TSAI LEE TING AND ANOTHER v. BEST LEADER PRECIOUS METALS LTD AND OTHERS

HCA 102/2023

[2023] HKCFI 2124

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 102 OF 2023

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BETWEEN

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D E C I S I O N

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A. INTRODUCTION

1.  The Plaintiffs (where referred to separately, “P1 (Tsai)” and “P2 (Lee)”) have brought the current proceedings under RHC O.15 r.12 on behalf of themselves and over 1,300 other persons (including the Plaintiffs “the Defrauded Investors”), claiming to be victims of a fraudulent “Ponzi” scheme perpetrated by the Defendants.

2.  On 20th January 2023, upon the Plaintiffs’ ex parte application, Lok J granted the following orders (“the Ex Parte Orders”):

2.1 proprietary injunctions against D1 to D7,[1] restraining each of them from dealing with or disposing of sums received from the Defrauded Investors and credited to D1 to D7’s respective bank accounts;[2]

2.2 Mareva injunctions against D8 (Chan) to D10 (Hung),[3] restraining each of them from dealing with or disposing of their assets up to the value of US$212,780,996.75, said[4] to be the value of the total sum received by D1 to D7 in their respective bank accounts.

3.  At the hearing on the return date of 3rd February 2023 of the Plaintiffs’ inter pates summons of 26th January 2023 seeking to continue the Ex Parte Orders (“the Continuation Summons”), ST Poon J:

3.1 continued the orders obtained against D4 to D7 and D9 (Tsang), none of whom appeared on the return date, until the final determination of these proceedings or further order;

3.2 adjourned the Continuation Summons for substantive arguments as regards D1, D8 (Chan) and D10 (Hung);

3.3 made various orders for ancillary disclosure.

4.  There are before me for determination:

4.1 the Continuation Summons as against D1, D8 (Chan) and D10 (Hung);

4.2 the summons dated 12th May 2023 taken out by D4, D5, and D9 (Tsang) to discharge the injunctions against them (which had been ordered to be continued on 26th January 2023) (“the Discharge Summons”).

B. THE BACKGROUND

5.  It is said that the Defendants are individuals and companies which held themselves out as part of the Best Leader Financial Group (“the Purported Group”).[5] The Plaintiffs say that D8 (Chan) was the founder of the Purported Group. D8 (Chan) admits that he was the founder of D1 and a group called Best Leader Financial Group which comprised D1, D2 and a New Zealand company which had the same name as D4, but says that this group did not comprise any of the other Defendants. D9 (Tsang) admits that he was the sole shareholder and director of D4 and D5. D10 (Hung) admits that she was the personal assistant of D8 (Chan).

6.  The alleged fraudulent schemes complained of in the present case relate to two investment products, referred to as “the Margin Trading Product” and “the Wine Investment Product”. The Plaintiffs’ case is that they were in fact fraudulent or fictitious investment products that did not exist, or offered pursuant to Ponzi schemes. They say that the fraudulent schemes were devised by D8 (Chan), D9 (Tsang) and/or D10 (Hung), who attracted investors with the promises of high returns, and who used money received from later investors to pay purported returns to earlier investors.

7.  Apart from the Defendants, the fraudulent scheme also involved a Taiwanese company 百富環球策略資產管理顧問有限公司 (“Taiwan Best Rich”), which was incorporated by two Taiwanese residents (“Chu Junior” and his father “Chu Senior”). According to newspaper articles, Chu Junior and Chu Senior had been engaged by the president of the Best Leader Financial Group to market the Margin Trading Product.

8.  The Defrauded Investors were mostly based in Taiwan, with others based in Hong Kong and mainland China. Some of the Defrauded Investors invested in the Margin Trading Product; some in the Wine Investment Product; and some in both.

9.  In the case of the Margin Trading Product, each of the Defrauded Investors would sign one or more client agreements (in the case of P1 (Tsai), with D2; in the case of P2 (Lee), with a Seychelles company which bore the same name as D5, and then remit funds to an account of D1 to D7. It is said that P1 (Tsai) made a total of 45 remittances to D2’s accounts between March 2018 to June 2022 totalling over US$4m,[6] and that P2 (Lee) made a total of 55 remittances to one of D1 to D5’s accounts between March 2015 and May 2022 totalling over US$6m.[7]

10.  According to P1 (Tsai), she received withdrawals of returns and interest upon request, as did other Defrauded Investors.[8] Since March 2015, P2 (Lee) has received US$2,900,986, A$8,070 and €17,212 pursuant to 81 withdrawal requests.[9]

11.  In the case of the Wine Investment Product, each of the Defrauded Investors would submit an application form subscribing for units of the Wine Investment Product, and then remit funds to an account of D1 to D7. It is said that P2 (Lee) submitted 27 application forms starting from November 2020 and made various remittances to D2’s account, totalling about US$5m.[10] P2 (Lee) also submitted 13 withdrawal forms to withdraw funds, and received returns and interest of US$144,000, excluding amounts which he reinvested.[11]

12.  In around May 2022, there were news reports that a Taiwanese company known as 百富資本控股有限公司 (“Taiwan Best Rich Holdings”) had been selling two Australian trusts in Taiwan since 2016 without authorisation, and that Chu Jr and Chu Sr, being the persons-in-charge of the company, had been arrested in Taiwan. It was also reported that Chu Jr was acquainted with the leader of the Best Leader Financial Group, who had engaged Chu Jr to market the Margin Trading Product (and another product) in Taiwan by setting up the Taiwanese company as a company purportedly related to the Best Leader Financial Group.[12]

13.  In around August 2022, some of the Defrauded Investors found that they were unable to make withdrawals in respect of their investments.

