CHAN SHU CHUN AND ANOTHER v. DR KUNG YAN SUM AND OTHERS

HCA 832/2014

[2023] HKCFI 840

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 832 OF 2014

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J U D G M E N T

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A.  INTRODUCTION

1.  The 1^st Plaintiff (“Mr Chan”) was a director of the 2^nd Plaintiff (“King Base”). King Base issued a cheque for HK$50 million (“Cheque”). The payee’s name was not filled in. Subsequently the name of the 2^nd Defendant (“Hero Fortune”) was filled in as payee and the Cheque was deposited into the bank account of Hero Fortune. Hero Fortune transferred the money to the 4^th Defendant (“the Solicitors”), who then sent the money by 2 cheques of HK$25 million each to the 3^rd Defendant (“the Foundation”) as donations from an anonymous donor.

2.  The Plaintiffs’ case is that the Cheque was issued on the representation of the 1^st Defendant (“Dr Kung”) for investment, with a corresponding investment of HK$50 million from one Song Hui Fong (“Madam Song”). The investment did not proceed. Madam Song signed a Cancellation Agreement on behalf of Hero Fortune, promising to return the HK$50 million in one year. It turned out that the HK$50 million were used to fund the litigation in which the Foundation was involved in. Hero Fortune did not repay the Plaintiffs.

3.  The Plaintiffs thus seek:

(1)  damages for deceit against Dr Kung;

(2)  damages for conspiracy to injure the Plaintiffs by unlawful means against all Defendants; and

(3)  damages against D1-D3 for having converted the Cheque and the proceeds to their own use, alternatively, to the use of the Foundation.

4.  Dr Kung acknowledges that Madam Song was his good friend, but he had not introduced her to Mr Chan. He admits that the Foundation received the HK$50 million. He admits having introduced Madam Song to the Solicitors. He denies the Plaintiffs’ case against him.

5.  Hero Fortune has not filed an acknowledgement of service and has never appeared in the present proceedings. No default judgment has been entered against it.

6.  The Foundation admits that it was a recipient of HK$50 million from the Solicitors as genuine charitable donation but denies the claim against them. They no longer rely on the change of position defence as this is not a proprietary claim.

7.  The Solicitors deny the claim in conspiracy. They say that there was no evidence of combination or agreement between the Solicitors and other alleged co-conspirators outside the mere introduction by Dr Kung of Madam Song as a client. There was also no evidence as to the intention to injure the Plaintiffs. Dr Kung never gave instructions of any kind to the Solicitors and that since the initial referral, Dr Kung had little contact with them. What the Solicitors did was to act in accordance with the instructions of their client, Madam Song / Hero Fortune. The limitation defence is not pursued.

8.  In terms of quantum of loss, the Solicitors challenge whether King Base has suffered any loss. However, there is no dispute among all the parties that in the event liability is established, any award of damages should be to King Base only and the quantum would be HK$50 million.

9.  I have, at the stage of counsel’s opening submissions, raised various issues, in particular, as to the existence of a “common design” and knowledge of individual D2-D4 of the alleged deceit. These issues have not been satisfactorily answered after trial.

B.  FACTUAL BACKGROUND

B1.  The parties

10.  The facts in Section B are based on the parties’ agreement or are supported by indisputable documents, and which I find to be true.

11.  Mr Chan was one of 2 directors and 70% shareholder of King Base. The other shareholder was his employee who held 30% shareholding on Mr Chan’s behalf. Mr Chan has another name known to Dr Kung – Fang Chang Song (方長松) or Xiao Fang (小方).

12.  Mr Chan was and is also the sole shareholder of a BVI company known as Tian Liang Ltd (“Tian Liang”), which in turn was and is the sole shareholder and operator of a PRC company known as Tian Yao (Xiamen) Property Development Ltd (“Tian Yao”). Tian Yao’s business was and is real estate development of a residential project in Xiamen, PRC. Both companies entered into a Tripartite Agreement with Right Margin, a subsidiary of Chinachem Group, on 16 January 2009.

13.  King Base is a Hong Kong company which maintained, at the material time, a bank account with the DBS (Hong Kong) Ltd (“P2’s Bank Account”). The Cheque was drawn on this account.

14.  The Foundation was and is a company limited by guarantee, established by the late Madam Nina Wang and her late husband, Mr Wang Teh Huei, in 1988. The main objects were charitable purposes. In around 2009, the Board of Governors consisted of 5 persons, including Dr Kung and his siblings.

15.  Dr Kung, is the younger brother of the late Madam Nina Wang. He was a director and member of the Board of Governors of the Foundation since 1 April 2007. On 24 September 2010, he was appointed the Chairman of the Board of Governors of the Foundation.

16.  Since 1 February 2010, Dr Kung was also the Chairman of the Executive Committee of the Chinachem Group which comprised of Chinachem Group Corporation Ltd and Chinachem Group Co Ltd. The Chinachem Group consisted of hundreds of subsidiaries, which in turn are held under a parent company called Chime Corporation Ltd.

17.  Mr Hui Yip Wing David (“Mr Hui”) has been the General Manager and CEO of the Chinachem Group since 2009 until November 2012.

18.  Dr Kung has and had a good friend called Madam Song. They were classmates studying medicine in the same university. She was, at the time of the transfers of money, the sole director and shareholder of Hero Fortune.

19.  Hero Fortune is a BVI company which maintained a bank account with DBS, Macao branch (“D2’s Bank Account”). The Cheque was deposited into this bank account.

20.  The Solicitors were and are those of a firm of solicitors practising in Hong Kong. They had acted in various matters for the Chinachem Group for a number of years but they did not have any business relationship with the Foundation. At the material time, Mr Wong Sui Wah, Michael (“Mr Michael Wong”) was a partner of the firm until he retired at about the end of December 2013. He was the partner in charge of the corporate and commercial department of the Solicitors. He acted for Madam Song in the establishment of Hero Fortune and for Hero Fortune in the subject transfer of funds to the Foundation. Michael Wong died in January 2014 from natural cause. At this hearing, Mr Kennedy Wong gave evidence on behalf of the Solicitors.

B2.  The Estate Litigation

21.  The Foundation was the Plaintiff in HCAP 8/2007, a probate action concerning the estate of the late Madam Nina Wang against one Chan Chun Chung (“Estate Litigation”). The Foundation was in need of funds for the Estate Litigation. In February 2009, the Foundation had only about HK$10 million. The first instance trial was coming up in April/May 2009. The Foundation had to raise funds for unpaid legal fees of about HK$30 million and for the new legal team (comprising of 3 senior counsel, 2 junior counsel and a new firm of solicitors).

22.  According to Dr Kung, this litigation was the most important matter to the Kung family. As a governor of the Foundation and brother of Madam Nina Wang, and as known to other governors, he was the person responsible for raising funds to meet the legal costs of Foundation. It was difficult for the Foundation to do so because of the lack of collaterals.

B3.  The fund flow

23.  On 21 January 2009, Mr Chan drew the Cheque without the name of the payee.

24.  The name of Hero Fortune was later typed (by an unidentified person) onto the Cheque as payee on or before 6 February 2009.

25.  On 18 February 2009, Mr Chan signed an Investment MOU (合作投資備忘錄) in duplicate on behalf of King Base.

26.  In or about November or December 2010, Mr Chan signed (i) an undated cancellation of the Investment MOU agreement (撤銷「合作投資備忘錄」協議) (“Cancellation Agreement”); and (ii) an Instruction to Refund (就撤銷「合作投資備忘錄」退款指示), on behalf of King Base.

27.  Mr Chan later received the Cancellation Agreement purportedly signed by Madam Song, in which she promised to repay the HK$50 million to King Base with a year. Over a year had elapsed but no repayment had been made by Madam Song.

28.  By a letter dated 16 July 2012, Mr Chan requested Dr Kung to forward a letter to Madam Song seeking for return of the HK$50 million by 31 July 2012. There was no reply from Dr Kung and/or Madam Song. Dr Kung confined in the witness box that he had never forwarded this letter.

