CROWE, CHRISTOPHER PAUL ANDREW v. WEN XINGSHUN AND OTHERS

HCA 1732/2022

[2024] HKCFI 980

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1732 OF 2022

____________________

____________________

________________________

REASONS FOR DECISION

________________________

1.  At the conclusion of the hearing, I (a) allowed the appeal of the 1^st  Defendant (“D1”) against the Order of the Master made on 4 December 2023 dismissing his application to set aside the default judgment entered against him on 10 March 2023 for the sum of US$670,085.96 and damages to be assessed (“the Default Judgment”), (b) set aside the Default Judgment, (c) gave leave to D1 to file out of time the Acknowledgment of Service and his Defence, and (d) made the costs order set out in the last section below.

2.  These are my reasons.

3.  D1 was legally represented by his former solicitors when he filed his summons dated 23 June 2023 applying for the setting aside of the Default Judgment (“the Summons”), but was acting in person when the summons was argued before the Master.  The main contention advanced before the Master was that the Default Judgment was irregularly obtained in that there was no due service on him of the Writ endorsed with the Statement of Claim.  D1 also said in his affirmation, among others, that he did not know the person named “Vicky” or the alleged scam site www.crpto-ct.com (“the Scam Site”).

4.  Recently about 2 weeks ago, D1 was granted legal aid.  At the hearing he was represented by Ms Law of Counsel.  The Plaintiff (“P”) was represented by Mr Bowers, solicitor advocate.  As is trite, this appeal was conducted by way of a re-hearing.

5.  D1 now accepts that the Default Judgment was regularly obtained.  The main ground now advanced for setting aside the Default Judgment was that P’s claim is so defectively pleaded that it is liable to be struck out and therefore no default judgment should have been entered, and if entered, should be set aside.  As a fallback, Ms Law also submitted that within the present setting D1 has a meritorious defence.

P’s claim and his case against D1 and the 2^nd Defendant (“D2”)

6.  The Writ herein endorsed with a Statement of Claim was issued on 12 December 2022.

7.  P was and is a British citizen living in Malaysia and a user of the digital assets trading services on the Huobi trading platform (“Huobi Platform”) provided via the website at www.huobi.com operated by the 3^rd Defendant, a company listed on the HKEX.

8.  D1 was and is the sole director and shareholder of D2 responsible for trade conducted by the Authorized Trader on the Huobi Platform known as “Silkroad1015”.

9.  As pleaded in the Statement of Claim :

a.  “Between about 11 January 2020 and 13 May 2020, the Plaintiff was fraudulently and/or wrongfully induced and solicited by the 1^st and 2^nd  Defendants into performing a series of cross-platform trades on www.crpto-ct.com (Scam Site) and the Huobi Platform (Cross-platform Scam)” (§4.2);

b.  P “was fraudulently and/or wrongfully induced into transacting a series of 8 bank transfers with a combined value of US$670,085.96 to acquire USDTs (stable coins) from the 1^st and 2^nd Defendants (Investments)”(§8);

c.  The details of the 8 transfers were then set out in a table in §8 of the Statement of Claim, consisting of (i) 1 transfer to D1’s Citibank Singapore bank account, (ii) 5 transfers to D2’s Signature Bank New York account, and (iii) 2 transfers to the DBS Bank Singapore account of one Ace Linking Pte Ltd;

d.  P “was further fraudulently and/or wrongfully induced and solicited to convert the acquired USDTs into cryptocurrencies in ICT and GSM in the follow-through transactions into the Plaintiff’s crypto-wallet on the Scam Site” (§9);

e.  “The Scam Site was abruptly shut down on 1 June 2020 with the result that all Investments held by the Plaintiff were unlawfully misappropriated / stolen and/or lost” (§9); and

f.  “It is averred that the 1^st Defendant, the 2^nd Defendant and the Huobi Group have been complicit in the illegal Cross-platform Scam and the 3^rd Defendant has aided and abetted by endorsement of the 1^st and 2^nd  Defendants’ illegal cross-platform activities through the 3^rd Defendant’s and Huobi Group’s business and operation of the Huobi Platform” (§9).

