ANITE TELECOMS LTD v. WORLD BEST CARGO-LINK CO LTD

HCA 2560/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2560 OF 2013

________________________

________________________

_________________

J U D G M E N T

_________________

Introduction

1.  The plaintiff’s claim against the defendant in this action is for a sum of about US$1.97m being the purchase price of goods sold and delivered to the defendant pursuant to a written contract.

2.  On 5 August 2014, the plaintiff (“P”) issued a summons (“Release Summons”) seeking a release from its express/implied undertaking in relation to documents and information obtained from HSBC (“HSBC Documents”) under a disclosure order made by To J on 15 January 2014 (“Disclosure Order”), and for leave to use such documents for the purpose of criminal investigation and prosecution by Hong Kong police and/or police in PRC and for any future proceedings for fraud to be brought by P against the defendant (“D”) and/or D’s president Mr Hu Changlie whose English name is Tommy Hu (“ Mr Hu”).

Background

3.  P is a provider of software solutions to international wireless and leisure travel industries and has been listed on the London Stock Exchange since 1984.

4.  D is a company incorporated in Hong Kong and is understood to have been operating its business of freight forwarding and logistics in Guangzhou.  

5.  In July 2013, P decided to supply a test platform system (“Goods”) to its related company in Mainland China (“PRC”), Anite Wireless Trading (Beijing) Limited (“Anite PRC”), for further sale to an end buyer.

6.  It was not disputed that neither P nor Anite PRC possessed an importing licence required in PRC for the Goods and thus they had to rely on importing agents.  P thus contacted a logistics company in UK, CRM Logistics Limited (“CRM”), and CRM in turn contacted D on 24 July 2013 for urgent assistance[1].  

7.  Thereafter, P and D agreed that a series of transactions would take place which would involve a trading company based in Guangzhou called Guangzhou Golden Way International Trading Co Ltd, as sub-buyer (“GGW”) from D of the Goods.  Pursuant to the series of transactions, GGW would import the Goods into PRC to sell to Anite PRC, which would then sell to the end buyer, and it was agreed that GGW would ship the Goods direct to the end buyer in Beijing.

8.  Further, pursuant to the agreed series of transactions, two written contracts were entered into:

(i) A purchase contract on 27 July 2013 entered into between P and D (“Purchase Contract”), pursuant to which P agreed to sell and D agreed to purchase the Goods for US $1,968,262.75 (“USD Purchase Price”), and the Goods were to be dispatched from UK and to arrive in Beijing no later than 31 July 2013[2];

(ii) A sales contract on 30 July 2013 entered into between Anite PRC and GGW (“Sales Contract”), pursuant to which GGW agreed to sell and Anite PRC agreed to buy the Goods in the amount of RMB 14,277,777.99 (“RMB Purchase Price”), which represented the USD Purchase Price converted into RMB, plus 17% VAT payable to the PRC Customs[3].

9.  It would appear while the parties had intended the deal to complete at about end of July 2013, there was a delay.

10.  Eventually on 19 November 2013, P issued and addressed an invoice to D for the outstanding USD Purchase Price.

11.  What was not disputed was that subsequent thereto, Anite PRC transferred payment of the RMB Purchase Price to GGW on 3 December 2013, and on 5 December 2013, the USD Purchase Price was remitted from GGW’s account with Bank of China Guangzhou Liwan branch to D’s account with HSBC in Hong Kong (“HSBC Account”) and subsequent evidence indicated that it was received by D on that day.

12.  It was D’s case that Anite PRC was four months late in effecting payment for the goods to GGW and that D received the USD Purchase Price at a time when it was facing liquidity issues.

13.  After D received the USD Purchase Price from GGW, D failed to pay CRM/P.

14.  On 27 December 2013, P obtained a Mareva injunction against D (“Mareva Injunction”) and this was followed by P issuing the writ herein on 30 December 2013, claiming against D the USD Purchase Price for the Goods pursuant to the Purchase Contract.

15.  The Mareva Injunction was continued at an inter parte hearing on 3 January 2014 and D was further ordered to inform P in writing within 48 hours of all its assets of an individual value of HK$20,000 or more in Hong Kong.  Notwithstanding of being served with the Mareva Injunction, D had failed to comply with its disclosure obligations within the time stipulated in the Mareva Injunction.

16.  On 8 January 2014, P applied for the Disclosure Order which was granted on 15 January 2014.

17.  Pursuant to the Disclosure Order, the HSBC Documents were produced which included, among other things, statements of the HSBC Account from September 2013 to January 2014, and records relating to certain payments made into and out of the HSBC Account in December 2013.

18.  The Release Summons was subsequently issued on 5 August 2014.  It was P’s case that, based on the HSBC Documents, there was a prima facie case that D had committed various criminal offences in Hong Kong and that privilege against self-incrimination (“PSI”) was not available to D and/or Mr Hu over the HSBC Documents and that even if it was, such had been lost upon disclosure of the HSBC Documents by HSBC pursuant to the Disclosure Order. 

General principles on release of undertaking

19.  As submitted by D’s Counsel Mr Jason Yu, it has long been established that a party who obtains documents on discovery gives an implied undertaking to the Court that he will make use of them only for the purposes of that action, and no other purpose.  While the court has a discretion to release a party from the undertaking, the general and fact sensitive nature of the exercise of such discretion has been emphasized by the Court of Final Appeal in Secretary for Justice v FTCW [2014] 6 HKC 285.  The principles in exercising such discretion were set out by Ribeiro PJ therein[4] :

(1) Where release from the undertaking is sought, it is for the person who obtained the documents to demonstrate cogent and persuasive reasons why it should be released.

(2) Each case turns on its own facts and no general principle can be formulated beyond stating that the Court will not release or modify the implied undertaking save in special circumstances and where the release or modification will not occasion injustice to the person giving discovery.

20.  Mr Yu also referred to the case of Cobra Golf Inc v Rata [1996] FSR 819 in which Laddie J, having considered the case law, had set out the relevant considerations relevant to the exercise of discretion[5].  Mr Yu relied on in particular the following:

(1) Whether the proposed collateral use is in court proceedings or outside litigation.  Prima facie if it is for use outside litigation, it is not the court's function to release for that purpose[6].

(2) Insofar as the collateral use is in aid of satellite proceedings in this country, if they are criminal proceedings, the court must take into account the possibility of the application being a method of by-passing the privilege against self-incrimination[7].

(3) Insofar as the documents are to be used in proceedings abroad, if the satellite proceedings are criminal, the court here should be wary of doing anything in this country which may subject the disclosing party to an unfair disadvantage in those proceedings[8].

21.  It is not disputed that the court has jurisdiction to relax or modify the implied undertaking for the report of any wrongdoings revealed by the discovered documents to the appropriate authorities, and that this involves a balancing exercise.

22.  P’s Senior Counsel Mr Bernard Man referred the court to Re NDT (BVI) Trading Ltd [2009] 5 HKLRD 615 and Unicredit Bank Austria v Dragon Wise [2013] 2 HKLRD 169.

23.  In Re NDT, Kwan J, as she then was, referred to Marlwood Commercial Inc v Kozeny [2005] 1 WLR 104 in which the English Court of Appeal stated that in the absence of any other factors argued to constitute some injustice, the public interest in the investigation or prosecution of serious fraud should take precedence over the general concern of courts to control the collateral use of compulsorily disclosed documents.  