29.  On 16 October 2012, King Base instructed its former solicitors, Gall, to write to Dr Kung to see if he had delivered the 16 July 2012 letter to Madam Song and to provide King Base with the contact details of Hero Fortune. Again, there was no reply to this letter.

B4.  Discovery of the money trail

30.  In separate third party discovery proceedings, King Base, under HCMP 1949/2013, obtained an order from the Court for disclosure of D2’s Bank Account with DBS.

31.  It transpired that the HK$50 million was deposited into Hero Fortune’s Bank Account on 6 February 2009, which was then transferred to the Solicitors’ Bank Account on 9 February 2009 on the instructions of Hero Fortune.

32.  On 10 February 2009, Madam Song gave instruction (for and on behalf of Hero Fortune) that the HK$50 million be transferred to the Solicitor’ Bank Account. She also indicated that the HK$50 million should be donated to the Foundation unconditionally because there were no suitable investment projects.

33.  By two written instructions signed by Madam Song (for and on behalf of Hero Fortune) dated 10 and 13 February 2009 respectively, Madam Song further confirmed that the HK$50 million would be donated to the Foundation unconditionally and that it was not necessary for the Foundation to repay any part to her or to give her any return.

34.  By 2 cheques dated 12 and 16 February 2009, respectively, drawn on the Solicitor’ Bank Account, two sums of HK$25 million each were paid to the Foundation. The cover letters from the Solicitors stated the sums were donations “in support of [the Foundation’s] defence in [HCAP 8 of 2007] without any condition or expected return on the said donation”.

35.  Almost immediately, the Foundation paid the sums over to Wilkinson & Grist to settle the outstanding fees of the Foundation and as costs on account for the Estate Litigation, as evidenced by 2 letters from the Foundation to Wilkinson & Grist dated 12 and 17 February 2009 enclosing 2 cheques, each for HK$25 million.

36.  There were 4 other transfers by cheques from the Solicitors’ Account to the Foundation as donations in support of the defence to the appeal or the action in the Estate Litigation. The money had its source from Madam Song but those transfers were not related to the present case:

30.03.2010    HK$15,000,000

23.06.2010    HK$14,000,000

20.07.2010    HK$ 7,000,000

14.12.2010    HK$18,950,000

37.  The first instance judgment in the Estate Litigation was granted in favour of the Foundation on 2 February 2010 by Lam J (as he then was). The Cancellation Agreement and Instruction to Refund were executed about 9-10 months after that judgment.

38.  Having heard that Chinachem might be investigated for suspected money laundering, and that Mr Kennedy Wong and Mr Michael Wong were mentioned in connection with it, the Solicitors (through the two Mr Wongs) sent a report to the Joint Financial Intelligence Unit dated 1 March 2011 (“JFIU Report”) asserting the Solicitors’ innocence.

C.  CASE AGAINST EACH DEFENDANT

39.  The case against Dr Kung is under the tort of deceit, conspiracy and conversion.

40.  It is the Plaintiffs’ case that as a result of the real estate project in Xiamen, Mr Chan and Dr Kung became very friendly with each other and they shared common interests. To Mr Chan, Dr Kung was a well‑known figure.

41.  On around 20 January 2009, Dr Kung approached Mr Chan and presented to him an investment opportunity in real estate properties, land development and securities in Macao and Hong Kong with Madam Song. Dr Kung proposed that Mr Chan and Madam Song would each invest a sum of HK$50 million, making the aggregate amount of the investment HK$100 million (“Dr Kung’s Representation”).

42.  In reliance of Dr Kung’s Representation and high profile social status, Mr Chan agreed to invest with Madam Song. Mr Chan then drew the Cheque on the following day and had it delivered to Dr Kung, through Mr Hui at the Chinachem Group Office.

43.  The Investment MOU was produced by Dr Kung, on 18 February 2009, to Mr Chan in duplicate, apparently executed by Madam Song on behalf of Hero Fortune. Mr Chan executed it on behalf of King Base in Dr Kung’s presence.

44.  Mr Chan had not heard from Dr Kung or King Base since signing of the Investment MOU. In about November or December 2010, upon enquiry from Mr Chan, Dr Kung informed Mr Chan that Madam Song was minded to cancel the investment and was minded to refund the HK$50 million to Mr Chan within a year. Mr Chan agreed. Dr Kung proposed to travel to Shanghai with Mr Chan to meet Madam Song so that the termination of the Investment MOU could be finalized.

45.  Before travelling to Shanghai, Dr Kung produced the undated Cancellation Agreement and Instruction to Refund, which Mr Chan signed on behalf of King Base, in the presence of Dr Kung.

46.  On 12 January 2011, Dr. Kung travelled to Shanghai together with Mr Chan with intent to introduce Madam Song to Mr Chan and to ask Madam Song to sign the Cancellation Agreement (“Shanghai Trip”). However, Madam Song did not appear in that meeting. The Cancellation Agreement was left with Dr. Kung so that he could ask Madam Song to sign on the same later. After the Shanghai Trip, Dr Kung handed to Mr Chan the Cancellation Agreement in Hong Kong with Madam Song’s signature on it.

47.  It is the Plaintiffs’ case that Dr. Kung’s Representation was false, fraudulent and a sham and the real intent and purpose was to use Hero Fortune as a conduit of receiving the HK$50 million to enable Dr Kung to fund the Estate Litigation.

48.  Further, there was a conspiracy among the 4 Defendants to defraud the Plaintiffs by unlawful means, ie by Dr Kung’s deceit.

49.  The case against Hero Fortune is in conspiracy and conversion. Madam Song never invested the HK$50 million and never had intention to do so. She was allegedly Dr Kung’s nominee.

50.  The case against the Foundation is in conspiracy and conversion. It is alleged that the Foundation had received the money and converted the Cheque to its own use. The claims for breach of statutory duty and breach of duty of care, premised on sections 25 and 25A of the Organized and Serious Crimes Ordinance, Cap 455 (“OSCO Claims”), were abandoned 2 weeks before trial.

51.  The case against the Solicitors is in conspiracy. The Plaintiffs allege that the Solicitors have knowingly and dishonestly assisted in the acquisition of Hero Fortune, the opening and maintenance of D2’s Bank Account, subsequent transfer of the HK$50 million from D2’s Bank Account to the Solicitors’ Bank Account and eventually to the Foundation.

52.  The parties have agreed upon 14 issues, which can be classified into 4 major ones:

(1)  General factual disputes surrounding the making of Dr Kung’s Representation, ie as to whether Dr Kung had made Dr Kung’s Representation, prepared the Investment MOU, Cancellation Agreement and Instruction to Refund for execution; whether Mr Chan had given the Cheque to Dr Kung in reliance of Dr Kung’s Representation; and whether Mr Chan and Dr Kung had travelled together to Shanghai with intent to ask Madam Song to sign on the Cancellation Agreement;

(2)  Whether Dr Kung’s Representation was false;

(3)  Whether there was a conspiracy among the Defendants to injure the Plaintiffs; and

(4)  Whether the Dr Kung, Hero Fortune and the Foundation had converted the Cheque and its proceeds to their or the Foundation’s own use.

53.  The parties have no dispute that (i) any judgment on liability should be entered in favour of King Base but not Mr Chan; and (ii) that the quantum of damages should be HK$50 million for each cause of action.

54.  The Plaintiffs accept that their claim against Dr Kung can stand on its own. However, if they cannot establish a case against Dr Kung, their case against the Foundation and the Solicitors must fail.

