SOCIÉTÉ GÉNÉRALE, SINGAPORE BRANCH v. INTER PACIFIC GROUP PTE LTD AND OTHERS

HCA 1617/2019

[2020] HKCFI 1508

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1617 OF 2019

________________________

________________________

______________

D E C I S I O N

______________

A. Introduction

1.  This Judgment relates to the return date of an inter partes summons in which the plaintiff bank seeks to maintain an ex parte injunction granted by Deputy High Court Judge M. K. Liu preserving the assets of the 8^th and 9^th defendants up to the sums of US$24,963,178.64 and US$6,652,507.63 respectively.

2.  The plaintiff claims against the defendants for an aggregate sum of US$79,823,845.47 in respect of money lent to the 2^nd defendant, Inter-Pacific Petroleum Pte Ltd, by way of trade finance in respect of 21 transactions between 21 June 2019 and 29 July 2019, in which the 2^nd defendant purportedly purchased marine bunkers from the 6^th defendant, Legend Six Holdings Ltd. According to the plaintiff all of the transactions were fictitious and the 2^nd defendant has not repaid any of the sums which are due under the various loans.

3.  The 1^st defendant is the parent company of 2^nd and 3^rd defendants, and has, along with the 3^rd defendant and the 4^th defendant, guaranteed to the plaintiff the liabilities of the 2^nd defendant. 

4.  The 4^th defendant, Zoe Cheung, is said by the plaintiff to be the mastermind of the fraud.  She is the 85% shareholder of the 1^st defendant, a director of the 2^nd defendant and the sole director of the 3^rd defendant.  There is a connection between Zoe Cheung and the 8^th and 9^th defendants, in that those companies are wholly-owned subsidiaries of Daisho Microline Holdings Limited, a company listed on the Stock Exchange of Hong Kong (Stock Code: 00567). Zoe Cheung was the chairman and a director of the parent company, as well as being a director of both the 8^th and 9^th defendants.  Her sister, who is not a defendant, is also a director of the 8^th and 9^th defendants. As a result of these connections the plaintiff draws the inference that the 8^th and 9^th defendants are intimately involved in the fraud and have at all times acted with knowledge of it.

5.  The plaintiff has alleged that each of the 10 defendants is involved in the fictitious trading, the fraudulent raising of trade finance, and/or the misappropriation of (or to use the words of the statement of claim “drain away and/or dissipate”) the funds so raised.  According to paragraph 35 of the statement of claim, the plaintiff has also now discovered that some portion of the funds lent by the plaintiff as a result of the fraud was recirculated back through the 3^rd defendant and the 2^nd defendant. 

6.  This judgment concerns only the 8^th and 9^th defendants and whether the injunctions which the plaintiff has obtained against them ought to be maintained.

7.  It is alleged against them that the 6^th defendant transferred various of the misappropriated monies to them as set out in Annexure A to the statement of claim.

8.  The affidavit of Damien Marie Alain De La Gorgue De Rosny on behalf of the plaintiff states that on 27 August 2019 Zoe Cheung called a Mr Siow of the plaintiff and confessed to the fraud. There is the following relevant paragraph in the note recording that conversation, which concerns the way in which the money was dissipated by the 6^th defendant:

“We asked how the funds were being routed back to IPP Group. She told us that IPP will pay to Legend Six, and Legend Six will pay to another HK company, Oriental Everise [the 10^th defendant], who then pay back to IPP/CX Group. We asked about Legend Six and whether John Chen [the 7^th defendant] is aware of his involvement in this flow. She informed that John Chen is not aware of such financing arrangement and the use of these funds. We asked if possible to get the bank statements of Legend Six and to talk to John Chen and she agreed that she will assist to get the information we require and arrange with John Chen to talk to us directly.”

9.  Notwithstanding that evidence the bank still contends that Legend Six and John Chen knew or should have known that the transactions were fraudulent, because there was no underlying transfer of goods.

10.  The plaintiff also contends that it has become apparent from the disclosure that has been provided upon the granting of an injunction against the 1^st to 7^th defendants, and from disclosure obtained pursuant to a Bankers Books Order against Bank of China, that not only was money recirculated via the 10^th defendant but also via the 8^th and 9^th defendants, who also participate in trading of marine bunkers.

11.  According to the evidence of Lee Man Kwong, on behalf of the 8^th and 9^th defendants, the 8^th and 9^th defendants have entered into legitimate transactions with the 6^th defendant pursuant to which they have sold marine bunkers to the 6^th defendant such that any money which has been paid to them has been legitimately paid pursuant to those transactions.  He has produced a framework contract dated 1 December 2018 between the 8^th and 6^th defendants for the sale of bunkers, as well as various invoices evidencing various individual sales.  Similar documentation has been produced in relation to the 9^th defendant’s dealings with the 6^th defendant, although without a framework contract.

12.  It is said in paragraph 31 of the statement of claim that:

“by letter and/or notice dated 2 December 2019, the Bank has rescinded the aforesaid 21 transactions in respect of the loan facilities in the aggregate principal amount of US$79,823,845.47.”

13.  I have not been able to find that letter in the exhibits, and it is not clear to me from the pleading exactly what it was that the plaintiff has purported to rescind, however I shall assume that it has purported to rescind the loans which were made to the 2^nd defendant, and advanced directly to the 6^th defendant, for the purposes of financing the fictitious transactions.

14.  Insofar as the 8^th and 9^th defendants are concerned, it is said (in paragraph 35 of the Statement of Claim) that they knew, or ought to have known that there was no discernible reason why the 6^th defendant would remit substantial sums to companies controlled by Zoe Cheung, and the knowledge of Zoe Cheung is attributable to the 8^th and 9^th defendants such that they knew or ought to have known that the amounts they received arose from or were connected to a conspiracy and/or the wrongdoings of the defendants.  The statement of claim alleges essentially three causes of action against the 8^th and 9^th defendants:

(a)  At paragraph 22, that they are party to a conspiracy “formed between IPG, IPP, CX, Zoe Cheung, Stephen Lau, Legend Six, John Chen, Pacific Dragon, Daisho Microline and Oriental Everise (or two or more of them)” by which they conspired to defraud and/or injure the plaintiff by unlawful means with intent.

