in to court by Strongjet, and the parts of the summons dated 8 January 2021 seeking to increase the proprietary injunction against Wu; to include further sums in the proprietary injunction against Smart Up; and to add a Mareva injunction against Smart Up; and seeking further disclosure.

Strongjet

39.  Strongjet commendably advanced pragmatic proposals to Purple Surgical in advance of the hearing with a view to avoiding unnecessary cost and expense in the proceedings. The background to its involvement was summarised in submissions. Strongjet is a part of a group of companies engaged in import/export logistics, supply chain and procurement services. A Shenzhen based affiliate had permits for the procurement of face masks in China and was approached by Win Billion with a view to the purchase by Win Billion of 2 million masks (N 95 type). A sale and purchase agreement was made, and on 4 June 2020 a sum of US$6,525,000 was received by Strongjet in respect of that sale and purchase agreement. Strongjet say they were unaware of any issues between Win Billion and Purple Surgical until they were in receipt of the injunction order on 21 September 2020. Strongjet deny any liability in respect of the claims being made by Purple Surgical and advance in defence various arguments.

40.  Strongjet reached an agreement with Purple Surgical to discharge the injunction by making a payment into court of the amount which is claimed against Strongjet by Purple Surgical. That payment was made without prejudice to Strongjet's right to challenge Purple Surgical’s right to the security.

41.  So far as the injunction continuation summons is concerned Strongjet say that the only issue so far as they are concerned is costs, following the agreed discharge of the injunction against them. An order for costs in the cause is said to be appropriate in circumstances in which the substantive merits of the claim remain to be finally determined, Strongjet having acted reasonably throughout.

42.  In regard to the payment in continuation summons, Strongjet, through its solicitors, indicated in correspondence prior to the hearing that it would not oppose the continuation of the retention of the payment-in sums until trial further order. Once again this stance is taken expressly without prejudice to its position in opposition to Purple Surgical's claims. Once again it is submitted that the appropriate order is for costs to be in the cause.

43.  Strongjet have indicated, again in correspondence, that it is prepared to agree to the amendment of the writ, at least as appended to the Summons. No submissions in opposition to the revised amended writ and statement of claim were made by counsel at the hearing.

44.  An additional application was made by the summons of 8 January 2021 against Strongjet in respect of its receipt of a sum of US$4,989,981.6 which sum, Strongjet say, was received for the purpose of procuring facemasks. Strongjet submit that its attempts to clarify the source of funding with Jody Wong have so far been unsuccessful. In those circumstances Strongjet, while maintaining that Purple Surgical have no entitlement to the proprietary injunction, have agreed to make further payment into court of that amount as security pending trial or further order subject to the conditions stated in the letter of 13 January 2021,namely that Purple Surgical provide an undertaking as to damages.

45.  As regards the disclosure order which is ancillary upon the application for the further injunction against Strongjet, Strongjet submit that this is no longer necessary, since by reason of the agreement to make a further payment into court, Purple Surgical's position is "adequately protected". In any event voluntary disclosure of the bank statement showing the initial receipt of the relevant funds has already been made. Further disclosure is said to be inappropriate given that the US$4.9 million received has been mixed with other funds in Strongjet's bank account, an account which is active with multiple other transactions.

The Injunctions:

46.  The primary position of the Win Billion defendants is that the injunction orders against them should be discharged. It is submitted that the allegations against them depend on unfounded fraud allegations (in respect of Win Billion and Wu) which are based on circumstantial evidence, and nothing more than an inference which the court is requested to draw that there has been some conspiracy between the defendants and Jody Wong, a practising lawyer in the United States.  The Win Billion defendants stress the “onerous evidential threshold required for a finding of fraud”.

Relevant Injunction Principles

47.  There was no real dispute between the parties as to the principles. An injunction may be granted where a plaintiff is able to demonstrate a serious question to be tried in the eventual hearing; that the plaintiff will, if the injunction is not granted, suffer loss which cannot be compensated in damages; that damages may constitute adequate recompense to the defendant should it turn out that the injunction was wrongly granted; and the balance of convenience lies with granting the injunction.

48.  Where the injunction sought is in the form of a Mareva, the obligation on the applicant is to show a good arguable case, which the Win Billion defendants submit, in reliance on Natural Dairy (NZ) Holdings v Chen Keen [2020] HKCFI 2491, requires a case which is stronger than one barely capable of serious argument.