10.  Apart from the above quoted, P also pleaded misrepresentation, inducement and conspiracy, thus :

“VI. MISREPRESENTATION

19. The 1^st and/or 2^nd and/or 3^rd Defendants made negligent and/or fraudulent misrepresentations to the Plaintiff (causing the Plaintiff to fall victim to the Cross-platform Scam) which were relied upon by the Plaintiff and which induced the Plaintiff to make the Investments and suffer loss and damage upon the abrupt shutdown of the Scam Site on about 1 June 2020 referred to as paragraphs 8 - 9 above.

VII. INDUCEMENT / CONSPIRACY

20. Further or alternatively,

20.1 The 1^st and/or 2^nd and/or 3^rd Defendants fraudulently and/or wrongfully induced the Plaintiff to make the Investments and which caused him to suffer loss and damage upon the abrupt shut down of the Scam Site on about 1 June 2020 referred to at paragraphs 8 - 9 above; and/or

20.2 The 3^rd Defendant has aided and abetted by endorsement of the 1^st and 2^nd Defenders illegal cross-platform activities through the 3^rd Defendant’s and Huobi Group’s business and operation of the Huobi Platform.

21. Further or alternatively, the 1^st and/or 2^nd and/or 3^rd Defendants conspired to do the acts referred to at paragraphs 8 - 9 above.”

11.  As pointed out by Ms Law, and not disputed by Mr Bowers, the parts of the Statement of Claim quoted in the preceding 2 paragraphs are all the averments pleaded in the Statement of Claim as against D1.

12.  Moreover, there were also the following pertinent allegations made in P’s letter before action dated 7 November 2022 by his solicitors Messrs Bowers.law to D1[1], to which was attached as Annex 1 certain screen-shots of WeChat messages exchanged between P and a person named “Vicky” (“the WeChat Messages”):

“3. For each of the Investments, the account representative at the Scam Site by the name of “Vicky” (WeChat ID: Amy167103[XXXXXX] acted as the intermediary on behalf of you and/or Silkroad to communicate with our client in WeChat and disclosed the account details for the various bank accounts held with Citibank and DBS Bank in Singapore and Signature Bank in New York in your name and/or in the name of Silkroad to initiate payment from our client to you and/or Silkroad In exchange for USDTs held on the Huobi Platform. The USDTs were subsequently converted into cryptocurrencies in ICT and GSM in the follow-through transactions into our client’s crypto-wallet on the Scam Site. Copies of the relevant WeChat exchanges are enclosed in Annex 1. It is clear from these WeChat exchanges that you and/or Silkroad were all along using the account representative at the Scam Site as a conduit in perpetrating the scam.”

13.  Notably however, and as pointed out by Ms Law, and not disputed by Mr Bowers,  in the Statement of Claim (a) the person “Vicky” was not even mentioned, (b) also not pleaded was the alleged fact that “Vicky” acted on behalf of D1 and/or D2, (c) such allegations quoted in paragraph 12 above are not pleaded, (d) none of the messages sent by “Vicky” in the WeChat Messages were pleaded as forming part of the “fraudulent and/or wrongful inducement or solicitation” or of the negligent and/or fraudulent misrepresentation pleaded against D1 and D2.  

Parties’ affirmation evidence

14.  As the question of service of the Writ has by now become immaterial, I will skip the mention of the parties’ evidence thereon.

15.  In D1’s 1^st affirmation filed on 10 July 2023, D1 (a) set out the trading procedures of the Huobi Platform, (b) confirmed that he actually received all the 8 transfers of money from P in the amounts and manner as P pleaded, (c) said that the 8 transactions were all duly completed and that P has received in total 651,339.201438 USDTs, and (d) said that D1 and D2 did not know the person named “Vicky” or the alleged Scam Site.

