EMIRATE DISTRIBUTORS LTD AND ANOTHER v. AALL & ZYLEMAN CO LTD AND OTHERS

HCA 1828/2015

[2020] HKCFI 851

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1828 OF 2015

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J U D G M E N T

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Table of Contents

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A.  Introduction

1.  In this action, the plaintiffs claim against each of the defendants essentially for negligence in effecting 6 remittances out from the plaintiffs’ Hong Kong bank accounts by failing to notice suspicious features of email payment instructions said to be fraudulent and in failing to verify the instructions in authorising the 6 remittances.

B.   Background

2.  The Plaintiffs/Ps are companies with limited liability incorporated under laws of Hong Kong, with P1 incorporated on 30 September 2009 and P2 two days earlier, on 28 September 2009.

3.  Ps were said to be acquired by the NetMedical Group, a group of companies based in Venezuela, Panama and the United States supplying health supplies and equipment and representing brands of European American origin, for use in the NetMedical Group’s operation[1].  According to the current sole director of Ps, Mr Julio Cesar Moreno Villaverde (“Mr Moreno”), the NetMedical Group is owned by NetMedical, CA (a Venezuelan company) (“NetMedical”)[2].  

4.  The 1^st defendant/D1 was at all material times and still is a management and secretarial service company in Hong Kong[3]. At all material times, the 2^nd to the 4^th defendants were and still are employees of D1.  D2 is a Corporate Secretary mainly responsible for A&Z’s secretarial and clerical work and D3 is the General Manager of A&Z mainly responsible for its overall management.

5.  D4 is and was at all material times the majority shareholder of A&Z, holding 679,000 out of 680,000 issued shares while his son holds the remaining one share.  D4 and his brother are and were at all material times the only two directors of D1.  For all intent and purposes, D4 is and was at all material times the boss of D1.  

6.  D1 incorporated Ps respectively on the instructions of Fidinam (Zurich) AG (“Fidinam”).  Fidinam was at all material times a company carrying on business in Zurich, Switzerland providing corporate services for its clients and said to be an overseas client of A&Z for decades. 

7.  After incorporation of P2, a Panamanian company Nandalo Assets Corp became its sole registered shareholder.  The first nominee directors of P2 were D2 and D3 but they were later replaced by D4, as the sole nominee director of P2.  D2 was appointed the company secretary of Salam.  As for P1, a Panamanian company Lextrop Wealth Inc was its sole registered shareholder.  The first nominee directors of P1 were D2 and D3 and D2 was also appointed the company secretary of P1.

8.  Nandalo Assets Corp and Lextrop Wealth Inc were companies incorporated and/or provided by Fidinam.  At the time of incorporation, the ultimate beneficial owners of Ps through those two companies (“UBOs”) were said to be a Mr Francisco Novoa Perdiz (“Mr Novoa”) and a Mr German Alvarez Garcia (“Mr Alvarez”), both Venezualan nationals.  According to Mr Moreno’s evidence during the trial, Mr Novoa was/is the owner of NetMedical.

9.  Prior to the incorporation of Ps, at the request of D1, Mr Novoa and Mr Alvarez had on 22 September 2009 respectively signed a letter of indemnity in favour of D1, that in consideration of D1 agreeing to provide (1) nominee directors (2) nominee shareholder and (3) company secretary for P1 and P2, the UBOs fully and effectually indemnify D1 and the representatives against all claims, demands and liabilities whatsoever which D1 may incur by acting pursuant to this agreement provided that any such act was done in good faith and without negligence^[4]… (“Letter of Indemnity”).

10.  Initially, though Fidinam, instructions were given to D1 to open bank accounts for Ps.  By an email dated 20 November 2009, a Mr Harvey Rogers (“Mr Rogers”), an attorney practising in the Florida in USA and said to be the attorney and agent of Ps and/or UBOs followed up on the instructions to D1 to open two bank accounts respectively for Ps (collectively “Ps’ Accounts”).  Subsequently, the following bank accounts were opened:

(i)  on or about 22 April 2010, an account for P2 was opened with Hong Kong and Shanghai Banking Corporation Ltd (“P2’s Account”);

(ii)  on about 26 May 2010, an account for P1 was opened with Hang Seng Bank Limited (“P1’s Account”).

11.  Upon the opening of Ps’ Accounts and until 9 October 2013, D2 and D3 were respectively the authorised signatories for Ps’ Accounts and D1 was in possession of the security devices (for banking purposes).  Further, D3 was assigned by D1 to sign TT forms for transferring money out of Hong Kong from Ps Accounts (“TT Forms”).

12.  Prior to March 2011, the executive officer at D1 who was responsible for handling Fidinam’s account at D1 was a Ms Mandy Ngan (“Mandy”), and after Mandy left D1 in about March 2011, another executive officer Ms Sandra Li (“Sandra”) was assigned to handle Fidinam’s account.  Sandra was responsible for taking instructions from Fidinam and Mr Rogers.

13.  From 16 July 2011 onwards, from time to time, Mr Rogers, as agent of Ps and/or the UBOs, would instruct D1 to remit monies from Ps’ Accounts to pay third party invoices on behalf of Ps, by Mr Rogers sending email instructions attaching a copy of the relevant invoice to Sandra (“Instruction Emails”).  

14.  It was not disputed that there were 8 authorised remittances during a period of almost 19 months, between 10 August 2011 and 4 March 2013 which were carried out by D1 in accordance with Mr Roger’s instructions (“8 Previous Remittances”).  These will be set out later. In between the Instruction Emails from Mr Rogers in relation to the 8 Previous Remittances, there were also emails from Mr Rogers on other matters.

15.  After the 1^st of the 8 Previous Remittances, on 31 August 2011, Mr Moreno had suddenly turned up to D1’s office to request for all the original documents filed on behalf of Ps, but his request was declined by D1 as D1 had by then not received any written instructions from Mr Rogers or the UBOs to hand the documents over to Mr Moreno.  Later on 31 August 2011, Mr Rogers then sent an email to Sandra informing her that in compliance with the request made by the principals of the companies, Sandra was to provide to Mr Moreno, described by Mr Rogers as their “employee” who was at that time in Hong Kong, with all the necessary documentation which Mr Moreno might request, as those documents needed to be legalised in the Venezuelan Consulate in order for Ps to continue operations. Subsequently on 1 September 2011, Mr Moreno was provided the original documents requested by him.

16.  Thereafter, on 20 April 2012, 1:13 am, Mr Rogers had sent an email to Sandra attaching, amongst other things, a copy of Mr Moreno’s passport and requesting Sandra to provide Mr Moreno full and complete access to the accounts of Ps since he was an authorized representative of Ps  and that Mr Moreno would be visiting Sandra shortly[5].  In response, Sandra stated that she noted that Mr Moreno was an authorized representative of Ps and that D1 could accept direct instructions from him[6].

17.  On 10 May 2012, 3:31 am, Mr Rogers sent an email to Sandra stating that P2 needed to work out some issues in Venezuela and requested from Sandra a general power for attorney for a Mr Eduardo Jose Salzberger Garmendia (“Mr Salzberger”) to carry out various business matters[7] on behalf of P2.  This general power of attorney was duly executed by D4 on 14 May 2012 and “FedExed” to Mr Rogers as instructed by him[8].

18.  In an Instruction Email of 18 January 2013, 3:02 am, in which Mr Rogers sent instructions to Sandra for the 7^th of the 8 Previous Remittances, apart from such instructions, Mr Rogers had also requested that an additional person a Mr Luis Guillermo Casique Rodriguez (“Mr Casique”) be added as the person who could direct transmissions for payment on the P2’s Account, as Mr Casique was the one who dealt with Bedrock (as defined later) and this would facilitate a more prompt response[9]. There were no other explanation as to who Mr Casique was in this email apart from that he “dealt with Bedrock”.

19.  Sandra responded on 18 January 2013, 4:08 pm, and amongst other things, she set out the information required for Mr Casique to be added as an additional bank signatory to P2’s Account.  It was not clear as to whether there was any follow up to the proposal of adding Mr Casique as the additional signatory to P2’s Account.

20.  After the 8^th Pervious Remittance, on 16 June 2013, 12;39 am, Mr Rogers sent an email[10], and asked Sandra to obtain for them, on a rush basis, “apostles” (sic) for both Ps showing two individuals designated as directors, officers and authorized signatories for the companies.  The two individuals were Mr Salzberger and Mr Moreno.  In this email, Mr Rogers informed Sandra that Mr Salzberger was the attorney and representative for Ps in Venezuela, and that Mr Salsberger would be writing to Sandra separately requesting the confirmation and resolution for opening a depository of funds in Geneva for Ps.  As for Mr Moreno, what Mr Rogers said in this email that they were associated with Mr Moreno, who in the past and currently represented Ps in a multifarious number of transactions and that Sandra was to provide any and all company records to Mr Moreno.  Mr Rogers had said that the same requests had been remitted previously.  Mr Rogers then sent the same email again 7 minutes later on 16 June 2013, 12:46am.

21.  Anyway, on 21 June 2013, D2 on behalf of the Board of Directors of P1 duly executed two general powers of attorney, one to Mr Moreno and one to Mr Salzberger for P1[11].  Similarly, on the same day, D4 on behalf of the Board of Directors of P2 also duly executed two general powers of attorney, one to Mr Moreno and one to Mr Salzberger for P2[12].

22.  It can be seen from the general powers of attorney given to Mr Salzberger for P1 and for P2 that Mr Salzberger was to have “full power to open, conduct any transactions and close any and all accounts under the company’s name, in any bank in the world”.  The general powers of attorney given to Mr Moreno did not include this power.

23.  Those communications in June 2013 appeared to be the last email communications between Mr Rogers and Sandra prior to what Ps called “phony emails” with “phony invoices” for 6 “phony remittances”.  On Ps’ case after June 2013, it would only be on or around 10 March 2014 that Mr Rogers wrote to Sandra again, but this time enquiring about the “phony remittances”.

24.  It was not disputed that between 1 August 2013 and 23 September 2013, D1 instructed the Hang Seng Bank and/or HSBC to make 6 remittances amounting to US$ 1,898,000 out of P1’s Account and/or P2’s Account between 1 August 2013 and 23 September 2013 (“6 Remittances”) purportedly on Instruction Emails sent by Mr Rogers.  These 6 Remittances are now the subject matter of this action.

25.  It was Ps’ case that Mr Rogers did not send any of the Instruction Emails for the 6 Remittances and that they were sent by a fraudster/s (“Fraudster”) and that:

(i)  P1 was defrauded of US$ 140,000 which went to a Taiwan individual account:

(ii)  P2 was defrauded US$1,758,000 of which US$ 1,726,000 went to 2 Taiwan individual accounts and US$32,000 went to a Thailand corporate account.

26.  It was further P’s case that on or around 16 September 2013, Ps wished to cease their engagement of D1 and Sandra gradually handed Ps’ documents over to Ps’ new director, namely Mr Moreno, and according to Mr Moreno, the 6 Remittances were spotted by him when he went through Ps’ documents in January 2014.

27.  Mr Moreno made a report to the Hong Kong Police and gave a statement on 1 April 2014 (“Police Statement”) regarding the fraud[13]. Ps also lodged criminal complaints in Taiwan.

28.  Due to P’s complaints, and complaints from other persons, various criminal and/or civil proceedings took place in Taiwan (collectively “Taiwan Proceedings”).  I will set these out later.  Suffice to say at this stage, Ps were unable to recover their losses.

29.  It was Ps’ case that D1 was or ought to have been put on notice that the Instruction Emails were not or might not have been provided by Ps and/or their authorised persons.  Ps also complained that Ds had refused to give evidence in the Taiwan Proceedings, or to help Ps with their efforts in Taiwan to recover the monies they lost.

30.  Ps issued the writ in the present action on 12 August 2015 initially only against D1, and Ps claims against D1 were for damages (i) for breach of contract and (ii) further, or in the alternative, for its breach of duty of care in tort to discharge its duties in relation to the operation of Ps’ Accounts with reasonable care, skill and diligence.

31.  The writ was subsequently amended on 8 March 2016 to include D2 to D4, and Ps’ claims against them were for damages for breach of their duty of care in tort to discharge their duties as directors, in relation to the operation of Ps’ Accounts with reasonable care, skill and diligence, and further that A&Z was vicariously liable in tort for the acts of each of them.

32.  D1 denied Ps’ claims and that (1) even if D1 were in breach of a duty of tort, such breach did not cause Ps’ loss; and (2) even if D1 were in breach of a duty of tort, there was contributory negligence on the part of Ps.

33.  It was the case of D2 to D4 that they were/are only employees of D1 and nominee directors of Ps, and as employees and nominee directors, they did not owe Ps any duty of care as alleged by Ps.

C.   The 8 Previous Remittances

34.  I first set out a table of the 8 Previous Remittances (“Table 1”), as follows:

The 8 Previous Remittances	Date of   receipt of email instructions	Email address	Invoice date/ description (Issuer same as Beneficiary)	Date of Debit from P2’s Account	Amount in USD	Name of Beneficiary Account (Destination)
1st	16.07.11, 5:00am	The LAW Address	Invoice No 102 dated 23.05.11 issued to P2 attached to email of 10.08.11	10.08.11 from P2’s Account	200,000	EXCEL 131 Aviation Company (“Excel”)
2nd	20.04.12, 1:16am	ditto	Invoice No 227 dated 15.04.12 addressed to P2	26.04.12 from P2’s Account	400,000	Bedrock Aviation Group Inc (“Bedrock”)
3rd	08.05.12, 5:31am	ditto	Invoice No 03988 dated 18.04.12 addressed to P2	08.05.12	4,099,040	Rismed Dialsis Systems Corp (“Rismed”)
4th	13.09.12, 9:01pm	ditto	Invoice No 342 dated 06.09.12	14.09.12	202,000	Bedrock
5th	12.10.12, 11:16am	ditto	Invoice No 367 dated 01.10.12	11.10.12	263,000	Bedrock
6th	08.11.12, 9:16pm 16.11.12, 10:46pm	ditto	Invoice No 367 dated 01.10.12 Corrected invoice no 392 dated 05.11.12	12.11.12	263,000	Bedrock
7th	18.01.13, 4:01am	ditto	Invoice No 418 dated 05.12.12	18.01.13	232,000	Bedrock
8th	02.03.13, 1:01am	ditto	Invoice No 442 dated 20.02.13	04.03.13	156,000	Bedrock

D.  The 6 Remittances

35.  Below is a table of the 6 Remittances alleged by Ps to be unauthorised (“Table 2”) :-

The 6 Remittances	Date of receipt of email instructions	Email address	Invoice date/ description/ Issuer	Date of Debit and Account Debited	Amount in USD	Name of Beneficiary Account (Destination)
1st Remittance	01.08.13, 1:01 am	LAW Address	Invoice No 387 dated 24.07.13 issued to P2 by Weng Wen Yang Air Transportation Service for USD143,000	01.08.13 from P2’s HSBC Account	143,000	Weng Wen-Yang (“Weng Wen-Yang”) at Taipei Fubon Commercial Bank Co
2nd Remittance	06.08.13, 5:15 am	LAW Address	Invoice No 287 dated 27.07.13 issued to P2  by Liang Pei –Tou Air Bus Service for USD 375,000	06.08.13 from P2’s HSBC Account	375,000	Liang Pei-Tou (“Liang Pei-Tou”) at Union Bank of Taiwan
3rd Remittance	09.08.13, 6:31 am	LAW Address	Invoice No 299 dated 01.08.13 issued to P2 by Liang Pei Tou Air Bus Service for USD 520,000	09.08.13 from P2’s HSBC Account	520,000	Liang Pei-Tou at Union Bank of Taiwan
4th Remittance	15.08.13, 1:30 pm	LAVV Address	Invoice No 322 dated 05.08.13 issued to P2 by Liang Pei-Tou Air Bus Service for USD 688,000	15.08.13 from P2’s HSBC Account	688,000	Liang Pei-Tou at Union Bank of Taiwan
5th Remittance	22.08.13, 10:01 am, 10:40 am, 11:15 am	LAVV Address	Invoice No 334 dated 12.08.13, issued to P1/P2 by Liang Pei-Tou Air Bus Service to P1/P2 for USD 140,000	23.08.13 from P1’s HSB Account	140,000	Liang Pei-Tou at Chinatrust Commercial Bank
6th Remittance	19.09.13, 1 pm	LAVV Address	Invoice No 107 dated 19.09.13 issued to P1 /P2 by New Life Enterprise & Associate Limited	23.09.13 from P’s HSBC Account	32,000	New Life Enterprise & Associate (“New Life”) at Karsikorn Bank PLC in Thailand

E.  The Taiwan Proceedings

36.  As mentioned earlier, there were various Taiwan Proceedings, some were as a result of other complaints from other persons/companies.  Insofar as I can gather, those proceedings which concerned Ps included the following (using the western calendar year rather than the Taiwan calendar year for easy reference).