D.  GENERAL FACTUAL DISPUTES (SUB-ISSUES 1-8)

D1. General principles on assessing credibility of witnesses

55.  In assessing credibility, the general principles are that contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance. The court should consider the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events. The court should consider the consistency of the witness evidence with undisputed or indisputable evidence, and the internal consistency of the witness’ own oral testimony and his/her witness statement. In cases of fraud, the court should always test the veracity of witness’ evidence by reference to the objective facts proved independently of their testimony, in particular by reference to the documents in the case, and pay particular regard to their motives and to the overall probabilities. These principles are applicable to any case where a witness’ credibility features prominently in the court’s determination. See Hui Cheung Fai v Daiwa Development Ltd, HCA 1734/2009, 8 April 2014, at §§77-80, DHCJ Eugene Fung SC.

56.  Adverse inferences could be drawn by the Court from the failure of a party to adduce contradictory evidence, which he can be expected to provide: Xie Li Xin v Law Ka Yan Thompson [2022] HKCFI 1591, at §10, Wilson Chan J.

57.  The silence of one party in the face of the other party’s evidence may convert that evidence into proof in relation to matters which are, or are likely to be, within the knowledge of the silent party and about which that party could be expected to give evidence. Thus, depending on the circumstances, a prima facie case may become a strong or even an overwhelming case. But, if the silent party’s failure to give evidence (or to give the necessary evidence) can be credibly explained, even if not entirely justified, the effect of his silence in favour of the other party may be either reduced or nullified. See Prest v Petrodel Resources Ltd & Others [2013] 2 AC 415 at §44, Lord Sumption JSC, quoting Lord Lowry in R v Inland Revenue Comrs, Ex P TC Coombs & Co [1991] 2 AC 283 at 300.

D2.  Overview of credibility

58.  The credibility of Mr Chan and Dr Kung is of great importance because the crucial conversations leading to the alleged deceit was between Mr Chan and Dr Kung alone. Evidence of other witnesses is relatively uncontroversial.

59.  Mr Chan’s case is supported by some contemporaneous documents. However, his conduct at the material time, especially in issuing the Cheque without the name of the payee and entering into an Investment MOU without knowing the details of the investor or the proposed investment, was commercially non-sensical or illogical. As demonstrated below, I do not find his evidence credible.

60.  Dr Kung was aged 79 at the time of the trial and the relevant events happened 13 years ago. However, having received HK$50 million as donation for the Estate Litigation could not be regarded as a small matter that would have escaped his memory despite the lapse of time. And yet his evidence was virtually a blank denial until he suddenly admitted in the witness box, for the first time, that he knew that Mr Chan had donated HK$50 million to the Foundation (“the Admission”). He avoided answering many pertinent questions by saying he did not remember.

61.  As shall be demonstrated below, he contradicted himself on a number of occasions (either with his own pleading, witness statement or his earlier answers in the witness box). His answers were as vague as possible, eg he said he had read documents which his lawyers gave to him to read but he would not confirm what documents he had read.

62.  To minimize his association with Mr Chan, Dr Kung even denied being given a name card of Xiao Fang (the name by which Dr Kung initially knew Mr Chan) when they first met. He did not even remember if he had Xiao Fang’s mobile phone number during a period when they were friends in 2008 up to 2011.

63.  Dr Kung had not discussed these serious allegations of deceit and conspiracy with Madam Song or called her as a witness. Nor had he called Mr David Hui as a witness.

64.  I do not find Dr Kung to be credible or reliable. His claimed lack of memory was pretentious. He simply chose to forget important matters when answering them truthfully would be against his interest. The irresistible inference from his failure to call Madam Song or David Hui as witnesses is that he knew they may discredit him.

65.  I now turn to the 8 sub-issues under the 1^st issue.

D3.  Whether Dr Kung made the Dr Kung’s Representation (sub-issue 1)

Whether Mr Chan gave the Cheque to Dr Kung through Mr David Hui at the Chinachem Group Office (sub-issue 2)

Whether Mr Chan gave the Cheque to Dr Kung relying upon the Dr Kung’s Representation and Dr Kung’s high-profile status (sub‑issue 3)

66.  Mr Chan’s case is supported by some contemporaneous documents, ie the Investment MOU, Cancellation Agreement and Instruction to Refund. A copy of the Investment IOU was found in the Solicitors’ file handled by Mr Michael Wong. A copy of her two-way permit and identity documents show that Madam Song was a real person, whom Mr Michael Wong had met. Mr Chan’s case as set out in his demand letter dated 16 July 2012 to Hero Fortune is consistent with the case he now runs. Similarly, the JFIU Report also supports Mr Chan’s case that he had intended to invest with Madam Song and others and that the Cheque was King Base’s share of investment capital.

67.  Mr Chan claimed that he had heard people address Dr Kung as “Chairman”, although he was only appointed as such in 2010. That was not challenged in the evidence. In any case, whether Dr Kung was a Chairman or not, his high-profile status was already reflected in his role in the Chinachem Group and the Foundation and it was not surprising that Mr Chan relied on that status.

68.  However, the circumstances pertaining to the issue of the Cheque were illogical and lacked commercial sense.

69.  Firstly, Mr Chan and Dr Kung did not have a long-term business relationship. They had only met about 5-6 times and had only had one project, ie the Tripartite Agreement, before the alleged investment proposal was made by Dr Kung.

70.  Secondly, Mr Chan did not even know Madam Song, but he explained that there was a “pre-requisite or premise” to his agreement to the investment – that Dr Kung told him that Madam Song was his good friend. Dr Kung promised Mr Chan that if Mr Chan were to invest in the project with Dr Kung’s good friend, Dr Kung would give Mr Chan more chance of cooperation and investment in projects in Mainland China; then it would bring Mr Chan greater profit.

71.  Mr Chan claims to “have high regard” for the other parties to the project in which he would invest and yet he did not even know the full name of Madam Song. He did not even ask Dr Kung about her, notwithstanding that there was nothing to stop him from asking. There was no due diligence done as to her background and business.

72.  Till the date of the trial, Mr Chan has never met Madam Song. He only found out that Madam Song used Hero Fortune as her company when Dr Kung gave him the Investment MOU for signing. He only tried to find the means of contacting Madam Song by his letter on 16 July 2012, 3½ years after the Cheque was issued, relying on Dr Kung to forward it to Madam Song.

73.  Thirdly, at or before the time of the investment proposal, there was no discussion between Mr Chan and Dr Kung about details of the project such as the type of project, expected returns, risks, time frame, manager, background of other investors or the role of Dr Kung. There were no means for Mr Chan to contact Madam Song or other investors. The coarse nature of the Investment MOU was in stark contrast to the Tripartite Agreement entered into just 5 days before the Cheque was issued.

74.  Fourthly, the Cheque was issued at lightning speed the day after Dr Kung’s Representation was allegedly made. It was issued on Mr Chan’s own volition, to express his good relationship with Dr Kung and to show that Mr Chan was a man of his words.

75.  In my view, even if that was Mr Chan’s intention, it was incredible that he did so without being even shown the Investment MOU in draft form. No one had hurried him.

76.  Fifthly, Mr Chan delivered the Cheque personally to Chinachem’s office. As he did not see Dr Kung, he left the Cheque in a sealed envelope with Mr Hui, without telling the latter that there was a cheque in it. He did not know if Mr Hui knew about the investment proposal. Dr Kung was not even supposed to know that the Cheque was due to arrive.

77.  Two points arise from such evidence:

(1)  Delivery to Mr Hui is disputed. Mr Chan said that he and Mr Hui were friends, had done many businesses together and had known each other for about 11 years up to 2009. That was why he left the Cheque with Mr Hui. Dr Kung was in the best position to call Mr Hui as witness to contradict Mr Chan, but he did not. The irresistible inference is that Mr Chan did deliver the Cheque to Mr Hui and I so find.

(2)  There is no dispute that the Cheque eventually found its way to Madam Song. Whether it was due to the investment proposal or was a donation to the Foundation, there was no receipt from anyone to Mr Chan and the latter never asked for one. There was thus a lot of undisclosed tacit understanding between Mr Chan and Dr Kung that met the eyes.