14.  In October 2022, Chu Jr subsequently made a confession to the Taiwanese authorities that he had violated the Securities Investment Trust and Consulting Act. According to the confession and news reports, Chu Jr incorporated Taiwan Best Rich with his father as the person-in-charge, and Taiwan Best Rich had entered into a distribution agreement with D2 to act as its distribution agent in Taiwan (including for the Margin Trading Product), arranging for Taiwanese investors to sign client agreements and remit funds to accounts designated by D8 (Chan), D9 (Tsang) and D10 (Hung).[13]

15.  In around November 2022, there were news reports in Taiwan that there were around 4,000 victims who had been defrauded into investing in the Margin Trading Product.[14]

16.  On or around 9th December 2022, the Purported Group published a declaration on its website and the website of D1 stating that the Best Leader Financial Group and its affiliated company Best Leader Markets Pty Limited had never received funds from Taiwanese investors, and that neither the Best Leader Financial Group nor D8 (Chan) had participated in any business operation of Taiwan Best Rich Holdings.

17.  The Plaintiffs have filed a Statement of Claim, seeking, inter alia:

17.1 rescission of the investment agreements signed with members of the Purported Group in respect of the Margin Trading Product and the Wine Investment Product, and a declaration that D1 to D7 still hold the Defrauded Investors’ assets or their traceable proceeds on constructive and/or resulting trust for the Defrauded Investors and an order for payment of the same;[15]

17.2 against D2 and other members of the Purported Group who received the investment funds of the Defrauded Investors, restitution of the amounts paid by the Defrauded Investors under the mistaken belief that the Margin Trading Product and the Wine Investment Product were genuine and in fact existed;[16]

17.3 against D1 to D7, equitable compensation for dishonestly assisting in D8 (Chan), D9 (Tsang) and D10 (Hung)’s breaches of trust, by receiving the Defrauded Investors’ remittances into their accounts and making payments out from their accounts;[17]

17.4 against D8 (Chan) to D10 (Hung), damages for fraudulent misrepresentation, causing the Defrauded Investors to enter into investment agreements in respect of the Margin Trading Product and the Wine Investment Product;[18]

17.5 against all of the Defendants, damages for conspiracy to defraud the Defrauded Investors.[19]

C. MAREVA INJUNCTIONS AGAINST D8 (CHAN) TO D10 (HUNG) – WHETHER GOOD ARGUABLE CASE

18.  There is no dispute that in order to establish a “good arguable case”, a plaintiff does not need to go so far as to persuade the court that he is likely to win; he needs to show a case which is more than barely capable of serious argument, albeit not necessarily one that has a better than 50% chance of success. Furthermore, the existence of a good arguable defence does not necessarily negate the existence of a good arguable case. See Hong Kong Civil Procedure 2023 at note 29/1/66.

C1. Whether good arguable case as to liability: involvement of the Relevant Defendants in the Ponzi scheme

19.  The Defendants involved in the hearing before me (“the Relevant Defendants”) comprised three groups: D1 and D8 (Chan) (represented by Mr Johnny Ma SC leading Mr Look-Chan Ho and Mr Joshua Yeung); D4, D5 and D9 (Tsang) (represented by Mr James Man); and D10 (Hung) (represented by Mr Alan Kwong). D4, D5, D9 (Tsang) and D10 (Hung) adopted the submissions made by D1 and D8 (Chan).

20.  All of the Relevant Defendants essentially took the stance that if there was a fraudulent scheme, they were not involved in it. It has to be said, however, that whether or not there was a good arguable case in respect of this issue was not at the forefront of the Relevant Defendants’ submissions.

C1.1 D1 and D8 (Chan)

21.  For D1 and D8 (Chan), in the 3rd Affirmation of Chan Ka Wo (“Chan 3rd”), D8 (Chan) described the advertised returns for the Margin Trading Product and the Wine Investment Product as “clearly preposterous”, and stated his belief that the brochure to advertise the Margin Trading Product was “created with fraudulent representations by individuals who perpetrated the fraudulent investment scheme”. However, he said that neither he nor D1 (nor the Best Leader Financial Group) had ever been involved with the products or offered them to the public.[20] He said that D1 was a member of the Chinese Gold and Silver Exchange Society and traded in precious metals; D8 (Chan) got to know the Plaintiffs through D9 (Tsang) who previously worked for D1; D9 (Tsang) used D3 and D4 to trade with D1, and the trading arrangements involved the Plaintiffs.[21]

22.  As pointed out by leading counsel for the Plaintiffs, Mr Norman Nip SC (appearing with Mr Roger Phang and Mr Johnathan Tsang), the Plaintiffs’ evidence is that D8 (Chan) made representations to various of the Defrauded Investors, including P2 (Lee), and that some of the Defrauded Investors signed agreements with (amongst others) D2; there is little dispute that the Defrauded Investors remitted substantial sums into the bank accounts of D1 to D7; there was little documentary evidence to show that there were any legitimate trades as claimed. In the circumstances, there must at least be a good arguable case against D1 and D8, even if D8 (Chan)’s evidence is that D2 (a member of the Best Leader Financial Group on D1 and D8 (Chan)’s case) was not involved with the Margin Trading Product, and D9 (Tsang) says that he did not sign the documents on behalf of D2.

23.  Mr Ma challenged the reliability of various pieces of evidence relied on by the Plaintiffs.[22] For example, he submitted that insofar as the confession or evidence of Chu Jr and his assistant Ku, pointing to the involvement of D1 and D8 (Chan), were concerned, little weight should be placed on them as Chu Jr and Ku had an interest in exculpating themselves and implicating D8 (Chan) to D10 (Hung) instead. However, these are merely arguments going to the weight to be placed on particular pieces of evidence, which could not be said to negate the existence of a good arguable case at this stage. Furthermore, the Plaintiffs rely on evidence beyond the items challenged. Indeed, counsel for the Plaintiffs produced tables showing further conflicts between the Plaintiffs’ evidence and that of D1 and D8 (Chan).