49.  The applicant must show the existence of assets within the jurisdiction, and the balance of convenience must lie in favour of the grant of the injunction.  Moreover, a real risk of dissipation of the assets or removal of the assets from the jurisdiction which would result in the putative judgement in favour of the plaintiff being of no effect or value must also be shown.

50.  The Win Billion defendants remind me that, particularly where serious allegations are concerned (such as fraud) a proper evidential basis must be provided by the plaintiff justifying the drawing of the necessary inferences.  This does not mean however that the plaintiff must show that the putative defence is unarguable, or that the plaintiff must show that he has a “much better” case or argument then the defendant.  See Pacific Rainbow International Inc v Shenzhen Wolverine Tech Ltd [2017] HKCFI 751.

51.  As to the risk of dissipation of assets in the Mareva context, it is contended by Purple Surgical that this may be inferred if there is evidence of low commercial morality on the part of the defendant, albeit that the evidence must be scrutinised closely before the court draws such an inference from conduct. Hornor Resources International Co Ltd v Savvy Resources Ltd [2010] 4 HKC 50.

52.  Finally, as regards proprietary injunctions, an onus lies on a plaintiff to establish that the assets claimed are (to the extent that the evidence permits at a preliminary stage) the traceable proceeds of the original trust property. As stated in Federal Republic of Brazil v Durant International Corporation [2016] AC 297:

“The doctrine of tracing involves rules by which to determine whether one form of property interest is properly to be regarded as substituted for another. It is therefore necessary to begin with the original property interest and study what has become of it. If it has ceased to exist, it cannot metamorphose into a later property interest.”

53.  There is no need for a plaintiff to show a risk of dissipation of the assets where a proprietary injunction is sought unlike the ‘ordinary’ Mareva situation: China City Construction and Development Company (HK) Ltd [2020] HKCFI 1925, citing Madoff Securities International Ltd v Raven [2012] All ER (Comm) 634.

Continuation and Variation of Injunctions and Additional Disclosure

54.  These applications were opposed by the Win Billion defendants and it is perhaps therefore convenient to set out first a brief summary of the issues which are raised on their behalf, while keeping in mind that the burden lies throughout on Purple Surgical to make out the necessary elements of its claims for injunctive and associated relief.

55.  The primary point taken on behalf of the Win Billion parties is that save and except the claim for repudiatory breach made against Win Billion Purple Surgical’s claims are based on ‘weak evidence’ of fraud, which not only undermines any merit the claims may have, but also undermines any risk of dissipation.

56.  Specifically, it is said, the evidence which has been supplied is insufficient to show an intention on the part of Win Billion not to perform the SPA, indeed, the evidence on behalf of the Win Billion defendants is said to show the opposite.  It is submitted that the case for fraud “boils down to the mere fact that the Masks were not supplied to Purple Surgical … and payments made pursuant to the SPA were transferred away by Win Billion and Wu”.  By contrast, it is submitted, Win Billion have paid twice in respect of the Masks in a total amount of approximately US$970,000. The agreements which were made with YG Tech may have been commercially unsound, but there is nothing to show that these were other than genuine.

57.  Nor, it is submitted, is there anything to be read into the transfers of funds by Win Billion once received from Jody Wong because this was simply in the normal course of business.  This applies with particular force, it is said, to the monies received for the first payment.

58.  While Purple Surgical claim that the YG Tech contract was not legitimate, going so far as to submit that it was a sham, the Win Billion defendants submit there is no evidence to support this; no evidence as to the intentions of these parties, and certainly nothing that could show a common intention to falsely create the perception of a binding agreement when there was none. 

59.  It is submitted that the evidence is uncontradicted and shows that Win Billion and Wu at least believed the agreement with YG Tech to be a genuine transaction.

60.  It appears to me that the Win Billion defendants are inviting the court to look too far ahead in attempting, in effect to resolve issues as to the merits of the parties’ respective cases on affirmation.  At the end of the day, and after trial, it may indeed turn out that the allegations of fraud on the part of, or involving, Win Billion may be misplaced.  At present, since the evidence is inconclusive, that can only be a matter of surmise, however. The present consideration is simply whether Purple Surgical have been able to establish a ‘good arguable case’.