E.1  Criminal Action No 5316 of 2014

37.  As a result of Ps’ complaints, investigations were carried out by the Taiwan Tao Yuan District Court Criminal Prosecution Office under Action No 5316 of 2014 between 26 May 2014 and 24 August 2014[14], in respect of Weng Wen-Yang. At the same time, there were complaints by other victims against Weng Wen-Yang.  It would appear that Weng Wen-Yang was previously convicted for other offences and had been sentenced to imprisonment.

38.  According to a judgment of the Taiwan Keelung District Court on 17 March 2015, under Criminal Action no 38 of 2014, Weng Wen-Yang was a fisherman and he sold drift wood by the seaside, and that he met a “Mr Ng” in 2013, who asked if Weng could open a bank account for his use and that he would pay Weng some money.  Weng’s defence was as he had financial difficulties, he agreed to help “Mr Ng” by opening a bank account for his use at the Taiwan Fubon Bank at Keelung.  Thereafter, “Mr Ng” would telephone to instruct him as to when he needed to withdraw money from the bank account, and that on each occasion, “Mr Ng” would pay him NTD 10,000 as a reward.  Weng Wen-Yang said later he then lost contact with “Mr Ng”[15].

39.  As seen in the above judgment, Weng was convicted on 17 March 2014 for 9 months, for providing his bank account at Taipei Fubon Commercial Bank for use of others, and that Ps’ case should be considered part of the same offence, and therefore no further prosecution was issued against Weng Wen-Yang[16].

E.2  Criminal Action No 19537 of 2014

40.  As a result of a complaint by Ps of fraud, the Taipei District Court Prosecution Office issued a notice on 26 March 2015 for a court hearing on 10 April 2015, and this was followed by a formal complaint lodged by Ps on 24 April 2015[17], and Liang Shang Wei (梁尚緯) son of Liang Pei-Ton (梁北斗) was investigated.

41.  Separately there were other complaints against Liang Pei-Tou and others by other persons in connection with money laundering offences in relation to Liang Pei-Tou’s bank accounts at the Union Bank of Taiwan and the Chinatrust Commercial Bank under various actions.

42.  It would appear that Liang Pei-Tou was 87 years in 2015 and that he was accused to have provided his bank account for others to use for illegal activities.  Liang Pei-Tou had strenuously denied that he had committed any fraud or any money laundering offences.  His defence was that it was his son Liang Shang-Wei who had taken him to open the bank accounts at the Union Bank of Taiwan and the Chinatrust Commercial Bank.  It was also Liang Shang-Wei’s evidence was that his father did not know the source of the money in the bank accounts, and also another defendant Cai Si-Wai also confirmed that he had never had any contact with Liang Pei-Tou and all money transactions were between him and Liang Shang Wei[18]. Eventually, Liang Pei-Tou was not prosecuted.

43.  As Liang Shang-Wei was investigated for various fraud and money laundering offences due to complaints made by others, he had been detained in custody on 21 April 2015, after giving preliminary evidence[19].

44.  Prosecution was then proceeded under Action No 19357 of 2014 against Liang Shang-Wei, alleging that Liang Shang-Wei had provided the bank account of Liang Pei-Tou to others who had used the name of “Harvey Rogers” and with unknown methods obtained the LAVV Address used by “Harvey Rogers” and to pretend to be the account holder of the bank account to give instructions to P2 for remittances[20].

45.  However, Liang Shang Wai’s evidence was that he only allowed others to use his father Liang Pei-Tou’s bank account and was only given some red packets for reward and denied that he received 10% of the withdrawn proceeds as alleged by one of the others and denied that he had any knowledge of his father’s account being used for fraudulent and money laundering activities[21].

46.  Subsequently, it would appear that the criminal charge against Liang Shang-Wei was then joined with Case No 263 of 2015[22], stated below.

E.3  Action No 263 of 2015 (“Taiwan Civil Action”)

47.  This action was described as a “criminal action attached with civil claims” and for easy reference, I shall refer to this action as the “Taiwan Civil Action”.  The writ in the action appeared to be formally issued on 20 January 2016[23], and was issued by Ps against 4 defendants, including Liang Shang-Wei as the 1^st defendant, claiming that the defendants had defrauded Ps and seeking orders that the defendants to jointly pay Ps (1) damages, (2) to pay P2 US$1,583,000 and (3) to pay P1 US $ 124,000[24].

48.  Mr Rogers was to attend before the Taiwan Court to give evidence in the Taiwan Civil Action on 25 January 2017 and 22 February 2017[25]. Mr Rogers did attend before the Taiwan Court on 25 January 2017 and gave oral evidence and there is a transcript of the proceedings on that day produced by Ps (“Transcript”)[26].

F.   The disputed issues

49.  Notwithstanding this Court’s order that the parties should lodge an agreed list of issues, they were not able to agree and each lodged their respective lists.  The parties subsequently submitted a Scott Schedule, listing their respective lists of issues. 

50.  As seen in paragraph 23 of the amended statement of claim (“ASOC”), Ps’ pleaded case was based on D1’s breach of contractual terms (including implied terms) of the 1^st Agreement (as defined therein) with P1 and the 2^nd Agreement (as defined therein) with P2[27].  As set out in paragraph 24 of the ASOC, the breach of D1’s duty of care was Ps’ further or alternative case.  Notwithstanding Ps’ pleaded case, their Counsel Mr Wong made it clear in Ps’ Closing Submissions[28] that (1) Ps would simply rely on D1’s admitted duty of care in tort, and Ps would not be  pursuing their contractual claim; (2) D1’s liability was predicated not only on the conduct of Sandra, as D1’s administrator/Executive Officer handling Ps’ remittances, but also the conduct of D3 as D1’s General Manager and the superior of Sandra.

51.  Further, in paragraph 24A of the ASOC, Ps’ pleaded case on vicarious liability was that D1 was vicariously liable in tort for the acts of each of D2, D3 and D4 in the course of their employment with D1 as seen in paragraph 25A in the ASOC.  However, seen in paragraph 1 of Ps’ Opening Submissions, Ps’ claim against D2-D4 was limited to that being directors of P1 and P2, D2-D4 respectively failed their common law duty to take reasonable care in failing to verify or have a procedure to verify email payment instructions before authorising the same.  This was further made clear in paragraphs 21 to 32 of Ps’ Opening Submissions, and also in Section C under the claim against the nominee directors of Ps’ Closing Submissions.  Thus, Ps’ claim against D1 on vicarious liability is only for the breach of duties on the part of D2-D4 done in the course of their employment with D1 in their capacity as nominee directors of Ps at the relevant time: D2 and D3 for P1 and D4 for P2[29].

52.  There was no dispute that Mr Rogers was the one who sent all the Instructions Emails for the 8 Previous Remittances. 

53.  Having considered the parties’ respective lists of issues, in my view, the disputed issues can be grouped under the following main headings:

(i)  Whether the 6 Remittances were authorised by Mr Rogers and/or Ps;

(ii)  Whether there was the Usual Practice as alleged by Ds;

(iii)  What was the standard of tortious duty owed by D1 to Ps;

(iv)  Whether D1 exercised reasonable care, skill and diligence in carrying out the payment instructions in the Instruction Emails for the 6 Remittances;

(v)  Whether each of D2-D4 was in breach of her/his duty of care to Ps in her/his capacity of nominee director;

(vi)  If the answer to (v) is yes, whether D1 was vicariously liable for the breach of duties on the part of D2-D4;

(vii)  Whether any of D’s negligence, if found, has caused Ps’ pleaded loss and damage;

(viii)  Whether there was any contributory negligence on the part of Ps;

(ix)  If the answer to (vii) is yet, what is the apportionment of liability between Ps and D1;

G.  The witnesses

54.  Mr Rogers and Mr Moreno attended trial to give evidence on behalf of Ps.

55.  D2, D3, D4, and also Sandra gave evidence on behalf of Ds.

H.   Whether the 6 Remittances were authorised by Mr Rogers and/or Ps

H.1  Whether the email address “rogerslavv1@aol.com” was Mr Roger’s email address and belonged to him

56.  As seen in the ASOC, 3 of the 6 Remittances were made by Instruction Emails sent from the email address “rogerslaw1@aol.com” (“LAW Address”) and the remaining 3 were made by Instruction Emails sent from an email address “rogerslavv1@aol.com” (“LAVV Address”).  P’s case was that Mr Rogers did not send any of the Instruction Emails in relation to the 6 Remittances, nor did Mr Rogers/P1/P2 authorised the 6 Remittances, and further the purported invoices attached were not genuine invoices.  It was Ps’ case that the LAVV Address did not belong to Mr Rogers.

57.  There was no dispute that the LAW Address was Mr Roger’s email address and belonged to him.  There was also another email address “RogersLawOffice1@aol.com” (“OFFICE Address”), which Mr Roger had said during the trial that was his office address and his secretary’s email address, not his personal email address.

58.  D1 had specifically denied in its Amended Defence (“AD”) that Mr Rogers did not send any of the Instruction Emails for the 6 Remittances, or the attached invoices were false or the LAVV Address did not belong to Mr Rogers or neither Mr Rogers nor P1 nor P2 authorised the 6 Remittances[30]. In other words, they did not accept that the Instruction Emails for the 6 Remittances were sent by the Fraudster.

59.  During cross- examination, Mr Rogers was asked about the reference in the writ in the Taiwan Civil Action that the LAVV Address was an email address used by Mr Rogers[31]. Mr Rogers was also referred to a criminal statement dated 27 January 2016 submitted by Ps’ legal representatives on Ps’ behalf in the Taiwan Proceedings, which contained the same reference to the LAVV Address being used by Mr Rogers[32].  Both documents were in Chinese.

60.  When Mr Rogers was asked whether he accepted that the documents filed in the Taiwan Civil Action showed that the LAVV Address/account was also Mr Rogers’ email address/account, Mr Rogers’ response was that was a lie and he disagreed that the LAVV Address was used by him. 

61.  Mr Wong had pointed out that both those references to the LAVV Address used by Mr Rogers were in same wording and in fact they were reciting what was stated in earlier criminal proceedings against Weng Wen-Yang and Liang Shang-Wei. 

62.  Further, in the “Summary of Facts” of the writ in the Taiwan Civil Action[33], it was clearly stated that after Ps discovered that some unknown person/s had pretended to be “Harvey Rogers” in sending emails through the LAVV Address and that they had been defrauded and they then lodged a claim at the Taipei District Court Prosecution Office. 

63.  Notwithstanding that, as seen later in this judgment, I find Mr Rogers’ evidence unsatisfactory in other aspects, it was not Ds’ case that the LAW Address was created by Mr Rogers or that he was involved in the fraud.  In any event there was no such evidence.  There was no sufficient evidence to contradict Mr Rogers’ evidence that the LAVV Address was not his email address, nor did it belong to him, nor was it used by him.  I accept his evidence in this respect.

H.2  Whether the Instruction Emails for the 6 Remittances were sent by Mr Rogers or authorised by him

64.  It was Mr Rogers’ evidence in his witness statement that on or around 9 March 2014, he was informed by either Mr Alvarez or Mr Novoa or their assistant about unusual payments made out of P’s Accounts, and on instructions of Mr Alvarez, he wrote to Sandra on 10 March 2014.  He had produced an email sent on 11 March 2014 to Sandra attaching a letter dated 10 March 2014 from him to Sandra, enquiring about forwarding a sum of USD940,000 to Da Found Trade Co Limited in addition to Weng Wen-Yang Air Transportation Services, Liang Pei-Tou Airbus Services, New Life Enterprises and Associate Limited and (1) other entity.  He stated amongst other things that none of those transactions were authorized nor were they directed through his office, and that he suggested Sandra immediately provide him with information concerning the transfers and additionally, report this immediately to the Police since it was evidently a fraud[34]. In this letter, Mr Rogers had attached a transmission record of emails between 19 March 2012 and 9 March 2014, to show the outgoing emails to Sandra from his LAW Address during that period[35] did not consist of the Instruction Emails for the 6 Remittances (“Transmission Record”).

65.  Mr Moreno’s evidence in his witness statement was that on or around 16 September 2013, he informed Sandra that Ps would no longer require D1’s services.  Mr Moreno explained that this was because D1 was expensive and was taking a long time to process matters, and accordingly Ps wanted to set up their own offices in Hong Kong to handle administrative work in Hong Kong.  According to Mr Moreno, there was several months’ delay in completing the handover and that it was only in or around January 2014 that he formally assumed his role as a director of Ps.  It was also Mr Moreno’s evidence that notwithstanding that Sandra had provided him with the last 4 bank statements on 10 October 2013 upon his request, he did not review the bank statements in detail because it was only in or around January 2014 that he formally assumed his role as Ps’ director. 

66.  Mr Moreno said it was only then that he noticed that balances in Ps’ Accounts were low and he reviewed the banking documents in detail and found the 6 Remittances to be unusual, as funds were paid to bank accounts in Taiwan and Thailand and his understanding was that funds should only be paid to American or European companies.  He then checked with Mr Rogers, Mr Alvarez, Mr Novoa and Mr Salzberger and was informed that the 6 Remittances were not authorised nor instructed by Mr Rogers.  Mr Rogers had confirmed to him that he did not send those Instruction Emails attaching the false invoices, and that Mr Rogers had informed him that the LAVV Address did not belong to him.