24.  Mr Yu pointed out that in Marlwood, the Director of the Serious Fraud Office had issued a notice under s 2 of the Criminal Justice Act 1987 for the surrender of material disclosed in proceedings upon the request by the New York District Attorney.  The Director had argued that the preference in favour of international co-operation in investigating serious fraud was to be derived from the 1987 Act itself.  The Court of Appeal agreed and held that there were safeguards built into the operation of the relevant statutes, and that it was in such circumstances of the statutory regime that it was held that the public interest took precedence over the general concern of the courts to control collateral use of documents[9].

25.  As for Unicredit Bank, it was held by Au-Yeung J that the implied undertaking would be relaxed as there was a strong case of fraud was committed on the plaintiff, an Austrian bank, and the public interest in the combat of serious and extraterritorial fraud should take precedence over the general concern of courts to control the collateral use of banker’s documents disclosed under compulsion of a court orders.  In that case, the funds were dissipated swiftly after deposits into the defendant’s account, and also the defendant had not complied with a disclosure order and its conduct was nothing but stealthy and evasive, and that any prejudice to the defendant was due to its own fraudulent act and it was not at liberty to hide behind the veil of the confidential banker-customer relationship.  Au-Yeung J relaxed the implied undertaking and allowed the plaintiff to disclose the documents obtained from Bank of China to the police in Hong Kong or the police in Austria for investigation purposes.

26.  Mr Yu had submitted that Au-Yeung J’s decision was made without the benefit of submissions from the defendant who did not appear at the hearing and that its jurisprudential value was limited.  The bank’s legal representative was present although the bank’s position appeared to be neutral.

27.  Anyway, even though the defendant was absent, Au-Yeung J did set out the legal principles and gave a reasoned judgment.

28.  As held by the Court of Final Appeal in Secretary for Justice v FTCW, there is no general principle and each case turns on its own facts.

29.  Further, as Kwan J held in Re NDT, it is a balancing exercise whether what is sought to be achieved by relaxing the implied undertaking is more important for the administration of justice than maintaining confidentiality so as not to operate as a disincentive to full and frank discovery[10].

30.  Mr Yu also referred to Dendron v University of California [2005] 1 WLR 200, in that the court will consider if the release of the material from the restriction on collateral use would serve a purpose and that the court will need to be persuaded that the material has sufficient impact on the foreign proceedings or that the material could not be obtained by an application directly to the foreign court[11].

31.  Further, as said in Re NDT, the court will take into account the nature of the information in the document and “the likely contribution of the document to achieving justice in the second proceedings”[12].  The strength of the case of fraud and seriousness of the fraud is also relevant as seen in Unicredit Bank, where Au-Yeung J was of the view that a “strong case of fraud” was committed by the defendant on the facts[13].

32.  With the above principles in mind, I turn to the issues in the present case.

The issues

33.  There were essentially 3 issues before this court:

(i) Whether there was a prima facie case of commission of fraud in Hong Kong and commission of “contract fraud” and/or “embezzlement” in the PRC;

(ii) Whether PSI of the HSBC Documents could be claimed by D;

(iii) Whether this court should exercise its discretion to release P of its express/implied undertaking.

The evidence

34.  P’s Finance Director Andrew Greenwood made an affirmation on 30 December 2013 in support of the ex parte Mareva Injunction, and P’s solicitor Ms Sarah Troughton filed an affirmation on behalf of P to support the Release Summons.

35.  P had instructed a firm of private investigators Steve Vickers & Associates Limited to carry out investigations in Hong Kong and in Mainland China (PRC) to obtain information on D and Mr Hu.

36.  A Mr Jan Erik Maynard of the private investigators firm had filed an affirmation reporting on the result of investigations.

37.  P had also instructed a lawyer in PRC, Ms Zou Xing, in relation to the possible offences under the PRC Criminal Law committed by D and Mr Hu.  Ms Zou had filed 2 affirmations, the 1^st one to produce her legal opinion, and the 2^nd one in reply to D’s PRC lawyer Mr Chu Qing Hou.

38.  A Ms Lin Wei Yu, D’s Overseas Manager, had filed a total of 4 affirmations on behalf of D, the 1^st one on 29 August 2014 to comply with D’s disclosure obligations pursuant to the Mareva Injunction, the 2^nd one to oppose the Release Summons, the 3^rd one to clarify certain inaccuracies in her 2^nd affirmation, and a 4^th one in reply to the affirmation of Mr Maynard.

39.  Mr Hu also made an affirmation on 28 November 2014 in opposition to the Release Summons.

40.  D had instructed a lawyer in PRC, Mr Chu Qinghou, who filed an affirmation and produced his legal opinion in answer to Ms Zou’s legal opinion.

Whether there was a prima facie case of commission of fraud in Hong Kong 

41.  The criminal offence relied on by P is s 16A of the Theft Ordinance Cap 210, which states as follows:

“(1) If any person by any deceit (whether or not the deceit is the sole or main inducement) and with intent to defraud induces another person to commit an act or make an omission, which results either –

(a) in benefit to any person other than the second-mentioned person; or

(b) in prejudice or a substantial risk of prejudice to any person other than the first-mentioned person,

the first-mentioned person commits the offence of fraud and is liable on conviction upon indictment to imprisonment for 14 years.

(2) For the purposes of subsection (1), a person shall be treated as having an intent to defraud if, at the time when he practises the deceit, he intends that he will by the deceit (whether or not the deceit is the sole or main inducement) induce another person to commit an act or make an omission, which will result in either or both of the consequences referred to in paragraphs (a) and (b) of that subsection.

(3) For the purposes of this section –

‘act’ (作為) and ‘omissions (不作為) include respectively a series of acts and a series of omissions;

‘benefit’ (利益) means any financial or proprietary gain, whether temporary or permanent;

‘deceit’ (欺騙) means any deceit (whether deliberate or reckless) by words or conduct (whether by any act or omission) as to fact or as to law, including a deceit relating to the past, the present or the future and a deceit as to the intentions of the person practising the deceit or of any other person;

‘gain’ (獲益) includes a gain by keeping what one has, as well as a gain by getting what one has not;

‘loss’ (損失) includes a loss by not getting what one might get, as well as a loss by parting with what one has;

‘prejudice’ (不利) means any financial or proprietary loss, whether temporary or

(4) This section shall not affect or modify the offence at common law of conspiracy to defraud.”

42.  Buckley J had stated in Re London and Globe Finance Corp [1903] 1 Ch 728 that to deceive was to induce a man to believe that a thing was true which was false, and which the person practising the deceit knew or believed to be false[14].

43.  As held by the Court of Appeal in HKSAR v Cheung Chi Fai [2011] 3 HKLRD 193, deceit involves false representations.  While a representation can be made through omission, for a concealment of facts to be transformed into a false representation, the precondition is that the concealing party has a duty to disclose the relevant facts to the party from whom the facts are concealed.  In other words, unless the parties have a special relationship or are bound by contract of a special nature so that the concealing party has the duty to disclose to the other party the facts, otherwise, the concealment of those facts would not be transformed into false representation[15].

44.  Mr Yu pointed out that firstly what was not disputed was that it was P which approached D through the introduction of CRM, and D was asked by CRM to assist P as its importer on an urgent basis.  It was further pointed out by Mr Yu that P did not claim that D made any false representation to P to induce it to enter into the Purchase Contract.