61.  As was noted by the court in Pacific Rainbow International Inc v Shenzhen Wolverine Tech Ltd [2017] HKCFI 751, where an opposing party seeks to show that there is no serious issue to be tried “the threshold is high, as it will be necessary to demonstrate that the claim should be struck out”. For my own part, I am entirely satisfied that Purple Surgical have laid the necessary foundations to show more than a serious question to be tried.  Moreover, this evidence from Purple Surgical is to be considered in the context of the opposing position.  While the Win Billion defendants have provided evidence in support of the proposed defence, there are nevertheless numerous unanswered questions that are raised on behalf of Purple Surgical.  These include the simple, but largely unexplained fact that no masks have been supplied, and no money has been returned.  The arrangements that were seemingly put in place by Win Billion and Wu to supply the Masks also give rise to what appear to me to be legitimate issues and questions as to whether any expressed intention to fulfil the SPA was genuine. 

62.  Given the background, the non-performance of the SPA could have been a matter that was beyond the control of Win Billion and /or Wu, as could the (otherwise wholly independent) illegitimate transfers away from the escrow account.  The latter could, conceivably, have been attributable to some self-contained misfeasance on the part of Jody Wong.  The evidence to date appears to cast some doubt on this however. Counsel for Purple Surgical refers to the fact that Win Billion sought (unsuccessfully) to oppose discovery in proceedings in California relating to the escrow account.  Those proceedings revealed a transfer by Jody Wong to a US corporation also bearing the Win Billion name, although whether a related entity or not is unclear. Win Billion’s rationale for opposing the US proceedings was said to be because of the risk of confidential third-party information being revealed.

63.  It appears odd, to say the least, that third party confidentiality should be considered to take precedence over the apparently unlawful distribution of substantial funds out of the escrow account by the escrow agent particularly when much of that money has found its way to the Win Billion defendants.  Counsel for Purple Surgical submits that, in fact, opposition to the California proceedings may have been motivated by the knowledge that Wu had been untruthful in his 6^th affirmation in stating that Jody Wong had not released more than US$9.45 million to Win Billion when in fact (as revealed through the California proceedings) approximately US$3 million more had been paid to Win Billion.

64.  Looked at in the round, and keeping in mind the relatively early stage of proceedings, non-performance of both the SPA (blamed implicitly on YG Tech and / or D & D) and the Escrow Agreement (blamed implicitly on Jody Wong) leads ineluctably to the present inference that the Win Billion defendants were themselves involved in these misfeasances.  The Masks were not merely delayed, they were never delivered at all.  A significant part of the escrow funds was wrongfully directed to the Win Billion defendants, without any explanation or even apparent contemporaneous surprise or concern. Win Billion and Wu appear to have attempted to cover-up payments from the escrow account.

65.  It is necessary, of course, for Purple Surgical also to show a real risk of dissipation by the Win Billion defendants and, in this context, those defendants rely heavily on the proposition that it is for the plaintiff, Purple Surgical, to establish this element. I am reminded, as is of course the case, that dispositions in the normal course of business are not dissipation of assets for these purposes.

66.  The Win Billion defendants submit that there is no obligation arising on the defendants to explain in detail the normal course of its business except when a prima facie case of dissipation has been made out which, it is submitted is not the case here. The burden of proof cannot be reversed so as to require a defendant to justify its normal business expenses. Even where dishonesty may appear to be involved in the original transaction, that should not be “carried over” so as to impute a risk of dissipation, it is said. Moreover, where a defendant has an established business domiciled or based within the jurisdiction, the court should be less ready to infer a risk of dissipation.

67.  In any event, it is said, Wu has now explained the larger transfers. For example, a sum of approximately US$3.7 million paid by Win Billion to Wu was a payment of dividends it is said. The payment to Strongjet was for the purchase of N 95 masks (as Strongjet also say), and the payment to Phase Scientific was an investment sum pursuant to a convertible loan agreement. In short, it is submitted, there is no evidence that Win Billion and/or Wu have dealt with funds in any manner which is inconsistent with their pre-existing practice.

68.  Purple Surgical, for its part, notes that the asset disclosure which has been made by Wu as a result of the court orders reveals no retained substantial wealth whatsoever. That disclosure does not reveal where the substantial sums of money which he received by way of “dividends” have gone.

69.  I do not accept that it is sufficient for the Win Billion defendants to rest on the burden of proof in this way. There is clear evidence adduced by Purple Surgical of fund flows from Win Billion which, without explanation, give rise to a clear implication of an attempt to dissipate the funds. This evidence is bolstered by the attitude taken by Win Billion in the California proceedings and the somewhat limp explanations for that which have been offered.