67.  Mr Moreno said, upon discovery, Ps lodged complaints with the police in Hong Kong and with the Taipei District Prosecutor Office.

68.  In the Police Statement[36], Mr Moreno had reported to the police that at least USD 1,898,000 had been stolen from Ps’ Accounts and that the person(s) responsible for stealing the money was not known by Ps, and that he was informed by NetMedical that the payments to the Taiwanese and Thai bank accounts were not authorized or instructed by Mr Rogers[37]. 

69.  As seen in the Transcript, Mr Rogers had confirmed in the Taiwan Court that the Instruction Emails for the 6 Remittances were not sent by him and none of the Instruction Emails for the 6 Remittances were in the “Sent” folder of his emails, save those provided by him[38].

70.  There was really no sufficient evidence to contradict Mr Harvey’s and Mr Moreno’s evidence in this regard.  Although Ps did not seem to have taken any step in Thailand, the evidence showed that Ps took all necessary steps in Taiwan to try to recover the money lost.  The Taiwan Proceedings took some 3 years between 2014 and early 2017 and the present proceedings took some 4 years to get to trial.  There was no sufficient evidence to show that Mr Rogers or Ps had any connection with all those Taiwanese involved in the Taiwan Proceedings, or that Mr Rogers or Ps had anything to do with the recipient of the 6^th Remittance in Thailand.

71.  It was Mr Rogers’ evidence in his witness statement that he was not aware of any unusual features or activities with regards his email account of the LAW Address until D1 disclosed all the emails sent by the Fraudster between August 2013 and September 2013 purportedly using his email account.  Further, Mr Rogers had said that between 1 and 6 August 2013, he was out of his office and that he was in Ashville in North Carolina from 30 July 2013 until 1 August 2013[39].

72.  I understand that the Transmission Record referred to earlier was obtained by Mr Rogers or his office by a search for Sandra’s email address on his computer in his office.  However, not all the emails sent from Sandra were reflected on the Transmission Record.  On the Transmission Record, the “Location” of the search indicated that the emails were mostly “On PC”, and not “On AOL”.  Mr Rogers had said he seldom sent emails to Sandra outside his office.  Anyway, as seen in the Transmission Record, there was a gap between about 18 June 2013 to 27 September 2013 when no emails appeared to have been sent from/to the LAW Address to/from Sandra.

73.  Having considered all the evidence, I am prepared to give Mr Rogers and/or Ps the benefit of the doubt, and find that Mr Rogers did not send those Instruction Emails for the 6 Remittances, whether from the LAW Address or the LAVV Address, nor were those Instruction Emails authorised by him or Ps, and that they were sent by the Fraudster.   

I.  Whether there was a “Usual Practice”

74.  Firstly, it was D1’s pleaded case that there was a usual or common practice/course of dealing agreed and adopted by Mr Rogers and D1 for making the remittances (“Usual Practice”).

75.  The Usual Practice as pleaded by Ds were, amongst other things, the following:

(i)  Mr Rogers would instruct D1 to remit money from either P1’s Account or P2’s Account for the purpose of paying invoices owed by P1 and/or P2 by emails and would attach the relevant invoices to the emails;

(ii)  D1 would act on Mr Roger’s instructions without having to further confirm the same with Mr Rogers, although D1 would clarify with Mr Rogers if it had queries on the instructions;

(iii)  After completion of the remittances, D1 would inform Mr Rogers of the completion by email and would attach copies of the complete TT Forms to the email for Mr Roger’s information;

(iv)  Mr Rogers never informed D1 that D1 could only act on his instructions sent from his email address “rogerslaw1@aol.com”;

(v)  Mr Rogers would in most if not all of the time instruct D1 to make the remittances as soon as possible to avoid additional charges or disruption of service, and D1 had to carry out his instructions as soon as possible;

(vi)  D1 would charge Ps around one man-hour at USD 90 per man-hour for each remittance.

76.  There was no specific reply or admission to the Usual Practice pleaded by D1, save that Ps joined issue with D1 on its AD.

77.  During the trial, Mr Rogers had made it clear that the Usual Practice pleaded by Ds was the procedure which was adopted by D1.  He had agreed that (i) he had never disagreed or objected to those procedures adopted by D1, (ii) he did not give D1 any specific instructions in relation to payment procedure, and (iii) the Instruction Emails sent by him were not encrypted because D1 did not tell him to.  He had said he had no recollection of any telephone conversations with Mandy or Sandra.  It was however pointed out to him that he had said in the Taiwan Civil Action that he had communicated with Sandra by telephone or by email.  Mr Rogers then said his memory would be better in 2017.

78.  Mr Rogers also clarified that apart from him, there were other people who could provide remittance instructions to D1, such as Mr Novoa.  He agreed that for the 8 Previous Remittances, it was him who gave the remittance instructions.  Mr Rogers had also said he had no recollection of D1’s charges as the bills were passed on to clients and he would not necessarily look at them.  There was no dispute in relation to the USD 90 per one man-hour charged by D1.  

79.  Anyway, Ps’ position was that the Usual Practice was not relevant, and that the issue was only whether Ds were in breach of their duty of care in carrying out the instructions for the 6 Remittances, and not whether those instructions were in accordance with the Usual Practice as pleaded or not.

80.  In light of Mr Roger’s evidence, I accept that the Usual Practice which was pleaded by Ds was the payment procedure adopted by D1 for the 8 Previous Remittances.  There was no evidence that the Usual Practice was the common or usual practice generally adopted among the industry/trade, or among other similar service providers such as D1, ie service providers providing company secretarial and management service.

J.  What is the standard of the tortious duty owed by D1 to Ps

J.1  The parties’ respective pleaded case

81.  Ps’ pleaded case in its ASOC was that D1 owed a duty of care in tort of like content and to like effect as the duties and obligations set out in paragraph 17(d) of the ASOC, namely to discharge its duties with reasonable care, skill and diligence. 

82.  It was further pleaded by Ps that D1 had breached its duty of care to Ps by filing to take adequate steps to confirm that the 6 Remittances were properly authorised by P1/P2 or its authorised person(s) where D1 was or ought to have been on notice that the relevant instructions were not or may not have been provided by P1/P2 or its authorised person(s) as pleaded in paragraph 21 of the ASOC.

83.  Further or alternatively, D1 was vicariously liable in tort for the acts of each of D2, D3 and D4 done in the course of their employment with D1.

84.  As said earlier, Mr Wong made it clear in his Closing Submissions that D1’s liability was not predicated only on the conduct of Sandra (as D1’s administrator handling Ps’ remittances) but also the conduct of D3 (as D1’s General Manager and superior of Sandra).

85.  As for D1, it had admitted in its AD that it owed a duty of care in tort to Ps to exercise reasonable care, skill and diligence in carrying out the payment instructions from Mr Rogers.  What was disputed by D1 was the standard of the duty of care.

J.2  The legal principles on standard of care

86.  As summarised by Mr Ng[40], the applicable principles for determining the standard of care generally are as follows:

(1)  … The question is, given a duty, how much care was to be exercised.  The standard of care is a question of law, although whether or not it was achieved is a question of fact decided by reference to all the circumstances of the case.  Usually the standard will be proportionate to the gravity and imminence of the risk against which it was the defendant’s duty to guard: Charlesworth & Percy on Negligence, 14^th Ed., at para 8-01;

(2)  The standard of care required is what would be reasonable in the circumstances: Clerk & Lindsell on Torts, 22^nd Ed, at para 8-150;

(3)  The reasonable care standard is flexible and should reflect the circumstances and evidence in the particular case.  It does not wholly disregard the circumstances of the individual: Charlesworth & Percy, at paras 8-05 and 8-09;

(4)  The level of care that will be reasonably required in any particular circumstance is the product of three sets of criteria each of which contains tensions and requires a balancing exercise (Clerk & Lindsell, at para 8-151) :  

(a)  Objectivity: In principle, the standard of care expected of the reasonable person is objective and does not take into account the weaknesses or inexperience of the particular defendant.  But objectivity may be tempered by basing the standard on what might be expected objectively from an ‘‘inexperienced’’ group, or by accommodating the special circumstances of the case, eg an emergency, within the objective test, or by varying the objective requirement in the light of the special relationship between the parties;

(b)  Balancing of costs and benefits: asking whether it is reasonable for the defendant to bear the cost of a particular form of precautionary conduct in the light of the level of protection and benefit it will confer on the claimant and others.  This test can only be applied in a fairly crude way and hence the courts have considerable discretion as to the weight to be given to different factors;

(c)  Common practice and expectations: Courts will be influenced by the evidence of common practice of those engaged in the activity in question but this must sometimes be balanced against what are conceived to be the reasonable expectations of those who may be affected by the activity.  Different standards apply in different situations.

87.  It was further submitted by Mr Ng that matters which may be taken into account for assessing the proper standard of care include (1) magnitude of the risk; (2) likelihood of injury; (3) gravity of the consequences; (4) cost and practicability; and (5) other factors such as common practice: Charlesworth & Percy, at para 8-10.

88.  However as pointed out by Mr Wong and which I accept, the common practice, as seen in para 8-44 in Charlesworth & Percy on Negligence,means common or usual practice generally adopted among the industry/trade.

89.  There was no real dispute on the above general legal principles.  I now turn to the facts of the present case.

J.3  D1’s case on its standard of care towards Ps

90.  It was argued on behalf of D1 that D1 had no duty to guard against or to detect email fraud as alleged by Ps and in the manner described by Ps.  Mr Ng further submitted that in assessing the standard of care, the Court ought to take into consideration the following:

(i)  D1 is merely a service provider providing company secretarial and management service, and the task of making the remittances is clerical work;

(ii)  The Usual Practice;

(iii)  The remuneration charged by D1 for each remittance, ie D1 would charge Ps one man-hour at USD90 (around HK$700) for each remittance.

J.4   The Opening of Ps’ Accounts

91.  I will first set out the circumstances in relation to the opening of Ps’ Accounts.

92.  The instructions to incorporate the two companies in Hong Kong were first sent by Fidinam to Mandy in September 2009, and upon Mandy’s enquiry, Fidinam had stated that the business nature of the 2 new companies was “International trading activities of all kinds of products especially in household and constructions materials”[41].   

93.  P had produced an email from Mr Peter Wyss of Fidinam (“Mr Wyss”) to Mr Rogers on 18 September 2009[42]. It would appear from the email that Mr Rogers met Mr Wyss in Geneva and sought a quotation for acquiring two companies in Hong Kong and to set up bank accounts for those companies.  As seen in Mandy’s email of 2 October 2009, the instructions to open 2 bank accounts in different banks for Ps in fact were first sent to her by Fidinam[43].

94.  As seen from the emails, Mr Rogers had said that there was utmost urgency that the opening of the bank accounts be resolved immediately and put in place so that his clients could start business as soon as possible, and Fidinam then suggested that Mr Rogers to contact Mandy direct which would be more convenient than contacting D1 through Fidinam.  Mr Rogers then contacted Mandy direct on 20 November 2009, in which he indicated that they would like to begin immediately the process of activating the company accounts and that it was important that each of Ps was to have different addresses and different officers etc.

95.  It was not clear as to what Mr Rogers meant by activating the company accounts, but in reply, Mandy said D1 could assist P to open the bank accounts and sought relevant information for pre-checking with banks first and she also sent Mr Rogers the KYC questionnaires (“KYC Forms”). Mandy had also asked Mr Rogers to advise whether his clients would hire nominee signatories or the signatories would be provided by Mr Rogers’ side.

96.  On 24 November 2009, Mr Rogers sent an email to Mandy, copied to Mr Wyss, saying that he did not understand, as he had advised Mandy that they would like the “nominees” to handle the accounts for them in Hong Kong[44], and then he went on to explain that his clients were in the business of purchase and sale of goods from China and also receive commissions on the transactions, and that the reason they did not wish to be identified on the books and records of the registry or the banks, was an issue of confidentiality which they did not wish to disclose to the public.  He went to say that the KYC Forms that Mandy remitted to them appeared to be forms which needed to be filled out by the nominees.

97.  Since Mr Rogers did not seem to understand Mandy’s email, Mandy then sent a reply to him to explain further, and she also sent an email to Mr Wyss forwarding him all the email exchanges with Mr Rogers, stating that D1 was still waiting the beneficial owner’s details and business information to proceed with opening the bank accounts.

98.  On 18 December 2009, Mr Rogers was still saying he was a little confused as he was under the impression that D1 would handle all of the banking matters without the necessity of his clients’ disclosure and that additionally he was informed that “both shareholders would provide them with the power of attorney on the stock as well as to the bank accounts”.  In any event, it would seem that in that email, Mr Rogers did provide some information on his clients, although the information provided by him was vague, to say the least.  Mandy had to explain again that the beneficial owners’ details were required to be disclosed to the banks for their “Know Your Customers” policy and that the information would not be disclosed to any third party without their customer’s prior consent, unless a court order was served on the bank which directed them to disclosure[45].  As the matter got nowhere, Mr Wyss later sent an email on 19 February 2010 to enquire on the progress.

99.  Separately, it would appear that Fidinam was arranging to open a bank account respectively for the two Ps, at Bank Vontobel AG in Switzerland, and that D2 and D3 were asked to sign as directors of P1, and D4 was asked to sign as director of P2 for the opening of those bank accounts[46]. Further D2-D4 were asked to sign in their respective capacity as directors on behalf of Ps, a “Asset-Management Contract” with SCL & Associes SA in Nyon in Switzerland for each of Ps to carry out various investments, but in relation to those accounts and investments, D2-D4 appeared to have given a power of attorney to Mr Novoa and Mr Alvarez  respectively so that the UBOs each had sole signatory powers[47].

100.  Anyway, in so far as Hong Kong was concerned, it can be seen in the copies of emails between Mr Rogers and Mandy in March 2010, that Mr Rogers had indicated that Ps would like to use Hang Seng Bank and Standard Chartered Bank but not HSBC, and pursuant to Mr Rogers’ request, Mandy did apply to Hang Seng Bank for P1 and Standard Chartered Bank for P2.  Standard Chartered Bank however requested for further details on the information provided by Mr Rogers and sought supporting documents in response to the answers provided by Ps in the KYC Form in relation to P2^[48].

101.  In short, the opening of Ps’ Accounts took some 7 or 8 months. Eventually, it would appear that P2’s Account was opened at HSBC on about 22 April 2010, and that P1’s Account was opened at the Hang Seng Bank on about 26 May 2010. 

102.  There were two authorized signatories of Ps’ Accounts, namely D2 and D3.  D2 completed Form 5 education in Hong Kong and joined D1 as a corporate secretary on 24 July 1987. D3 graduated from the University of Hong Kong with a Bachelor of Arts Degree in 1989 and joined D1 in 1989, and at all material times, she was employed by D1 as General Manager and as General Manager, she was mainly responsible for overseeing its daily operations.  She was also the supervisor of Mandy, and after Mandy left, Sandra.

103.  As said earlier, prior to March 2011, D1 assigned Mandy to handle Fidinam’s account, and that in March 2011, Sandra was assigned. Sandra graduated from the University of Hong Kong in 2008 with a Bachelor of Arts Degree and she joined D1 on 21 February 2011 as an Executive Officer. 