78.  Sixthly, there was simply no reason why the payee’s name should be left blank on the Cheque. Mr Chan admitted in the witness box that he could have asked Dr Kung for the name of the payee, and that would not in any way undermine his relationship with Dr Kung, or show that he was not a man who would live up to his word.

79.  Mr Chan clearly knew that the Cheque could have been presented to the bank for cash payment, or anyone could have filled in a name and got the money, thereby defeating his purpose of using the money in investment with Madam Song.

80.  When asked by the Court as to why the name of payee was not on the Cheque, Mr Chan further claimed that it was the practice of his secretary to cross a cheque. Maybe on that occasion, the secretary thought she could cross the Cheque after the payee’s name was put in. I find that explanation to be most illogical. The Cheque would not come back to the secretary because Mr Chan was to deliver it personally to Dr Kung. Plainly, Mr Chan deliberately left the name of the payee blank for an untold purpose.

81.  Seventhly, Mr Chan never asked for a receipt for the Cheque from anyone. The Investment MOU mentioning Hero Fortune as the investing partner having received the HK$50 million was only given to Mr Chan about 4 weeks after the Cheque was issued. It is hard to believe that a businessman like Mr Chan would be content to have such a huge sum leave his hands without knowing who the recipient was.

82.  The circumstances in which the Cheque was issued were totally bizarre. I am not satisfied that Mr Chan had told the Court the whole truth. There must have been more material discussions between him and Dr Kung which led to the Cheque being issued. Whilst Dr Kung may have made Dr Kung’s Representation, the true context in which he made it is not before the Court.

83.  Dr Kung’s evidence on these sub-issues was equally evasive and full of inconsistencies. His oral evidence contradicted his pleaded case.

84.  Dr Kung’s pleaded case admitted that Madam Song was his close friend, that he had not introduced her to Mr Chan, that Hero Fortune was incorporated under BVI law and that the Foundation had received the HK$50 million from the Solicitor. His defence was a total denial – no knowledge of Mr Chan as Mr Chan, no investment proposal, never received the Cheque and no knowledge of the source of donation.

85.  His witness statement stated that during casual chats, Xiao Fang indicated that he was interested in making a donation in respect of the Estate Litigation, but Dr Kung had forgotten when it was and had not followed up. His witness statement gave the impression that in mid-February 2009, neither he nor the Foundation knew the donor of the 2 sums. Mr David Hui told him that the HK$50 million came from Mr Chan. At that time, Dr Kung did not know that Chan Shu Chun was the alias of Xiao Fang (Dr Kung-WS[1] §§13‑15).

86.  This version was, in itself, difficult to believe.

(1)  It was incredible that for no apparent reason and without solicitation from Dr Kung, Mr Chan had expressed interest in making a donation in respect of the Estate Litigation.

(2)  At a time when the Estate Litigation was in dire need of funding, it was incredible that Dr Kung did not try to seek donation or follow it up with Mr Chan. Dr Kung’s explanation that he was not close to Mr Chan contradicted his own evidence that he and Xiao Fang/Mr Chan were good friends.

(3)  The Cheque was not issued by Mr Chan and had no payee. The Solicitors did not tell the Foundation who the donors were. It was incredible that Mr Hui knew that Mr Chan was a donor unless, as I have found, Mr Hui was the person receiving the Cheque; and Mr Hui was told by either Mr Chan and/or Dr Kung that Mr Chan wanted to make a donation.

(4)  If Mr Hui had known that Mr Chan was a donor, it was incredible that Mr Hui or Dr Kung did not know that the donor of the Cheque was Xiao Fang, as that was the name known to both of them and Mr Hui had seen Mr Chan in person when the Cheque was delivered.

87.  Next, as regards Dr Kungs’ Admission, he asserted that it was “crystal clear” to him from the beginning that the HK$50 million given by King Base to Hero Fortune was a donation. The Admission has never been pleaded, despite his defence having gone through 2 rounds of amendment.

88.  The Admission was full of contradictions:

(1)  Under cross-examination, Dr Kung said that it was before mid-February 2009 that he realized that Mr Chan was going to make or had made the donation. He said he forgot how he knew it; but he also said that it was Mr Hui who told him that a Mr Chan Shu Chun had made a donation. Upon learning this, Dr Kung asked Mr David Hui who Mr Chan Shu Chun was, whereupon Mr David Hui told him that Chan Shu Chun was Fang Chang Xiong. That contradicted §15 of Dr Kung‑WS. It also contradicted his pleaded case that he was only told by Mr Hui that Xiao Fang was in fact Chan Shu Chun in or after 2011 (Defence, §11(b));

(2)  The Admission contradicted his own plea that he did not know the source of Madam Song’s donation (Defence, §27A(c));

(3)  As he had only introduced Madam Song to the Solicitors and did not give instructions to the Solicitors, how did he know about King Base?

(4)  The Admission contradicted the contents of the JFIU Report, which described the HK$50 million as King Base’s share of the investment capital;

(5)  The Admission contradicted Madam Song’s stated change of mind in diverting the HK$50 million from investment to donation;

(6)  The Admission could not be true unless that was the tacit agreement or understanding between him and Mr Chan;

(7)  The HK$50 million was a huge sum of money by any standard. It was unlikely that Mr Chan would have donated that sum without solicitation. Further, if his intention was to make a donation, he could have stated the payee as the Foundation instead of leaving it blank. There was no conceivable reason why the money had to first go through Mr Hui / Dr Kung, then to Hero Fortune and then to the Solicitors before reaching the hands of the Foundation.

89.  The above contradictions concern crucial aspects of the factual dispute between the parties. There is no sensible explanation from Dr Kung as to why the Admission came only 4 years after his witness statement was prepared. The only logical inference is that he has not been telling the Court the whole truth. The unfortunate thing is that the late Admission could not be put to Mr Chan in cross‑examination.

90.  As neither Mr Chan nor Dr Kung were entirely reliable, the reasons for issuing the Cheque were not made out. My findings on sub‑issues 1‑3 are as follows:

(1)  Whether Dr Kung made the Dr Kung’s Representation – he may have done so but the true context is not before the Court. I find there must have been more material discussions between Mr Chan and Dr Kung that were not disclosed to the Court which led to the Cheque being issued.

(2)  Whether Mr Chan gave the Cheque to Dr Kung through Mr David Hui at the Chinachem Group Office – yes.

(3)  Whether Mr Chan gave the Cheque to Dr Kung relying upon the Dr Kung’s Representation and Dr Kung’s high-profile status – Mr Chan did consider Dr Kung to have high profile status. Consequent upon my answer to sub-issue above, I am not satisfied that Dr Kung’s Representation and/or his high profile status was what Mr Chan relied on to give the Cheque to Dr Kung. There must have been more material representations not disclosed to the Court that he relied on as well.

D4.  Whether Dr Kung prepared the Investment MOU, the undated Cancellation Agreement and the Instruction to Refund (“the 3 Documents”) for Mr Chan to sign (sub-issues 4-6)

91.  I am unable to see why Mr Chan needed to lie on who the draftsman of the 3 Documents were, or that Madam Song had signed before he did when the Investment MOU was presented to him. There was no dispute that Mr Chan did not have contact with Madam Song.

92.  Dr Kung’s evidence on those 3 Documents was most dubious. He said he did not remember ever perusing the Investment MOU. With no investment experience, I cannot see why Madam Song would have prepared those documents herself.

93.  The 3 Documents were probably contemporaneous documents in existence well before 2011 because:

(1)  Mr Kennedy Wong admitted in the witness box that the Investment MOU and Instruction to Refund were in the Solicitors’ file before commencement of this action and that Mr Michael Wong must have kept them there before he left the Solicitors’ employment.

(2)  Mr Kennedy Wong further agreed that the Investment MOU that the Solicitors had on its file (C1/3/121-122) was a different document from the Investment MOU produced by the Plaintiffs (C1/4/123-124) as one could tell from the differences in signatures. This supported Mr Chan’s evidence that the Investment MOU was signed in duplicate.

