BOMBAS ERCOLE MARELLI S.R.L. v. PROSPERITY INVESTMENT GROUP LTD

HCA 275/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 275 OF 2013

_____________

__________________________

REASONS FOR DECISION

__________________________

1. This is the plaintiff’s application by summons dated 15 February 2013 (“the Summons”) for an order that the Mareva injunction granted ex parte by A Pang DHCJ on 8 February 2013 (“the Injunction”) be continued until after the trial of the action or further order of the court.

2. In the hearing on 2 May 2013, I allowed the plaintiff’s application and I now give my reasons.

Background

3. The plaintiff’s claim is a simple one.  The plaintiff, which is a company incorporated in Spain, claims that it is a victim of a fraudulent scheme.  Someone impersonated to be the president of the plaintiff’s holding company, Mr Jeff Wiemelt (“Mr Wiemelt”), and a lawyer, Mr Stanley Brunner, and gave instruction to a staff of the plaintiff, Mr Andres Mesa (“Mr Mesa”), by telephone call and email, to transfer a sum of Eur498,596 into the bank account of the defendant (“the Account”).  Mr Mesa did so.  After the discovery of the fraud, the plaintiff made a report to the Spanish police and commenced the present action against the defendant with a view to recover the money transferred to the Account.

4. Based on such allegation, the plaintiff has advanced the following 3 causes of action against the defendant:

(i) conspiracy to defraud;

(ii) accessory liability for dishonest assistance and/or knowing receipt; and

(iii) unjust enrichment.

5. The plaintiff has also applied successfully for the Injunction before A Pang DHCJ restraining the defendant from dealing with its assets up to the value of Eur498,596, in particular the funds in the Account. The plaintiff has also made a payment of $500,000 into court to fortify the undertaking as to damages.

6. The Injunction order also required the defendant to disclose information about its assets.  On the return date on 22 February 2013, it was ordered by consent that the time for the defendant to comply the disclosure obligation be extended to 7 days after the resolution of the Summons.

7. The defendant’s defence is also a simple one.  According to Mr Cai Shangshan who is the manager of the defendant (“Mr Cai”), the defendant has all along been carrying on a legitimate trading business of importing and exporting various kinds of goods.  After the defendant’s buyers had placed orders for particular goods, the buyers would be instructed to make the payments into the Account.  After receiving the payments, the buyers would be allowed to take delivery of the goods at a specified location, and the defendant would immediately withdraw the money from the Account to pay the suppliers of the goods.

8. For the sum transferred by the plaintiff into the Account, it was a payment received by the defendant for supplying a substantial quantity of jeans and sport shoes to an Indian buyer known as Mr Shagmudasunmaram Sudensran (“the Indian Buyer”).  In support of such allegation, Mr. Cai has also exhibited: (i) a sales contract dated 2 January 2013 showing that the defendant had contracted to sell 20,000 pieces of sport shoes and 11,800 pieces of men’s jeans to the Indian Buyer at a price of Eur507,060 (“the Sales Contract”); and (ii) a packing list with the name of the Indian Buyer and the descriptions of the goods sold under the Sales Contract (“the Packing List”).

9. After the commencement of the present action, Mr Cai has tried to contact the Indian Buyer by phone.  Not surprisingly, the contact number has ceased to be in operation and the Indian Buyer cannot now be located.

10. Mr Cai denies that the defendant was involved in any fraudulent scheme to deceive the plaintiff.

The merits of the application

11. Mr Ko, counsel for the defendant, has tried to attack the plaintiff’s application on 2 fronts.  Firstly, the evidence in support of the application is unsatisfactory, in particular Mr Wiemelt has not made an affidavit in support of the plaintiff’s application.  Secondly, the defendant is the rightful owner of the sum transferred to the Account and there is no evidence of any dissipation of assets on the part of the defendant.