C1.2 D4, D5 and D9 (Tsang)

24.  For D4, D5 and D9 (Tsang), in the 1st Affirmation of Tsang Kai Hung (“Tsang 1st”), D9 (Tsang) described the scheme as “fraudulent” but said he had nothing to do with it, and instead accused the Plaintiffs of being involved in the scheme and P2 (Lee) and Chu Jr being its masterminds.[23] He said that D1 provided a trading platform to Chu Jr and P2 (Lee) to conduct leveraged gold trading transactions with funds pooled from Taiwanese clients; he was asked by P2 (Lee) to incorporate D3, D4 and D5, which opened margin accounts with D1 to conduct gold trading; he was entrusted to manage the pooled funds, handling trades through D3, D4 and D5 and remitting funds back to Taiwan as designated by P2 (Lee) and Chu Junior; he did not sign the client agreements on behalf of D2; he had never heard of the Margin Trading Product until a news report of May 2022; he had never heard of D6 and D7 and the investment product in the name of “Imperial RWITs” prior to the commencement of these proceedings.[24]

25.  Mr Nip submitted that D9 (Tsang)’s evidence could be seen to be dishonest from the 3rd Affirmation of Lee Ping Chen (“Lee 3rd”), which, amongst other things, referred to the minutes of a meeting in March 2018 attended by D9 (Tsang) in which the Margin Trading Product was discussed, and an affirmation from Chu Jr’s assistant Ku in which she deposed that D9 (Tsang) was the person responsible for signing the client agreements on behalf of D2. Mr Man submitted that D9 (Tsang) did not accept that he had signed any of the client agreements, but as Mr Nip pointed out, there were numerous other pieces of evidence suggesting his involvement, to which no answer had (yet) been given.

C1.3 D10 (Hung)

26.  In the 2nd Affirmation of Hung So Fong (“Hung 2nd”), D10 (Hung) says that she was simply merely an employee of D1, handling its internal administrative work and arranging some of D8 (Chan)’s personal affairs such as arranging his itinerary, accommodation and transport; she was never involved in the design, management or promotion of any financial products or investment funds, not having the professional knowledge, abilities or qualifications to do so; and she had no knowledge of any fraudulent scheme.[25]

27.  However, there was an audio recording of D10 (Hung) apparently explaining the structure of the Margin Trading Product at a “Q&A” session, and that D2 was a trustee and had appointed Taiwan Best Rich as its sole distributor in Taiwan. D10 (Hung) claimed that the recording was inaudible, although she does not deny that a transcript of the recording has been made (or that it is correct as a transcription, leaving aside the issue of the identity of the speakers). D10 (Hung) also claimed that she could not tell whether it was really her voice on the recording and challenged the authenticity of the recording.[26]

28.  Furthermore, the Plaintiffs say on 6th September 2022, D10 (Hung) sent a notice to some of the Defrauded Investors explaining that the reasons for delay in processing remittances to clients was due to tightened anti-money laundering procedures, which reasons have not been substantiated.[27] D10 (Hung) denied sending the notice.[28]

29.  As with D1 and D8 (Chan), counsel for the Plaintiffs produced tables showing further conflicts between the Plaintiffs’ evidence and that of D10 (Hung).

30.  Mr Kwong submitted that the facts relied on by the Plaintiffs were consistent with honesty, so that dishonesty could not be inferred against D10 (Hung). However, the question at this stage is simply whether the Plaintiffs have shown a good arguable case. D10 (Hung)’s denial of her participation in the promotion of the Margin Trading Product, and of her ability to carry out such promotion, would appear to be at direct odds with the audio recording produced by the Plaintiffs. Whether she sent the notice of 6th September 2022 and knew that any aspect of it was false (and that the Margin Trading Product and Wine Investment Product were therefore also fraudulent) is also contested.

C1.4 Good arguable case as to whether Defrauded Investors were victims of fraud and whether Relevant Defendants were involved

31.  In the circumstances, there is clearly a good arguable case in respect of the issues of whether the Defrauded Investors were victims of a fraudulent scheme and whether the Relevant Defendants were involved in the scheme.

C2. Representative action

32.  However, the Relevant Defendants say that this is not the end of the matter. They say that the action cannot be properly brought as a representative action.

C2.1 Preliminary observations

33.  The argument that the Plaintiffs’ action could not be brought as a representative action, whilst placed at the forefront of D1 and D8 (Chan)’s submissions (as adopted by the other Relevant Defendants), was raised only in their skeleton argument. In the voluminous evidence filed for the purpose of the hearing, the only related complaint was to raise a query as to whether the Plaintiffs had obtained sufficient authorisation from the Defrauded Investors to bring the present proceedings.

34.  Mr Nip submitted that the complaint should be raised by way of a strike-out application. I agree with Mr Ma’s submissions that he is entitled to raise the matter now. The fact that it may form grounds for a strike-out application does not prevent it from being advanced at this stage.

35.  As to the threshold to be applied, Mr Ma acknowledged that it would be sufficient for the Plaintiffs to show that there is at least a good arguable case (or a serious issue to be tried in the case of the proprietary injunction) that the action has been properly constituted. Counsel for the other Relevant Defendants also acknowledged this to be the case.

C2.2 The parties’ positions

36.  Representative proceedings cannot be brought unless the persons being represented have the “same interest”: see RHC O.15 r.12.