(b)  At paragraph 38, that they are liable to the plaintiff as constructive trustees “in light of the fraudulent, dishonest and/or unconscionable conducts on the part of the defendants in procuring, receiving, retaining and/or dealing with the funds and/or moneys from the bank”. 

(c)  At paragraph 40 that the defendants are liable:

(1) due to their unconscionable receipt of trust property; and

(2) as a result of their dishonestly assisting the 6^th defendant to breach its fiduciary duties allegedly owed to the plaintiff, to return the money to the plaintiff as a constructive trustee.

15.  The plaintiff sought, and obtained, an injunction against the 8^th and 9^th defendants on two bases:

(a)  a proprietary injunction, on the basis that the amounts transferred to the 8^th and 9^th defendants respectively represent the plaintiff’s property, or the traceable proceeds thereof;

(b)  a Mareva Injunction freezing the assets of the 8^th and 9^th defendants because there exists a good arguable case against them (presumably in respect of personal claims), a risk of dissipation and the balance of convenience should satisfy the Court that such a freezing order should be made.

B. Procedural History

16.  On 13 September 2019, following ancillary disclosure given in relation to an injunction that had been granted against the 1^st to 7^th defendants on 30 August 2019 and evidence obtained as a result of a Bankers Books Order against Bank of China, Deputy High Court Judge M.K. Liu granted a preservation order and a Mareva injunction against the 8^th to 10^th defendants on an ex parte basis.

17.  The return date of the order was 20 September 2019 and on that occasion, before Mr Justice Keith Yeung as the summons judge, the 8^th and 9^th defendants opposed the continuation of the injunction against them. Mr Justice Keith Yeung continued the injunction, subject to some variation, until a substantive hearing of one day could take place. The one day hearing is the hearing that was before me.

18.  In a hearing on 29 November 2019 the 8^th and 9^th defendants sought a variation of the injunction in the following relevant terms:

“1. The 8^th defendant do cause the sum(s) totalling HK$3,445,888.78 (being the available bank balances as held in its bank accounts as of 26 September 2019) to be paid into Court (subject to the deductions of reasonable legal costs for legal advice and representations and the ordinary and proper business expenses as proposed in (4) & (5) below);

2. The 9^th defendant do cause the sum(s) totalling HK$6,783,017.52 (being the available bank balances as held in its bank accounts as of 26 September 2019) to be paid into Court (subject to the deductions of reasonable legal costs for legal advice and representations and the ordinary and proper business expenses as proposed in (4) & (5) below);

3. By reason(s) of the payment into Court as proposed in (1) & (2) above, the ex parte order to the extent of US$24,963,178.64 (against the 8^th defendant) and US$6,652,507.63 (against the 9^th defendant) as granted by Deputy High Court Judge M. K. Liu (the “Ex Parte Order”), which was continued and amended by the Honourable Mr Justice K. Yeung on 20 September 2019, and Mr Recorder Eugene Fung SC on 27 September 2019 (the “Inter Partes Orders”) (collectively the “Injunction Order”) be discharged.”

19.  Mr Recorder Stewart Wong SC dismissed the variation application, which at least in part he described as a Discharge Order, and in his decision he discussed the nature, and to some extent the merits, of the plaintiff’s case against the 8^th and 9^th defendants.

20.  Many of the same arguments have been canvassed before me.

C. The Principles

21.  At the highest level, the principles upon which the Court will grant a Mareva injunction are well settled:

(a)  Has the plaintiff established a good arguable case?

(b)  Does the defendant have assets within the jurisdiction?

(c)  Is there a risk of dissipation?

(d)  Where does the balance of convenience lie?

22.  Inevitably, however, there are nuances with each of those requirements.  So often in cases of this nature, where the Court is not addressing the alleged primary fraudsters but is addressing the position of those whose involvement may have been more peripheral, the Court will be required to make nuanced judgments on each of the various matters about which it is required to be satisfied.  The Courts have, through the now extensive case law on Mareva and proprietary injunctions, developed various trains of thought which assist to guide a judge through the difficult task of making those nuanced judgments on a prima facie basis, often with less than full evidence and usually faced with vastly differing positions adopted by the opposing parties.

23.  The plaintiff’s primary stance is that I should not be concerned about the detail of the requirements for either the Mareva injunction or the proprietary injunction sought, or how they have been satisfied.  Its contention is that the previous decisions of the Court in this matter have already determined that injunctions should be granted, and the plaintiff contends that I am either bound by, or at least should be strongly guided by, those decisions.  As a result the plaintiff has not really engaged with any of the relevant case law other than reciting the high level requirements.  That gives rise to a difficulty because, if I am not with the plaintiff on its primary stance (as is in fact the case, for reasons I set out below), I am left with little guidance from the plaintiff as to how I should exercise my judgment on many of the points that will become important. 

24.  Insofar as the injunction is a proprietary injunction, it is founded on an entirely different premise to a Mareva injunction.  A proprietary injunction is focused on specific assets, or the traceable proceeds thereof, which it is said belong to a plaintiff, but which are being held by a defendant, whereas a Mareva injunction is focused on assets belonging to a defendant which might be used to satisfy a judgment for damages subsequently obtained by a plaintiff.  The putative ownership of the assets dictates that different approaches are required for each type of injunction. 

25.  This is not the correct judgment to distil the differences more fully, but they include, relevantly to this case, differences in relation to:

(a)  The need to adduce reasonable evidence of the existence and location of the specific assets over which a proprietary claim is said to exist;

(b)  The need for the existence of a risk of dissipation in the context of a Mareva injunction, but not in the context of a proprietary injunction; and

(c)  The extent to which it is appropriate to allow legal and living expenses to be paid out of the injuncted assets.

26.  Again, at the highest level, for a proprietary injunction the normal American Cyanamid test is used in order to assess the appropriateness of the injunction, and there is no need to demonstrate a risk of dissipation.  Thus the issues to be considered are:

(a)  Is there a serious issue to be tried on the merits;

(b)  Is the balance of convenience in favour of granting an injunction; and

(c)  Is it just and convenient to do so.

27.  But inevitably the balance of convenience, and the justice of the injunction has to take into account the fact that the assets being frozen in the hands of the defendants are (at least arguably) not the assets of the defendants, but are the assets, or the traceable proceeds thereof, of the plaintiff.  The balance is therefore rather more weighted in favour of granting than it would otherwise be. 