12. I reject these arguments.  In respect of the first ground of challenge, it was the plaintiff’s solicitor, Mr Pong Brian Chung Bon (“Mr Pong”), who first made the affidavit in support of the ex parte application.  In this affidavit, Mr Pong, based on the information supplied to him by the internal lawyer and the treasury manager of the plaintiff’s parent company, provided a detailed account as to how the plaintiff was deceived in transferring the fund into the Account.  On 19 February 2013, which was shortly before the return date, Mr Mesa made an affidavit to verify the truthfulness of the information provided by Mr Pong in his affidavit. Subsequently, Mr Mesa made the 2^nd affidavit on 19 April 2013 to rebut the evidence of Mr Cai.

13. Although Mr Wiemelt has not made an affidavit in support of the Summons, I agree that the plaintiff has discharged the burden of establishing a triable issue that the plaintiff had been deceived in transferring the fund into the Account.  One must bear in mind that this application is not a trial of the plaintiff’s claim and so the evidence of Mr Wiemelt is not an essential requirement at this stage.  Further, Mr Mesa, a key witness of the plaintiff’s case, has made 2 affidavits in support of the Summons.  He was the one who was actually deceived in making the payment.  In addition, the facts that: (i) the plaintiff has made a report to the Spanish police; (ii) the plaintiff undertakes to make a report to the Hong Kong police; and (iii) the plaintiff is prepared to spend so much legal costs in pursuing the claim in Hong Kong; certainly add weight to the creditability of the plaintiff’s allegation that it is a victim of a fraudulent scheme.  Hence, the plaintiff has discharged the burden of establishing a triable issue in this regard.

14. I then turn to the second ground of challenge. In determining whether there is any real risk of dissipation of assets on the part of the defendant, the court has to form a provision view about the merits of the defence.  If the defendant has been carrying on a legitimate business as alleged, the withdrawals of funds from the Account were just part of the normal business arrangement.  On the other hand, if the court has doubt about the legitimacy of the defendant’s business, the withdrawals of funds from the Account can be treated as attempts to dissipate the proceeds resulting from some kind of wrongful conducts.

15. Based on the existing evidence available to the court, I have serious doubt about the legitimacy of the defendant’s business.

16. Firstly, the defendant was only incorporated in July 2012.  Within a few months from November 2012 to early February 2013, various substantial sums of money, in the total sum of about US$50,000,000, were deposited into the Account.  These funds were mostly transferred out on the same day, or on some odd occasions on the next day, leaving a negligible balance in the Account.

17. According to the defendant, the payments received from the buyers would have to be transferred out to pay the suppliers.  However, as a business merchant, the defendant should have been earning some profits from these transactions.  As the sums transferred into the Account were withdrawn almost immediately, how did the defendant earn the profit from these transactions?  Did the defendant keep other bank accounts for the purpose of the deposit of the profits?  Did the defendant keep a proper account of the profits earned by these transactions?  Where are those accounts? In respect of the payment made by the plaintiff into the Account, the defendant withdrew the fund immediately to pay the alleged supplier in the Mainland. Again, how did the defendant earn the profit from such transaction?  In my judgment, the pattern of the flow of funds into and out of the Account looks more like dissipation of proceeds resulting from some wrongful conduct rather than the operation of a normal trading business.

18. Secondly, it seems that all of the alleged transactions with its customers were done on a payment by cash basis, rather than payment by letters of credit which is the more usual way of doing business in international trade.  Substantial payments into and withdrawals of cash from the Accounts are always dubious.

19. Thirdly, the defendant’s registered office is that of a secretarial company.  This is certainly inconsistent with the defendant’s allegation that it has carried on a substantial business in exporting and importing goods.

20. Fourthly, if the sale to the Indian Buyer was a genuine transaction, there should have been more documents to support the existence of the transaction.  Since the transaction involved international trade, there should have been some other documents, apart from the Sales Contract and the Packing List, to prove that the goods were shipped from one country to another.  When I ascertain from Mr Ko whether the defendant can produce such kind of documents, Mr Ko replies that the goods were already in Dubai when the Sales Contract was made and so there was no shipping document involved.  Again, it was a most unusual way of carrying on such kind of international trade.