45.  Secondly, Mr Yu argued that even if it could be said that the entering into of the Purchase Contract in July 2013 constituted an implied representation that D intended to complete the contract, that representation was neither false nor deceitful.  Mr Yu had submitted that :-

(i) the relevant time when the deceitful intention not to perform the Purchase Contract must be formed was the time when the Purchase Contract was executed, namely in July 2013, as payment of the RMB Purchase Price by the end buyer under the back-to-back arrangements would be out of the control of P and D after the Purchase Contract was formed.

(ii) Further, if D failed to pay P, it would be a breach of the Purchase Contract, and in that capacity, D had beneficial receipt of the Purchase Price and could freely use the funds in its course of business.  Mr Yu further pointed out that the only claim in this action was a claim in debt, and not, for instance, a claim in trust, and that D had no duty to disclose any fact to P.

(iii) After the Purchase Contract was executed, D had taken steps to perform the contract by minimizing the tax liability of P and/or its related companies, and seeking to negotiate the best quote from its service provider, and such actions were completely unnecessary if D had a preconceived plan to siphon away the money.

(iv) There was a delay of about 3-4 months between the forming of the contract and the actual payment by the end buyer, and that the HSBC Documents, which showed what D did with the money months after the time the implied representation was made, did not throw light on the question as to D’s intention when it entered into the Purchase Contract.

46.  Thirdly, Mr Yu submitted that there was no direct evidence to suggest that D or Mr Hu owned or controlled any of the recipients of the funds allegedly dissipated by D.

47.  Fourthly, Mr Yu pointed out that D had not gone into hiding after receiving the Purchase Price.  It had been in contact with CRM until the commencement of the proceedings.  D had also continued to operate its business in Guangzhou ever since the disputes arose, and it had continued to enter into agency agreements with business partners after the disputes with P arose, and further P disclosed an email showing that one of its representatives had visited D’s Shanghai office in or around 20 December 2013 and found a small but apparently operational office.

48.  It was not disputed that D was first approached by Barry Broughton of CRM (“Barry”) on behalf of P on 24 July 2013 seeking urgent assistance.  From the 1^st chain of emails (“1^st Chain”), which was produced by Ms Lin in her 2^nd affirmation, it can be seen that after receiving the email from CRM, on 25 July 2013, “Kary” of D’s office then   sent an email out to seek a quotation[16], and on 26 July 2013, Kary replied to Barry who in turn replied to ask D to confirm that P could get the tax back.  Then, a “Betsy” of D’s office replied on the same day explaining the VAT payable to the PRC customs and how P would get back this tax, and setting out D’s commission fee of 3% of the cargo value[17].

49.  The 1^st Chain of emails led to the signing of the Purchase Contract on 27 July 2013 by a “Betsy Lin” on behalf of D. 

50.  The next chain of emails produced by Ms Lin was those between Mr Hu and Barry from 3-6 September 2013[18] (“2^nd Chain”).  In the 1^st email of 3 September 9:47, Mr Hu had explained the reason using D to pay back to P was that D needed to pay back the VAT to P and he set out the “selling routing” which Mr Hu said was recorded in the PRC Tax Bureau System was as follows:

(i) P (referred to as AWT UK) sells to D (referred to as WBC)

(ii) D sells to GGW (referred to as GDW)

(iii) GGW sells to Anite PRC (referred to as AWT BJS )

(iv) Anite PRC sells to the end buyer ( referred to as APO

51.  In the email, Mr Hu had asked Barry to confirm the “payment routing”, namely :

(i) The end buyer pays whole amount with VAT to Anite PRC

(ii) Anite PRC pays GGW

(iii) GGW pays D

(iv) D pays P with the FIRST VAT

52.  Mr Hu further said in this email that once Barry had confirmed the “payment routing”, they would issue the VAT invoice immediately.

53.  The next email in the 2^nd Chain was one sent by Barry on 6 September 2013 15:40:27, asking Mr Hu to confirm if the matter had been resolved.  Mr Hu replied on the same day to say there was no problem, and but it appeared from his email that he had not yet issued the VAT invoice to Anite PRC, which he said he would be doing, and that when the payment arrived in the account of GGW, P would get their payment within 4 days.

54.  The 2^nd Chain of emails indicated that D was seeking confirmation of the “payment routing” in early September 2013 and further that the funds would be paid to D before D was to pay to P, before he would send the VAT invoice, and it also indicated that Mr Hu had himself said that P would get their payment within 4 days after the funds were received by GGW.

55.  The next chain of emails was from 15-23 November 2013[19] (“3^rd Chain”).  Barry sent an email to Kary on 15 November 2013 copied to Mr Hu, asking when the money would be repaid to CRM so that they could reimburse P.  Kary replied on 18 November 2013to say that GGW had not yet received the money, and reiterating that D would pay back the money in 4 days after D got it.

56.  Barry was not satisfied with this response and pressed again, asking when was the money going to be received, pointing out that it was 4 months old by then, and later he sent a further email to Kary indicating that P was expecting funds to arrive in their account the latest end of November 2013, and asked Kary to be more definitive and to revert with the time frames by return.

57.  On 19 November 2013, Kary replied to say that Anite PRC said they would pay GGW before end of the month, and then D would pay to CRM “in 4 days after we get the payment”.  Barry was insistent, and asked again for time frames.  Kary replied to say that Anite PRC did not tell them the exact date when they could get payment, only that by end of the month, and D could only tell Barry that they would transfer the payment in four working days after they got the payment, and went to say “If we receive the payment on Nov 29^th, payment will be made to you before December 6^th[20]”.  This was followed by another email later from Kary on 21 November 2013to Barry, saying that the end buyer would pay Anite PRC on 13 December instead of the end of November, and so GGW could only receive the payment on or after 13 December, and after that GGW would pay to CRM in four working days[21].  She further added that GGW was chasing the payment, and keeping a very close eye on this matter.

58.  What Kary said about the end buyer paying to Anite PRC on 13 December 2013 was not correct.  From the emails produced by P, it can be seen that the end purchaser credited a sum of RMB 15,864,197.76 into the bank account of Anite PRC on 28 November 2013, and this was followed by P’s email on 29 November 2013 to Barry providing to him P’s USD account details as Barry would be expecting to transfer the funds to P shortly thereafter.  P authorized Anite PRC to transfer the funds to GGW, and that the amounts totaling RMB 14,277,777.89 were then transferred by Anite PRC into the bank account of GGW on 3 December 2013[22]. 

59.  Further, from a copy of a debit confirmation of outward remittance, it can be seen that a sum of US $ 1,960,262.75 was debited from GGW’s bank account at Bank of China, Guangzhou, on 5 December 2013 for remittance into D’s HSBC Account[23].

60.  When no payments were received by Barry, he sent an email to “Betsy” cc to Mr Hu on 11 December 2013.  There was a reply email  sent by a “Betsy” on behalf of D on 11 December 2013, 09:39 to Barry confirming that GGW had received the money and that GGW had handed in the remittance application to the bank a week ago, but because it was a “huge payment”, the bank only accepted the remittance application on 11 December 2013, a Wednesday, and that D would get the bank receipt from GGW on either Thursday or Friday, and that D would pay P the following week on Tuesday or Wednesday[24]. 