104.  Thus, by the time Sandra started working for D1, Ps were already incorporated and Ps’ Accounts were opened.  It was Sandra’s evidence that she worked with D3 at D1.

105.  In the KYC Form in relation to P2^[49], the major business of P2 was described as “purchase and sale of machinery and equipment”.  The business turnover was expected to be in excess of $20,000,000 and under the heading “Proof of Business”, it was stated that “New business enterprise and contracts for purchase and sale are being made and currently formulated”.  There were two signatures, which I believe to be of the UBOs.  On a form “Estimation on account utilization”, it was stated that (1) for “Inward TT”, the volume would be 5-10 per month and the amount would be “10K-50K”, and was for payment for goods (HKD), and for (2) for “Outward TT”, the volume would be 5-10 per month and amount “20K- 40K” (USD). 

106.  At the bank’s request, further information was later provided by Mr Rogers in an email of 19 March 2010[50]. It was stated therein, amongst other things, that most of the machinery and equipment was medical supplies purchased from China, Hong Kong and other Far Eastern locations and sold to Mr Rogers’ clients and resold to buyers in South and Central America.  P2 anticipated using the account on 10 transactions weekly and in the area of USD 50,000 up to USD 100,000 but if business went better, the amounts might be much higher.  As said earlier, as Chartered Bank declined to open the account for P2, then Mandy approached HSBC.

107.  In the meantime, Hang Seng Bank was asking similar questions for the opening of the account for P1.  Mandy sent an email to Mr Rogers  requesting for brand names or model names, names of buyers and suppliers, to which Mr Rogers sent a reply on 14 May 2010 stating that the “machinery and equipment” was said to be mostly related to the medical field which would include monitoring equipment, beds, medical supplies and other related items from China and the Far East and the machinery being sold to either hospitals, doctors, governmental agencies and other facilities that would use medical equipment[51].  He again provided very vague answers without answering Mandy’s queries property. 

108.  Eventually, in an email of 15 May 2010, Mr Rogers provided further information in relation to the main products of P1 (being surgical latex gloves, hospital bed, vacuum blood collecting tubs, ultra sound machine, x-ray equipment , stationary rock crusher) , the names of the then buyers and the then suppliers[52].  

109.  On 13 July 2010, Mandy had sent an email direct to Mr Novoa copied to Mr Rogers attaching the bank balances as at 13 July 2010 for Ps respectively, and asked to be advised whether D1 could apply for secondary user for online viewing for the accounts for Ps’ side[53]. Upon receiving instructions, on 21 July 2010, Mandy reported to Mr Rogers in an email copied to Mr Wyss, a Mr Garcia at NetMedical’s email address and a Hilda Rosales at an email address at “packandsendcargo.com” (“Hilda”), that D1 had applied for the internet banking (online viewing only) per Ps’ request, and sought disposal instruction and address for Mandy to send the PIN and the security device[54]. I understand that Hilda is also Mrs Alvarez, as Mr Rogers had mentioned during the trial that he had phone calls from either Mr Novoa, or Mrs Hilda Alvarez or Mr Alvarez prior to his sending out the letter of 10 March 2014, and that Mr Rogers had referred to receiving instructions from the “administrator” of Ps, and when asked who was the “administrator”, he had said “At times, Mr Novoa’s wife, and on occasions Mr Alvarez’s wife”. 

110.  Anyway, Hilda was a representative of Ps and it would appear she had come to Hong Kong and that when she was in Hong Kong on around 14 July 2010, she had suggested a meeting with Mandy for further discussion on the business of the two companies Ps, and that Ps had wanted to set up another new company with D1[55]. It was not clear whether the meeting eventually took place.

J.5  Discussion

111.  D2 and D3 were the only authorised signatories for Ps’ Accounts and D1 was in possession of the bank account security devices (for banking/transfers purposes) for Ps’ Accounts, and it appears D1 was in possession of a cheque book for P1’s Account.  In particular, Mr Rogers was never authorised to, nor apparently had he ever accessed, P’s Accounts through internet banking and he was never in possession of any internet banking password(s) and/or security device(s) for Ps’ accounts.  It was also not disputed that the secondary user’s security device sent to Mr Novoa by D1 was only for online viewing only, and not for banking transactions or transfers.  

112.  Further, from the KYC Form on P1[56], the information provided by Mr Rogers on 15 March 2010 in relation to Ps the business turnover was stated to be in excess of $20m, and that usually the payment terms of receivables was 30 days net, and that the volume of Inward TT was stated to be 5-10 per month and amount was HKD 10,000-HKD 50,000 and the volume of Outward TT was stated to be 5-10 per month amount of USD 20,000-USD 40,000. Similar information was provided by P2 on its KYC Form sent by D1 to Mr Rogers[57].  Upon further enquiry from the bank/s Mr Rogers had said in an email of 19 March 2010 that they anticipated to use P2’s Account on 10 transactions weekly and in the area of USD50,000 up to an amount of USD 100,000 but if business went better, then the amount might be much bigger[58]. Then later, for P1’s bank account, in an email dated 14 May 2010, Mr Rogers had said they anticipated that the daily transaction amounts would vary from several thousand to several hundred thousand.  The information provided by Mr Rogers on the volume and amount of transactions thus seemed to be changing each time he wrote.  In any event, from the information provided, D1 should at that time be aware that there could be regular transactions every week of not an insubstantial amount.

113.  Sandra accepted during the trial that D1 was specifically engaged to handle remittances from Ps’ Accounts and that D1 could actually operate P’s Accounts in Hong Kong and that D1 had acted as the “gate keeper” of P’s Accounts.  Sandra herself had said it was Mr Rogers’ instructions that all operations of P’s Accounts were to be done by D1.  As said earlier, the security device sent to Mr Novoa would only enable him to view and not to transact and Mr Rogers did not even have access to online banking.

114.  Sandra said during the trial that she had personally come across email fraud at work, in that she had received an email notification out of the blue one day informing that a client’s account had been changed, she was to remit money to a new bank account.  Sandra said that she found the email strange and she raised queries and verified with the client and but were informed by the client that the bank account had not been changed.

115.  It could be seen from the KYC Forms that there was no limit as to how much D1 could remit out from Ps’ Accounts.  In fact on one occasion, a sum of US D22,479,990 was credited into P2’s account on 3 July 2012[59] from, according to Mr Rogers, the Department of Social Security of Venezuela through the Ministry of Social Security for dialysis equipment[60].  Then, on 12 July 2012, Mr Rogers sent an email to Sandra for a sum of USD 22,000,000 to be transferred into an account held in P2’s name at CBH Compagnie Bancaire Helvetique SA in Geneva[61].  Further, the 3^rd of the 8 Previous Remittances was a substantial amount of USD 4,099,040.  There were large amounts which certainly far exceeded the amounts indicated in the KYC Forms.  To make outward remittances, D1 would at least have to check and make sure there would be sufficient funds in the account, which Sandra had done as seen that in relation to the 2^nd of the 8 Previous Remittance when she informed Mr Rogers that there were no sufficient funds in P1’s Account.

116.  For the 1^st of the 8 Previous Remittances to Excel for USD 200,000, the Instruction Email from Mr Rogers on 16 July 2011, 5:00am, was without any invoice attached, but Sandra had responded by saying that due to strict due diligence requirements imposed by the HK Government authority, supporting documents (eg copy invoices) needed to be provided for transfers involving large sums (ie equivalent to HKD 300,000 or above) and the purposes were to comply with the government’s requirements. Sandra had thus sought the supporting documents from Mr Rogers for the 1^st Previous Remittance[62].  Then for the 2^nd of the 8 Previous Remittances to Bedrock of a total of USD 400,000, Sandra had responded by asking Mr Rogers to first provide corresponding supporting documents and explain nature of the transfers for due diligence purposes[63].  Mr Rogers gave a vague answer, merely saying that the funds were being withdrawn for the purposes of payment of various expenses of the companies as well as withdrawals for operating expenses, but Sandra was not satisfied and she further asked again the relationship of Bedrock with Ps, and Mr Rogers then said Bedrock provided transportation services to Ps[64].  After making the 2^nd Remittance, Sandra had in fact sent Mr Rogers an email explaining stating that although they [presumably Ds] well understood the clients’ need to withdraw their funds, but being both nominee directors and account signatories, they had the legal responsibility to make sure that their KYC check was up to standard (especially when a payment in large sum was involved) in order to comply with tightened anti-money laundering regulations imposed by the government; otherwise, they would make themselves liable to any legal consequences if anything should happen in future, and besides, supporting documents of payment of large sums were required by local banks which were government under the same regulations[65].

117.  Further, as seen in one of the 8 Previous Remittances, there was an invoice from Bedrock dated 1 October 2012, which Mr Rogers sent to Sandra on 8 November 2012, but Sandra had checked the invoice and found out that it had already been paid on 11 October 2012.  Mr Rogers then said there was a typing error and that the invoice should be for November 2012 and asked Sandra to make the payment anyway and that they would advise Bedrock to provide a corrected invoice[66]. Sandra then proceeded with the remittance on 12 November 2012, and the corrected invoice was sent to Sandra on 16 November 2012.  It can also be seen later in relation to the invoice said to be issued by Da Found IAT (as defined later), Sandra had also checked and raised queries and later declined to make the remittance. 

118.  Thus, as seen above, even on Sandra’s own evidence, her work was not simply “clerical work” and her work involved KYC checks and/or due diligence.  Having considered all the evidence, I do not find that that the work for D1 in providing account signatories in relation to Ps Accounts or the work of such account signatories was simply “clerical work”. 

119.  The charge rate was determined by D1 and initially quoted to Fidinam/Ps by D.  It was Sandra’s evidence that the charge rate of USD 90 per hour for carrying out each remittance instruction was in accordance with the usual industry’s practice, as the work involved was “clerical in nature”[67]. There was no evidence produced by Sandra as to what she said about the “usual industry’s practice”, but Sandra was not challenged on this part of her evidence.  There was no sufficient evidence that had D1 decided on a higher charge rate, then there would be objection from Ps.  In fact, as pointed out by Mr Wong on behalf of Ps, even if level of remuneration should be considered at all, spending a little more time on checking the Instruction Emails and invoices would not have taken a lot more time or resulting in much higher costs, as seen in D1’s own bills on these 8 Previous Remittances which involved Sandra’s additional queries.  

120.  In my view, when one is providing service for dealing with monetary matters, one should always be vigilant. By way of example, a bank or a securities firm providing services for its customers at an administration charge, in that upon receiving instructions by electronic means or by telephone from a customer to remit money from his/her account, the service provider should have in place a proper procedure to verify the person giving the instructions is indeed the holder of that account even though the administration charge may often not be high.  D1 is not a bank or a securities firm.  However, there is a duty to ensure that instructions were indeed sent by or on behalf of the customer.  As Ds had admitted, D1, having agreed to provide account signatories for Ps’ Accounts, could withdraw singly any amounts from Ps’ Accounts, did owe a duty of care to Ps.  As D1 was specifically engaged to handle remittances from Ps’ Accounts and such remittances could be of large amounts and in view of the gravity of consequences, I find the duty of care on D1’s part a high one.  I do not find that simply because D1 decided to charge a low charge rate would mean that the standard of its duty of care would be lower. 

121.  As mentioned earlier, Sandra herself had said in one of her emails to Mr Rogers, that they [D1] had the legal responsibility to make sure that their KYC check was up to standard to comply with tightened anti money laundering regulations[68].  I accept Mr Wong’s submissions that the procedure for carrying out a client’s instructions for remittance or the KYC check is that for the service provider to put in place, and thus in my view to discharge its duty of care, it is D1’s responsibility to put in place a proper and adequate procedure for carrying out Ps’ instructions for remittances.  I accept Mr Wong’s submission that whether the procedure, or the Usual Practice in the present case, was followed for a long period of time without protest, is not relevant.

K.   Whether D1 exercised reasonable care, skill and diligence in carrying out the payment instructions contained in the Instruction Emails for the 6 Remittances

K.1  Preliminary Observation

122.  Before I consider the circumstances leading to each of the 6 Remittances, I would set out hereinafter some preliminary observations.

123.  In so far as the 8 Previous Remittances were concerned, as seen in Table 1, apart from a gap of some 9 months between the 1^st Previous Remittance (to Excel) and the 2^nd Previous Remittance (to Bedrock), the rest of the 8 Previous Remittances took place every 1 to 3 months.  Further, apart from the remittance to Excel and Rismead, the rest of the 6 Previous Remittances were all to Bedrock for which invoices were provided by Mr Rogers (“Bedrock Invoices”).

124.  All the invoices for the 8 Previous Remittances were issued to P2 and they were paid by sums remitted out of P2’s Account, although for the 2^nd Previous Remittance to Bedrock, the initial instructions from Mr Rogers were to remit an equal amount respectively out of P1’s Account and P2’s Account, but due to insufficient funds in P1’ Account, the total amount was then paid out of P2’s Account.  The 3^rd Previous Remittance to Rismed was a large amount of USD4,099,040, and thereafter the amount of the 5 remaining Previous Remittances to Bedrock were to settle what appeared to be monthly Bedrock Invoices averaging about USD223,000 for each of those 5 Previous Remittances. There was also the large amount of incoming funds into P2’s Account mentioned earlier of some USD22,000,000 or about some HKD171,600,000, which was remitted out almost in full about a week thereafter to an account held in P2’s name with a Swiss bank. 

125.  In short, none of those 8 Previous Remittances were of the amount nor at the frequency indicated by Mr Rogers on behalf of the UBOs in the KYC Forms for the opening of Ps’ Accounts, nor were they for purchase of goods.  There was also no explanation as to why P2’s Account was used as a conduit in Hong Kong for the incoming amount of USD 22,000,000, nor did Sandra seek one at the time.

126.  None of the invoices for the 8 Previous Remittances bore any company seal/chop or any signature of the company although some bore the typewritten words “Sincerely yours” followed by “Harvey Rogers”.  During the trial, Mr Rogers had described these as being “signed off” by him, but there was no actual signature which could be seen thereon.  All 6 Bedrock Invoices bore the address of Bedrock at “Courthouse Plaza Ste 500, 28 West Flagler Street Miami, Fl 33130”, which was the address of Mr Rogers’ office as seen on his letterhead of the letter dated 10 March 2014 he wrote to Sandra, and also in the Signature Block (as later defined) in his emails sent to Sandra, although the address on his witness statements was different.

127.  Mr Rogers had informed the Court that Ps’ business was to import and export medical equipment, such as rubber gloves and that their personnel were routinely transporting those goods for delivery.  In his witness statement, Mr Rogers said at the relevant time of the 8 Previous Remittances in 2012 and 2013 Bedrock was the owner of an aircraft with registration number of N156VP which was purchased in July 2011 and sold in December 2014. He had said he had personal knowledge of the aircraft which was a Cessna 750, as he was involved in the purchase and maintenance thereof, and that it was a small aircraft with a limited range of 3,701 miles.  Mr Rogers had admitted under cross examination that he incorporated Bedrock, and that he was involved in both the purchase and the sale of the aircraft.  The Cessna 750 has 12 passenger seats but according to Mr Rogers, there is a way of moving those seats to carry cargo.  