16.  In his affirmation filed on 1 August 2023, P referred to the WeChat Messages and said (in paragraph 16.5) that “[“Vicky”] was in fact at all relevant times acting as the conduit for 1^st and 2^nd Defendants with access to specific knowledge of all the bank account details for each of the various bank accounts …”.

17.  However, I note that P did not there depose to:

a.  how he got acquainted to, or was contacted by, the person called “Vicky”;

b.  how and by whom he was introduced to the Scam Site; and when and how he opened an account with the Scam Site;

c.  whether he had actually received the said 651,339.201438 USDTs from D1/D2, as D1 said;

d.  what were the words spoken or messaged to him, and by whom and when, which formed the alleged “fraudulent and/or wrongful inducement or solicitation” or the alleged negligent and/or fraudulent misrepresentation;

e.  how the so-called “follow-through transactions” were actually operated as to each of the 8 transactions, such as on which platform, how and by whom the USDTs P received from D1/D2 (if at all) were converted into ICT and GSM, and how, when and by whom (if that was the case) the ICT and GSM were transferred from the Huobi Platform into the Plaintiff’s wallet in the Scam Site; and

f.  in respect of these aspects of the “follow-through transactions”, what were the respective involvements of “Vicky”, himself and/or D1/D2, if any.

18.  In D1’s 3^rd affirmation filed on 28 November 2023 in reply to P’s, D1 essentially explained that anyone (including the person called “Vicky”) could have posed as an intended buyer from D1/D2’s account on the Huobi Platform and thereby obtained the bank details of D1/D2.

Is P’s claim so defectively pleaded?

19.  Ms Law submitted, which was not seriously disputed by Mr Bowers, and this Court accepted as correct, the following well established principles, narrated in paragraphs 20 to 24 below, regarding the pleading of fraud generally, the elements to be pleaded in support of the causes of action of negligent and fraudulent misrepresentation and of lawful/unlawful means conspiracy to injure.

20.  Insofar as the causes of action pleaded by P against D1 consisting of any allegation of fraud, the Court has repeatedly emphasized the seriousness of a plea of fraud, such that it must be pleaded clearly and with particularity, and that it may only be pleaded when there is sufficient and proper evidence, otherwise such plea is liable to be struck out (§18/8/19 Hong Kong Civil Procedure 2024).

21.  As to misrepresentation generally, particulars of any misrepresentation must be contained in the pleading, the Statement of Claim must show the nature and extent of the alleged misrepresentation, by whom and to whom it was made, and whether verbally or in writing (§18/8/28 Hong Kong Civil Procedure 2024).

22.  As to fraudulent misrepresentation, the following elements must be pleaded :

“1. There must be a representation of fact made by words or conduct.

2. The representation must be made with knowledge that it is or may be false. It must be wilfully false, or at least made in the absence of any genuine belief that it is true.

3. The representation must be made with the intention that it should be acted upon by the claimant, or by a class of persons which includes the claimant, in the manner which resulted in damage to him.

4. It must be proved that the claimant has acted upon the false statement.

5. It must be proved that the claimant suffered damage by so doing”

(Haifa International Finance Co Ltd v Concord Strategic Investments Ltd and Others [2009] 4 HKLRD 29 at p.35-36)

23.  Regarding the cause of action of lawful/unlawful means conspiracy to injure, the following 4 elements must be pleaded (Pido v Compass Technology Co Ltd [2010] 2 HKLRD 537, per Ma CJHC (as he then was) at §17):

“(1) The agreement between two or more persons. The means of carrying out the agreement, whether lawful or unlawful, must be set out.

(2) The intention to injure the plaintiff, whether predominant (in the case of a lawful means conspiracy) or merely an intention to injure (in the case of an unlawful means conspiracy).

(3) The acts that were carried out pursuant to the agreement and the stated intention.