37.  Mr Ma submitted that the phrase “same interest” needs to be construed purposively. The purpose of requiring a representative to have the same interest in the claim as the persons being represented in the litigation is to ensure that the representative can be relied on to conduct the litigation in a way which will effectively promote and protect the interests of all the members of the represented class. This is not possible where there is a conflict of interest between class members, in that an argument which would advance the cause of some would prejudice the position of others. See Lloyd v Google LLC [2022] AC 1217 at [70] to [72].

38.  Mr Ma submitted that the Plaintiffs’ action could not be brought as a representative action because:

38.1 there was a conflict of interest, in the sense of a divergence of interests, between different groups of the Defrauded Investors. Assuming for present purposes that there was a Ponzi scheme, some of the Defrauded Investors would have been higher up in the chain of victims, and others would have been further down. For the purposes of his argument, Mr Ma described them as the “upper layer”, “middle layer” and “lower layer” of investors. He submitted that if the upper layer of investors knew that the investment products were too good to be true and must be part of a Ponzi scheme, then there would be potential causes of action by the lower layer of investors against the middle or upper layers. For example, the upper or middle layers of investors may have made representations to the lower layer, telling them that the returns on the investment products would be high and stable. Alternatively, if the money paid in by the lower layer of investors had been used to meet the requests of upper (or earlier) layer of investors for withdrawals or to pay them interest, then the lower layer might have a claim for knowing receipt;

38.2 Mr Nip’s submission that all of the Defrauded Investors had a sufficiently common interest for the purpose of representative proceedings, in that they all maintained a claim of fraud, could not justify the grant of the injunctive relief, as the claim for a declaration that a fraud had been perpetrated, without any claim for damages, could not in itself support a claim for injunctions in respect of funds in the hands of the Relevant Defendants.

39.  Mr Man added that it could not be right for the two Plaintiffs to be claiming some US$256m[29] on behalf of some 1,300 Defrauded Investors by simply seeking to prove the cases of the two Plaintiffs alone, as the facts of those two cases would not be applicable for all of the investors, and as the claims of these two Plaintiffs were for a mere fraction of the US$256m claimed.

40.  Mr Nip’s principal response to the complaint about the representative action was that the main claim of all the Defrauded Investors is one of fraud, and in this regard they all have a common interest. If they can get a declaration that the investment products are fraudulent, then the investors who invested can claim the return of their money by way of restitution. Insofar as there are facts peculiar to each of the Defrauded Investors, these can be addressed as a matter of case management.

C2.3 Whether good arguable case that representative action properly brought

41.  I first consider Mr Ma’s submission regarding conflict of interest. Whilst it may be the case that potentially, there may turn out to be a conflict of interest between some of the Defrauded Investors, this is speculative at this stage. Indeed, this was implicitly acknowledged in Mr Ma’s submissions, which were made along the lines that the upper or middle layer of investors may have made representations to the lower layer; this could have happened in Taiwan; if so, and if these representations were false, then there would have been misrepresentations by the upper and middle layers to the lower layers. The lower layers of investors might potentially have claims against the middle and upper layers; and the various groups of investors might have different defences from each other.

42.  The Relevant Defendants could not point to any evidence of actual conflict between the Defrauded Investors. The mere fact that P1 (Tsai) received commission does not mean that she was aware of any fraud taking place. As mentioned above, D8 (Chan) said in his evidence that the advertised returns for the Margin Trading Product and the Wine Investment Product were “clearly preposterous”. Mr Ma’s submission was that it must therefore have been obvious that the scheme was a Ponzi scheme, so that the upper layer of investors must have known, or should have known, that they were making misrepresentations to investors further down the line from them. However, D8 (Chan)’s observations were made in the context of opposition to the present application and after the event. There is no evidence to suggest that the Plaintiffs (or indeed any of the other Defrauded Investors) were aware at the time that they were taking part in a fraudulent scheme.

43.  Indeed, in the Defences filed by the Relevant Defendants shortly before the hearing, there was no plea of any conflict of interest now alleged.

44.  At the interlocutory stage, the court assesses by reference to the materials and submissions before it whether there is a sufficient identity of interest amongst members so that it is fair and just to proceed by way of representative action; the issue of commonality can be reviewed as the proceedings progress: Hong Kong Kam Lan Koon v. Realray Investments Ltd (No.2) [2005] 1 HKC 565 at [16], [17] (Lam J, as he then was).

45.  In the circumstances, there must be at least a good arguable case, at this stage and in the light of the current state of the pleadings and evidence, that the proceedings are properly constituted as a representative action. The Relevant Defendants do not suggest that there is any conflict amongst the Defrauded Investors in relation to the issue of whether the Margin Trading Product and the Wine Investment Product were fake products which were part of a fraudulent scheme. I agree with Mr Nip that the Defrauded Investors have a common interest in this issue and in seeking declaratory relief on this point.

46.  Mr Man submitted that even on this point, the Plaintiffs’ claim was problematic since the Statement of Claim pleads the facts particular to P1 (Tsai) and P2 (Lee) , but then goes on to say that the other Defrauded Investors entered into agreements with agreements to invest in the Margin Trading Product and the Wine Investment Product in “similar” circumstances,[30] when the circumstances were not similar given that (1) some of the Defrauded Investors never met D8 (Chan) and (2) some four hundred of the Defrauded Investors were themselves sales agents in the scheme. However, as Mr Nip submits, meeting D8 (Chan) is not a necessary element of the Plaintiffs’ claim that the investment products are fake and the scheme fraudulent; and the fact that some of the investors were also sales agents does not detract from the fact that they all signed client agreements to invest in the products themselves. There may be various criticisms of the drafting of the Statement of Claim that can be made, but what is before me is not a strike-out application.