128.  Suffice to say, as the only address on the Bedrock Invoices was Mr Rogers’ address at that time, and there were no other contact details on those invoices, any enquiries on those invoices would have to go through Mr Rogers or his office.

129.  Further, after the Instruction Email on 2 March 2013 for the 8^th Previous Remittances, on Ps’ case, the remittances came to a stop. However as seen in the HSBC bank statements of P2’s Account, as at 18 March 2013, there was a balance of USD1,765,499.30 in its Foreign Currency Savings Accounts[69].  As seen earlier, there were email communications between Mr Rogers and Sandra in June 2013 concerning Mr Salzberger and Mr Moreno being provided with general powers of attorney.  As said earlier, after those emails in June 2013, in so far as I can see, there were no further emails from Mr Rogers to Sandra, until the letter of 10 March 2014, which was emailed to Sandra through the Office Email Address.  There was no explanation from Mr Rogers or Ps as to why the remittances suddenly came to a complete stop.

130.  Another observation I have on the Instruction Emails due to the time difference between Hong Kong and Miami, Florida where Mr Rogers’ practice was, the Instruction Emails for the 8 Previous Remittances often showed they were sent/received in Hong Kong during non-office hours (Hong Kong time).

K.2   Credibility of Ds’ witnesses

131.  I have had the opportunity of observing the demeanour of Ds’ various witnesses and although some of their oral evidence did not appear in their witness statements, all of them answered questions in a direct manner and I find them honest, credible and reliable witnesses notwithstanding my findings hereinafter.

K.3  The 1^st Remittance

132.  The Instruction Email for the 1^st Remittance attached an invoice was sent to Sandra from the LAW Address on 1 August 2013, for a sum of US$143,000[70].  According to Ps, there were the following red-flags internally: -

(i)  The invoice attached was issued by Weng Wen Yang Air Transportation Service but the payee was simply “Weng Wen-Yang”;

(ii)  The payee “Weng Wen-Yang” objectively resembled a name of a natural person rather than a corporate entity.

133.  Further, according to Ps, the following red-flags also showed up when compared with the 8 Previous Remittances: -

(i)  The remittance was to Taiwan, a completely new location where hitherto Ps had never made any remittance to;

(ii)  Weng Wen Yang Air Transportation Service was a complete stranger to D1 as Ps had never before had any dealing with, hence never made any remittance to this entity (only one Taiwanese entity, namely Kasmac Industries Co in Taipei, had ever been mentioned or appeared in the past in communications between Mr Rogers and D1)[71], which was a supplier of vacuum tube and surgical gloves;

(iii)  The payee was Weng Wen-Yang, not the same corporate entity Weng Wen Yang Air Transportation Service that issued the invoice, and this had never happened before in the genuine 8 Previous Remittances;

(iv)  The format of the invoice was “identical or substantially similar” to the 6 genuine Bedrock Invoices, despite being issued by 2 completely different entities half a world apart from each other.

134.  Sandra had said upon receipt of the Instruction Email sent on 1 August 2013, 1:01am, with an invoice no 387 attached dated 24 July 2013 issued to P2 for USD 143,000 from Weng Wen Yang Air Transportation Service, she acted on those instructions and on 1 August 2013, she remitted the sum from P2’s Account to the account in the name of Weng Wen-Yang at Taipei Fubon Commercial Bank.  Then by email dated 1 August 2013, 6:48 pm, she reported the remittance to Mr Rogers attaching the completed TT Form signed by D3 for P2 for Mr Rogers’ information.

135.  It was not really disputed that Sandra did not make any enquiry or conduct any checking/verification before proceeding with the remittance.  Her evidence was that Mr Rogers had never instructed her to verify his instructions or to confirm that the invoices submitted related to work performed for Ps as alleged by Ps in the ASOC.  As the email was sent from Mr Rogers from his LAW Address, that it would have been Mr Rogers’ responsibility to do so.  She had said she honestly believed that the Instruction Email was sent from Mr Rogers and that the invoice was genuine, as the Instruction Email contained the usual “Signature Block”, which led her to believe that they were from Mr Rogers.  The Signature Block referred to by Sandra contained the words “Sincerely Yours” followed by Mr Rogers’ name, address, telephone number and the LAW Address (“Signature Block”).  This was then followed by a usual disclaimer paragraph (“Disclaimer”).

136.  However, in most of the emails sent by Mr Rogers to Sandra, the Signature Block and the Disclaimer was in “Bold”, and appeared to have been automatically set in the outgoing emails sent from the LAW Address.

137.  As said earlier, the Instruction Email for the 1^st Remittance was sent on 1 August 2013 1:01am[72]. This email was in a way very similar in contents to the Instruction Email sent on 10 August 2011 in relation to the 1^st Previous Remittance[73], including a typing error, namely “emitted to” was typed instead of “remitted to” in the 1^st sentence of the 2^nd paragraph and “A/S/A/P” similar to “a/s/a/p” in the 10 August 2011 Instruction Email.

138.  The Instruction Email of 10 August 2011 was a follow up email from Mr Rogers to Sandra’s request for the supporting invoice for the 1^st Previous Remittance to Excel, and that was why Mr Rogers had referred to having “previously requested” Sandra to remit on behalf of Ps.  However, the Instruction Email of 1 August 2013 was the 1^st email containing instructions to remit funds to a Taiwan entity, and there had been no previous request.

139.  In my view, this should have at least prompted Sandra to seek clarification as to what previous request the Instruction Email of 1 August 2013 was referring to.

140.  As mentioned earlier, as there was no supporting invoice sent by Mr Rogers in his 1^st Instruction Email for the 1^st Previous Remittance to Excel, Sandra had asked for supporting invoice saying that thus was due to strict due diligence requirements and when eventually the invoice was sent by Mr Rogers by the  email of 10 August 2011, the invoice showed that it was for monthly charges for chartering a private executive jet for the months January 2011 to August 2011, and the name of the beneficiary was exactly the same as the name of the issuer of the invoice, namely Excel.  For the 2^nd Previous Remittances to Bedrock, as also mentioned earlier, Sandra had asked Mr Rogers to explain nature of the transfer saying it was for due diligence purposes, and Mr Rogers had explained that it was for transportation services to Ps.  Further, on the invoice, it was stated for “Air transportation” and the place of departure and the place of destination of each flight was set out, and the beneficiary was again exactly the same name as the issuer of the invoice.

141.  As for the 3^rd of the 8 Previous Remittances to Rismed, as mentioned earlier, it was of a substantial amount.  Mr Rogers had however voluntarily explained in his Instruction Email the nature of the transaction, namely that the amount was a part down payment due to RISMED for the delivery of a dialysis system equipment ordered.  The invoice was issued in the name of RISMED Dialysis Systems, and the name of the beneficiary was Rismed Dialysis Systems Corp.  The rest of the 8 Previous Remittances were all addressed to Bedrock.

142.  There had only been 3 recipients for the 8 Previous Remittances, namely Excel, Bedrock and Rismed, and both Excel and Bedrock had the word “Aviation” in their names and the invoices were clearly for chartering of private jets or for “Air Transport”, and in particular, the 6 Bedrock invoices indicated the flights were either between Venezuela and USA, Venezuela and Europe, Venezuela and Dominican Republic, Columbia and USA. 

143.  The fact was that Sandra had previously asked for supporting documents of the transaction between P2 and Excel, and further she had also asked Mr Rogers to explain the nature of the transaction between P2 and Bedrock, and the relationship between P2 and Bedrock, and Mr Rogers had voluntarily explained in relation to the transaction between P2 and Rismed.  There was no explanation in the Instruction Email for the 1^st of the 6 Remittances as to the nature of the transaction or the relationship between P2 and Wen Weng Yang Air Transportation Service.  In light of her previous enquiries in particular in relation to Bedrock, it was thus not clear why Sandra then failed to make any enquiry about the P2’s transaction and relationship with Wen Weng Yang Air Transportation Service, a new entity, and executed the instruction, without even clarifying with the sender what “previous request” the sender was referring to.  

144.  The “Project Title” in the Weng Wen Yan Air Transportation Service invoice was stated to be “Air Transport”, and yet unlike the 6 Bedrock invoices, which under “Description” stated at least two places for the flight and sometimes three, under the Wen Weng Yang Air Transportation Service invoice, only one district/city was stated under “Description”.

145.  More importantly, as pointed out by Ps, the name of the payee was an individual, namely Weng Wen-Yang, rather than the issuer, ie the company which issued the invoice.  It appeared from her evidence that Sandra had assumed them to be related parties and did not ask or clarify or do anything to check the relationship between Weng Wen-Yang and Weng Wen Yang Air Transportation Service.  As seen later, this was inconsistent with how she had dealt with the 2 “Da Found” entities in the 4^th of the 6 Remittances.

146.  As said earlier, D3 is Sandra’s superior.  It is clear that D3 did not make any enquiry or conduct any checking/verification of her own in approving this remittance and signing the TT Form, despite being provided with the Instruction Email and the invoice at the time.  In fact, very often her answers under cross examination were that she did not remember.  As said earlier, D3 was assigned by D1 be one of the signatories to Ps’ Accounts and she was the one who signed the TT Forms.  It was her evidence that D1 had put in place proper payment procedures for payment of money from client’s accounts.

147.  As D3 herself had said, she would not check with previous invoice and she would only look at the documents placed before her by Sandra and that if Sandra had any questions, Sandra would ask her.  In my view, the least D3 should have done being the signatory was to check the name of the invoice and the name of the beneficiary and to raise a query if they were different.  Having considered the evidence, I find the payment procedure put in place by D1 for payment of money from clients’ accounts was not proper nor adequate.  In particular, I find that Sandra did fail to exercise reasonable care, skill and diligence in handling this remittance as she totally failed to notice any of the red-flags mentioned earlier. As the superior of Sandra and as signatory of the account, I find D3 also failed to exercise reasonable care, skill and diligence.

K.4  The 2^nd Remittance

148.  The Instruction Email for the 2^nd Remittance was sent to Sandra from the LAW Address on 6 August 2013, ie 5 days after the 1^st Remittance,  attaching an invoice from Liang Pei-Tou Air Bus Service for a sum of US $375,000[74].

149.  First of all, Liang Pei-Tou Air Bus Service was again a new entity, and same as the 1^st Remittance, in my view, Sandra should have asked Mr Rogers to explain the nature of the transaction, as she had done with Bedrock.

150.  For this Instruction Email, save that the words “and thanks for your assistance on the last payment” were added in the 1^st sentence, and the name of the issuer of the invoice and the amount being different, the rest of the contents of the Instruction Email were identical to the 1^st Instruction Email.  There was still the error “find” instead of “finds” in the 1^st sentence, and again, this Instruction Email referred to a “previous request”. 

151.  Secondly, the format of this invoice dated 27 July 2013[75] was identical with the invoice in the 1^st Remittance, namely the invoice issued by Weng Wen Yang Air Transportation Service, even though their addresses were in different parts in Taiwan, and there was no evidence of any connection between the two entities.  The “Project Title” on this invoice was also “Air Transport”, and yet under the “Description”, again like the Weng Wen Yang Air Transportation Service invoice, only one district or city was mentioned.

152.  The invoice was issued by Liang Pei-Tou Air Bus Service, and yet the beneficiary/payee was “Liang Pei-Tou” which, as pointed out on behalf of Ps, objectively resembled a name of an individual rather than a corporate entity.

153.  Sandra again did not make any enquiry or conduct any checking/verification and proceeded with the remittance without any questions asked.  Although Sandra said she noticed that the payee was Liang Pei-Tou, she said she did not pay attention or think about whether it was a personal account and just assumed that it was a trading name, and that the issuer and the payee were related parties.  Further, despite having seen 6 Bedrock invoices by that point and also the Weng Wen-Yang Air Transportation Service invoice only 5 days ago, she said during the trial under cross examination that she “may or may not” have noticed the invoice for the 2^nd Remittance was similar in format to the Bedrock invoices, or Weng Wen-Yang Air Transportation Service invoice.  Anyway she admitted that she did not check any previous records which were available in hard copies in D1’s office.

154.  D3 again also did not make any enquiry or conduct any checking/verification and approved this remittance and simply signed the TT Form, despite being provided with the Instruction Email and the invoice which showed the name of the issuer of the invoice being different from the beneficiary. 

155.  Again I am of the view that having considered the evidence of Sandra and D3, I find that they had failed to exercise reasonable care, skill and diligence in handling the 2^nd Remittance, and they both failed to notice any of the red-flags mentioned by Ps.  As with the 1^st Remittance, I find the payment procedure put in place by D1 not proper nor adequate.

K.5  The 3^rd Remittance

156.  The Instruction Email was sent to Sandra on 9 August 2013, ie 3 days after the 2^nd Remittance, attaching an invoice from Liang Pei Tou Air Bus Service for a sum of US $520,000[76].  Apart from the words “your assistance is really appreciated” in the 1^st sentence, and save for the issuer of the invoice and the amount, the rest of the contents of the email were identical.  The word “find” appeared in the 1^st sentence instead of “finds” and again the email referred to “previous request”.

157.  Sandra again did not make any enquiry or conduct any checking/verification and proceeded with this remittance.

158.  D3 also did not make any enquiry or conduct any checking/verification and approved this remittance and signed the TT Form, despite being provided with the Instruction Email and the invoice. 

159.  As I have said earlier, I am of the view that the payment procedure put in place by D1 was not proper nor adequate and having considered the evidence, I find both Sandra and D3 failed to exercise reasonable care, skill and diligence in handling this remittance, as they failed to notice any of the red-flags mentioned by Ps.

K.6  The 4^th Remittance

160.  The 1^st Instruction Email for the 4^th Remittance was sent to Sandra from the LAW Address on 14 August 2013, 5:31am, attaching an invoice from a Da Found International Air Trade Co Limited (“Da Found IAT”) for USD 940,000[77].  Then there was a 2^nd Instruction Email sent to Sandra from the LAVV Address on 14 August 2013, 6:01 am, attaching a copy of the same Da Found IAT invoice.  Although, the 2^nd Instruction Email bore the Signature Block, the Disclaimer was not there.