(3)  Mr Kennedy Wong also mentioned that he remembered reading the heading of the Investment MOU and that he vaguely remembered the unsigned Cancellation Agreement when he was preparing the JFIU Report in 2011.

94.  I find that Dr Kung did prepare the 3 Documents for Mr Chan to sign. It was also Dr Kung who procured Madam Song’s signatures on those 3 Documents.

D5. Whether Mr Chan and Dr Kung travelled together to Shanghai on 12 January 2011 with the intent to ask Madam Song to sign on the Cancellation Agreement (sub-issue 7)

95.  Mr Chan has produced some documentary proof relating to the Shanghai Trip – his own statement of travel records, invoice dated 12 January 2011 of a restaurant in Shanghai, his credit card statement showing expenses in Shanghai (in particular at Duty Free) on 12 and 14 January 2011 and WhatsApp message from his assistant in proof of that trip. However, those documents could not prove that Dr Kung was in Shanghai at that time with him.

96.  Dr Kung pleaded that he “did not propose” to travel to Shanghai together with Mr Chan to meet Madam Song …”. In his witness statement, he said that he could not remember whether he met with Mr Chan in Shanghai on 12 January 2011. Even if he had, Mr Chan and he never discussed any investment plan. He kept saying in the witness box that they were not on same flight. Eventually in answer to Court’s question, he said he had met Mr Chan in Shanghai on a number of occasions, but could not remember if they had in January 2011. He was evasive.

97.  Dr Kung resisted the Plaintiffs’ application for discovery of his statement of travel records on a technical ground. According to §12 of the judgment of Mimmie Chan J in this action dated 4 March 2020, Dr Kung’s counsel made a distinction between document and data. The summons was for discovery of documents (ie the statement of travel records) but not data as to Dr Kung’s travel history as kept by the Immigration Department. The statement did not exist at the date of the summons.

98.  Mimmie Chan J held the view that the statement, if produced, would only show Dr Kung’s departure from and arrival in Hong Kong on particular days in January 2011. It could not show whether he had visited Shanghai or that he had been there to meet with Madam Song. The statement was of little probative value.

99.  Whilst I agree with Her Ladyship, one should not forget that Mr Chan was very specific about the date he and Dr Kung travelled together for a specific purpose in his re-re-re-amended statement of claim (“RRRASOC”). And yet Dr Kung stated that he was aware of this allegation only when Mr Chan was testifying in court. That could not be further from the truth. Producing travel records to prove or disprove that he was in or out of Hong Kong on 12 January 2011 would have been simple and inexpensive, compared to engaging counsel to resist an interlocutory application.

100.  Taking all circumstances into account, especially the fact that Dr Kung has been evasive and incredible on sub-issues 1 to 6, I draw the inference against him that his resistance of the interlocutory application was to hide the fact that the Shanghai Trip had occurred as alleged.

101.  Timing-wise, there could not be any other reason for that Trip (and none has been suggested) but for Mr Chan to meet Madam Song and have her sign the Cancellation Agreement and Instruction to Refund in his presence. I accept the Plaintiffs’ version.

D6. Whether Dr Kung handed to Mr Chan the Cancellation Agreement in Hong Kong on which Madam Song’s signature was apparently affixed (sub-issue 8)

102.  Mr Chan’s evidence was that Dr Kung presented an undated Cancellation Agreement and Instruction to Refund for Mr Chan to sign on behalf of King Base, which Mr Chan did, in the presence of Dr Kung. Mr Chan and Dr Kung had been to Shanghai to try and meet Madam Song but were unable to do so after waiting for several hours. Her failure to come was for unknown reasons. When Dr Kung returned to Hong Kong, he gave the Cancellation Agreement duly signed by Madam Song, to Mr Chan.

103.  There was no evidence of any communication between Madam Song and Mr Chan. There was no evidence of any investment proposal, whether from Madam Song or Dr Kung/Chinachem since the Investment MOU was signed. By 12 January 2011, it was not surprising that Mr Chan would have wanted refund of his HK$50 million paid 2 years ago. He had no contact with Madam Song and had to rely on Dr Kung to contact her.

104.  Mr Chan’s evidence was uncontradicted. I find that it was more probable than not that Dr Kung had handed to Mr Chan the Cancellation Agreement in Hong Kong on which Madam Song’s signature was apparently affixed.

E.  CLAIM IN DECEIT AGAINST DR KUNG (SUB-ISSUES 9-10)

E1.  Legal principles

105.  The legal principles on the tort of deceit are not in dispute and they have been set out in Haifa International Finance Co Limited v Concord Strategic Investments Limited [2009] 4 HKLRD 29 at §15, Cheung JA:

(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; and

(5)  it must be proved that the claimant suffered damage by so doing.

106.  A representation as to belief or intention can also be a statement of fact: Edgington v Fitzmaurice (1885) 29 Ch D 459 at 483. If the representor did not in fact harbour such a belief or intention, that statement would be false: Xie Li Xin at §185. Edgington concerned a prospectus which invited subscriptions for debentures stating that the object of the issue of the debentures was “to complete the alterations and additions to the buildings, to purchase horses and vans and to develop the supply of fish” (p 482). In fact, the directors intended to use the money raised to pay off pressing liabilities (p 484). The English Court of Appeal held that there was a misrepresentation of fact (as to the present intention to use the subscription monies) giving rise to the tort of deceit.

107.  Cogent evidence is required to establish this serious tort.

E2.  Representation of facts

108.  The Plaintiffs say that Dr Kung’s Representation that the sum of HK$50 million was to be used and applied in the investment under the Investment MOU was false, fraudulent and a sham. The real intent and purpose was to use Hero Fortune as a conduit to receive the HK$50 million to enable Dr Kung to fund the Estate Litigation.

109.  I repeat §§82 and 90 above. Despite the finding that Dr Kung’s Representation may have been made, it stretches anyone’s imagination to say that there was a genuine investment proposal. A donation from Mr Chan first with an understanding of being given unspecified investments in return may better explain why Mr Chan left it to Dr Kung to decide the payee and the Investment IOU came later. The truth is not certain because, as I said, the context in which Dr Kung’s Representation was made is not before the Court.

110.  The analyse in Section E below shall proceed on the basis that Dr Kung’s Representation was the only material representation made.

E3.  Falsity of the representation

111.  It is firmly established on the evidence that the HK$50 million had not been used in investment but given to the Foundation and applied to fund the Estate Litigation. Dr Kung’s Representation was false.

112.  The falsity was further proved by the following conduct of Madam Song.

113.  On 30 January 2009, when Mr Michael Wong attended Madam Song in Shanghai, Madam Song already indicated that she was considering donating “money from King Base” to the Foundation. That was a week before the HK$50 million was deposited into D2’s Bank Account on 6 February 2009. She could only have learnt about King Base from Dr Kung who received the Cheque.

114.  There was no evidence of any attempt ever made by Madam Song to contact Mr Chan, to look for any investments, or to inject her share of the HK$50 million.

115.  Dr Kung’s subsequent presentation to Mr Chan of the Cancellation Agreement signed by Madam Song showing that Madam Song would repay the HK$50 million within a year was false as well as she could not have afforded to repay with her financial condition.

E4.  Knowledge of falsity of the representation

116.  Dr Kung’s knowledge of the falsity of Dr Kung’s Representation was established by (i) his silence as to how the Cheque ended up with Madam Song, (ii) his keeping Madam Song out of the reach of Mr Chan, (iii) his knowledge of Madam Song’s financial situation; (iv) his abnormal reaction to Madam Song’s donations; and (v) his failure to forward Mr Chan and Galls’s letters to Madam Song in 2012.