47.  Furthermore, as Mr Nip pointed out, the fact that each of the Defrauded Investors may have a claim for damages which requires consideration of facts particular to that individual is not a bar to the bringing of a representative action. Common issues of fact or law can be decided on a representative basis with issues requiring individual determination being dealt with at a subsequent stage of the proceedings. See Lloyd at [80] to [81]; Radcliffe and others v Coltsfoot Investments Ltd [1987] LRC (Comm) 127 at 138b. Mr Ma submits that this is not an answer in the present context as the claim for declaratory relief would not support the injunctions. However, this argument relates to a separate issue (and not to whether the representative proceedings are properly constituted), to which I now turn.

48.  Mr Ma’s argument is that the claim for declaratory relief alone, in the absence of a claim for damages, cannot justify the injunctions, since there would then be no monetary relief sought to be protected by the Mareva. However, as explained above, there is no divergence of interests amongst the Defrauded Investors so as to render the representative action not properly constituted for present purposes. The claims for damages may, in due course, need to be assessed by reference to the individual facts and circumstances of each of the Defrauded Investors, but they do not need to satisfy the “common interest” requirement in order for the proceedings to be properly constituted as a representative action. The Mareva injunctions are therefore being sought not only in respect of the claim for declaratory relief but in respect of the monetary claims against D8 (Chan), D9 (Tsang) and D10 (Hung). Nor is the present case one of seeking purely declaratory relief without there being any cause of action to be protected.[31] It therefore does not seem to me that the injunctions are objectionable on this basis.

C3. Whether good arguable case as to quantum

49.  The Plaintiffs obtained Mareva injunctions against each of D8 (Chan) to D10 (Hung) for the total amount of the funds invested by all of the Defrauded Investors.[32]

50.  It is undisputed that most, if not all, of the Disputed Investors received payments of interest or what were otherwise said to be returns on their investments, and made withdrawals of their funds on request. P2 (Lee)’s evidence is that in relation to the Margin Trading Product, he received US$2,900,986, A$8,070 and €17,212 pursuant to 81 withdrawal requests; in relation to the Wine Investment Product, he received US$144,000 pursuant to 13 withdrawal requests. P1 (Tsai) did not give figures but also said that she received withdrawals of returns and interest upon request.[33]

51.  The Plaintiffs acknowledged that the Relevant Defendants might seek to argue that the Defrauded Investors ought to give credit for all the returns on capital withdrawals they have received. They did not suggest that credit should not be given; rather they said that they could not produce a better computation of losses at this stage in the absence of disclosures from the Relevant Defendants. They said that this was because the returns were either paper returns, withdrawn as actual funds, or reinvested.[34]

52.  In addition, about 400 of the Defrauded Investors, including P1 (Tsai), received commissions by reason of their participation in the scheme. It is said that these investors received millions of US dollars as commissions on a monthly basis.[35]

53.  This being the evidence, Mr Ma submitted that the Plaintiffs fail to show a good arguable case as to quantum. He cited Universal Entertainment Corporation v Kazuo Okada [2020] HKCA 995 at [22] to [25], [34] (Lam VP, as he then was):

“22. Thus, as a matter of exercise of the court’s discretion, other than very rare and exceptional circumstances, it is wrong in principle to grant such injunction with unlimited amount. As the Judge pointed out, a Mareva injunction constitutes serious interference with the right of a person to use or dispose of his property. It behoves a plaintiff seeking such draconian relief to put forward its case with care and demonstrate to the court that interference of the defendant’s property right by a Mareva injunction is proportionate. In most cases where the claims were of limited value, such exercise must involve the justification of the monetary ceiling for the injunction.

23. In other words, the duty of an applicant seeking Mareva injunction includes the proper formulation of his claim for such injunction and the justification of the monetary limit set out in the draft order. The failure of an applicant in the fulfilment of such duty cannot be the justification for Mareva injunction to be granted without any monetary limit.

24. In Ming Hsieh v Xu Zhe CACV 189/2015, 28 September 2016 at [11], this Court held in clear terms that in considering whether or not a good arguable case for the granting of the injunction applied for has been made out, it is necessary to consider both liability and quantum.

25. We are also in agreement with the judge’s reasoning at [79] of the Judgment that a good arguable claim requires good evidence to prove breach, causation and damages. The lack of proper formulation and evidence on damages means that there is no material before the court to lead to the conclusion that the alleged breach will sufficiently arguably have caused any particular damage sounding in any particular amount of damages. For such reason, the failure in this regard carries with it the lack of proper basis to impose an order as draconian as a Mareva injunction restraining a defendant from dealing with all or a part of his assets in Hong Kong.

…

34. … The burden of producing the evidence of such analysis indeed lies with the Plaintiffs.”

54.  See also Ming Hsieh v Xu Zhe and others, unreported, CACV 189/2015, 28th September 2016, at [11] (Barma JA):

“It is necessary to bear in mind that in considering whether or not a good arguable case for the granting of the injunction applied for has been made out, it is necessary to consider both liability and quantum. Even if it can be shown to the necessary standard that the plaintiff is likely to make out its case on liability, it remains necessary to consider what the plaintiff is able to establish as to the likely level of damages to be awarded, as the injunction to be granted will be limited in its monetary extent by the latter issue.”