61.  No payments arrived.  P sent an email to Mr Hu on 18 December 2013 13:17 indicating that the payments should have been received by D and that queries from a James Liu from P’s Shanghai office indicated that Mr Hu had claimed that he did not know the status of the payments and asked P to ask Barry of CRM instead.  In this email, P stated that it expected to receive the payments by latest Friday that week[25].  There was no reply from Mr Hu to this email.  On 19 December 2013 11:36, P sent a further email to Mr Hu indicating that they had not received any reply from him and asking Mr Hu to confirm that P would receive the payments by Friday 20 December 2013[26].

62.  CRM was also contacted by P, and a director of CRM, Matt Smith, replied to P saying he was informed that Mr Hu was travelling and that a “Betsy Lee” was the other person who was aware of the matter and that “Kary” was the one that CRM had been dealing with.  He then forwarded to P a copy of a name card of “Betsy Lee”, stating her to be D’s Overseas Manager, and a copy of a name card of Mr Hu, the President of D.

63.  It is quite clear from the emails on 19 December 2013 between P and CRM that P and CRM were both becoming concerned at that time.  This resulted in Barry sending a further email on 19 December 02:39 to Betsy and also Mr Hu, demanding an answer and the funds by the next day. 

64.  This then brought a rather short response from Mr Hu to Barry on 19 December 2013 05:39 (“1^st Email”) stating as follows:

“Now the capital of Hong Kong WBC is very tight and we are waiting for a huge payment. Hong Kong WBC will remit the payment to you once got this payment[27].”

65.  Matt Smith of CRM sent an immediate reply to Mr Hu requesting to clarify exactly where the payment was so that they could inform P, and was asking him why there was the delay, and further why the contact telephone numbers on Mr Hu’s business cards would not connect[28].  This brought about a further email from Mr Hu on 19 December 2013 11:09 (“2^nd “Email”) claiming that he was on business abroad and that it was not convenient for him to answer calls and “maybe” he could not reply to emails on time.  H said D was in hard position and that its account did not have any capital, but D was waiting for a “huge payment”, and “maybe it will take 1-2 months”, and that once they received the payment, they would pay CRM immediately. 

66.  Anyway, by 20 December 2013, Matt Smith had sent an email to P indicating that the situation did not look good.  Further, on 23 December 2013 Matt Smith sent an email to P reporting that he had received a text message from apparently Betsy Lee who said she left D at end of April 2013, and did not know anything after that and that D had used “Betsy” to send emails but she was innocent[29].  This resulted in Matt Smith sending a strong email to Mr Hu on 23 December 2013 22:35, stating that he and D had given CRM “false information”, as Betsy Lee left the company in April 2013.

67.  This did prompt a reply from Mr Hu on 24 December 2013 05:10 (“3^rd Email”), claiming that he was still on business trip and that he had less access to reach Matt.  Mr Hu admitted that the previous Betsy (Lee) had left D, but to make it more convenient for their overseas contact, they still kept the same name for the “new person”, and further, it was the same situation with Kary, namely the current Kary was not the same Kary a year ago[30].  Mr Hu reiterated in this email that D’s management was in very hard position, and they were trying their best to get back money to pay CRM and they were waiting for a “huge payment” from their client, and once they get it, they would pay CRM “maybe” 1-2 months’ time.

68.  By 24 December 2013, P had also learnt from Bank of China Guangzhou Liwan Branch that the funds had been transferred to D by GGW and had already reached D’s HSBC Account on 5 December 2013[31].   This then led to P applying for the Mareva Injunction, and issuing the writ.

69.  On 8 January 2014 Mr Hu sent the following email to Barry (“4^th Email”), stating:

“Barry, we have told you before that we are waiting for a huge payment from our client, after we get it, we will pay you, but now you have settled this problem in law suddenly, let law solve everything, we will keep silent from now on[32].”

70.  The 4^th Email was P’s last communication from Mr Hu.

71.  From the HSBC Documents, it can be seen that after receipt of a total of US $1,968,229.81 from GGW, within a matter of 7 days between 5-11 December 2013, D had made transfers of a total of US$ 1,968,000 out of the HSBC Account to a total of 4 companies, including 2 companies which are referred to as DT(HK)CL, and UIL.  Then an amount of US $5,000 was transferred out of the HSBC Account on 19 December 2013, leaving only about US$ 2,000 remaining in the USD Savings Account of the HSBC Account.

72.  Ms Troughton in her 2^nd affirmation had set out results of company searches of the 4 companies.  There was no registration record found in relation to 2 of the companies.  DT(HK)CL was a company incorporated in Hong Kong on 4 January 2013 and its director was a HAI Lei, who according to Ms Troughton, had previously/has held directorship in a company Dragon Sky Logistics (China) Company Ltd (“DSL”) and also D.  UIL was a company incorporated in Hong Kong on 19 July 2013 and its director was one HU Ling[33].

73.  Thus, both DT(HK)CL and UIL were only incorporated earlier the same year of D entering into the Purchase Contract with P, with UIL only incorporated shortly before the Purchase Contract.

74.  Although there was no direct evidence to suggest D and/or Mr Hu owned or controlled any of the recipients of the funds, the information from the company searches would suggest that Mr Hu could be connected to at least some of the recipients.  Mr Hu was in fact registered as a director and a shareholder of DSL as at 12 October 2013[34].  DSL was the company to which the final sum of US $5,000 was transferred out from the HSBC Account on 19 December 2013.

75.  There was no reply from D or Mr Hu in relation to P’s suggestion that Mr Hu could be connected to at least some of the recipients.

76.  D claimed that after the flurry of legal activity in January 2014, it heard nothing further from P in these proceedings until 12 August 2014 when it was notified of the Release Summons[35] .

77.  D further claimed it was taken by surprise by the Release Summons which indicated P’s intention to procure criminal investigations and prosecutions against D, and it instructed Messrs Deacons to act after receiving the papers.

78.  Messrs Deacons filed a notice to act for D on 29 August 2014 and on the same day, D served its notice of intention to oppose these proceedings and a notice to act.  No statement of claim had been filed by P since.

79.  As mentioned earlier, Mr Yu’s main argument was that there was no direct evidence that D had a preconceived plan to siphon away the money at the time of entering into the Purchase Contract.

80.  However, as pointed out by Mr Man, P does not have to demonstrate that the crime has been proved beyond reasonable doubt.

81.  What is clear from the above emails is that in early September 2013, Mr Hu had indicated that P would be paid within 4 days of receipt by P of the funds and Mr Hu had asked P to confirm the “payment routing” and he was making sure of the payments would be made to and through GGW and D before D would issue the VAT Invoice.  There was no indication by Mr Hu at this stage that there would be any problems in D paying P. 

82.  Then the 3^rd Chain of emails again reiterated that all payments would be made to P by D 4 days after D’s receipt. D’s position was maintained by D as late as 21 November 2013, and there was no indication of any problems in paying P.  This led to P authorizing Anite PRC on 28 November 2013 to release and make payments to GGW, which were received by GGW on 3 December 2013 for onward remittance to D. 

83.  As soon as the payments were received by D in its HSBC Account on 5 December 2013, there seemed to be a change of position.

84.  Notwithstanding that the funds had already been received by D on 5 December 2013, yet “Betsy” claimed in her email of 11 December 2013 that it would take a week before funds would be received. Further, this email continued to indicate that payments would be made by D to P within 4 days, or shortly after the receipt.  What was said by “Betsy” in this email was, to say the least, incorrect and misleading.  The payments had been received and D and payments to CRM/P were never made. 