(4) The damage caused to the plaintiff.”

24.  “In relation to the 3^rd element, the gist of the tort of conspiracy is not the conspiratorial agreement alone, but that agreement plus the overt act causing damage. An overt act is one which shows that the conspiratorial agreement has already been made.  Allegations of knowledge, common purpose and intention (which are not acts) cannot alter the lack of a proper plea of overt act with the aforesaid characteristics” (per Au-Yeung J in Chan Wai Keung Lawrence v Au Chi Man Albert [2021] HKCFI 2096 §29; see also Aktieselskabet Dansk Skinsfinansiering v Wheelock Marden & Co. Ltd [1994] 2 HKC 264, 272C-G, 273B-C; and recently applied by this Court in Mason Group Holdings Ltd Formerly Known As Mason Financial Holdings Ltd And Another V. Tam Joseph Wing On And Others [2024] 1 HKLRD 601).

25.  At the hearing, Mr Bowers also accepted, rightly and fairly, that there is no independent cause of action known as wrongful inducement or solicitation.

26.  By comparing the averments pleaded in the Statement of Claim (set out in paragraphs 9 to 10 above) to the necessary elements required to be pleaded as above set out, it can be readily seen without need for further analysis, and I so conclude, that P’s claim in respect to all the above-mentioned causes of action was defectively pleaded.

27.  Moreover, I have no difficulty to accept the submission made by Ms Law at the hearing that P’s claims against D1 based on the present state of the pleading are liable to be struck out upon D1’s application.

Exercising the discretion, imposing terms for setting aside the Default Judgment ?

28.  The main contention advanced by Mr Bowers in his written submissions was that as the Default Judgment was regularly obtained, the established principle that D1 need to show a meritorious defence to justify setting aside the Default Judgment applies; and D1 has failed to so show here, especially when it has been shown by the WeChat Messages that D1 lied when he said he did not know “Vicky”.

29.  The starting point is that the Court’s discretion under O13 r 9 to set aside a default judgment is unfettered.

30.  As observed by A Cheung J (as the CJ then was) in Wan How Wan v Wan Hoi Wei (HCA 578/2006, unrep., 18 February 2011), “the exercise of [the discretion] has been the subject of a substantial body of case law, which has laid down guidelines for the exercise of the discretion … . However, … guidelines constitute “guidance and not tramlines””.  In that case, the learned judge refused to exercise the discretion to set aside the default judgment even though a meritorious defence had been shown.

31.  Ms Law cited the case of GM Commercial Consultants Corp v Euro-Asia Zhong Ji (HK) Ltd [2021] HKCFI decided by DHCJ Le Pichon (as the learned former JA then was).  In that case, the 1^st defendant applied, among others, that the default judgment entered against it on 10 June 2019 be set aside on the ground that (a) it was irregularly obtained in that the service was irregular, and (b) that “P’s claim is so defectively pleaded that it is liable to be struck out”.  The learned Lady Justice, after having decided that the default judgment was regularly obtained and further that P’s cause of action as presently pleaded was not sustainable as a matter of law, exercise the discretion pursuant to O13 r9 to set aside the default judgment with these words: “it would be a travesty of justice if the Court were to allow a default judgment to be entered on a palpably bad and defective pleading.  In the circumstances, it is clear that the discretion should be exercised in favour of D1” (§§82 & 83).

32.  I take a similar view of this case as her Ladyship had in that case in that it would be a travesty of justice if the Default Judgment is not set aside, albeit that I would not only characterize P’s Statement of Claim as “a palpably bad and defective pleading”, and not unsustainable as a matter of law.