55.  I note that the Plaintiffs were able to prepare detailed tables as to the amounts said to have been invested by the 1,300 Defrauded Investors, with particulars of the dates, times, amounts, and recipients involved.[36] P2 (Lee) was able to identify with specificity the returns he received. Whilst it might not be the case that every single one of the Defrauded Investors would have been able to identify every single return (or commission) received, they should have been able to provide a much more accurate picture of their losses than is currently before the court. After all, each of the Defrauded Investors ought to have been in the best position to know whether or not he or she received any return from his or her investment (or earned any commission from participating in the scheme), and if so, how much, even if only in approximate terms. The Defrauded Investors would also have been the ones making requests for withdrawals (if any), pursuant to which payments of actual funds would have been made to them; again, details of these events ought to be matters within their knowledge.

56.  The fact that there are many Defrauded Investors is not a justification for failing to put forward sufficient evidence as to the extent of their loss and damage (or their commission earnings which might set off such loss and damage). If a single plaintiff invested $100,000 in the fraudulent scheme, but subsequently received a $50,000 return, such that his claim would be for $50,000 at most, he would not be able to show a good arguable case to justify a Mareva in the amount of $100,000. It does not seem to me that the mere fact that there are 1,300 Defrauded Investors somehow lowers the evidential requirement for the justification of the monetary ceiling for the injunction. Indeed, if anything, the Plaintiffs need to take care to properly demonstrate that the Mareva injunction in the amount of over US$200m against each of the individuals (D8 (Chan), D9 (Tsang) and D10 (Hung)) is justified. I am not suggesting that the burden is any higher in such a case; but simply that it should not be any lower than the case of a lone plaintiff, and that the fact of the sheer number of complainants is not a substitute for putting forward evidence. Nor am I suggesting that nothing short of precise figures would do; the problem in the present case is that whilst it is known that almost all of the Defrauded Investors received payments, and the example of P2 (Lee) illustrates that these could have been quite substantial, there is no evidence at all to form the basis by which an appropriate ceiling for the Mareva can be assessed.

57.  Mr Nip submitted that if and when the Plaintiffs obtained further information by way of discovery, they could apply to vary the amount covered by the Mareva. He also submitted that none of the Relevant Defendants have asked to vary the amounts covered by the injunction. However, the burden is on the Plaintiffs to show a good arguable case as to quantum in the first place to justify the grant or continuation of the Mareva in the amount sought.

58.  I therefore do not consider that the Plaintiffs have established a good arguable case in respect of the Mareva injunctions, which were granted against D8 (Chan), D9 (Tsang) and D10 (Hung). On this basis, the injunctions should not be continued (in the case of D8 (Chan) and D10 (Hung)) or should be discharged (in the case of D9 (Tsang)).

D. MAREVA INJUNCTIONS – OTHER ISSUES

59.  For completeness, I go on to set out my observations in relation to the other issues argued in respect of the Mareva injunctions.

D1. Assets within the jurisdiction; risk of dissipation; balance of convenience

60.  D8 (Chan), D9 (Tsang) and D10 (Hung) did not dispute that they had assets within the jurisdiction.[37]

61.  Nor did they seek to seriously contest the issue of whether there was a risk of dissipation of their assets, beyond their argument that the Plaintiffs failed to show a good arguable case regarding liability.[38] Given my views above regarding the latter, it follows that the Plaintiffs have shown a solid basis for concluding that there is a real risk of dissipation of assets.

62.  Nor was it sought to be argued that even if the Plaintiffs established the other requirements for a Mareva injunction, no injunction ought to be granted on the balance of convenience.

D2 Material non-disclosure

63.  The other main argument advanced by the Relevant Defendants was that the Plaintiffs were guilty of material non-disclosure when seeking the ex parte injunctions. D1 said that the Plaintiffs had failed to disclose:

63.1 that the Defrauded Investors had received investment returns or interest, and commissions;

63.2 that most of the Defrauded Investors had never met D8 (Chan) before;

63.3 that a representative action was not appropriate;

63.4 that the Plaintiffs had to overcome the double actionability rule; and

63.5 that trusts were not recognised under Taiwanese law.[39]

64.  D4, D5 and D9 (Tsang) also said that the Plaintiffs had failed to disclose the unsuitability of representative proceedings. In addition, they said that the Plaintiffs had deliberately failed to disclose their own participation or involvement in the Ponzi scheme.

D2.1 Relevant principles

65.  The duty of an applicant in an ex parte application is to make a full and fair disclosure of all the material facts: Brink’s Mat Ltd v Elcombe [1988] 1 WLR 1350 at 1356F-G.

66.  Material facts mean all those that are relevant to the weighing operation which the court has to make in deciding whether or not to grant the order. The correct test is not simply whether, if the non-disclosure had not occurred, the ex parte judge would, nevertheless have made an order, but whether the facts not disclosed, being relevant, should have been in the scales. See Citibank NA v Express Ship Management Services Ltd and another [1987] HKLR 1184 at 1190C-E.

67.  Non-disclosure may be material even if its effect is just to give a seriously different “flavour” to the case. See Hwang Joon Sang v Golden Electronics Inc [2021] HKCFI 2425 at [37].

68.  The test as to materiality is an objective one, and it is not for the plaintiff or his advisers to decide the question; hence it is no excuse for the applicant to say that he was genuinely unaware, or did not believe, that the facts were relevant or important. See New Asia Energy Ltd v Concord Oil (Hong Kong) Ltd [2000] 2 HKC 681 at 685H-I.

69.  A plaintiff has a duty to make proper enquiries before making his application. The duty of disclosure covers not only facts known to the plaintiff but also facts which he would have known had he made such proper enquiries. See Tsui Yun Bun Barry v Law Wan Tung (formerly known as Law Siu Yi Biby) [2019] HKCFI 2955.