28.  I bear in mind these principles and differences in my discussion below, although to avoid repetition I have not entirely separated out the discussion of the Mareva injunction sought from that relating to the proprietary injunction sought.

D. Good Arguable Case of a Fraud

29.  I am satisfied on the evidence that there is a good arguable case that the bank has become the subject of a fraud. That fraud is the  raising of trade finance against fictitious transactions. I am satisfied, so far as is necessary for the purposes of this judgment, that there is a good arguable case made out against each of the 1^st to 7^th defendants. However the 8^th and 9^th defendants are at least one stage removed from that fraud and it is therefore important to look carefully and critically at the alleged manner of their involvement, and the alleged knowledge which they are said to have.

E. Good Arguable Case against the 8^th and 9^th defendants

E1. Previous Decisions

30.  The plaintiff relies upon the decision of Keith Yeung J to suggest that he has found that there is a good arguable case against the 8^th and 9^th defendants.  I am not sure that he has so found.  His analysis is understandably short given the way in which the matter came before him and that it was known that it would be the subject of full argument during the scheduled one day hearing.  Further, no statement of claim had been served as at that date.  It seems to me that he was prepared to accept for the purposes of the hearing before him that there was a good arguable case, but given the shortness of time available both to the Court and to the 8^th and 9^th defendants, the judge has done no more that leave substantive argument to the one day hearing before me.  Therefore I do not agree with the plaintiff that I need not analyse the claim that is now made in the statement of claim.

31.  The plaintiff equally relies upon the decision of Recorder Stewart Wong SC as concluding that there was a good arguable case against the 8^th and 9^th defendants.  The issue before the Recorder was whether the injunction against the 8^th and 9^th defendants should be varied, albeit that the variation sought amounted to a discharge of the injunction. As at that date the statement of claim had not been served and it was known that there was a one day hearing for full argument on the continuation summons. The Recorder expressly identified, in paragraph 7 of his decision, that the 8^th and 9^th defendants were challenging, in the continuation summons, whether the plaintiff had established a good arguable case against them. 

32.  The variation to the injunction which was sought before the Recorder would have a similar effect to the position which the 8^th and 9^th defendants have adopted before me. They sought an order that they be required to make payments into Court of sums less than were injuncted, and that upon payment into Court of those sums, the injunctions should be discharged.  In effect therefore it was an application for a variation to reduce the sums the subject of the injunction, because the Ex Parte order itself provided that if the sums were paid into Court then the injunction would be discharged. The Recorder undertook an analysis for the purpose of understanding whether the varied injunction would be adequate to maintain the position pending the resolution of the continuation summons at the inter partes hearing.

33.  Whilst the analysis contained within the Recorder’s decision is useful, I do not believe that it in any sense binds me given that he was addressing a different issue, without the benefit of knowing the way in which the plaintiff would plead its claim in the statement of claim, and at the same time knowing that the continuation summons would come before the Court for a full day of argument in due course, including as to whether there was a good arguable case, a risk of dissipation and where the balance of convenience lay.

34.  Consequently I do not consider that either decision binds me, and I do not believe that they relieve me of the obligation to address my mind to whether the plaintiff has established a good arguable case as against the 8^th and 9^th defendants, or as to any other of the factors that are required for the purposes of obtaining, or maintaining an injunction, whether it be proprietary or Mareva in form.

35.  I therefore turn to address the causes of action alleged to see if a good arguable case is shown on the evidence in relation to either one or more of those causes of action. 

E2. Conspiracy

36.  In order to establish a claim for unlawful means conspiracy (which is the type of conspiracy pleaded) a plaintiff must show:

(a)  That there was an agreement, or combination by which the parties shared a common intention, between the conspirators (hence inevitably including the relevant defendant) to injure the plaintiff;

(b)  That the agreement was to take an unlawful action or to do an unlawful act;

(c)  The unlawful act(s) caused loss to the plaintiff; and

(d)  The conspirators intended to cause loss to the plaintiff.

37.  I am not at all satisfied that the evidence demonstrates a combination or agreement that involves the 8^th and 9^th defendants.

38.  Even accepting that the pleading and evidence in relation to those directly involved in the fraud, i.e. the 1^st to 7^th defendants, is capable of giving rise to a conspiracy (about which I pass no comment) I have not seen any evidence that the 8^th or 9^th defendants were involved.  The highest that the plaintiff can put its case in this respect is that the 4^th defendant was the mastermind of the fraud and she was also a director of the 8^th and 9^th defendants at the material time.  The plaintiff effectively asks me to draw an inference from those facts that there was a conspiracy. 

39.  But it seems to me that this is mere speculation, and there is no supporting evidence from which I can reliably draw that inference.  For example if the 8^th and 9^th defendants were part of a conspiracy it seems almost inevitable that they would have to have entered a conspiracy with at least the 6^th defendant, because it was the 6^th defendant that was the counterparty with the 8^th and 9^th defendants in the allegedly wrongful transactions for which they are said to be liable.  Without some agreement between those entities the conspiracy theory would fail at the start.  And yet the 4^th defendant is not a director of the 6^th defendant.  It is the 7^th defendant that is the sole director and shareholder of the 6^th defendant, and the plaintiff has not relied upon his involvement as evidencing the alleged conspiracy with the 8^th and 9^th defendants. 

40.  Although it is pleaded that he was a part of the overall conspiracy there is no suggestion in the evidence or in the submissions as to what role he played.  The “confession” which the plaintiff relies upon expressly excludes him from the fraud, and other than the proposition that he must have known that the transactions in which his company purported to sell goods to the 2^nd defendant were fictitious because no goods existed, he is not said to have played any role.  In particular, there is nothing which suggests that he deliberately entered into transactions (fictitious or otherwise) with the 8^th or 9^th defendant with unlawful intent to injure the plaintiff.  Without the plaintiff demonstrating at least some involvement between him (as the sole shareholder and director of the 6^th defendant) and the 8^th and 9^th defendants I cannot be at all satisfied about the alleged conspiracy involving those defendants.

41.  I am not prepared to draw the inference which the plaintiff urges upon and in my view the conspiracy theory involving the 8^th and 9^th defendants does not pass the threshold test of a good arguable case.