117.  Firstly, Dr Kung was completely silent as to how the Cheque ended up with Madam Song. I have found that Mr Chan handed the Cheque in an envelope to Mr Hui, who was never a party to the relevant discussion between Mr Chan and Dr Kung. The Cheque could not have left Mr Hui’s hands without the instructions of Dr Kung. Dr Kung was the conduit between Mr Chan and Madam Song who had never met each other. The irresistible inference is that Mr Hui had passed the Cheque to Dr Kung or otherwise handled it in accordance with Dr Kung’s instructions.

118.  Secondly, Dr Kung kept Madam Song out of the reach of Mr Chan. He never intended the two to meet each other and hence never introduced them to each other. He had not given the means of contacting Madam Song to Mr Chan, such that the latter had to request Dr Kung to forward the pre-action letters to Madam Song/Hero Fortune. Dr Kung confirmed that Madam Song did not know Mr Chan. This could not have been the situation of Dr Kung pulling 2 genuine investors together.

119.  Mr Chan was supposed to meet Madam Song in the Shanghai Trip. I cannot conceive of a reason why she did not turn up, given that Madam Song had no job. The most likely reason was that Dr Kung did not want her to meet Mr Chan.

120.  Thirdly, Dr Kung knew Madam Song’s financial situation and knew or would have known that she would not have HK$50 million to invest, donate or repay.

121.  According to his unchallenged evidence, Madam Song is 10 years older than him. They were classmates studying at the same university. However, she had never practised as a doctor because of poor health. She did not have a career and had been jobless since leaving university. She never had any investment in Hong Kong, Macao or Mainland China and never had any business relationship with the Chinachem Group. She was not a wealthy individual.

122.  There was no logical reason why this lady would suddenly want to invest. She needed Dr Kung to introduce an investor, and a lawyer in Hong Kong, but opened a bank account in Macao. Dr Kung prepared the Investment MOU for her to sign. Dr Kung’s failure to make enquiries of her intentions to invest was not the normal reaction of a long‑time friend.

123.  Dr Kung confirmed that Madam Song only came to Hong Kong on one occasion. As to the purpose of that visit, Dr Kung’s evidence shifted. In Dr Kung-WS, §8, he said Madam Song told him that she would like him to introduce a lawyer to her “to arrange documentation for investment”. In the witness box, he testified that she did not mention any particular items, but wanted to engage a lawyer “to find out what sort of investment was suitable”, a task which a lawyer was not usually asked to do.

124.  Dr Kung agreed with Michael Wong-WS that Madam Song went to the Solicitors on 14 January 2009. This took place before the Cheque was issued. Dr Kung accompanied her there. Dr Kung and Mr Kennedy Wong left after Madam Song was introduced to Mr Michael Wong. Dr Kung said he never gave instructions to the Solicitors on that matter.

125.  Dr Kung’s evidence on Madam Song’s change of mind shifted. He first stated that he did not remember seeing C2/423 wherein Madam Song stated that because there was no suitable investment project she had decided to unconditionally donate to the Foundation. Later he said he might not have come across this sort of document, but that did not mean he was not aware of that matter.

126.  No documentation for investment had ever been arranged by the Solicitors nor was any advice on suitable investment given by the Solicitors. What was done instead was that a BVI company (Hero Fortune) was acquired for her by the Solicitors. D2’s Bank Account was opened in Macao, with Mr Michael Wong accompanying Madam Song in Macao.

127.  There was no conceivable investment project or donation which would have required the use of a (i) BVI company or (ii) a bank account in Macao. The use of items (i) and (ii) bore the hallmarks of an intention to conceal the origin of funds. And that was completely borne out by subsequent events – that Madam Song received funds and channelled them to the Foundation in 2009 to 2010.

128.  It was not established in the evidence that Dr Kung knew about §§126 and 127, but he knew the rest about Madam Song’s financial situation under this third factor.

129.  Fourthly, Dr Kung’s reaction to Madam Song’s donations was abnormal. Between 2009 and 2010, Madam Song had, through Hero Fortune, donated a total of HK$104.95 million (including the subject HK$50 million) to the Foundation. The documents concerning Madam Song’s donations of HK$50 million were shown to Dr Kung during cross‑examination. Dr Kung confirmed that he was aware at the time that the donations came from her (despite the donors being anonymous). I am of the view that that must be the case as he was responsible for raising funds for the Estate Litigation. And yet he could not remember if he had ever called her up to say thank you. With his knowledge of her financial background, it was weird as he had not cared to ask how she could have afforded to make such substantial donations.

130.  Dr Kung perpetuated the falsity by:

(1)  Producing the Investment MOU on 18 February 2019, 2 days after the HK$50 million had been donated to the Foundation;

(2)  Informing Mr Chan, in about October to December 2010, that Madam Song was minded to cancel the investment arrangement and to refund the HK$50 million to Mr Chan within 12 months, well knowing that the refund was not going to happen due to the donations and her lack of means; and

(3)  Taking the Shanghai Trip with Mr Chan on 12 January 2011, concealing the fact that the HK$50 million had already been donated to the Foundation from Mr Chan.

131.  Fifthly, Dr Kung failed to pass on Mr Chan and Gall’s pre‑action letters to Madam Song. He did not even ask Mr Chan to clarify what the matter was about.

132.  Dr Kung even testified that his “impression” was that there was no investment project at all; as Mr Chan simply made a donation, so why would Dr Kung go to make enquiries about the letters. If Mr Chan and Madam Song had cooperated, Mr Chan perfectly had his own way to pass on his letters to Madam Song. With respect, such testimony completely contradicted Dr Kung’s earlier testimony that he had never introduced the two to each other.

133.  This Court specifically asked Dr Kung why he did not comply with the request of his alleged good friend (Xiao Fang) to another good friend (Madam Song). Dr Kung’s answer was telling:

“Because what is written on this letter actually did not exist and Madam Song had never had any knowledge of this matter. What's the good -- is there anything good for me to make an enquiry about this which actually did not exist?[2]” (underline added)

134.  The rhetorical question is: how could Dr Kung be so certain about the words underlined? The only probable explanation is that he was the mastermind. Hence, there was no point for him to forward the letters or allow Mr Chan come into contact with Madam Song.

135.  In summary, Madam Song’s intention to invest was Dr Kung’s say‑so. All the clouds in the evidence, the allegations that he was a deceiver and conspirator could have been cleared if she had been called a witness. Dr Kung admitted meeting her even after commencement of this action. He had been legally represented even in September 2018 when his witness statement was filed. The irresistible inference from not calling such an important witness is that Madam Song’s evidence would discredit Dr Kung and expose his “design” behind the fund-flow of the HK$50 million.

136.  I agree with Mr Vincent Chen, counsel for Mr Chan, that based on the entirety of the evidence, the irresistible inference was that only one person could have masterminded the fund-flow and that was Dr Kung. Madam Song was plainly his nominee.

137.  It was abundantly clear that when Dr Kung’s Representation was made, the HK$50 million solicited from the Plaintiffs were never intended to be used for any investment purposes, whether with Madam Song or anybody else. Dr Kung’s Representation must be false to Dr Kung’s knowledge.

E5.  Representation made with intention of being acted upon

138.  Dr Kung’s Representation was plainly made by Dr Kung with the intention of being acted upon by the Plaintiffs, so as to obtain funds for the Estate Litigation.

E6.  Representation acted upon

139.  Mr Chan claimed that he would not have given the HK$50 million to Dr Kung but for Dr Kung’s Representation. I disbelieve him. There are strong doubts in my mind that but for other undisclosed representations, Mr Chan would not have issued the Cheque in those bizarre circumstances.

E7.  Damage to claimant

140.  If Dr Kung’s Representation was only material representation made, it had caused damage to King Base. Having lost so much money and discovered the alleged conspiracy, Mr Chan had never reported to the police. Given my serious doubts in the Plaintiffs’ evidence, I am not satisfied that King Base was a victim of deceit.