70.  It is inappropriate to seek to set aside a Mareva injunction for non-disclosure where proof of non-disclosure depends on proof of facts which are themselves an issue in the action, unless the facts are truly so plain that they can be readily and summarily established, otherwise the setting-aside application is liable to become a form of preliminary trial in which the judges asked to make findings (albeit provisionally) on issues which should be more properly reserved for the trial itself. See Kazakhstan Kagazy plc & ors v Arip [2014] 1 CLC 451 at [36].

71.  Apart from material facts, a plaintiff must also identify any defences, which, although not yet taken, would have been available to be taken by the defendant had he been present at the ex parte application, provided that: (1) the defence is one which can reasonably be expected to be raised in due course by the defendant; and (2) the defence is not one which can be dismissed as being without substance or importance. See New Asia Energy Ltd at 686A-B.

72.  The duty to disclose material facts and identify possible defences does not extend to a detailed analysis of every possible point which may arise. The defendant must identify with clarity, and if necessary restraint, the failures of which it complains, rather than adopting a scattergun approach. See National Bank Trust v Yurov & others [2016] EWHC 1913 (Comm) at [19].

D2.2 Complaint of failure to disclose receipt of returns or interest and commissions

73.  The Plaintiffs did disclose that they had received returns or interest on their investments, and the point that they would need to give credit for them in due course. They did not expressly refer to the receipt of commissions in addition, but this was not material in that it appears to be common ground[40] that the receipt of commissions would be treated similarly to the receipt of returns or interest, with credit being given for such receipts.

D2.3 Complaint of failure to disclose that most Defrauded Investors had never met D8 (Chan)

74.  D1 and D8 (Chan) say that non-disclosure of the fact that most Defrauded Investors had never met D8 (Chan) gave the Plaintiffs’ case a different “flavour”. However, as Mr Nip submitted, whether or not any of the Defrauded Investors had met D8 (Chan) was not a necessary element of their claim. Nor did this really affect the flavour of the case, which was that each of the Defrauded Investors had unwittingly signed contracts for fake investment products.

D2.4 Complaint of failure to disclose Plaintiffs’ participation in Ponzi scheme

75.  The Plaintiffs say that they are victims of the Ponzi scheme. D4, D5 and D9 (Tsang) say that the Plaintiffs are participants in the Ponzi scheme. Whether or not the Plaintiffs are participants must be a hotly disputed fact, and cannot be determined summarily. This “fact” therefore cannot form the basis of an argument of material non-disclosure: Kazakhstan Kagazy plc.

D2.5 Complaint of failure to disclose that representative action not appropriate

76.  The Plaintiffs did refer to the possibility that the Defendants might seek to argue that the Defrauded Investors did not have the same interest in the matter, such that representative proceedings might be inappropriate.[41]

D2.6 Complaint of failure to disclose requirements of double actionability rule

77.  In his oral submissions, Mr Ma indicated that for the purposes of this hearing, he accepted that whether or not the double actionability rule applied was arguable, and that the rule was relied upon only for the argument of material non-disclosure.[42]

78.  D1 and D8 (Chan) say that since the alleged Ponzi scheme was perpetrated wholly or at least substantially in Taiwan, and targeted investors based in Taiwan, the double actionability rule clearly applies. Yet (as is not disputed) the Plaintiffs failed to address the issue of whether an action would be successful under Taiwanese law when they applied for injunctive relief at the ex parte stage.

79.  It is not disputed that as a matter of principle, under the double actionability rule, if a plaintiff seeks to rely on a tort committed abroad to mount a claim for tort in Hong Kong, he needs to show that the wrong is actionable under both the law of the place where the tort was committed, and also in Hong Kong. See Altrans Fast Cargo Ltd v Liu Yugang [2023] HKCFI 1579 at [28], [29].

80.  The Plaintiffs say that many of their complaints are linked to Hong Kong. For example, it is said that although many of the Defrauded Investors signed client agreements in Taiwan, they were sent to Hong Kong for signing by D2. It is said that although many of the Defrauded Investors transferred their funds from Taiwan, they suffered losses in Hong Kong rather than Taiwan as this is where their funds were misused.

81.  In my view, it cannot be said that the Relevant Defendants’ reliability on the double actionability rule can be dismissed as a defence without substance. Many of the Defrauded Investors were based in Taiwan, and the Margin Trading Product and Wine Investment Product were offered to them in Taiwan. The Plaintiffs themselves plead that they were induced by fraudulent misrepresentations to sign client agreements for the Margin Trading Product in Taiwan.

82.  I would have declined to continue the Mareva injunctions against D8 (Chan) and D10 (Hung) and discharged the Mareva injunction against D9 (Tsang) for the additional reason of material non-disclosure regarding the double actionability rule.

E. PROPRIETARY INJUNCTIONS AGAINST D1, D4, D5

E1. Serious issue to be tried

83.  Given my views above that there is a good arguable case against the Relevant Defendants, it follows that there is a serious issue to be tried against D1, D4 and D5 that they have received the Plaintiffs’ funds pursuant to a fraudulent scheme.

E1.1 Representative action

84.  Again, however, the Relevant Defendants say that this is not the end of the matter. Mr Ma’s argument is that since the claims for rescission or of (constructive or resulting) trust will require individualised assessment for each of the Defrauded Investors and cannot be granted in a representative action as presently constituted, there is no evidence of the specific trust property of the Defrauded Investors sought to be protected by the proprietary injunctions.[43]

85.  Insofar as the argument that individualised claims for relief cannot be brought by way of a representative action, I have earlier set out my view that there is a good arguable case that the action is properly constituted and that issues relating to the assessment of relief for any particular Defrauded Investor can be dealt with by way of case management.