85.  In fact, by 11 December 2014, D had already received the funds for about 6 days, and by then, almost the entire funds had already been withdrawn from HSBC Account by D.  There was no explanation from D or Mr Hu as to why emails were sent to CRM/P on 11 December 2013 said D would pay within 4 days upon receipt. The transfers were carried out by D apparently by “BIB”/ internet banking, notwithstanding Mr Hu saying that he was travelling abroad and was not able to respond to emails “on time”.  It was only on 19 December 2013 that Mr Hu first sent his 1^st Email and 2^nd Email to CRM/P to announce suddenly that D was having liquidity problems and could only pay in maybe 1-2 months upon receipt of a “huge payment” from its client and that it did not have any capital in its account.  By then, even the last US$ 5,000 was being transferred out.

86.  In my view, what the evidence appeared to show was that the emails sent in early December 2013 were misleading and Mr Hu was not responding to emails “on time”, until almost all the funds in the USD Savings Account of the HSBC account had been withdrawn and then he suddenly announced to CRM/P that D had liquidity problems and that had no funds in its account. 

87.  Mr Yu submitted on D’s behalf that there were delays in the end buyer or Anite PRC effecting payment and that D received the payments from GGW when it faced liquidity problems, but if this were indeed the case, then why did D send the emails to keep on saying that it would make payment within 4 days after receipt of funds from GGW.  In fact, there were no emails indicating that D had ever complained about any delay, or that such alleged delay had caused them any prejudice or liquidity problems to D or that during the delay, D had suffered from liquidity problems.  In fact, D had asked for its commission and the VAT to be paid first or upfront, as seen in the email from “Betsy” on 26 July 2013.  In any event, D was merely a conduit whether in the “selling routing” or the “payment routing”.

88.  Further, the HSBC Documents did not really reveal any liquidity problems.  In fact, it only revealed few transactions every month during the those 5 months of statements, the net position of the HSBC Account at end of September 2013 and end of January 2014 was more or less the same, and the only large/unusual USD deposit and large/unusual USD withdrawals were within the 7 days, namely between 5 and 11 December 2013.  There had been no proper explanation as to the transfers of the 8 payments, each a large round sum, totalling US $ 1,973,000 out of the HSBC account within those 7 days.  There was no documentary evidence to support D’s assertion of liquidity problems, and there was no evidence that the recipients of the funds from the HSBC Account were creditors of D.

89.  If indeed as Mr Yu had submitted, that D had entered into the Purchase Contract bona fide, then things changed, or that had there been a genuine or honest intention on D’s or Mr Hu’s part to perform the Purchase Contract and to pay P upon receipt of the funds, one would expect some information from D/Mr Hu, say to explain how things had changed, and information on the amount of the “huge payment”, a timetable on when payment could be made by D, and whether any part payment or payment by instalment was possible, rather than simply saying there would be no further communication.

90.  In summary, what is abundantly clear is that notwithstanding a number of factual affirmations filed on behalf of D:

(i) There was no explanation as to why essentially the whole of the funds were paid out by D within a short time ;

(ii) There was no explanation as to any change of circumstances between the time when the Purchase Contract was entered into at end of July 2013, and when the withdrawals of the funds took place ;

(iii) There was no explanation as to what the “huge payment” that Mr Hu was referring to in his emails and why it was not received by D even now.

91.  It was further submitted by Mr Mak that he had already pointed out in his 1^st skeleton submissions that there was not even an attempt on the part of D to dispel the impression that there was a preconceived plan to lure P into causing money to be paid to D which D had always planned to then siphon away[36].

92.  The situation had remained the same.  There was no sufficient evidence produced by the time of hearing before this court from D to show that he had the intention to perform the contract.  Mr Mak submitted that this was a false representation of intention to perform.

93.  Having considered the emails, and the affirmation evidence, I have come to the view that there is prima facie case of a serious fraud under section 16A of the Theft Ordinance and in my view, the facts of this case are not dissimilar to those in Unicredit Bank.  Further, I accept Mr Man’s submission that even if some of the relevant acts constituting the fraud were committed by D in PRC, the courts in Hong Kong should have jurisdiction over D by virtue of the Criminal Jurisdiction Ordinance, Cap 461.

Whether there is a prima facie case of commission of “Contract Fraud” and/or “Embezzlement” in the PRC

94.  According to Ms Zou’s legal opinion, P may have committed the offence of “Contract Fraud” under Article 224 of the PRC Criminal Law and also the offence of “Embezzlement” under Article 270 of the PRC Criminal Law.

95.  Under Article 224 of the PRC Criminal Law, a person is guilty of “Contract Fraud” if such person, with the intention of illegal possession, obtains by deception assets from another person under one of the 5 stipulated scenarios at the time of execution of the contract, or during the performance of the contract. 

96.  The 5 stipulated scenarios are: (1) signing a contract in the name of a fictitious unit or in the name of another person; (2) using forged, altered or invalidated negotiable instruments or any other false property right certificates as guarantee; (3) having no ability to perform, but performing small value contracts or performing part of a contract with a view to inveigling the opposite party to continue executing and performing the contract; (4) going into hiding after receiving the other party’s goods, payment for goods, cash paid in advance or property for guarantee; or (5) using other methods to fraudulently appropriate the opposite party’s property.[37]

97.  Further, under Article 270 of the PRC Criminal law, a person is guilty of the offence of “Embezzlement” if such person, with an intention of illegal possession, takes over another person’s property entrusted to the former’s custody, or property the other person has forgotten or hidden, and refuses to return the property.  According to Ms Zou, the pre-condition of the office is “to take legal possession of another person’s property”[38]

98.  As submitted by Mr Man, there was no dispute between Ms Zou and Mr Chu as to the existence of the PRC offences, nor was there any suggestion that the PRC authorities had no jurisdiction over these offences.  Their difference was substantially factual, namely whether the facts of the present case could establish the required subjective and objective elements in the two offences.

99.  In so far as the subjective element of “Contract Fraud”, under the PRC law, the requisite intention may be formed before the execution of the contract or during performance of the contract.

100.  Ms Zou had referred to the Judicial Interpretations of 16 November 1995 issued by Shanghai Higher Courts on Article 224 which listed 6 situations constituting the intention of illegal possession, and such included (i) disappearing, evading or leaving without returning, or using other methods to evade civil responsibility, (iv) using the property to repay debts or to set off liabilities (vi) using other means to attempt to cause others to lose possession of property[39].  Ms Zou was of the opinion that these Judicial Interpretations of the Shanghai Courts could be used as a reference for other provinces.

101.  Mr Yu submitted that the objective element of Scenario (4) set out under Article 224 above, namely “going into hiding after receiving the other party’s …payment for goods” was not satisfied.

102.  As mentioned earlier, Mr Yu submitted that D or Mr Hu had not gone into hiding.  Ms Lin had also produced redacted copies of agency agreements D had claimed it entered into on 15 November 2013, 18 July 2014 and 16 December 2014 with foreign companies[40]. 