E8.  Summary of findings on deceit

141.  I am not satisfied that Mr Chan was lured by Dr Kung to enter into a true investment deal with a stranger, Madam Song, which failed. There was no credible explanation for Mr Chan to issue a Cheque without the payee’s name if the purpose was to invest. The Plaintiffs’ evidence in itself lacked cogency. I am not satisfied that they have discharged the burden of proving deceit on the balance of probabilities.

142.  That should mark the end of the Plaintiffs’ case because the element of unlawful means would be lacking in the conspiracy claim. In case I am wrong, in deference to counsel, I deal with the claim in conspiracy on the assumption that deceit is established against Dr Kung.

F.  CONSPIRACY CLAIM AGAINST ALL DEFENDANTS (SUB‑ISSUES 11-13)

F1.  Legal principles on conspiracy

143.  The elements of the tort of conspiracy are carefully defined so as to avoid trespassing on legitimate business activities or imposing any wider liability than can be justified in principle. In Chan Wai Keung Lawrence v Au Chi Man Albert & Ors [2021] HKCFI 2096 at §25, Au‑Yeung J held that four elements must be pleaded to sustain a case of conspiracy:

(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.

144.  For conspiracy to injure by unlawful means:

(1)  It is not necessary that every overt act is done by every conspirator, but the act must be done pursuant to the conspiracy or combination;

(2)  It is not necessary to show that there is anything in the nature of an express agreement, whether formal or informal. It is sufficient if two or more persons combine with a common intention, or, in other words, that they deliberately combine, albeit tacitly, to achieve a common end;

(3)  The origins of all conspiracies are concealed and it is usually quite impossible to establish when or where the initial agreement was made, or when or where other concentrators were recruited. The very existence of the agreement can only be inferred from overt acts. Participation in a conspiracy is infinitely variable: it can be active or passive;

(4)  Consent, that is agreement or adherence to the agreement, can be inferred if it is proved that the conspirator knew what was going on and the intention to participate in the furtherance of the criminal purpose is also established by his failure to stop the unlawful activity;

(5)  It is not necessary for the conspirators to join the conspiracy at the same time, but the parties to it must be sufficiently aware of the surrounding circumstances and share the same object for it properly to be said that they were acting in concert at the time of the acts complained of;

(6)  In most cases it will be necessary to scrutinise the acts relied upon in order to see what inferences can be drawn as to the existence or otherwise of the alleged conspiracy or combination. It will be the rare case in which there will be evidence of the agreement itself;

(7)  In order to establish an unlawful means conspiracy, it is necessary to establish an intention to injure the claimant but not a predominant intention or purpose to do so; and

(8)  In many contexts it will be necessary in order to prove intention to ask the court to infer the relevant intention from the primary facts. In the case of most conspiracies to injure by tortious means it will be clear from the acts of the conspirators that they must have intended to injure the claimant. In the case of a conspiracy to defraud by wholesale misappropriation it would be absurd to argue that the conspirators did not intend just that.

See Pak Win Investment Ltd (In Compulsory Liquidation) v Chung Yuet Sheung, Lorrain, unreported, HCA 419/2011, 9 February 2012 at §15, DHCJ Au-Yeung (as she then was), following Kuwait Oil Tanker Co SAK v Al Bader (No.3) [2000] 2 All ER (Comm) 271.

145.  Conspiracy is actionable where there is absence of just-cause or excuse for the conduct: JSC BTA Bank v Ablyazov & Anor (No 14) [2020] AC 727 at §10, Lord Sumption and Lord Lloyd-Jones JJSC:

“10. What is it that makes the conspiracy actionable as such? … [A] useful concept is the absence of just cause or excuse … A person has a right to advance his own interests by lawful means even if the foreseeable consequence is to damage the interests of others. The existence of that right affords a just cause or excuse. Where, on the other hand, he seeks to advance his interests by unlawful means he has no such right. The position is the same where the means used are lawful but the predominant intention of the defendant was to injure the claimant rather than to further some legitimate interest of his own. This is because in that case it cannot be an answer to say that he was simply exercising a legal right. He had no interest recognised by the law in exercising his legal right for the predominant purpose not of advancing his own interests but of injuring the claimant. In either case, there is no just cause or excuse for the combination.”

146.  An intention to injure another can only be inferred if it can be shown that the act is done deliberately and with knowledge of the consequences: Xie Li Xin, §191. This is to be contrasted with a situation in which the harm to the plaintiff was purely incidental because the unlawful means were not the means by which the defendant intended the harm to the plaintiff: JSC BTA Bank, §14.

147.  Unlawful means could be criminal conduct, or even a separate actionable tort. This includes the tort of deceit: Xie Li Xin, §193.

148.  With regard to pleading:

(1)  Fraud may only be pleaded when there is sufficient evidence.

(2)  A party should not be permitted to plead a vague and unparticularised case of fraud in the hope of making it good after discovery.

(3)  Fraud must be distinctly alleged and as distinctly proved. It must be sufficiently particularised.

(4)  Fraud and dishonesty should not be inferred from pleaded facts that are consistent with honesty.

149.  The pleader has to plead at least one overt act which is the act of all the alleged conspirators or, failing that, a number of overt acts which include at least one act on the part of each conspirator: Binchuang Resources Co., Limited v Lockwood Group Limited & Anor [2020] HKCFI 2941 by A Chan J at §§31-34.

150.  There is no requirement to give particulars of the common design or as to how the agreement was reached among the co-conspirators. The Court looks at the overt acts of the conspiracy and infers from those acts that there was agreement to further the common object of the combination. It is sufficient that two or more persons combine with the necessary intention or that they deliberately co-operate albeit tacitly to achieve a common end.” Bullen & Leake, supra, §59-03.

151.  This approach makes perfect sense as all conspiracies (especially conspiracy to defraud) are by their nature covert and concealed. The victim would have no knowledge as to where, when and how the co‑conspirators reached the agreement/common design among themselves to harm him (or what benefit they derive from the conspiracy). The law recognizes that the co-conspirators might not even join at the conspiracy at the same time. It will impose an insurmountable burden and difficulty on the plaintiff if he is required to give and plead particulars of something which is deliberately concealed from him by the co-conspirators.

152.  Averments of conspiracy may not be precise but the broad question for the court is whether the defendant sufficiently knows from the plaintiff’s pleaded case the conspiracy that they have to meet: Chan Wai Keung Lawrence v Au Chi Man Albert, at §33.

153.  On drawing of inferences, bearing in mind the seriousness and gravity of fraud alleged, recognition must be given to an inherent degree of improbability of its occurrence. Whilst an inference may be drawn on the basis of circumstantial evidence where direct proof is unavailable, such an inference must be properly grounded in the primary facts found and the court must guard against indulging in conjecture under the guise of drawing an influence where the primary evidence does not logically and reasonably justify the particular inference in question. See Lee Yuk Shing v Dianoor International Limited (In Liquidation) unreported, CACV 185/2015, 23 May 2016, §37, CA.

F2.  Challenge to the Plaintiff’s pleading on conspiracy

154.  Dr Kung, the Foundation and the Solicitors attack the Plaintiffs’ pleading for failing to plead the necessary particulars for conspiracy.

155.  The relevant pleading is in §27 of the RRRASOC which simply sets out the 4 elements to constitute conspiracy.

“Furthermore, in or about January 2009, the 1^st, 2^nd, 3^rd and 4^th Defendants (or any two or more together) wrongfully and with intent to injure the Plaintiffs by unlawful means conspired and combined together to defraud the Plaintiffs and to conceal such fraud and the proceeds of such fraud from the Plaintiffs.”

156.  §28 of the RRRASOC sets out the facts from which the conspiracy was to be inferred. §29 sets out the overt acts of each Defendant. §29A sets out the facts from which to infer Dr Kung’s knowledge that the real intent and purpose of the HK$50 million was to enable him to fund the Estate Litigation.