E1.2 Whether trust property in hands of D1, D4, D5

86.  The argument goes further. Mr Ma submitted that the Plaintiffs need to show a serious issue to be tried that (1) there is trust property in the first place, (2) there are still funds remaining in the hands of D1 to be frozen, and (3) those funds belong to the Plaintiffs. Mr Ma cited Zhang Yan v ASA Bullion Ltd [2019] HKCFI 179 at [11] for the proposition that where the asset forming the subject matter of a proprietary claim has been dissipated and can no longer be traced, a proprietary injunction cannot ordinarily be granted. It is said that there is therefore no serious issue to be tried that there is any trust property of the Plaintiffs in the hands of D1.

87.  However, for the purpose of the hearing before me, the evidence is that the Plaintiffs and other Defrauded Investors transferred their funds to D1’s accounts. As Mr Nip submitted, D1 is not saying that the monies deposited into the accounts have been dissipated or otherwise cannot be traced, and D1 must be in the best position to know the status of its accounts.

88.  As for D4 and D5, it is said that they do not have assets in Hong Kong and have ceased operation, and that all their bank accounts have been closed.[44] However, the Plaintiffs say that D4 and D5 have failed to comply with their disclosure obligations under paragraphs 7(5) and 7(6) of the order of ST Poon J of 3rd February 2023, pursuant to which they were to disclose what had become of the funds transferred to their accounts by the Plaintiffs.[45] Furthermore, D4 and D5 have not produced any evidence in support of their claim that their bank accounts have been closed.

89.  In these circumstances, I agree with Mr Nip that there is a serious issue to be tried in respect of the Plaintiffs’ claim that D1, D4 and D5 are holding the Plaintiffs’ assets or their traceable proceeds on trust for them.

E2. Balance of convenience; justice and convenience

90.  Other than the issue of material non-disclosure, it was not sought to be suggested there were any other considerations going to the balance of convenience as to whether the proprietary injunctions should be continued or discharged, or as to whether it would be just and convenient to continue or discharge the proprietary injunctions.

91.  In the circumstances, subject to the issue of material non-disclosure, something ought to be done for the security of the property. See Samtani v Samtani [2012] 4 HKLRD 872 at [75]; Pacific Rainbow International Inc v Shenzhen Wolverine Tech Ltd, unreported, HCA 3023/2016, 2nd May 2017 at [37].

E3. Material non-disclosure

92.  I have dealt above with a number of aspects of material non-disclosure and will not repeat those here. I will only deal with those aspects which are specific to the proprietary injunction against D1, D4 and D5.

E3.1 Complaint of failure to disclose that trusts not recognised under Taiwanese law

93.  The Relevant Defendants did not dispute that in relation to the Relevant Defendants’ aim to recover funds paid away to D1 to D7, there is a good arguable case that the lex situs applies, so that either Hong Kong law or the law of Australia[46] applies, and that the concept of constructive trust is recognised in both jurisdictions.

94.  What D1 to D7 say is that the Plaintiffs failed to disclose that the concepts of constructive and resulting trust do not exist under the laws of Taiwan, so that there may be a defence that no constructive or Quistclose trusts arose in the first place. For the proposition of Taiwanese law (that constructive and resulting trusts do not exist under the laws of Taiwan), reliance was placed on Pacific Electric Wire & Amp Cable Co Ltd v Texan Management, unreported, HCA 2203/2004, 18th January 2008 at [218] to [219]. However, as pointed out by Mr Nip, those paragraphs only refer to certain submissions being made. There is currently no evidence before me as to Taiwanese law.

95.  On the material before me, I am unable to say that the Plaintiffs were guilty of material non-disclosure in failing to disclose that the concepts of constructive and resulting trust do not exist under the laws of Taiwan.

E3.2 Complaint of failure to disclose requirements of double actionability rule

96.  I have earlier found that there was material non-disclosure as regards the defence of inability to comply with the double actionability rule. This would be a defence to the claim of fraudulent misrepresentation by D8 (Chan), D9 (Tsang) and D10 (Hung). However, the claim against D1 to D7 does not depend on whether the liability of D8 (Chan), D9 (Tsang) and D10 (Hung) for fraudulent misrepresentation is established. The Plaintiffs claim against D1 to D7 for restitution of the amounts paid to them under the mistaken belief that the Margin Trading Product and the Wine Investment Product were genuine and in fact existed. This is not a claim in tort, so the double actionability rule does not apply. Nor does the claim in restitution against D1 to D7 require the prior establishment of the liability of D8 (Chan), D9 (Tsang) and D10 (Hung). Insofar as the claim in restitution requires the establishment of the Plaintiffs’ mistaken belief that the Margin Trading Product and the Wine Investment Product were genuine and in fact existed, this is a matter of fact which can be established on the evidence (if that is indeed the evidence), irrespective of legal liability of D8 (Chan), D9 (Tsang) and D10 (Hung) for misrepresentation.

97.  There is therefore no material non-disclosure in relation to the proprietary injunctions against D1 to D7.

F. DISPOSITION

98.  I therefore decline to continue the Mareva injunctions against D8 (Chan) and D10 (Hung), and I discharge the Mareva injunction against D9 (Tsang).

99.  I continue the proprietary injunction against D1, and decline to discharge the proprietary injunctions against D4 and D5.

100.  I further make a costs order nisi that:

100.1 the Plaintiffs should pay to D8 (Chan) and D10 (Hung) their costs of and occasioned by the Continuation Summons, and to D9 (Tsang) his costs of and occasioned by the Discharge Summons;

100.2 D1 should pay to the Plaintiffs their costs of and occasioned by the Continuation Summons (insofar as they relate to D1);

100.3 D4 and D5 should pay to the Plaintiffs their costs of and occasioned by the Discharge Summons (insofar as they relate to D4 and D5);

all with certificate for two counsel, to be taxed if not agreed.