161.  The email exchanges afterwards is summarised, based on the table prepared and submitted by Mr Wong on behalf of Ps, and referring to the sender of the Instruction Emails as the Fraudster :

The LAW Address (Genuine Address)	Date & Time	The LAVV Address (Phoney Address)
14.8.2013
1st Instruction Email with USD 940,000 invoice of Da Found IAT	5:31 a.m.
	6:01 a.m.	2nd Instruction Email[78] with USD 940,000 invoice of Da Found IAT
	4:15 p.m.	Sandra’s reply email[79]: banks closed because of typhoon
Sandra’s reply email[80]: asking if duplicate instruction and attaching the 2nd Instruction Email	4:18 p.m.
	5:02 p.m.	Sandra’s reply email : insufficient funds, only USD 722k odd left and attaching a copy of the bank statement of P2’s Account
Fraudster’s reply email[81]: “Please make the payment if its dated differently”	6:31 p.m.
15.8.2013
	6:01 a.m.	Fraudster’s reply email[82]: attaching rectified invoice for US$688,000 of Da Found IAT
Sandra’s reply email: “2 emails are dated the same.  Both invoices are of the same number.  We presume it is a duplicate payment instruction ….”[83]	9:37 a.m.
	10:16 a.m.	Fraudster’s duplicate reply email[84]: attaching rectified invoice for USD 688,000 of Da Found IAT
	10:20 a.m.	Sandra ‘s reply email[85]: presume duplicate instruction, and asked Fraudster to send instruction once only
	10:45 a.m.	Fraudster’s reply email[86]: sorry, resent the same email, it was a duplicate
	11:36 a.m.	Sandra’s reply email[87]: asking jurisdiction of Da Found IAT and why it had a HK address
	11:40 a.m.	Sandra’s further email[88]: asking relationship between Da Found IAT and Da Found Trade Co. Ltd, a Hong Kong company. (“Da Found Trade”)
	12:00 p.m.	Fraudster’s reply email : Da Found IAT and Da Found Trade owned by same company, confirmed aware of profit tax
	12:02 p.m.	Sandra’s reply email[89]: pressed for jurisdiction of Da Found IAT and why HK address
	12:16 p.m.	Fraudster’s reply email : territory of Da Found IAT was HK
	12:20 p.m.	Sandra’s reply email[90]: nominee director would resign if P2 pays to HK
	12:42 p.m.	Sandra’s further email[91]: deadline 2 p.m. HK time for provision of new director details
	12:46 p.m.	Fraudster’s reply email : insisted on the payment
	12:53 p.m.	Sandra’s reply email : insisted that nominee directors would resign if pay to HK
	1:01 p.m.	Fraudster’s reply email : will provide another invoice in next email to avoid tax risk
	1:30 p.m.	Fraudster’s email[92]: apologised and sent another invoice of Liang Pei-Tou Air Bus Service

162.  Quite apart from I have said earlier, that with a new entity Da Found IAT, Sandra should have enquired about the nature of the transaction between P2 and Da Found IAT, which she did not.  In any event, this time she noticed that the name of the beneficiary/payee, namely Da Found Trade was different from that of Da Found IAT and she then did ask about the relationship between the two.  Further, as said earlier, the 2^nd Instruction Email and all subsequent emails sent from the LAVV Address did not have the Disclaimer on them, which Sandra did not notice.  The emails from the LAVV Address were also all sent during Hong Kong office hours.

163.  After Sandra received the 1^st Instruction Email, about 30 minutes later, she then received the 2^nd Instruction Email.  As seen in the table above she did query whether they were duplicates and the response was “make the payment if its dated differently”.  It would seem odd that the sender would not know whether the two invoices were dated differently and that she had to see whether they were dated differently.  Anyway, for this remittance, there were a number of main “red flags”.  The sending of identical emails should have alerted Sandra to read those with care and had she done so she should have noticed the reference to “previous instructions” and also that the 2^nd one did not have the Disclaimer and when checking the time sent, she should have noticed they were sent from 2 different email address.  Further, the initial invoice was later withdrawn and ultimately replaced by another invoice from Liang Pei-Tou Air Bus Service and the amount then changed from US$940,000 to US$688,000.  This should have aroused suspicion on Sandra’s part.  Yet, Sandra never sought any explanation from the sender.  Da Found IAT and Liang Pei-Tou Air Bus Service were two completely different entities, in different jurisdictions and without any apparent connection, and yet she was not alerted, nor did she check through all the previous invoices or the Instruction Emails in the file.

164.  Sandra did not raise any further enquiries or conduct any checking/verification after ultimately receiving the Liang Pei-Tou Air Bus Service invoice for the 4^th Remittance and simply proceeded with making the 4^th Remittance.

165.  As pointed out by Mr Wong, despite being the only one who was tasked to check the “counterparty”, ie email sender, and knowing that nobody else would check the same, she did not pay attention and as I said earlier, failed to notice that the 1^st Instruction Email and the 2^nd Instruction Email were emails coming from 2 different email addresses, that one of them she had not dealt with before this remittance and deceptively similar to the one she hitherto had dealt with, and that the ultimate Liang Pei-Tou Air Bus Service invoice eventually came from this deceptively similar LAVV Address.

166.  It would appear from D3’s evidence that Sandra did not tell her in relation to there being an earlier Da Found IAT invoice.  Anyway, D3 did not make any enquiry or conduct any checking/verification and approved this remittance and signed the TT Form despite being provided with the ultimate Instruction Email and the Liang Pei-Tou Air Bus Service invoice.

167.  Again I find D1 failed to put on place a proper or adequate payments procedure.  Having considered the evidence, I find both Sandra and D3 had failed to exercise reasonable care, skill and diligence in handling the 4^th Remittance.

K.7  The 5^th Remittance

168.  The Instruction Email for the 5^th Remittance was sent to Sandra from the LAVV Address on 22 August 2013, attaching an invoice from Liang Pei-Tou Air Bus Service for a sum of US$496,000 and instructing Sandra to debit the funds from P1’s Account[93].  Even though it contained the Signature Block, the Disclaimer was not there.

169.  As there were no sufficient funds in P1’s Account to make the remittance, Sandra replied accordingly, sending the Fraudster a printout of the internet banking page showing a balance of USD 147,000[94].

170.  The Fraudster then asked to see P2’s bank balance as well and Sandra and Sandra replied, sending a printout of internet banking page showing a balance of USD34,951.38 in P2’s Account[95]. The Fraudster then changed the invoice to only one item under “Description” and the amount to USD140,000, and attaching a copy of the invoice, instructed Sandra to make a remittance of US$140,000 as “part payment”[96].

171.  Sandra again did not notice that the Instruction Emails were sent from the LAVV Address.  In particular, the request for balances in Ps’ Accounts before changing the amount on the invoice should in my view have put Sandra on guard to make any further enquiries or to conduct any checking/verification.  Yet, she failed to do so.

172.  Again D3 did not make any enquiry or conduct any checking/verification and simply approved this remittance and signed the TT Form, despite being provided with the ultimate Instruction Email and the changed invoice. 

173.  As before, I find D1 failed to put in place a proper or adequate payment procedure.  Having considered the evidence, I find that both Sandra and D3 had failed to exercise reasonable care, skill and diligence in handling this remittance.  

K.8  The 6^th Remittance

174.  Notwithstanding requesting Sandra to send the bank statements on 22 August 2013, 5 days later on 27 August 2013, the Fraudster again sent an requesting for P2’s Account statements, both the online balance and a copy of the latest monthly bank statement[97].

175.  Then, about another 5 days later, on 2 September 2013, the Fraudster sent another email to ask for the online balances of both P1 and P2 which Sandra again duly provided[98].

176.  Finally, on 19 September 2013, the Fraudster sent to Sandra the Instruction Email for the 6^th Remittance from the LAVV Address, attaching an invoice in the sum of US$32,000 to a Thai entity New Life Enterprise & Associate Ltd (“New Life”)[99].

177.  Notwithstanding the Fraudster asking for the balances in Ps Account every 5 days, this did not put Sandra on ground.  Further, although New Life is a completely new entity, and in particular, the format of the invoice was identical to the invoices in 5 Previous Remittances and yet New Life is in Thailand.  Sandra again did not make any enquiry or conduct any checking/verification and simply proceeded with this remittance. 

178.  D3 also did not make any enquiry or conduct any checking/verification and approved this remittance and simply signed the TT Form, despite being provided with the Instruction Email and the New Life invoice.

179.  As before, I find D1 failed to put in place a proper or adequate payment procedure.  Having considered their evidence, I find that both Sandra and D3 failed to exercise reasonable care, skill and diligence in handling this remittances.

K.9  Conclusion

180.  As I have said earlier, and in particular D1 was specifically engaged to handle remittances from Ps’ Accounts and D1’s employees were the only ones that handled and had power to make remittances, and in view of the gravity of the consequences, I am of the view that the standard of care is a high one.  I have found Sandra and D3 negligent in handling the 6 Remittance.  Having considered all the evidence, I am satisfied that D1 had breached its duty of care to P1 and P2 by failing to put in place a proper or adequate payment procedure for payment out of client’s account, in particular to confirm that the 6 Remittances were properly authorised by P1/P2 or its authorised person(s) and/or confirming the invoices submitted related to work performed by Ps.

L.   Whether each of D2-D4 was in breach of her/his duty of care to Ps in her/his capacity of nominee director

L.1  The parties’ respective case

181.  Ps’ case is that D2 and D4 as directors of P1, and D4 as director of P2, owed a common law duty to Ps to exercise reasonable skill, care and diligence and they were in breach of the same by failing to take reasonable and/or adequate steps to ensure that proper procedures were put in place to verify that payment instructions were received from an authorised person of Ps only and/or confirm invoices submitted related to work performed by Ps.

182.  D2-D4 (collectively referred to as “Directors”) filed a defence separately from D1.  In their defence, the Directors pleaded that their basic function was to protect the anonymity and confidentiality of the UBOs and their functions were merely formal and were limited to signing the documents as pleaded for P1 or P2 at the request of Fidinam or Mr Rogers given to D1.  The 5 documents signed by D2 and D3 as nominee directors of P1 were (i) the Consent as Director (Form NC1) on 22 September 2009; (ii) Form AR1 – Annual Returns signed by D2 for the years 2010 to 2013; (iii) Account opening forms at Bank Vontobel in Zurich and Geneva by D2 and D3 on 15 January 2010 and 26 April 2010 respectively; (iv) Power of Attorney in favour of Mr Moreno by D2 on 21 June 2013; (v) Power of Attorney in favour of Mr Salzberger signed by D2 on 21 June 2013.

183.  The 4 documents signed by D4 as nominee director of P2 were (i) the Consent as Director (Form NC1) on 28 September 2009; (iii) Account opening forms at Bank Vontobel in Zurich and Geneva on 15 January 2010 and 26 April 2010; (iv) Power of Attorney in favour of Mr Moreno on 21 June 2013; (v) Power of Attorney in favour of Mr Salzberger on 21 June 2013.

184.  The Directors denied that they owed a duty of care to Ps in tort to take reasonable and/or adequate steps to ensure the proper payment procedures were in place in respect of payment out of Ps’ Accounts which, amongst other things, included (a) verifying that instructions were received from an authorised person of Ps only; and/or (b) confirming that the invoices submitted related to work performed by Ps.

L.2  The applicable legal principles

185.  As pointed out by Yuen JA in Wong Luen Hang & Anr -v- Chan Yuk Lung & Ors [2013] HKCA 577, CACV 112/2012, 30.10.2013[100], citing Re City Equitable Fire Insurance Co [1925] Ch 407 at 427 and  Daniels v Anderson (1995) 16 ACSR 607 at 668, that there is no dispute on the general proposition that company directors owe a duty to exercise reasonable care and skill in the performance of their office, and referring to what was observed by Romer J in Re City Equitable Fire Insurance Co (at 428), the degree of care required of a director is measured by the care an ordinary man might be expected to take in the circumstances on his own behalf; and that a director needs not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience.

186.  Mr Ng had also referred this Court to what was observed by Hoffmann LJ (as he then was) in Re D’Jan of London Ltd [1993] BCC 646 at 648 D-E that :

“‘In my view, the duty of care owed by a director at common law is accurately stated in s 214(4) of the Insolvency Act 1986. It is the conduct of:

… a reasonably diligent person having both –

(a) the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as are carried out by that director in relation to the company, and

(b) the general knowledge, skill and experience that that director has.”’

187.  Re D’Jan of London Ltd was cited by Harris J in Hong Kong in Re Freeman FinTech Corp Ltd [2018] 1 HKLRD 320[101].

188.  Mr Wong also referred to the following on the duty of a director:

(a)  The scope of such duty and whether it has been discharged or breached requires a detailed consideration of all the relevant facts in any particular case (para 14.21 Company Directors – Duties, Liabilities, and Remedies (3^rd ed 2017) at p 332-333);

(b)  Reasonable care does not mean all possible care and it is necessarily objective: in determining the standard of care the director’s behaviour will be compared with that to be expected of an ordinary man acting on his own behalf in similar circumstances (para 14.23 ibid at p 333);

(c)  Directors have, both collectively and individually, a continuing duty to acquire and maintain a sufficient knowledge and understanding of the company’s business to enable them properly to discharge their duties as directors (para 14.40 ibid at p 339);

(d)  While entitled to do so, delegation to and reliance on others does not absolve the director from responsibility, the delegation is only as to function; there remains a continuous duty to supervise the discharge of the delegated functions, and “sometimes the system itself, in which the failures have taken place, is an inadequate system for which the person with overall responsibility must take some blame” (paras 14.40-14.42 ibid at p 339-340).

189.  Mr Wong further referred to Re Copyright Ltd [2004] 2 HKLRD 113 where the duties of directors were set out by Kwan J, as she then was, as follows[102]:

“The general propositions with respect to directors’ duties, as comprehensively set out by Jonathan Parker J in Secretary of State for Trade and Industry v Baker (No 6) [1999] 1 BCLC 433 at p 489A-C and approved by Morritt LJ on appeal in [2000] 1 BCLC 523 at pp 535I-536C, as follows:

(i) Directors have, both collectively and individually, a continuing duty to acquire and maintain a sufficient knowledge and understanding of the company’s business to enable them properly to discharge their duties as directors.

(ii) Whilst directors are entitled (subject to the articles of association of the company) to delegate particular functions to those below them in the management chain, and to trust their competence and integrity to a reasonable extent, the exercise of the power of delegation does not absolve a director from the duty to supervise the discharge of the delegated functions.

(iii) No rule of universal application can be formulated as to the duty referred to in (ii) above. The extent of the duty, and the question whether it has been discharged, must depend on the facts of each particular case, including the director's role in the management of the company.

As succinctly stated by Lord Woolf MR in Re Westmid Packing Services Ltd (No 2) [1998] 2 BCLC 646 at p 653B:

Each individual director owes duties to the company to inform himself about its affairs and to join with his co-directors in supervising and controlling them.  A proper degree of delegation and division of responsibility is of course permissible, and often necessary, but total abrogation of responsibility is not.”

(emphasis added)

190.  With the above principles in mind, I turn to the facts of the present case.

L.3  Discussion

191.  Mr Wong had submitted that classifying the Directors as “nominee directors” was a misnomer: that a nominee director is a direct appointed by a stakeholder of the company (eg shareholder or a major creditor) to represent that stakeholder’s interest on the Board, which he submitted was not the case here.

192.  In any event, whether misnomer or not, as I understand, there is no differentiation in directors’ duties between a “nominee director” and any other director.

193.  Further, I note that in Re Copyright Ltd, it was also said that what the director in that case was alleged to have done or omitted to do must be evaluated in “the contest of and by reference to the role in the management of the company which was in fact assigned to him or which he in fact assumed , and by reference to his duties and responsibilities in that role”[103].  In that case, it was not in dispute that the director did have a residual duty of supervision and control, and the precise extent of that duty was in dispute, as was the question whether the duty had been breached[104].