E3. Constructive Trustee 

42.  The plaintiff’s pleaded claim is that the constructive trust arises in the light of “fraudulent, dishonest and/or unconscionable conduct on the part of the defendants in procuring, receiving, retaining and/or dealing with the funds and/or monies from the Bank as pleaded hereinabove under Section C, a substantive constructive trust has arisen (and/or various substantive constructive trusts have arisen) in respect thereof in favour of the Bank by reason of operation of law.”

43.  Insofar as I am able to understand the pleaded case, it seems to allege that because of the deceit and fraudulent misrepresentation perpetrated by those dealing with the plaintiff, the plaintiff was entitled to, and did in December 2019, avoid the loan transactions with the consequence that the money which was lent by the plaintiff to the 1^st and/or 2^nd defendants, but paid directly by the plaintiff to the 6^th defendant, is in reality still money owned by the plaintiff such that any party into whose hands it passes must hold it as a constructive trustee for the plaintiff.

44.  I accept that a constructive trust is likely to arise over the money in the hands of the 6^th defendant in those circumstances.  It is fairly well settled that funds received as a result of a fraud are prima facie held on constructive trust by the recipient, such that a proprietary claim may arise over them.

45.  Assuming, therefore, that the funds can be traced into the hands of the 8^th and 9^th defendants, I accept that they will hold those funds as constructive trustee for the plaintiff unless they can establish that they are bona fide purchasers for value without notice or they have changed their position in good faith. This is not intended to be a complete recitation of the law in this area, but nonetheless I consider that it is an adequate summary for this purpose.

46.  The 8^th and 9^th defendants have accepted, for the purposes of this application only, that the sums which are currently in their bank accounts, namely HK$3,445,888.78 for the 8^th defendant and HK$6,783,017.52 for the 9^th defendant are, taking the plaintiff’s case at its highest, traceable proceeds (See paragraph 20(2) of the defendants’ skeleton).  They have offered to pay that amount into Court, and in any event contend that any proprietary injunction must be limited to that amount.

47.  In the light of that acceptance, I accept that a proprietary injunction in those amounts against the 8^th and 9^th defendants is appropriate.

48.  However, whilst accepting that the plaintiff overcomes the hurdle of a good arguable case on the proprietary aspect of its claims up to these amounts, it seems to me that there are some further difficulties which the plaintiff faces in respect of its proprietary claim insofar as the rest of the money is concerned.

49.  It is apparent that the vast majority of the money which was received by the 8^th and 9^th defendants has since moved on.

50.  The plaintiff contends that it is, and remains, possible that traceable assets will return to the 8^th and 9^th defendants such that the proprietary claim against those defendants will increase in value. In this context it relies upon paragraph 18 of the decision of Recorder Stewart Wong SC for the proposition that a proprietary claim would extend to any traceable assets which are so returned. 

51.  I accept as arguable the proposition that if there are traceable assets which are returned to the 8^th and 9^th defendants the plaintiff would have a proprietary claim over them in the hands of the 8^th and 9^th defendants. 

52.  But the prospects of that happening seem to me to be very low given that:

(a)  the fraud occurred in June and July 2019.  It is now June 2020, and during the year that has elapsed the plaintiff’s money is likely to have moved through various bank accounts, probably into and out of mixed funds, and is unlikely now to circle back to the 8^th and 9^th defendants,

(b)  the assets in the hands of the 8^th and 9^th defendants over which any proprietary claim might be made was money, which is fungible and has most likely been placed in mixed funds and so may no longer be traceable in any event, and

(c)  the 8^th and 9^th defendants are defendants to proceedings in respect of that fraud. 

53.  In all the circumstances I find it very difficult to accept that traceable assets are likely to return in the way the plaintiff relies upon, and therefore that the plaintiff has a good arguable case based on a proprietary claim for any amount greater than the assets which have been identified in the 8^th and 9^th defendants’ bank accounts.  In evidential terms the plaintiff has not been able to adduce reasonable evidence of the existence and location of those further specific assets over which it seeks a proprietary injunction.

54.  Further, the 8^th and 9^th defendants have identified what appears on its face to be legitimate trading as between the 8^th and 9^th defendants and the 6^th defendant.  Full evidence of that is not available, but it is clear that the framework contract between the 6^th defendant and the 8^th defendant which has been produced predates the fraud, and the plaintiff has not made any suggestion that it is false or does not represent a legitimate trading relationship.  That gives rise to the real prospect of the 8^th and 9^th defendants having been the equivalent of bona fide purchasers for value without notice, or that they have bona fide changed their position such as to avoid the consequences of the constructive trust that would otherwise attach to the money. 

55.  Therefore in my view the proprietary aspects of the injunction should be limited only to those assets accepted by the 8^th and 9^th defendants as being traceable, despite the fact that Mr Recorder Stewart Wong took a different view pending the resolution of the hearing before me.

E4. Knowing receipt

56.  In order to establish liability for knowing receipt the plaintiff must show that:

(a)  there has been a breach of fiduciary duty,

(b)  as a consequence of that breach the 8^th and 9^th defendants have beneficially received monies which are traceable as representing the assets of the plaintiff;

(c)  the 8^th and 9^th defendants’ knowledge of the dealing with those assets is such that it would be unconscionable for the 8^th and 9^th defendants to be permitted to retain the benefit of the monies received.

57.  These propositions are somewhat compendiously pleaded at paragraph 40 of the statement of claim where it is simply stated that the 8^th and 9^th defendants are liable to the plaintiff “as constructive trustees… On the basis of (i) unconscionable receipt of trust properties;”

58.  In particular:

(a)  the breach of fiduciary duty which is alleged is not identified; and

(b)  there are no particulars of the proposition that the money received by the 8^th and 9^th defendants is traceable as the assets of the plaintiff, other than the proposition that the 8^th and 9^th defendants are holding that money as a constructive trustee for the reasons I have addressed above.  That limits the claim to the proprietary claim which I have already addressed above.  To the extent that the constructive trust relied for this cause of action is different to that relied upon for the proprietary claim, then there are no particulars as to why the 8^th and 9^th defendants hold the money on constructive trust. 