103.  The full names of these foreign companies in the agency agreements were blanked out. D had only disclosed one bank account in Hong Kong, namely the HSBC Account, with the balance as at 30 January 2014, which had not been used since, and which was D’s only asset in Hong Kong of individual value of HK$20,000 or more.  It was not clear how payments were to be made or profits were to be shared as stated in those alleged agreements.

104.  In any event, as pointed out by Mr Man:

(i) Since December 2013, Mr Hu had refused to speak with P over the phone and was evasive and ambiguous in the responses to P’s repeated demands for payment;

(ii) D/Mr Hu ceased to be contactable since Mr Hu’s last email of 8 January 2014.

105.  As I have said earlier, the information in the email from “Betsy” on 11 December 2013 was incorrect and misleading, and Mr Hu himself only responded to emails from P/CRM on 19 December 2013, after most of the funds had been transferred out of the USD savings account of the HSBC Account.

106.  Mr Yu argued that D had given a reason for its alleged silence after 8 January 2014 in Mr Hu’s last email.  Further, D was facing liquidity issues at the time and therefore did not instruct lawyers to represent it in the proceedings[41].

107.  D’s PRC lawyer Mr Chu had also referred to the National Judicial Examination Guide 2012 in relation to Scenario (4) in Article 224, that the intention of illegal possession had to be in existence at the time when the accused received the property or payment from another, and that the property was received or the payment was made as a result of the deception of the accused.  Mr Chu was of the view if the intention of illegal possession only occurred after the property was received or the payment was made, and if there was only hiding and no falsification of facts, this would not constitute “Contract Fraud”.

108.  Ms Zou disagreed, and she was of the view that as after receipt of the funds on 5 December 2013, within a short period of time the funds were transferred away by D, this would indicate D and/or Mr Hu already had the intention of illegal possession prior to the receipt of the funds.

109.  Ms Zou was further of the view that “Hiding” included moving away from original address, ceasing communication, losing contact, absconding abroad.  Mr Hu’s last email indicated a refusal to further communicate with P, and in her view was “Hiding”, which would fall within Scenario (4).

110.  The evidence clearly showed that D/Mr Hu had gone incommunicado, in so far as P was concerned, and Mr Hu’s email of 8 January 2014 indicated he was clearly aware of legal proceedings having been instituted by P and the Mareva Injunction, and yet he seemed to ignore the proceedings and failed to comply with the disclosure obligations in the Mareva Injunction even though D was served.

111.  Whether because of liquidity problems D did not instruct lawyers or not, there was nothing to stop Mr Hu to contact CRM/P direct had he intended to.  Further, by instructing its present solicitors, it would appear that D’s alleged liquidity problems had alleviated, but up until now, there had been no attempts to make any payments to P, even though D claimed it was still carrying out business and entering into various contracts.  It was not clear what D’s defence would be. 

112.  Having considered the above, I have come to the view that there is prima facie evidence that D and/or Mr Hu has committed a “Contract Fraud” under Article 224 under the PRC Criminal Law.

113.  As for “Embezzlement”, Ms Zou was of the opinion that arguably the PRC court could form the view that D was P’s agent and this could meet the pre-condition that D was in legal possession of property belonging to another, under Article 270.

114.  D disputed the agency argument. However, as mentioned earlier, D was only a conduit in the “selling routing” or the “payment routing” and D’s fee was only a commission of 3% of the cargo value.  D was not the ultimate purchaser of the Goods.  I accept Mr Man’s submission that, Ms Zou may have a point when one looks at the reality of the situation.

115.  In any event, it is my view that there is also a prima facie case that arguably D and/or Mr Hu may have committed the offence of “Embezzlement” under the PRC Criminal law.

Whether PSI of the HSBC Documents could be claimed by D

116.  It was D’s case that the HSBC Documents would place D at an unfair disadvantage.  D asserted PSI.

117.  Mr Yu referred the court to Waterhouse v Barker [1924] 2 KB 759 and submitted that PSI is a recognised ground of objection for the production of documents by banks under s 21 of the Evidence Ordinance[42], and that it is a fundamental right.  Bankes LJ and Atkins LJ, the majority, held in Waterhouse v Barker, discovery of a litigants’ banker’s books should be put on the same footing as discovery of documents in the litigant’s own possession.[43]

118.  Although the Hong Kong authorities did not cast doubt on what was said in Waterhouse v Barker, as pointed out by Mr Mak, the Court in Waterhouse did not consider the “independent existence” issue.  Mr Man referred the court to C plc v P [2008] Ch 1.  The facts of the case are briefly as follows:-

(1) The plaintiff obtained a search order of the defendant’s premises in proceedings for breach of confidence and copyright infringement.

(2) The defendant, having taken advice before the search commenced, made clear that he was asserting privilege against self-incrimination in relation to matters recovered on the search. Subject to that, he permitted access.

(3) The defendant thus permitted seizure of the computer into the custody of an independent computer expert, who was a retired police officer.

(4) Upon discovering offending material in the computer, the expert sought directions as to what should be done with the offending material. The issue is whether the material could be handed over to the police.

119.  The majority of the Court of Appeal (Longmore LJ and Sir Martin Nourse) held that[44]:-

(i) There is a well-established distinction between admissions obtained in breach of a defendant’s right to remain silent and material which is obtained by the use of compulsory powers but which has an existence independent of the will of the defendant.

(ii) In other words, whilst compelled testimony would be covered by the privilege, evidence that existed independently of the compelled testimony would not.

(iii) Accordingly, although the offending material was disclosed to the computer expert by virtue of the compulsory search order, there was no privilege in the material itself since it existed independently of the order.

120.  Mr Yu, however, had referred to the dissenting judgment of Lawrence Collins LJ, who concurred with the other 2 Lord Justices that the appeal should be dismissed, but did not think it was then necessary to rule on the wider question whether it was open to the court to find as a general rule that there was no privilege in respect of what had been described as pre-existing or independent material. He, however, accepted that there was a powerful case in policy terms for there being no privilege with respect to disclosure of freestanding documents or other material not brought into existence under compulsion[45].  In hesitating to distinguish all three of the earlier decisions of the House of Lords, he also made a point that it had been emphasized that inroads into the privilege would be primarily matters for Parliament.

121.  In the Court of Appeal decision of Secretary of Justice v FTCW and others[2014] HKCA 6, [2014] 1 HKLRD 849, [2014] 2 HKC 132, CACV101/2013, 10 January 2014, one of the sub-issues which the Court of Appeal had to consider under the issue of whether PSI was capable of being engaged was whether the documents could be regarded as materials which had an existence independent of the will of the husband and his father in respect of which no PSI could be claimed.

122.  Lam VP gave the leading judgment and he had referred to C plc v P, and that independent evidence was held by Peter Smith J at first instance to mean “evidence that came into existence independently of (and usually prior to) any compulsory questioning of the defendant or any application of the court’s compulsory discovery process”[46].

123.  Lam VP then referred to the principle as set out by Ribeiro PJ in HKSAR v Lee Ming Tee [2001] 1 HKLRD 599 at p 641:

“In evaluating this balance, it is important to bear in mind that the purpose of the privilege is to respect the will of the accused to remain silent, thereby ensuring that the accused is not compelled to provide proof of his or her guilt. The privilege has no application to provide evidence which exists independently of the will of the accused. This proposition was expressly recognized in Saunders v United Kingdom(1996) 23 EHRR 313 at para 69. Indeed, in my judgment, there is much to be said for the general proposition that there is no inherent unfairness in establishing a person’s guilt by the use of reliable objective evidence obtained from an independent source, even if the acquisition of that evidence was facilitated by clues contained in the excluded admissions …[47]”

124.  Lam VP had also referred to Koon Wing Yee v Insider Dealing Tribunal [2008] 3 HKLRD 372[48].

125.  Although it had been submitted by Counsel for the husband and his father in Secretary of Justice v FTCW that the above principle had been subject to doubt in England, the Court of Appeal did not consider it necessary to review the soundness of this principle at length in their judgment as they were of the view that they were bound by the judgments of the Court of Final Appeal.