194.  In the present case, the Directors did not themselves personally draw any remuneration/directors’ fees from Ps at any time.  There was no evidence that the Directors were to be personally responsible for the day to day management of the business of Ps.  When contacted by a Wendy of Kasmac direct, Mandy had made clear in an email of 2 July 2010 to Mr Rogers that D1’s office would not be involved in client’s business operations directly[105].  Mr Rogers agreed that the Directors were not involved in the daily operations of Ps, nor had any daily knowledge of Ps’ operations. 

195.  When it was put to Mr Rogers that the Directors were not responsible for managing Ps, he said that was not correct as they were nominee directors and fiduciaries and legal representatives for Ps in Hong Kong.

196.  It was not clear what Mr Rogers meant by the Directors being legal representatives of Ps.  Anyway, he did not provide any evidence as to what role in the management of Ps was assigned to the Directors.  I do not find that there was sufficient evidence that Ps had assigned any role in the management of Ps to the Directors or that the Directors had assumed any supervisory or controlling role in the management of Ps.

197.  In particular, D4 never had contact with Fidinam or Mr Rogers or any of the UBOs and he did not participate and was not involved at all in the transactions which formed the subject matter of this claim.

198.  As seen earlier, the information on the business of Ps, or the products of Ps, provided to the D1 at the time of the opening of Ps’ Account had changed several times.  Initially Fidinam on behalf of the UBOs at the time of the incorporation of Ps in September 2009 informed D1 that Ps’ business was international trading activities especially in household goods and construction materials.  Fidinam representatives had met with Mr Rogers in Geneva and presumably Fidinam’s instructions came from Mr Rogers who was acting on behalf of the UBOs.  Anyway, the business of Ps was later stated by Mr Rogers to Mandy to be (ii) purchase and sale of goods from China and receiving commissions on the transactions, and when asked what kind of goods, then (iii) Mr Rogers said “purchase and sale of machinery and equipment”, and finally only in May 2010, (iv) the machinery and equipment mostly related to the medical field, followed by the items of products and brand names.

199.  During the trial, Mr Rogers said the nature of Ps’ business was importing, exporting different types of machinery and equipment but primarily it was medical.  Then, in relation to the Bedrock invoices and the transport by private aircraft, Mr Rogers had explained that “part of [Ps’s] business was to have their individuals buy and sell the equipment. In order to take the equipment, also to sell the equipment, you have to transport it.  So the individuals would go from place to place using aircraft because many of the medical items that they had were perishable and they had to be transported in that manner…”.  When this Court tried to clarify as to what kind of medical equipment would be “perishable”, his answer was “for example, injections, different type of material relating to injections, different types …”.  This Court then further asked whether he would call what he described as “equipment” and his answer was “That’s part of equipment.  That’s what they—rubber gloves they had.  That was the type of things that they transported.”  When this Court commented: “But machinery and rubber gloves cannot be perishable”, to which Mr Rogers replied “some of the machinery is very, very delicate”. 

200.  Even if rubber gloves, injections, or different type of material relating to injections were “medical equipment”, I have to say, at the end of the above exchange, this Court was none the wiser as to what kind of machinery was “perishable” or “very, very delicate” that had to be delivered “in a special manner” as said by Mr Rogers.

201.  Anyway, Mr Rogers had complained in his email of 14 May 2010 that the information required by Mandy for the opening of the bank account was like “pulling hens teeth”.  In my view, it can equally be said that trying to get information out of Mr Rogers on the nature of business which was to be conducted by Ps was also like “pulling hens teeth”.  Further, as said earlier, none of those 8 Previous Remittances were of the amount nor at the frequency or nature, save for the Rismed invoice, as indicated by Mr Rogers on behalf of the UBOs in the KYC Forms at the time of the opening of Ps’ Accounts.  In fact, as seen later in this judgment, I find Mr Rogers evasive and not forthcoming in relation to Ps’ business operations.

202.  There was no evidence that Ps had ever expected the Directors to exercise a continuing duty to acquire and maintain a sufficient knowledge and understanding of Ps’ business to enable them to properly discharge their duties as directors.  As mentioned earlier, after the Directors had been asked to sign all necessary forms for opening Ps’ account at Bank Vontobel AG in Switzerland, and for the asset management arrangement with SCL & Associes in Nyon, the Directors were then asked to sign Powers of Attorney to the UBOs respectively so that the UBOs had sole signatory power to those accounts.  There also seemed to be an account held in P2’s name at CBH Compagnie Bancaire Helvetique in Geneva into which the US 22,000,000 was transferred on 12 July 2012.  There was no suggestion or evidence that the Directors were to take reasonable and/or adequate steps to ensure that proper payment procedures were in place in respect of all those Swiss bank or investments accounts held in Ps’ names. 

203.  In fact, as set out earlier, in January 2013, Mr Rogers was already requesting that Mr Casique be added as a bank signatory to Ps’ Accounts.  Further, in June 2013, at Mr Rogers’ request on behalf of the UBOs, D2 and D4 had respectively executed a general power of attorney in favour of Mr Moreno and Mr Salzberger, and in particular for Mr Salzberger to have full power to open, conduct any transactions and close any and all accounts under Ps’ names in any bank in the world.

204.  Having considered the evidence in this case, I find that the Directors only had a very limited role in Ps and that they were limited to signing the documents in the capacity of a director on behalf of Ps as instructed by Mr Rogers on behalf of Ps.  I do not find that in their very limited role, they owed personally, as directors, a duty of care to Ps in tort to take reasonable and/or adequate steps to ensure that proper payment procedures were in place in respect of payments out of Ps’ Accounts.

L.4  Conclusion on the Directors’ duty of care

205.  In light of above said, I find Ps had not discharged their burden in proving that the Directors owed any duty of care to Ps in tort as alleged in their ASOC.

206.  In any event, I accept Mr Ng’s submission that if the Directors were indeed in breach, I am of the view that they should be entitled to relief under section 358 of the old Companies Ordinance, even though this point was not specifically pleaded.

207.  As my answer to (v) of the list of issues set out in paragraph 53 of this judgment, is “no”, I do not need consider D1’s vicarious liability under (vi).

M.  Causation/Contributory Negligence

M.1  D1’s pleaded case

208.  In D1’s AD, it was pleaded that any alleged losses and damages suffered by Ps as pleaded in the ASOC were not the result of any negligence or want of care on the part of D1 or its servants or agents but was caused or contributed by Ps in that, briefly :

(1)  Mr Rogers failed to pay any regard to the emails sent by Sandra to him informing him of the completion of the 6 Remittances and to which the complete TT Forms were attached;

(2)  Mr Rogers failed to take any steps to guard against the use of the LAW Address and the LAVV Address by third parties;

(3)  Mr Novoa failed to pay regard to the transactions and balances in Ps’ Accounts;

(4)  Mr Moreno failed to pay any regard to the bank statements of Ps’ Accounts which clearly showed at least 5 of the 6 Previous Remittance.

M.2  Causation

209.  Mr Wong submitted that the breach of duty by D1, Sandra and/or D3 clearly caused Ps’ loss in respect of the 6 Remittances. As pointed out by Mr Wong, what was pleaded above by D1 was in fact contributory negligence on part of Ps.

210.  Anyway, I am satisfied that the breach of duty by D1, and/or Sandra and/or D3 had caused Ps’ loss in the 6 Remittances.  I now turn to D1’s case on contributory negligence.

M.3  Legal principles on contributory negligence

211.  As stated in paragraph 5-01 in Charlesworth & Percy on Negligence (14 Ed), a defendant who is in breach of a duty of tort cannot be held responsible for loss suffered by a claimant unless the defendant’s conduct was a cause of that loss.

212.  Further, in paragraph 4-03, it is stated that if there has been some act or omission on the plaintiff’s part which has materially contributed to the damage caused and is of such a nature that it may properly be described as negligence, the Court may take into account such contributory negligence in apportioning liability.

213.  The defence of contributory negligence is available where the claimant failed generally to look after its own interests: Jackson & Powell on Professional Liability (8^th Ed), §17-149 ;

214.  The standard of care when addressing contributory negligence is the same as that applied when considering negligence from the perspective of breach of duty.  If it were otherwise the anomalous position would be that a party who first started an action and thereby became the claimant, would have an advantage over the other, who, perforce, had to be the defendant: Charlesworth & Percy on Negligence (14^th Ed), §4-11;

215.  A person is guilty of contributory negligence if he ought reasonably to have foreseen that, if he did not act as a reasonably prudent man, he might hurt himself; and in his reckonings he must take into account the possibility of others being careless: Jones v Livox Quarries Ltd [1952] 2 QB 608 at 625 per Denning LJ.

216.  The amount of care which a claimant may reasonably be expected to take necessarily varies with the circumstances: Charlesworth & Percy, §4-13.

M.4  The security devices (for online viewing)

217.  It was D1’s case and evidence that the security devices for Ps’ Accounts had been sent to Mr Novoa.  As seen in the email sent by Mandy to Mr Rogers on 21 July 2010, she had asked Mr Rogers for the address to send the PIN and the security devices.  Mandy later sent a reminder email to Mr Novoa on 13 August 2010, copied to, amongst others, Mr Rogers and Hilda, and on 15 August 2010, Mr Novoa replied and asked Mandy to send the security devices and PIN to American Trade & Export Inc at an address in Medley in Florida.  Mandy duly did on 16 August 2010, again copying her email to Mr Rogers and Hilda.  Mr Novoa acknowledged receipt in an email of 23 August 2010, in which he also asked Mandy for the “Log-on Information” and instructions on how to proceed[106]. Mandy had responded to say that Mr Novoa should have received all information regarding the registering the online viewing internet account and asked him what kind of information he required.  There seemed to be no follow up emails from Mr Novoa at the time.

218.  Then on 25 November 2010, Mandy sent an email to Mr Novoa to inform him that Hang Seng Bank was replacing the old security device for a new one by 22 January 2011, and asked whether she should send the new device to the same address of American Trade.  Mr Rogers and Hilda were again copied in this email.  Mr Novoa then replied giving a new address in Doral in Florida for American Trade.  Mandy then duly sent it on 26 November 2011.  Further on 10 January 2011, Mandy sent an email to Mr Novoa to ask whether he had already changed the device.  It would appear that Mr Novoa then asked Mandy to sent another one on 11 January 2011, which she again did and she reminded him that the registration should be done by 22 January 2011[107].  There was no further query regarding P1’s Hang Seng Bank device.

219.  Separately for P2’s Account, Mr Novoa sent an email to Mandy on 14 January 2011 asking for the balance on the account, saying he was not able to log into the account.  Mandy duly sent him the “Account Transaction Details” and the “Account Overview” dated 14 January 2011 indicating a closing balance of USD 1,339,285.35 on 28 December 2010.  However, on 27 January 2011, Mr Novoa sent another email seeking the balance for P2’s Account saying that he still could not get access to the account.  Mandy replied and sent the “Account Overview” dated 27 January 2011 and further giving Mr Novoa the HSBC hotline number explaining to Mr Novoa that he could “press 2#4 for checking the status”[108]. There were no further enquiries from Mr Novoa in relation to access to P2’s Account.

220.  It was specifically pleaded by D1 in its AD that shortly after Ps’ Accounts were opened, D1 had delivered the respective online view security devices for Ps’ Accounts to Mr Novoa for him to check the balances and transactions in Ps’ Accounts at all material times, and that this was also stated in D3’s witness statement. 

221.  However, during the trial, when Mr Rogers was asked about the security devices having been sent to Mr Novoa, Mr Rogers replied that he did not know until recently and that he had not confirmed with Mr Novoa as to whether he had received the devices.  When it was pointed out to Mr Rogers that the emails sent on 16 August 2010 and 25 November 2010 by Mandy to Mr Novoa were also copied to Mr Rogers, Mr Rogers then said he received a copy of the email but claimed he did not confirm with Mr Novoa as to receipt thereof, as he rarely spoke with Mr Novoa, and that the last time he did was 3 years ago.

222.  As for Mr Moreno, when he was asked during the trial about Mr Novoa being sent the security devices to Ps’ Accounts, he said he only knew of this after he became a director of Ps on 9 October 2013.  He claimed that he had no confirmation of that fact and that he had no proof that the security devices were sent to Mr Novoa.  It was Mr Moreno’s evidence in his witness statement that he had been informed by Mr Novoa and Mr Alvarez the they had never accessed Ps’ Accounts online through internet banking notwithstanding that Mr Novoa might have received (but could not now recall receiving) internet banking password(s) and/or security device(s) for Ps’ Accounts from D1[109].  It was also Mr Moreno’s evidence that he was informed by the UBOs and Mr Rogers that they assumed that all banking matters were dealt with properly by D1 and that in the circumstances, they seldom asked D1 for copies of the bank account statements to check the transactions involved[110].

223.  As I set out later, I find Mr Moreno’s evidence vague.  During the trial, when asked whether he had actually asked Mr Novoa, Mr Moreno claimed he did but Mr Novoa was not sure and that Mr Novoa did not recall whether he received the devices or that he was able to use them and claimed that he understood that Mr Novoa was never able to use them.  When he was asked specifically as to whether he had a conversation with Mr Novoa regarding the online security devices, Mr Moreno said he did “many years ago”, approximately about the time when he was making enquiries regarding some suspected payments. He said it was before he made his witness statement and that Mr Novoa had said he might have received it.

224.  Although Mr Novoa did send emails on 14 January 2010 and 27 January 2010 saying that he was not able to log into P2’s Account, after Mandy provided him with the HSBC hotline number for him to make direct enquiries with HSBC there were no further emails from Mr Novoa to Mandy. There were no emails from Mr Novoa enquiring over the use of the security devices nor were there any emails from Mr Novoa enquiring over the balances of Ps’ Accounts.  There was in fact no further email from Mr Novoa concerning his inability to use the security device for P1’s Account.  One would have thought that if there had been further difficulty in using the security devices, Mr Novoa would have raised this with Mandy again, since the whole purpose of instructing Mandy to apply for the security devices was to enable the UBOs to have “online viewing” of Ps’ Accounts.   

225.  Further, as Mr Novoa had asked Mandy to send him the balances in P2’s Account, there were no reasons why he could not or did not ask Mandy again as to the balances in either Ps’ Accounts unless he was able to “view” the accounts.  There was no witness statement nor any evidence from Mr Novoa.  Mr Ng had invited the Court to draw an adverse inference against Ps for failing to call Mr Novoa. 

226.  Having considered the evidence, I am prepared to draw such inference, that the lack of evidence from Mr Novoa indicated more probable than not that he was able to use the security devices to log into Ps’ Accounts and to view the transactions and balances.  In any event, I find that there being no evidence that Mr Novoa had asked Mandy again about the balances would in my view also indicate that more probable than not he was in fact able to log into Ps’ Accounts using the security devices, and the PINs and to view the transactions and balances.

M.5  Bank statements

227.  It was Mr Moreno’s evidence in his witness statement that on or around 16 September 2013, he informed Sandra that Ps would no longer require D1’s services.  The reasons according to Mr Moreno was D1 was too expensive and was taking a long time to process matters, and that Ps wanted to set up their own offices in Hong Kong to handle administrative work in Hong Kong themselves.