21. Further, the defendant cannot produce any contract made between the defendant and its Mainland supplier relating to the goods allegedly sold to the Indian Buyer.  As revealed by the information provided by the bank, the entire sum paid by the plaintiff on 6 February 2013 at 8:05 am was almost immediately transferred out of the Account at 1:04 pm on the same day to one Fortune Champion Industrial Limited.  Similar to the defendant, this company was recently incorporated, its sole shareholder and director resides in the Mainland and it puts forward the address of a secretarial company as its registered address in Hong Kong.  To me, more materials need to be supplied to the court to establish the genuineness of the transaction. 

22. Fifthly, there are serious doubts about the genuineness of the Packing List.  The net weight of the goods stated in the document actually exceeds the gross weight of the goods, which does not make any sense at all.  Further, the Packing List provides very little details about the goods.  Without some information such as a reference number, one would wonder how the warehouse in Dubai could identify the goods to be released by it to the alleged customer.

23. In trying to establish the innocence of the defendant, Mr Ko submits that if his client was involved in a fraudulent scheme in deceiving the plaintiff, the defendant would not have disclosed the bank statements of the Account to the plaintiff.  Further, the bank statements show that the defendant had received substantial sums in the Account prior to the transfer made by the plaintiff and the Account has been operating normally prior to the granting of the Injunction order.  These factors, says Mr Ko, negate any suggestion that the defendant had been using the Account for some unlawful activities.

24. Despite the able submission of Mr Ko, these arguments cannot change the provisional view I form about the merits of the defence.  There are simply many dubious features about the alleged trading business carried on by the defendant, and the pattern of the flow of funds both into and out of the Account certainly cries out for more explanations by the defendant.  In any event, the Account has been in operation for only a few months.  The defendant might have been using the Account for some other dubious activities.  Depending on the modus operandi of these activities, it might take some time for the activities to be discovered or for actions to be taken.  Hence, the absence of previous complaints is neither here or there.

25. The defendant also claims that the Injunction has seriously affected its business.  Again, I have grave reservation about such allegation.  Taking into account the substantial sums of money deposited into and withdrawn from the Account, the defendant should have been earning handsome profits from the relevant business transactions if its allegations are the truth.  At this stage, the plaintiff is only asking for security in the sum of Eur498,596, which is not a substantial amount in view of the volume of the alleged business carried on by the defendant.  Again, it begs the question as to the whereabouts of the profits.  Without some serious explanations, I cannot accept the defendant’s allegations at face value.

26. With the production of further documents relating to the alleged business of the defendant, the defendant may be able to show that the provisional view of the court is wrong.  I therefore ascertain from Mr Ko in the hearing whether the defendant would like to have a further opportunity to file evidence to oppose the Summons.  After taking instructions, Mr Ko declines the suggestion and so the court can only make the decision based on the then existing materials.

27. As I have serious doubts about the legitimacy of the defendant’s business, there is real risk of dissipation of assets and the Injunction should therefore continue until trial or further order of the court.

Provision for legal expenses

28. The Account usually had negligible balances after the close of each working day.  After the making of the Injunction order, a sum of about US$156,000 was transferred into the Account.  This is the only fund now left in the Account.

29. In the hearing, Mr Ko has also asked the court for leave to withdraw a sum of $200,000 from the Account to pay for the legal expenses of the defendant.  According to clause 6 of the consent order made by B Chu DHCJ on the return date, the Injunction order does not prohibit the defendant from spending $200,000 on legal advice and representation up to and including the hearing of the Summons.  Mr Wong, counsel for the plaintiff, submits that the said provision only allows the defendant to use the assets not in the Account to pay for the legal expenses.  I disagree.  The Injunction is supposed to cover all the assets of the defendant including the fund in the Account.  As the defendant is allowed to spend the legal expenses as an exception to the Injunction, the defendant should be allowed to use the fund in the Account to pay for the legal expenses.  Hence, it is not necessary for the court to make further order in this regard.

30. These are the reasons for the decision I made on 2 May 2013.