(c)  no particulars are given as to the alleged knowledge and therefore the unconscionability other than, presumably, the proposition that has been pleaded in a different context much earlier in the pleading that the 4^th defendant was a director of the 8^th and 9^th defendants at the material time and that her knowledge of the fraudulent transactions with the bank is attributable to the 8^th and 9^th defendants.

59.  Therefore, based upon what I consider to be the proper reading of the pleading, the claim for knowing receipt does not add anything to the proprietary claim, and I need not address it further.

60.  However, in case I have wrongly read the pleading, I shall address the case of knowing receipt more generally:

(a)  In my view there is at least a good arguable case that the 4^th defendant has breached her fiduciary duties to either or possibly both of the 1^st and 2^nd defendants by causing them to enter into fictitious sales transactions and incurring liabilities to the plaintiff on a false basis. Hence there is a good arguable case as to the 1^st limb of the cause of action of knowing receipt.

(b)  The breaches of duty of the 4^th defendant would render the transactions with the plaintiff voidable for want of authority such that the money which passed amongst the various defendants would be traceable as representing the assets of the plaintiff.

(c)  The pleaded allegations of deceit and actionable misrepresentation would also render those transactions voidable, and it appears that the plaintiff has indeed voided them such that the money received by the 6^th defendant under the voided loans would be traceable as assets of the plaintiff.

61.  I recognise that the 8^th and 9^th defendants have accepted that (at the height of the plaintiff’s claim) the sums of HK$3,445,888.78 and HK$6,783,017.52 are traceable and hence these amounts at least would be covered also by the personal claim of knowing receipt.  However, no detailed tracing exercise to demonstrate that the remainder of the money received by the 8^th and 9^th defendants can in fact be traced as assets of the plaintiff has been brought to my attention.   

62.  I have attempted to correlate the payments made to the 8^th or 9^th defendants with payments made to the 6^th defendant by the plaintiff by using the bank statements that have been produced, but as is apparent from the table below, there is no obvious correlation, save for the possible exception of the 1^st two payments to the 8^th defendant and the payment to the 9^th defendant.  However, given the lack of any apparent correlation amongst the other payments, I am not prepared to make the assumption that the ones that might correlate do in fact correlate.  Overall the picture that emerges is that the amounts are different (and not even close), and the dates are also significantly different, so it is not possible to identify that money has been moved directly from the plaintiff to the 6^th defendant to the 8^th or 9^th defendant.  That is particularly so given the existence of an apparently legitimate trading relationship between the 6^th defendant and each of the 8^th and 9^th defendants :

Date	Paid by Plaintiff to 6th  Defendant (US$)	Paid to 8th Defendant by 6th  Defendant (US$)	Paid to 9th Defendant by 6th Defendant (US$)
21/6/2019	4,986,912.38
21/6/2019		2,853,157.30
24/6/2019		1,974,905.96
24/6/2019	3,990,384.93
25/6/2019	1,205,346.30
26/6/2019	2,790,621.31
28/6/2019		4,033,959.29
28/6/2019		1,722,857.98
2/7/2019	3,491,612.31
3/7/2019	3,986,563.10
5/7/2019	4,477,832.23
5/7/2019	4,007,465.37
9/7/2019	2,805,799.13
9/7/2019	2,486,038.75
10/7/2019		6,108,790.88
15/7/2019	8,984,014.24
16/7/2019		3,837,773.47
16/7/2019	4,017,796.35
16/7/2019	4,005,447.44
17/7/2019	3,988,535.20
18/7/2019	3,994,621.57
19/7/2019	4,004,594.31
22/7/2019	1,991,686.56
23/7/2019		4,431,733.76
23/7/2019	5,006,199.59
25/7/2019	2,997,758.51
26/7/2019	3,801,034.54
29/7/2019	2,803,581.35
30/7/2019			6,652,507.63

63.  It is possible that a more detailed tracing exercise could be undertaken which may demonstrate the point being made by the plaintiff, but I do not think that it is the duty of this Court to attempt to do that.  That is the obligation of the plaintiff if it wishes to demonstrate that the money received by the 8^th and 9^th defendants is traceable as assets of the plaintiff.  It has not been done, and hence I am unable to say with any confidence that there is a good arguable case that all, or indeed any, of the US$24,963,178.64 and US$6,652,507.63 is made up of assets that are traceable to assets of the plaintiff, save insofar as has already been accepted by the 8^th and 9^th defendants for the purpose of this application.  An equally valid explanation for receipt of that money might be innocent and legitimate trading as between the 6^th defendant (not using money obtained by the 6^th defendant by way of the loans made by the plaintiff) and the 8^th or 9^th defendant. 

64.  For this reason, save insofar as the sums of HK$3,445,888.78 and HK$6,783,017.52 are concerned, I would discharge the injunction based on the personal cause of action for knowing receipt, even to the extent that it may be premised on a wider understanding of the cause of action than is currently pleaded.  I do so even without addressing the question of unconscionability.

E5. Dishonest Assistance

65.  In order to establish a claim for dishonest assistance a plaintiff needs to demonstrate that:

(a)  There is a breach of fiduciary duty;

(b)  The defendant assisted in the breach of fiduciary duty;

(c)  The defendant did so dishonestly.

66.  The dishonest assistor then has a personal liability to make good the losses that have arisen from the breach of fiduciary duty which he assisted. That liability is equivalent to the liability of the defaulting fiduciary.

67.  The plaintiff has pleaded that the relevant breach of fiduciary duty is a breach of an alleged duty owed by the 6^th defendant to the plaintiff. I note that the 6^th defendant has no relationship with the plaintiff, and consequently the duty pleaded can only arise if and to the extent that the manner in which the 6^th defendant received the money from the plaintiff would give rise to a fiduciary duty.

68.  In my view it is arguable that the 6^th defendant did owe a fiduciary duty to the plaintiff in respect of the money that it received, on the assumption that a constructive trust arose over the money in the hands of the 6^th defendant.  Fiduciary duties are variable, and there is no uniform concept of a fiduciary duty.  There is no pleading of the nature of the fiduciary duty which is alleged, but I am prepared to accept that it would include not dissipating the trust money in a way that would be contrary to the interests of the plaintiff.

69.  Further for the reasons set out in paragraph 60 above it is arguable that the 4^th defendant is in breach of her fiduciary duties to the 1^st and 2^nd defendants and although this has not been pleaded by the plaintiff I shall consider it anyway.