126.  Mr Yu tried to argue that what was said by the Court of Final Appeal in Lee Ming Tee, and also in Koon Wing Yee, were in fact obiter.

127.  Mr Mak had also referred the court to a more recent judgment in England JSC BTA Bank v Ablyazov [2014] EWHC 2788 (Comm).  Popplewell J summarised the principles as follows[49]:-

“… In my view, it has been established by the authorities that the privilege against self-incrimination does not extend to provide a person with protection against the risk of incriminating himself by the provision of a document or documents which come into existence independently of any order, statute or other instrument of law which compelled their production. It does not normally cover documents other than those which come into existence by an exercise of will pursuant to a testimonial obligation imposed upon the party.”

128.  Mr Mak submitted that as the HSBC Documents had an existence independently of the Disclosure Order compelling their production, they were/are not subject to PSI.  Having considered the cases, I am of the view that the Hong Kong authorities are quite clear on this issue and I accept Mr Mak’s submission.

129.  Mr Mak submitted that, in the event that this court were to come to the view that the HSBC Documents were subject to PSI, the PSI had been lost.

130.  There was voluntary disclosure by HSBC, and no PSI was asserted before such disclosure.  D said it had failed to take the point of PSI before disclosure by HSBC because D did not know that it could claim PSI before HSBC’s disclosure.

131.  Mr Man referred this court to O Ltd v Z [2005] EWHC 238 (Ch), where Lindsay J held that a person would lose his PSI if he was not heard to have claimed it before producing the incriminating documents, whether or not he knew of the privilege.

132.  Mr Yu, on the other hand, submitted that the cornerstone of waiver was that of voluntary disclosure and that the ratio of O Ltd v Z was that if a witness gave an answer tending to incriminate him, the answers would be deemed as voluntary even if he did not know his legal right to claim privilege[50].  In other words, this is an objective test which does not pay regard to a person’s awareness of his right to claim privilege, and that it is a fortiori to such principle that there needs to be an intentional and voluntary act on the part of the person claiming privilege before his act could be construed as voluntary disclosure.  Mr Yu referred the court to Smith v Granada [2007] FMCA 263, where it was held that waiver would require the performance of a “distinct act” inconsistent with the privilege, and an “intentional act” with knowledge[51]. 

133.  Mr Yu also referred the court to Inspector Carmody v Tsougranis [2002] NSWIR Comm 282 where the court cited a decision of Kirby P who held that “The privilege against self-incrimination may be waived in certain circumstances….  The presence of a privileged document in the hands of a third party does not necessarily destroy the privilege”[52].  After considering conflicting authority as to whether a failure to claim privilege amounts to waiver, the judge held that the issue was whether the witness “knowingly and voluntarily disclosed the substance of the evidence” or “voluntarily testif[ied]”[53].

134.  Mr Yu submitted that the requirement of a voluntary and intentional act on the part of the person claiming privilege would be consistent with O Ltd v Z, where Lindsay J held that a party was taken to have lost PSI if he was not heard to claim it before he “answers the questions or produces the documents” in issue, and that the PSI was lost by way of an “objective look at Z’s behaviour; he handed the offensive material to the third party without claiming the privilege”[54].

135.  Turning to the present case, Mr Yu submitted that it could not be said that D had committed a voluntary and intentional act in producing the HSBC Documents so as to destroy the privilege.  P sought discovery of bankers’ books from HSBC.  It was HSBC that produced the documents to P.  It did not appear to D that it was required to attend the hearing or otherwise make submissions.  D had done nothing to destroy the privilege, and that it was not too late to claim PSI after P had seen the HSBC Documents.

136.  Mr Yu further submitted that O Ltd v Z does not stand for the proposition that PSI is lost simply because an opponent has seen the document (eg by a third party’s disclosure of documents belonging to D without D’s voluntary consent).  It stands for the proposition that a person’s voluntary act of disclosure, regardless of one’s awareness of his right to claim privilege, destroys the privilege.  Mr Yu referred to Secretary for Justice v FTCW, where the Court of Final Appeal had held (in the context of legal professional privilege) that privileged material is “unless waived, ‘once privileged, always privileged’”.

137.  Mr Man, however, submitted that the above dictum of Ribeiro PJ was made in the completely different context of legal professional privilege, which unlike PSI, is absolute and involves totally different considerations[55].

138.  Mr Man submitted that the critical question was whether D had asserted PSI before the evidence was supplied, and referred to Hollander: Documentary Evidence, 12 Ed, 2015[56], and that this was a different issue from waiver, of, say legal professional privilege by voluntary disclosure[57].

139.  As submitted by Mr Man, HSBC as agent of D was served with the summons seeking the Disclosure Order.  D was also served, and D did not object at the hearing of the summons.  As said in O Ltd v Z, the privilege can be lost simply by reason of its not being claimed.  It was further said that at common law if the witness had not claimed the privilege (and presumably the judge had not wanted the witness of his right), the witness had no alternative but to suffer the consequences, and no retrospectively of protection was available[58].

140.  In the case, it was held that in the events which happened, Z had already lost the PSI before he first claimed it and his late claim conferred no retrospective protection[59].

141.  In my view, in the present case, by D not objecting or claiming PSI prior to the Disclosure Order being made, PSI, if any, has already been lost.

142.  Mr Man had also relied on the Court of Appeal decision in  Secretary for Justice v FTCW [2014] 1 HKLRD 849 to submit that even if D were to succeed on its claim of PSI, this could not bar P from using the HSBC Documents for the sole purpose of disclosure to the investigating authorities.  It is said that PSI only bars the investigating authorities from using the material as direct evidence against D in criminal proceedings, but does not debar them from using the material derivatively for the purposes of investigation[60].

143.  Mr Yu, however, submitted that the permissibility of derivative use, also known as the Warickshall principle would only apply when a prosecutorial authority had already obtained the relevant documents[61] or when they were applying directly to the court for documents in its custody under its inherent jurisdiction[62].  Mr Yu argued that whether derivative use is permissible is irrelevant to the question as to whether a private party should be released from his collateral undertakings, as it is implicit from the Court of Appeal’s separate treatment of the power under its inherent jurisdiction to grant access to the DPP on his application (where the issue of derivative use was relevant) and the wife’s own application to be released from the implied undertaking (where the issue of derivative use was not discussed).  

144.  Mr Yu further submitted that what was said by the Court of Appeal in FTCW on derivative use were obiter, given that it was held that the documents sought to be inspected by the DPP were conduct comprising in the acts of perjury and forgery and conspiracy to pervert the course of justice that this was sufficient to dispose of the reliance on PSI[63].