33.  Specifically, what I find here is that all the necessary elements of the causes of action alleged by P are not pleaded, not to mention the necessary particulars of the averments of the elements, and further not to mention that fraud or similarly serious misconducts (conspiracy) were alleged.  As I noted in paragraph 17 above, apart from such defects in the Statement of Claim, the evidence thus far filed by P was also conspicuously lacking in the pertinent factual matters.  As I mention, such defects would render P’s Statement of Claim liable to be struck out.  This being the defective state of P’s pleaded claims and case, it would seem to me an inappropriate, if not wrong, application of the guiding principle that D1 must be required to show a meritorious defence to P’s case (which is blatantly defective) before the Default Judgment would be set aside.

34.  At the hearing, Mr Bowers relied heavily and solely on the allegation that D1 lied about not knowing “Vicky” and asked that a condition be imposed on the setting aside requiring D1 to pay into court the full amount of P’s claim.

35.  However, while superficially, it seems that “Vicky” was able to provide all of D1’s relevant banking account details in the WeChat Messages, and therefore D1’s claim that he did not know “Vicky” was rather incredible, I do not find, on the limited materials before me, that D1’s explanation was necessarily implausible or incredible, for these reasons

a.  It is not impossible that the person communicated with P by the WeChat name “Vicky” might have used another identity or internet or WeChat name to communicate with D1 on the Huobi Platform and obtained these banking details, in which case, D1 would be saying the truth when he said he did not know the person called “Vicky”; and

b.  In the WeChat Messages[2], after “Vicky” set out the full name of D1 as the account holder of D1’s Citibank Singapore account and the account number, P apparently[3] said “He’s given me his account details”, and then “Vicky” responded “是这个吧?”. It is therefore not entirely clear that P indeed obtained those account details from “Vicky” as he said.

36.  Moreover, I was not persuaded that D1’s “alleged lie” would of itself render D1’s case so weak or shadowy as to justify the imposition of the said condition in light of:

a.  the conspicuous lack of important particulars and details in P’s case and evidence as I noted above;

b.  there was no message in the WeChat Messages concerning any discussion between P and “Vicky” whereby “Vicky” introduced the Scam Site to P and “solicited” him to open an account with the Scam Site, but rather, there seemed to be a conversation indicating that P has already had opened an account with the Scam Site[4]; and

c.  D1’s case - of admitting receipt of all 8 payments in the manners alleged by P, then said that the 8 transactions were in fact completed, and then a denial of P’s further allegations of wrong relating to what happened afterwards – has some substance, particularly against P’s lack of response as to whether he has indeed received those USDTs and against his lack of details of various aspects of his case, as mentioned above.

37.  I would add for completeness that in view of what I said in 2 preceding paragraphs, I would have held that D1 has shown a meritorious defence in the particular circumstances of this case as set out above such as to persuade me to exercise my discretion to set aside the Default Judgment.

38.  For these reasons, I allowed D1’s appeal and set aside the Default Judgment.

Costs

39.  D1 asked for the costs of the Summons, including the costs of the hearing before the Master, and the costs of this appeal.  Ms Law’s point was that costs should follow the event and that this Court essentially adjudged that the Statement of Claim was liable to be struck out all along, including at the time when the matter was before the Master.

40.  Mr Bowers submitted that, as this “defective pleading” point was only first raised by D1 when he lodged his written submissions about 5 days before the hearing, I should not disturb the costs order made by the Master and that there should be no order as to the costs of this appeal save that the costs of the hearing be paid by P to D1.

41.  At the hearing I made the costs order as submitted by Mr Bowers for the reasons that (a) D1 has defaulted and was asking for an indulgence from the Court, (b) D1 chose to contend against the regularity of the Default Judgment before the Master on which contention he has failed, (c) the same ground to set aside the Default Judgment was apparently maintained until most recently, and thus it was reasonable for P to contest this appeal against D1’s such ground, but (d) upon perusal of D1’s written submission, P should no longer resist the appeal and thus P should pay for the costs of the hearing.

42.  I also ordered that D1’s own costs be taxed according to the Legal Aid Regulations.

43.  I thank Mr Bowers and Ms Law for their assistance.