70.  Therefore I am satisfied that there is a good arguable case of a relevant breach of fiduciary duty of one type or another.

71.  I am also satisfied that there is a good arguable case that the 8^th and 9^th defendants assisted in both the above breaches of fiduciary duty.

(a)  Insofar as the breach by the 6^th defendant is concerned it is arguable that they assisted by allowing the 6^th defendant to transfer monies to them in breach of fiduciary duty (and to this extent the 6^th defendant would owe fiduciary duties in respect of all of the money, not just that remaining now in the 8^th and 9^th defendants’ accounts).

(b)  Insofar as the breach by the 4^th defendant is concerned I have already accepted at paragraph 29 above that it is arguable that the transfer of money from the 6^th defendant to the 8^th and 9^th defendants was part of an overall scheme master minded by the 4^th defendant in which a series of transactions were entered into for the purposes of raising trade finance from the plaintiff on false pretences, and that she caused the 8^th and 9^th defendants to take part in that scheme such that the part that they played (either knowingly or unknowingly, which is an issue to be addressed under the heading of dishonesty) amounts to assistance.

72.  I recognise that there may be a tension between this last finding and the conclusion which I have reached above to the effect that the money received by the 8^th and 9^th defendants is not traceable as assets of the plaintiff for the purposes of knowing receipt, but it seems to me at least arguable that the test for such traceability under knowing receipt is somewhat more limited in scope than the requirements for assistance for the cause of action of dishonest assistance.

73.  As to dishonesty, this requires a two stage approach.  First the Court must establish the knowledge of the defendant, either actual, blind eye (which is equated to actual), or less than blind eye. Secondly the Court must assess the actions which the defendant took (or his lack of action) in the light of his knowledge as found in the first stage, and make an assessment of the honesty of that action or inaction by reference to an objective standard of honesty. 

74.  I accept that it is arguable that the knowledge of the 4^th defendant should be attributed to the 8^th and 9^th defendants for this purpose. The question of attribution of knowledge in this context is complex and has not been argued before me. Consequently nothing I say in this judgment should be considered in any sense to express a view as to whether such knowledge is finally attributable, but I consider that the point is at least arguable and therefore satisfies a good arguable case for the purposes of injunctive relief.

75.  Given the attributable knowledge of the 4^th defendant, that the transactions with the 6^th defendant were fictitious and that the 6^th defendant was part and parcel of an overall fraud against the plaintiff, I consider that it is at least arguable that the 8^th and 9^th defendants were also dishonest in their assistance in the later stages of that fraud (if that is indeed ultimately what is proved to have happened).

76.  I recognise that the 8^th and 9^th defendants may well argue that their relationship with the 6^th defendant is a legitimate trading relationship, and that the transactions that they have entered into with the 6^th defendant are legitimate transactions in which money has changed hands in return to title to goods properly purchased and delivered.  That may be so, but it is at least arguable that a party to such legitimate transactions can still be dishonestly assisting a fiduciary to breach his fiduciary duty.  In other words the mere fact that a transaction is, on its face, legitimate does not prevent it being part of an overall scheme in breach of fiduciary duty, and does not prevent an accessorial liability for dishonest assistance.

77.  In all the circumstances, I am prepared to accept that there is a good arguable case for relief under the cause of action of dishonest assistance.

78.  The plaintiff is seeking an injunction in the sum of US$24,963,178.64 and US$6,652,507.63 against the 8^th and 9^th defendants respectively.  Those defendants contend that the correct sum is US$16,101,156.09 in respect of the 8^th defendant (See paragraph 7 of the 3^rd Affidavit of Mr Lee).  I have not seen any detailed response to that from the plaintiff and looking at my analysis of the bank statements the figure on those statements seems to come to US$24,963,178.64.  It is unfortunate that the Court is left to try to work this matter out for itself.  On balance, in the light of the bank statements, I am prepared to accept the figure of US$24,963,178.64. 

79.  Consequently, I consider that there is a good arguable case for injunctive relief in those sums, subject to a consideration of the other matters to be addressed under a Mareva injunction.

F. Assets within the Jurisdiction

80.  There is no dispute on this issue, and it is clear that the 8^th and 9^th defendants both have assets within the jurisdiction.

G. Risk of Dissipation

81.  The most recent case in Hong Kong that this Court is aware of which addresses the question of risk of dissipation is a decision of Deputy High Court Judge Le Pichon in Pacific Andes Enterprises (BVI) Ltd & others v Ng Joo Siang & others [2020] HKCFI 1242 in which, at paragraph 80, she distils the propositions identified by Harris J in Convoy Collateral Ltd v Cho Kwai Chee (a.k.a. Cho Kwai Chee Roy) and Others [2020] HKCFI 429[1]. Neither party has referred me to either of these cases, and I have considered whether I should identify them to the parties and ask for submissions upon them.  However, on reflection, I do not consider that to be necessary as the matters set out are not propositions of strict law, and they do not set rigid rules, but they are what I have described above as “trains of thought” which can guide a judge in reaching the nuanced decisions that he or she must reach when considering this question.  Both parties have had a full opportunity to address me on the issue of risk of dissipation, and it is not necessary to provide further opportunity.

82.  The relevant propositions are as follows:

(a)  The rationale for a Mareva injunction is to restrain a defendant from evading justice by disposing of assets otherwise than in the normal course of his affairs with the result that a defendant becomes judgment proof.

(b)  it is not to provide security for the plaintiff.

(c)  there must be concrete evidence that there is a real risk of dissipation of assets. The risk must be proved.

(d)  it is not sufficient to show that the defendant has a reason or opportunity to dissipate assets.

(e)  there is no presumption either that a defendant who has the means to do so will make himself judgment proof. Otherwise, the burden of proof would be reversed.

83.  In support of the risk of dissipation the plaintiff relies upon the proposition that the 8^th and 9^th defendants are not innocent recipients and neither the 4^th defendant nor her sister has made any affirmation to deny the knowledge of the 8^th and 9^th defendants. From the skeleton argument of the plaintiff it appears that this is actually the only basis upon which it is suggested there is a risk of dissipation.