228.  It can be seen in Mr Moreno’s email dated 16 September 2013 to Sandra, that his office in Hong Kong was under the name of Ever Lead Asia Investment Ltd on Wyndham Street.  In this email, Mr Moreno had also referred to the powers of attorney signed by D2 and D4 in June 2013, and that they would no longer required D1’s secretarial services. 

229.  Sandra had in an email dated 2 October 2013 to Mr Moreno to state that in July 2013, D1 had been instructed by Mr Salzberger to prepare the audited accounts for P2, and asking whether D1 should stop the audited accounts preparation in light of Mr Moreno’s email[111].

230.  It was not clear whether Mr Moreno had replied, but it was his evidence that on 13 October 2013, he had asked Sandra for details of the companies and the last 4 bank statements, which were provided to him by Sandra the same day.  Mr Moreno however said he did not review the bank statements in detail at that time as it was only in or around January 2014 that he formally assumed his role as a director of Ps[112].

231.  However, as seen in Sandra’s email dated 10 October 2013, 6:06pm, in fact she sent to Mr Moreno the last 4 bank statements on 10 October 2013, and her email was also copied to a “Chris Riddel” who was to be the new company secretary for both Ps.  The bank statements sent were those of P1’s Account from 29 June 2013 (indicating transactions from 31 May 2013) until 30 June 2013[113], and those of P2’s Account from 18 June 2013 with a balance of USD1,765,499.39 (showing transactions from 18 May 2013) until 18 September 2013 with a balance of USD 272,551.98.  

232.  The above statements of P2’s Account would therefore reflect 5 of the 6 Remittances.  Mr Ng submitted that had Mr Moreno checked the bank statements as soon as he received them, then he should have noticed.  It was not quite clear why Mr Moreno asked for those last 4 bank statements of Ps’ Accounts if he did not check them.  When he was asked during the trial, his answer was that it was for the purpose of doing a “general financial statement”.  Mr Moreno however admitted during the trial that when he received the bank statements, he was aware of the low balance in P1’s Account, and that the balance in P2’s account was around HKD 272,000.  In any event, it did not seem probable that after asking and obtaining the last 4 bank statements, Mr Moreno then did not confirm or enquire of the UBOs as to the balances in Ps’ Accounts.

M.6  The LAW Address

233.  Sandra’s evidence was that after the 6 Remittances were carried out, she had sent the TT forms to Mr Rogers and none of her emails were “bounced back”, including the first 3 sent to the LAW Address.

234.  It was however Mr Rogers’ evidence in his witness statement  that the emails which were purportedly sent to the LAW Address by Sandra were not received nor read by him at the relevant time[114].  It was also his evidence that he was not aware of any unusual features or activities with regards his email account at the LAW Address, and as mentioned earlier, he claimed that he was out of his office in Ashville in North Carolina from 30 July 2013 until 6 August 2013.

235.  It was Mr Rogers’ evidence that on or about 9 March 2014, he received frantic telephone calls but he said he could not recall whether it was from Mr Novoa, or Hilda Alvarez (Mrs Alvarez) or Francisco Alvarez (Mr Alvarez) which led to him sending out the letter dated 10 March 2014 dictated by him.

236.  Although it was Mr Rogers’ evidence that he was not aware of any unusual features or activities with regards his email account at the LAW Address, it would appear even after Ps were alerted, there was no evidence that Mr Rogers had made any report to the police in Florida concerning his email account at the LAW Address being used without his authorisation, notwithstanding the frantic phone calls.

M.7  Credibility of Ps’ witnesses

237.  Mr Ng submitted that that the evidence of both Mr Moreno and Mr Rogers was unsatisfactory and unreliable.

238.  Mr Moreno became the sole legal and beneficial owner of P2 on 12 December 2016, as seen in the instrument of transfer of the 1,000 shares held by Nandalo Assets Corp to him.  During the trial, Mr Moreno confirmed that he had paid HK$1,000 for those shares as stated in the bought and sold note[115]. According to those transfer documents, Mr Moreno’s address was given to be an address in Caracas in Venezuela.  In his witness statement, he gave an office address in Hong Kong.  However, on the covering letters dated 30 January 2014 from D1/Sandra to Mr Moreno enclosing Ps’ documents for him to pick up, his address was given to be “Chez Zakhia Chady, 193, AV Daumesnil, 75012 Paris, France”, which appeared to be a restaurant in Paris.

239.  When asked, Mr Moreno told the Court that he lives in Paris and that he had lived there for past 10 years.  Further, Mr Moreno said he studied architecture at college but did not finish and then studied to be a chef, and that he also managed and organized social events and he had some training in import/export business of medical supplies. 

240.  It was Mr Moreno’s evidence in his witness statement that Mr Novoa and Mr Alvarez (whom he referred to as Mr Garcia in his witness statement) had asked him to assist in managing Ps due to the difficulties in overseeing the operations of Ps from Venezuela[116].  When he was asked when this was, he said he could not remember the exact date and it was around 2010 and that his functions were limited to certain specific actions.  He had also said after he became a director, the UBOs had asked him to, amongst other things, to meet with suppliers in China, and to meet with company’s HK lawyers and to meet with the UBOs, to manage documents regarding the legalisation of the documents for the company. 

241.  Under cross examination, Mr Moreno had said P2 was dormant and only active with regard to the present litigation, by making payments to the lawyers in this case and for company expenses.  When asked when P2 became dormant, Mr Moreno said he did not have the exact date.  When asked approximately when, he then said it was more or less around the date when he assumed directorship on 9 October 2013 and that P2 did not carry on any business as the company’s monies were lost due to the mis-management by the authorised persons of the funds.  However, according to Mr Moreno, it was only in January 2014 that he spotted the 6 Remittances.  Mr Ng tried to clarify with Mr Moreno that as Mr Moreno had said P2 was paying for expenses of this litigation and yet Mr Moreno was the sole legal and beneficial owner of P2, this would mean he himself was paying for the expenses of this litigation.  Mr Moreno then replied that it would not be so necessarily and that it was P2 which paid, and when asked where did P2 get its money from, his answer was that he had borrowed from different entities in the name of P2 to cover expenses.

242.  He had denied that P1 was dormant although he then said it was not carrying on business.  He then also said it was paying for the expenses of this case, his own expenses as director and his travelling expenses and company expenses, but he had also said all expenses of this litigation were being paid by P2 which borrowed money for this purpose.

243.  When asked in light of his evidence, this would mean that  after he became a director of Ps on 9 October 2013s, there was no business in Ps for him to manage, Mr Moreno replied by saying he kept on travelling and looking for business opportunities so that Ps could come back into operations.  Then when he was asked whether Ps were managed by the UBOs before he started to manage Ps.  His answer was it was incorrect, and that Ps were managed by D1.  It was also Mr Moreno’s evidence that managing a business included paying taxes, general accountancy, issuing and receiving payments, and making and receiving orders.

244.  There was no sufficient evidence that D1 was responsible for paying taxes or carrying out any general accountancy work for Ps, and the only instructions and/or orders D1 received were from Mr Rogers.

245.  Anyway, although Mr Rogers had agreed that D1 was not involved in the business operations of Ps, Mr Moreno however did not seem to agree. 

246.  It was on 30 January 2014 that Mr Moreno picked up all Ps’ documents from D1.  On 10 March 2014, Mr Moreno had sent an email to Sandra asking her, on an urgent basis, to send copies of the instructions she received to transfer the funds for the 6 Remittances, which Sandra did on the same day[117]. During the trial, Mr Moreno was asked whether he had contacted D1 or Sandra between 30 January 2014 and 10 March 2014, Mr Moreno said he was not sure and when he was asked when he first became aware of the 6 Remittances, he said he could not recall exactly.  As to when he contacted the UBOs, he said around February 2014, but he did not recall any emails, only telephone conversations with both UBOs.  When he was asked whether he contacted Mr Rogers and asked him about the 6 Remittances, Mr Moreno’s answer was maybe in March 2014.

247.  It was also put to Mr Moreno that when monies were credited into Ps’ Accounts, D1 would be informed only shortly before the credit, Mr Moreno said he was not sure.  It was also put to Mr Moreno that D1 was never instructed to arrange for audit for Ps, he said it was the Directors’ duties, and that he was not sure whether the UBOs had ever instructed D1 to prepare audited accounts.

248.  As seen earlier, Mr Moreno first turned up at D1’s office to request for Ps’ original documents for legalisation at the Venezuelan Consulate in August 2011, and was at that time described by Mr Rogers as an “employee” of Ps/UBOs.  He was later in April 2012 described by Mr Rogers as an “authorized representative” of Ps, and that Sandra was to hand over to him a full and complete access to the accounts of Ps, and finally in June 2013, Mr Moreno was provided with a general power of attorney.

249.  Having considered Mr Moreno’s evidence, I find his evidence generally vague and even though he had been involved with Ps and/or the UBOs since at least 2010 or 2011, he was evasive in his evidence about Ps’ business operations.  Further, since April 2012, he could have sought access to accounts of Ps and checked.

250.  As for Mr Rogers’ evidence, certain parts of it were not in his witness statement nor supported by any documentary evidence, such as during cross examination, he had referred to Mandy having asked him to sign on the invoices to authenticate the same.  There was no evidence or emails which indicated that Mandy had ever asked him to do so, and further, he had said “signed on the invoices” or “he had signed off on the invoices”. His signature did not in fact appear on any of the Bedrock Invoices or any of the invoices which he sent for the 8 Previous Remittances.  Some of the invoices only showed the words “Sincerely yours, Harvey Rogers” having been typed on the invoices.  It is not clear why Mr Rogers would describe this as a “signature” or “authentication” by him.

251.  Mr Rogers’ own emails often contained typing errors, but in the Taiwan Civil Action, he seemed to be pointing out those errors as being errors made by the Fraudster.  He then admitted to his own typing errors during the present trial but alleged the Fraudster’s email were full of “grammatical mistakes”.  Mr Moreno had described Mr Rogers was a lawyer working for “NetMedical” in the Police Statement[118]. On the 1^st day of the trial before this Court, Mr Rogers had said there was no relationship between him and NetMedical.  When pointed out what was said by Mr Moreno, Mr Rogers said that was not correct and that he did not work for NetMedical, and that he never saw Mr Moreno’s Police Statement.  However, in Ps’ petition filed in the criminal proceedings in Taiwan, under “Factual Background”, Mr Rogers was also described as the lawyer for the NetMedical Group[119]. When this was pointed out to Mr Rogers on the 2^nd day, his answer was something to the effect “I can see why that is perceived. NetMedical was a client of mine.  I did perform services for Mr Novoa, the principal of NetMedical but I could not recall whether I took title of “Counsel”, but I worked for Mr Novoa, who is the owner”.  He had said his memory in the Taiwan Civil Action was “better than today”.

252.  Mr Rogers’ evidence in the Taiwan Civil Action was inconsistent with his present evidence.  He had told the Taiwan Court that he saw the Instruction Emails and invoices sent by the Fraudster for the 6 Remittances about 2 or 3 months afterwards[120], but his present evidence that he was only told in March 2014, before he sent the letter of 10 March 2014.  He had also told the Taiwan Court that there been 15-20 previous remittances, when there were only 8.  He had said in the present trial that he could not recall exactly how many, and that he was guessing when giving evidence in Taiwan, as he had many clients he was performing services.

253.  In the event, this Court is not clear which version Mr Rogers was saying was the correct version, whether his evidence in Taiwan, or his evidence before this Court.  

254.  Mr Rogers claims to have a Masters degree and a Doctor’s degree and he is an attorney-at-law.  One would have thought he should have at least checked his own files, including the Instruction Emails and invoices for the 8 Previous Remittances and letters/emails sent by him, before he gave evidence in Taiwan, or before he gave evidence before this Court.  The typing mistakes in his emails to Sandra also showed a lack of attention to details on his part.  Ds had conducted a “google search” on Mr Rogers[121] and there were certain adverse comments on him.  During cross examination, Mr Rogers had described those comments as “garbage” and claimed the office address therein was incorrect, without explaining that the address was his previous address and was the address on the email he sent to Mandy in 2009.  

255.  Having considered Mr Rogers’ evidence, I find him evasive in giving evidence.  I also find that parts of Mr Rogers’ evidence in the Taiwan Civil Action inconsistent with his present evidence or documentary evidence.

256.  As set out above, I find the evidence of both Mr Moreno and Mr Rogers unsatisfactory.

M.8  Whether any contributory negligence

257.  When Mr Rogers was asked during cross examination why his emails were not encrypted, he said he was never asked by D1 to do so.  However, Mr Rogers is a practising attorney and he should have known about email fraud and that one’s email account can be “hacked into”.  As I have accepted that the Instruction Emails in relation to the 6 Remittances were not sent by him or authorized by him, this would mean that the Fraudster must have sent those Instructions Emails from the LAW Address by gaining access to Mr Rogers’ email account. Being a practicing attorney for some years, there was no reason why Mr Rogers failed to take steps to guard against unauthorized use of the LAW Address and/or to ensure his emails (including the Instruction Emails) were encrypted.

258.  Ps or the UBOs should also have taken a more active role in supervising their own money matters.  As I have found earlier, Mr Novoa or the UBOs were able to access Ps’ Accounts with the security devices and to view the balances.  In any event, even without the devices, they should have regularly checked Ps’ Accounts and balance and had they done so they would have noticed any unusual transactions earlier.  Had Mr Moreno checked the banks statements when he first received them in October 2013, he would have then checked with the UBOs immediately, rather than waiting until January 2014, and even in January 2014, there was no immediate action taken by Ps until Mr Rogers sent the letter dated 10 March 2014, and it was not until April 2014, that Mr Moreno made a report to the Hong Kong Police.

259.  Having considered all the evidence in the present case, I accept Mr Ng’s submissions and find that there had been contributory negligence on the part of Ps and that damages should be reduced by at least 50% in light of the Ps’ contributory negligence.

N.  Conclusion 

260.  Having regard to all the above, I have come to the conclusion that D1 was liable, vicariously or otherwise, for Ps’ loss in respect of 50% of the 6 Remittances.

261.  Out of the 6 Remittances, only one was from P1’s Account, of an amount of USD 140,000 and 50% thereof would be USD 70,000. The remaining 5 of the 6 Remittances were from P2’s Account of a total of USD 1,758,000 and 50% thereof would be USD 879,000

O.  Order

262.  I therefore order that:

(1)  D1 to pay P1 damages in the sum of USD 70,000 within 28 days of this order;

(2)  D1 to pay P2 damages in the sum of USD 879,000 within 28 days of this order.

(3)  D1 shall pay interest on the above sums after 28 days, at judgment rate.

263.  As for costs, Ps have not succeeded entirely and have only achieved in recovering about 50% of the total sums claimed against D1. I order D1 to pay 50% of Ps’ costs, to be taxed if not agreed.  As Ps have not succeeded in their claims against D2-D4, I order Ps to pay costs incurred by D2-D4 of and incidental to this action, to be taxed if not agreed.  I order certificate for one Counsel only.  This is an order nisi, to be made final after 28 days.