70.  In those circumstances, it appears to me, incumbent upon the Win Billion defendants to advance sufficient evidence to support the contention that the payments in question were matters of ordinary business. In my view the Win Billion defendants have failed to do so.

71.  Two further points are taken on behalf of the Win Billion defendants. The first is that there has been an inadequate cross undertaking as to damages, because the evidence as to Purple Surgical’s financial status is inadequate, being based solely on the assertions of Sharpe in his 1^st affidavit. Win Billion say that this is “plainly insufficient”. I do not accept that proposition, and there is nothing in evidence to suggest any inability on the part of Purple Surgical to satisfy any proper claim for damages that might be suffered by the Win Billion defendants.

72.  Secondly, there are said to have been various material non-disclosures by Purple Surgical in the ex parte application. Counsel for the Win Billion defendants correctly submit that in the discharge of its duty of full and frank disclosure, Purple Surgical should have set out points that might have been made against Purple Surgical by the defendants had they been present at the hearing.

73.  The specific examples referred to by the Win Billion defendants are amplified in the skeleton submissions to include:

i.  the failure to draw the attention of the judge to the fact that there was a “real possibility that Win Billion and Wu had legitimate innocent explanations for the non-delivery of the Masks;

ii.  the misrepresentation of Purple Surgical’s case, by contending that the transfers made by “Win Billion and Wu” in respect of the first payment were made in respect of funds that were other than at the free disposal of the payee;

iii.  the improper reliance on statements made by Wu after the SPA had been made to suggest that there had been a fraudulent misrepresentation to Purple Surgical;

iv.  a misrepresentation by Purple Surgical as to the nature and content of the communications between the parties to the SPA during June 2020; and

v.  an omission on the part of Purple Surgical to draw the attention of the ex parte judge to the fact that its claim is “only in relation to money” in seeking the proprietary injunctions against Wu and Smart Up.

74.  I am not, for my own part, persuaded that the above, to the limited extent made out, constitute relevant material non-disclosures. I respectfully agree with the approach advocated by Deputy Judge Ismail SC in Xie Li Xin v Law Ka Yan Thompson [2018] HKCFI 1096:

“… In laying down principles concerning disclosure of all material facts, the courts have not intended to give active encouragement to undeserving defendants to search ingenuously for facts which a plaintiff might innocently have failed to disclose, in the hope that a judge may consider the material and so discharge the injunction; common sense must prevail; and the heavy burden cast a plaintiff must not be allowed to become so as to become intolerable.”

75.  It seems to me that the ex parte judge would inevitably have been aware of the possibility of an innocent explanation being advanced in due course in regard to the non-performance of the SPA, and in regard to the nature of the communications exchanged between the parties while the SPA was still ongoing. I have no doubt, similarly, that the deputy judge would have been aware of the more specific circumstances that might require consideration in the context of application for a proprietary injunction. None of the complaints advanced on behalf of the Win Billion defendants constitute a material non-disclosure in my judgement.

76.  In all the circumstances, there can be no question but that Purple Surgical have shown the necessary strength in their claims as to entitle them to the continuation and of the injunction orders. 

Proprietary Injunction

77.  In regard to Win Billion and Wu, Purple Surgical seek Mareva relief, and further seek a proprietary injunction in respect of the proceeds of the 1^st payment, and the sum of US$3,776,591 on the basis that these represent the traceable proceeds of monies paid pursuant to a fraud instigated prior to those monies being paid by Purple Surgical.

78.  I am satisfied that a good arguable case exists for such claims, and that the grant of such proprietary relief is appropriate.

79.  In regard to Smart Up, the continuation of the existing proprietary injunction is also to be ordered. Purple Surgical seek to add a Mareva injunction on the basis that Smart Up, being a company under the control of Wu is to be taken to have been aware of the relevant circumstances, and equally as likely as Wu and Win Billion to dissipate assets. The explanations provided by Wu for the transfers he made to Smart Up are thin, and the balance favours the grant of the injunction in addition to the proprietary injunction.

Orders

80.  A draft order was provided by leading counsel for Purple Surgical following the close of the hearing, and for the reasons given above it seems to me to be appropriate that orders be made in terms of that draft.