84.  I accept that knowledge of the existence of a fraud, particularly when combined with (as I have found) a good arguable case of dishonest assistance identifies what has often been described (at least in Hong Kong) as “low commercial morality”, and that the existence of a low commercial morality may be used by the Court to infer a risk of dissipation. This has been a recognised part of Hong Kong jurisprudence since the case of Honsaico Trading Limited v Hong Yiah Seng Co Ltd [1990] 1 HKLR 235. 

85.  However it cannot be relied upon in isolation.  I refer in particular to[2]:

(a)  Feng Lishe v Xu ZhiQiang (unreported) HCA 2178/2015, 1 June 2017) per Recorder Stewart Wong SC who said at [41]:

“41. I accept that if there is a good arguable case in support of an allegation that the defendant has acted fraudulently or dishonestly, or with unacceptably low standards of morality giving rise to a feeling of uneasiness about the defendant, then a risk of dissipation may be inferred by the Court even without specific evidence in that regard: see CAC Brake Co Ltd Zhuhai v Bene Manufacturing Co Ltd (CACV 94/1998 30 April 1998) at 7 per Mortimer VP; AH Baldwin and Sons Ltd v Sheikh Saud Bin Mohammed Bin Ali Al-Thani [2012] EWHC 3156 (QB) at §31(4) per Haddon-Cave J. However, that is not an invariable rule, and the Court has to consider all the evidence before it to decide whether a risk of dissipation is shown or can be inferred.”

(b) Eastman Chemical Ltd v Heyro Chemical Co Ltd (No 2) [2012] 3 HKLRD 307 at [26] where DHCJ Winne Tam said:

“…

(2) when considering whether there was an unacceptably low commercial morality to infer a risk of dissipation of assets, the Court should scrutinise the evidence with care and should not too readily infer a real risk of dissipation from the defendant’s conduct or commercial morality…”

(c)   Sky High Investments Limited v Yu Jun [2020] HKCFI 913 Mimmie Chan J said, at paragraph 44

“In Crete [Crete Maritime Corp v Emirates Shipping Line DMCEST [2017] 5 HKLRD 345] as well as other decisions, the courts have warned against drawing inferences of dissipation too easily from a defendant's conduct, and such reminder has not been overlooked. In Eastman Chemical Ltd v Heyro Chemical Co Ltd (No 2) [2012] 3 HKLRD 307 , the Court highlighted the high standard of proof of risk of dissipation, stating that there must be "solid evidence" of the risk of dissipation of assets. At the end of the day, the conduct should be "unjustifiable" or otherwise "improper", although it is not necessary to show a "nefarious intent" on the part of the defendant.”

86.  In Pacific Andes Enterprises (BVI) Ltd & others v Ng Joo Siang & others DHCJ Le Pichon cited at [99], with apparent approval Popplewell J, in Fundo Soberano de Angola v Jose Filomeno dos Santos [2018] EWHC 2199 (Comm) where he said:

“The relevant principles [on risk of dissipation] have been summarised in a number of recent authorities, themselves referring to many earlier authorities, including National Bank Trust v Yurov [2016] EWHC 1913 (Comm) at paragraph [70] per Males J; Holyoake v Candy [2017] 3 WLR 1131 at paragraphs [34] and [59] per Gloster LJ; and Petroceltic Resources v Archer [2018] EWHC 671 (Comm) at paragraph [21] per Cockerill J. The following aspects are of particular relevance to the current applications:

(1) The claimant must show a real risk, judged objectively, that a future judgment would not be met because of an unjustified dissipation of assets. In this context dissipation means putting the assets out of reach of a judgment whether by concealment or transfer.

(2) The risk of dissipation must be established by solid evidence; mere inference or generalised assertion is not sufficient.

(3) The risk of dissipation must be established separately against each respondent.

(4) It is not enough to establish a sufficient risk of dissipation merely to establish a good arguable case that the defendant has been guilty of dishonesty; it is necessary to scrutinise the evidence to see whether the dishonesty in question points to the conclusion that assets are likely to be dissipated. It is also necessary to take account of whether there appear at the interlocutory stage to be properly arguable answers to the allegations of dishonesty.

(5) The respondent’s former use of offshore structures is relevant but does not itself equate to a risk of dissipation. Businesses and individuals often use offshore structures as part of the normal and legitimate way in which they deal with their assets. Such legitimate reasons may properly include tax planning, privacy and the use of limited liability structures.

(6) What must be threatened is unjustified dissipation. The purpose of a freezing order is not to provide the claimant with security; it is to restrain a defendant from evading justice by disposing of, or concealing, assets otherwise than in the normal course of business in a way which will have the effect of making it judgment proof. A freezing order is not intended to stop a corporate defendant from dealing with its assets in the normal course of its business. Similarly, it is not intended to constrain an individual defendant from conducting his personal affairs in the way he has always conducted them, providing of course that such conduct is legitimate. If the defendant is not threatening to change the existing way of handling their assets, it will not be sufficient to show that such continued conduct would prejudice the claimant’s ability to enforce a judgment. That would be contrary to the purpose of the freezing order jurisdiction because it would require defendants to change their legitimate behaviour in order to provide preferential security for the claim which the claimant would not otherwise enjoy.

(7) Each case is fact specific and relevant factors must be looked at cumulatively.”

87.  In my view that represents the proper way for this Court to address the risk of dissipation[3]. The allegations of dishonesty will be relevant in different ways in different contexts.  No doubt they will be stronger evidence of a risk of dissipation the closer that the relevant defendant is to the actual dissipation of assets under the original dishonest scheme, than they will be to a person involved in accessorial way.  But it will all depend upon the circumstances, the cogency of evidence[4] (particularly of direct dissipation within the underlying facts), and no doubt also to the nature of involvement of the accessory[5].

88.  Therefore I bear mind the good arguable case of dishonesty of the 8^th and 9^th defendants but I do not consider that it carries the weight which the plaintiff seeks to put upon it.  

89.  I am not prepared to reach the conclusion that there is in fact a risk of dissipation:

(a)  The only matter relied upon by the plaintiff is the low commercial morality and the proposition that the 8^th and 9^th defendants are dishonest.  That is not enough.  I have therefore looked more widely to see if there are other factors that could be relied upon.