145.  However, as pointed out by Mr Man, Lam VP had said in paragraph 145 of his judgment that once the documents were in the hands of the police, it would be permissible for them to make derivative use of the same irrespective of the admissibility of the same at the criminal trial, and the Court of Appeal had said they were bound by Lee Ming Tee in this respect[64].  The subsequent decision of the Court of Final Appeal did not affect paragraph 145.

146.  In any event, I accept that what was said by Lam VP was against Mr Yu’s argument and I am bound by Lee Ming Tee.

147.  There was also an issue as to whether D, as a company, can ever claim PSI.  In light of my views above, it is not necessary for me to consider this issue.

Exercise of discretion 

148.  Mr Yu argued that the restrictions on P’s disclosure of the HSBC Documents would in no way disable it from making a report to the relevant authorities, and that the only relevance of the HSBC Documents to the reporting, investigation and prosecution of the alleged crime would be to show that the funds were completely dissipated within two weeks of receipt by D, which was alleged by P to be consistent with a preconceived plan to lure P into causing payment to be made to D.  But, as Mr Hu had frankly admitted in an email two weeks after the receipt of funds that no funds were sitting in D’s account, the HSBC Documents would not really be needed.

149.  Thus, Mr Yu argued that based on the information P had, P could have made a report to the relevant authorities.  If those authorities indicated interest in the HSBC Documents, they would have sought disclosure of the same from HSBC or D upon the commencement of the investigations.  The police could also have made a request to the Court, as was done in Secretary for Justice v FTCW and Marlwood, in which case the Court would readily hold that the public interest in investigating a crime takes precedence over its concern over the use of confidential documents obtained by compulsion.

150.  Mr Yu also submitted that the HSBC Documents were not relevant to tracing the funds or the alleged fraudsters. P had no proprietary claim over the funds and it had not suggested that it had no knowledge of the identity of the culprits.  This was in contradistinction with Unicredit, where one of the claims was for a constructive trust and it was held that further “tracing of the fraudsters would be something beyond the power of the Court without the assistance of the police”.

151.  Further, Mr Yu pointed out that the alleged crime occurred in late 2013.  If a report had already been made, it would be clear that prosecution was remote and the HSBC Documents would add little to what P should have already provided to the police.  More than a year had passed and there had been no indication of any interest in or request by the prosecutorial authorities to obtain the HSBC Documents.  In the premises, no public interest could be said to be involved here by the release of the implied undertaking.  On the other hand, if a report had not been made, P’s alleged intention to report the relevant matters to the authorities would be undermined by its inaction so far.  Mr Yu thus argued that the Release Summons would be premature, as it could well be that the prosecuting authorities would refuse to investigate despite being aware of the matters.

152.  It was also D’s case that the P issued the Release Summons for tactical purposes to pressurize D to pay.  Mr Yu also referred to Cobra Golf and Yang Foo Oi v Wai where the court would not generally release an implied undertaking for a party to start satellite criminal proceedings abroad, and the court should be wary of doing anything in this country which could subject the disclosing party to an unfair disadvantage in the foreign proceedings.

153.  Having considered the HSBC Documents, although P referred mainly to the withdrawals between 5-19 December 2013, what was telling was, as I have mentioned earlier, during the 5 months September 2013 to January 2014, apart from December 2013, there were comparatively few transactions.  Most of the transactions were of less than US $10,000 save for one.  There was a net balance in each of those months.  As mentioned earlier, there was no evidence of any liquidity problems.  The month of December 2013 stood out, being an extraordinary month, compared to the others, with those 8 transactions between 5-11 December 2013, each of US$ 100,000-US$ 500,000 being withdrawn in rapid succession.  

154.  I am of the view that the HSBC Documents are important evidence which can show how the HSBC Account was operated.  They also showed the names of the beneficiaries to which the funds had been transferred and how they were transferred, and also showed that Mr Hu was connected with one of the recipients.  They can certainly assist in tracing the funds. 

155.  Although there was no allegation of fraud in the writ, when property was obtained by fraud, equity would impose a constructive trust on the fraudulent recipient and the property would be recoverable and traceable in equity[65]. 

156.  P had explained that it had not yet filed a statement of claim as P had repeatedly sought confirmation from D that it would consent to P using the HSBC Documents in the civil claim against D and Mr Hu, but such consent had not been forthcoming, and hence the civil claim was put on hold pending the Release Summons.  I do not see sufficient evidence that the Release Summons was brought for tactical purposes.  There was a period of about 6 months between the provision of the HSBC Documents and the issue of the Release Summons.  I do not see that as a long period of inactivity.

157.  As for Mr Yu’s submission that use of the HSBC Documents would place D at an unfair advantage, and further the alleged dissipation of funds was more prejudicial and harmful to D and Mr Hu’s reputation than it would be probative, when there were no merits of the criminal case against D and Mr Hu.

158.  However, as pointed out by Mr Man, the main thrust of D’s case was that there was no prima facie case of fraud, and that the HSBC Documents would not further any investigation of fraud.  If D is right, then there would not be any prejudice to D, and if D is wrong, I do not see why there would be prejudice.

159.  As earlier mentioned, I am of the view that there is a prima facie case of a serious fraud in Hong Kong, also a prima facie case of “contract fraud” and “embezzlement” in PRC.  There is public interest in investigation of a serious fraud.  The funds have remained unpaid, and there has not been satisfactory explanation for the non-payment.

160.  Having considered all the above, I am satisfied that P had demonstrated cogent and persuasive reasons why it should be released from its implied/express undertakings, and there are special circumstances in the present case.  I am also of the view that the release of P from its undertakings will not occasion injustice to D, or any unfair advantage.  I exercise my discretion and order release of the HSBC Documents and grant an order in terms of the revised draft order attached to the letter of 5 August 2015 of P’s solicitors’ letter.

Order

161.  My order is thus as follows:

“1. The Plaintiff be granted leave to supply the documents and information obtained from the HongKong and Shanghai Banking Corporation (“HSBC”) (the “HSBC Documents”) under the Order made by The Honourable Justice To on 15 January 2014 under section 21 of Evidence Ordinance (Cap 8) (the “Disclosure Order”) to the Hong Kong police and/or police in the People’s Republic of China, and the Plaintiff’s legal representatives, for the purposes of criminal investigation and prosecution by the Hong Kong police and/or police in the People’s Republic of China;

2. To the extent as stated in paragraph 1 above, the Plaintiff be released from its implied undertaking not to disclose to any person not a party to the present proceedings copies of the HSBC Documents;

3. To the extent as stated in paragraph 1 above, the Plaintiff be released from its express undertaking given to this Honourable Court under an order made by Deputy High Court Judge A Wong on 27 December 2013 that it will  not without the leave of the Court begin proceedings against the Defendant in any other jurisdiction or use information obtained as a result of an order of the Court in this jurisdiction for the purpose of civil or criminal proceedings in any other jurisdiction, insofar as such an express undertaking relates to the HSBC Documents;

4. Subject to paragraph 7 of the Order made by The Honourable Mr Justice Anthony Chan dated 27 February 2015, the costs of this application be to the Plaintiff, to be summarily assessed and paid forthwith.”

162.  The costs order is made on nisi basis, and will be final after 14 days.  Upon being made final, P is to submit its statement of costs within 7 days, D to submit its list of objections within 7 days thereafter, and P to submit its reply, if any, within 7 days thereafter. 

163.  Lastly, I would like to express my gratitude for Counsel’s detailed submissions and assistance to the court.