(b)  There is no credible evidence of any actual dissipation by the 8^th and/or 9^th defendants.  The proposition of the plaintiff is little more than assertion[6].

(c)  The 4^th defendant has resigned as a director of the 8^th and 9^th defendants, and whilst I accept that that does not mean that she may not be operating as a de facto or shadow director, there is no evidence that she is. Indeed during argument the defendants offered undertakings that the 4^th defendant’s sister would resign as a director and that the business of the 8^th and 9^th defendants would be operated independently by Mr Lee, who is a solicitor and appears to act regularly as an independent non executive director for listed companies, and a chartered accountant who is in the process of being recruited. Acknowledging that these propositions are not yet in place and also recognising that the evidence of the 8^th and 9^th defendants is somewhat lacking as to the actual way in which decisions are made within those companies, nonetheless I do not think that the burden rests upon the 8^th and 9^th defendants to demonstrate independence in this respect.  Rather the burden sits with the plaintiff to demonstrate, by credible evidence, that there is a risk of dissipation. In my view it has failed to do so.

(d)  The defendants are trading companies and there is at the very least an arguable case that any dissipation of their assets has arisen through legitimate trading rather than any deliberate attempt to render the defendants judgment proof.  As a result, any dissipation in the sense of reducing the available amount of money from that which was paid by the 6^th defendant has not been shown to be unjustified, and there are properly arguable answers to the allegations of dishonesty.

90.  In the light of my conclusion in relation to risk of dissipation I would refuse a Mareva injunction for this reason.

H. Balance of Convenience

91.  Strictly it is unnecessary for me to address the question of the balance of convenience in light of my conclusion on risk of dissipation. However I think it would be prudent for me to say just a few words about it.

92.  I am satisfied that the balance of convenience is against continuing the injunction other than in respect of the sums which have been identified by the 8^th and 9^th defendants, and which have been offered by them.

93.  In simple terms, the reasons are that:

(a)  The 8^th and 9^th defendants are trading companies and I believe that a Court should be very careful before injuncting a trading company if there is any evidence that its trading would be adversely affected by the injunction.  In this case the evidence suggests that the trading would stop. The evidence is not as clear as it might be as to why that is the case, and the plaintiff makes some legitimate criticism of the defendants’ evidence in this respect, but I can well see that an injunction in the amount of US$24 million odd is likely to have a significant impact on companies the size of the 8^th and 9^th defendants.

(b)  The 8^th and 9^th defendants are subsidiaries of a listed company in Hong Kong and the evidence of Mr Lee is that the injunction will result in the suspension of trading of the shares.  Once again that evidence is lacking in detail, but I do not think that it can be dismissed as quickly as the plaintiff would have me do.  If there is any risk of suspension it is a matter which should weigh very heavily in the balance against granting an injunction, because a suspension of the shares would, or may, affect a significant number of independent and innocent third party shareholders.  I am not prepared to risk that effect without far more credible evidence being adduced by the plaintiff as to the balance of convenience and the least risk of injustice.

I. Exceptions

94.  As I mentioned in paragraph 25 above one of the ways in which a proprietary injunction differs from a Mareva injunction is the way in which the court assesses the exceptions to the injunction in terms of expenditure on legal expenses and ordinary business or living expenses.  In a proprietary injunction the assets arguably belong to the plaintiff and not to the defendant, and hence (so the argument goes) there is no reason why the defendant should be allowed to diminish those assets in order to pay for his ordinary expenditure, or the costs of defending the action to reclaim the assets.  Such exceptions would, or at least may, have the effect of diminishing, for the benefit of the defendant, an asset belonging to the plaintiff. 

95.  There is no hard or fast rule as to the way that the Court should assess this question, and there are legitimate factors which may be used to persuade the Court either that expenditure out of the frozen assets should be allowed, or that it should not.  Ultimately the Court will have to balance the competing interests whilst at the same time recognising that the Plaintiff has demonstrated a good arguable case that the assets belong to him rather than to the defendant.

96.  In this case, Mr Chan for the 8^th and 9^th defendants sought to persuade me to order the 8^th and 9^th defendants to pay the sums of HK$3,445,888.78 and HK$6,783,017.52 into Court, and discharge the injunction.  In the course of discussion as to that, his initial stance was that the 8^th and 9^th defendants ought to be allowed to deduct legal expenses and ordinary business expenses from the amounts paid into court (in the same way that he had sought from Mr Recorder Stewart Wong SC as quested in paragraph 18 above).  However he ultimately accepted that if the amounts were paid into Court they would remain in Court without deduction of the expenses that he referred to.

97.  Given that I have continued this injunction in those amounts on a proprietary basis, and in the light of the acceptance by Mr Chan that the proposal he asked me to adopt would inevitably result in the non payment of legal and ordinary business expenses out of the frozen assets, it seems to me appropriate in this case that I should not make an exception to the injunction to allow payment of legal and ordinary business expenses.

J. Conclusions

98.  In all the circumstances I allow the injunctions to be continued, but only on a proprietary basis, and only in the sums of HK$3,445,888.78 in relation to the 8^th defendant and HK$6,783,017.52 in respect of the 9^th defendant.  For the avoidance of doubt:

(a)  The amounts injuncted should be reduced to HK$3,445,888.78 in relation to the 8^th defendant and HK$6,783,017.52 in respect of the 9^th defendant.

(b)  The order should contain the normal provision that payment into Court of the amounts injuncted will permit a discharge of the injunction.

(c)  There should be no allowance made to permit expenditure out of the injuncted assets for legal expenses or ordinary business expenses.

99.  The parties are to draw up an order to reflect this judgment.

100.  I make a costs order nisi that the plaintiff is to pay the costs of the 8^th and 9^th defendants to be taxed if not agreed.  This is made on the basis that the plaintiff has not achieved any more than the 8^th and 9^th defendants were prepared to offer, and indeed did offer.  Therefore, despite the continuation of the injunction, the plaintiff has not achieved anything more by coming to court than it could have achieved by accepting the offer of the 8^th and 9^th defendants.

101.  If either party wishes to vary the costs order nisi they may do so in writing (maximum length 5 pages) within 7 days of this judgment being handed down, with a right of reply 3 days thereafter to the other party in writing (maximum length 3 pages), no further submissions and the matter will be decided on papers.