157.  §§27-29A of the RRRASOC meet the basic needs of pleading a conspiracy to inform the Defendants of the case they have to meet: Bullen and Leake, Jacob’s Precedents of Pleadings, 19^th Edition, §59-02. Except in relation to Dr Kung, there is no plea as regards the Foundation/the Solicitors’ knowledge of the common design or agreement. Such failure to plead knowledge does give rise to difficulties as explained below.

G.  CONSPIRACY CLAIM AGAINST DR KUNG AND HERO FORTUNE

158.  If deceit were established, I would have no hesitation in finding the Dr Kung and Madam Song had conspired.

159.  The Agreement between them was to obtain donations for the Foundation to fund the Estate Litigation under the disguise of investment. Dr Kung lured Mr Chan to issue the Cheque under that Agreement. Pursuant to the combination between Dr Kung and Madam Sung, the 3 Documents were prepared by Dr Kung; Mr Chan and Madam Song signed on them.

160.  Madam Song provided Hero Fortune and D2’s Bank Account to receive funds. With no intent to invest at all, she had no just cause for receiving Mr Chan’s money. D2’s Bank Account never had any business income or expense. The purpose of setting up Hero Fortune was only to receive deposits of over HK$100 million (including money from Mr Chan) which, on her instructions to the the Solicitors, had no other destinations but the Foundation.

161.  The unanswered question is why those “donors” (including Mr Chan) so coincidentally wanted to donate money through Hero Fortune instead of sending money directly (even as an anonymous donor) to the Foundation? A possible answer is that the “donors” wanted to conceal the source or real purpose of the money.

162.  Madam Song then claimed to the Solicitors that there was no suitable investment project. That could not be true because there was no evidence of her finding investments. She already expressed her wish to Mr Michael Wong on about 30 January 2009 to donate the sum to the Foundation, even before the Cheque was deposited into D2’s Bank Account.

163.  The investment proposal in the Investment MOU was just a sham. She had no intent to repay Mr Chan and could not have afforded to repay.

164.  Further, any person who donates to a charitable organization would not expect any returns. And yet Madam Song tried to prove in advance what nobody doubted by stating that she did not expect the Foundation to repay or to give any form of return.

165.  The irresistible inference is that Hero Fortune was acquired by Madam Song as nominee of Dr Kung for the purpose of carrying out their Agreement. The intent of Dr Kung and Madam Song was to cause loss to Mr Chan / King Base and their acts did cause actual loss to Mr Chan / King Base. The conspiracy between Dr Kung and Hero Fortune is established.

G1.  Conspiracy claim against the Foundation

166.  The only pleaded overt act is that the Foundation (indisputably) received the HK$50 million.

167.  However, mere receipt of money is not sufficient. As a matter of principle, a party cannot be part of a conspiracy if it acts in ignorance of the true facts: Clerk & Lindsell on Torts, 23^rd ed, §23-104. Hence a mere receipt of funds remitted through an underground banking system is not sufficient to find guilt. It has to be proved that the recipient knew or had reason to believe that the money had an illicit source: Arrow ECS Norway AS v Xin Cheng Holdings (International) Co Ltd, HCA 239/2016, 12 May 2016, §30, Au-Yeung J.

168.  For 4 reasons, the conspiracy claim against the Foundation must fail.

169.  Firstly, the pleaded overt act and the evidence are consistent with innocence on the part of the Foundation. By nature, a charity’s business is to receive and disburse money. A donor would not expect a claw back or reward. There was nothing unusual in the Foundation receiving the money and disbursing it for its sole “business” then – the Estate Litigation.

170.  Objectively, based on contemporaneous documents, the Foundation would only have known that the 2 donations making up the HK$50 million had come from the Solicitors and the donors were anonymous. There was nothing to suggest that the Foundation was aware of the existence of Mr Chan or King Base, or that the Foundation had dealt with the Cheque itself.

171.  Secondly, as between the Foundation and Dr Kung, there was nothing that pointed to the Foundation’s knowledge of Dr Kung’s deceit.

172.  Thirdly, as between the Foundation and Hero Fortune, there was nothing that pointed to the Foundation’s knowledge of the existence of Hero Fortune and Madam Song, and Madam Song’s acts in furtherance of the Arrangement.

173.  Fourthly, as between the Foundation and the Solicitors, there was nothing to show that the Foundation had even a slight suspicion that the Solicitors had done anything unlawful, or that the Solicitors did not mean what they stated in their letters to the Foundation.

174.  It is not necessary for each co-conspirator to know what the others were doing. However, applying Lee Yuk Shing v Dianoor, the lack of correlation between the Foundation’s conduct to the Agreement and with so many things unknown to the Foundation, it is impossible for the Court to infer that the Foundation had participated in a conspiracy.

175.  Mr Vincent Chen relies on the notion that Dr Kung’s knowledge and intent was “attributed to” the Foundation to show his conspiracy with the Foundation. The principles are as follows:

(1)  A company, being a separate legal person, can conspire with its directors; and the knowledge of the company may be found in a director who has management or control for the transaction or act in question: Apple Inc & Anor v. Proview International Holdings Limited, unreported, HCA739/2010 14 July 2011, Poon J (as he then was) at §32).

(2)  The knowledge of one director of the payment of a bribe could be attributed to the company even in a case where such knowledge was not shared with the board of directors: Jafarini-Fini v Skillglass Ltd [2007] EWCA Civ 261, §98, Moore-Bick LJ:

“The question in the present case is whether information which comes to the attention of one director, but which he has not shared with the rest of the board, is to be treated as information in the possession of the company. In MAN v Freightliner I expressed the view that where the board of directors is properly to be regarded as the directing mind and will of the company in relation to a particular transaction the knowledge of each is to be attributed to the company. That case, however, was concerned with the liability of the company for a false statement made in a written contract which the board as a whole had resolved that the company should enter into. The present case differs inasmuch as it is concerned with the acquisition by the company of information, but there are nonetheless certain similarities arising from the fact that the members of the board can generally be regarded as collectively representing the company. In general, therefore, I think that information relevant to the company’s affairs that comes into the possession of one director, however that may occur, can properly be regarded as information in the possession of the company itself. In my view that presumption informs the present contract and points to the conclusion that information in the possession of Mr. Webster relating to the bribe is to be regarded as information in the possession of PAL itself. That remains the case even if Mr. Jafari-Fini can properly be regarded as representing the company in relation to other aspects of the transaction, as to which it is unnecessary to express any view. (underline added)

176.  A party does not need to plead the legal effects of acts and it is for the Court to apply the relevant law in order to determine how the acts, as they unfolded, affected the parties’ legal positions: Lo Yuk Sui v Fubon Bank (Hong Kong) Ltd [2020] 23 HKCFAR 138, §9, the Appeal Committee; Kyocera Corp v W Haking Enterprises Ltd & Anor [2021] 2 HKC 1, §44.4, CA.

177.  It is not necessary to plead attribution. However, as a matter of pleading, in the RRRASOC:

(1)  §9 expressly pleads that Dr Kung’s Representation was made “in his personal capacity but not otherwise”;

(2)  §29(1) pleads that Dr Kung’s Representation was made by Dr Kung dishonestly “whilst a director and Chairman of the Chinachem Group”. (Note that appointment as Chairman was done after the money had been transferred to the Foundation.)

178.  Nowhere does the RRRASOC aver that Dr Kung’s Representation was made “on behalf of” the Foundation. How Dr Kung’s personal tort of deceit could be attributed to the Foundation was not made clear on the pleadings. For such a serious allegation as conspiracy, any query over the interpretation of the pleading should be resolved in favour of the Foundation.

179.  Just to complete the picture, the facts were that the Foundation had 5 persons on the Board of Governors, ie Dr Kung, Madam Gong and Madam Kung (the 2 sisters of Dr Kung), Mr Joseph Leung and Mr Chan Kam Por. It was not put to Dr Kung in cross‑examination that he alone was the directing mind and will of the Foundation. In any case, there is no evidence that Dr Kung was authorized by the Foundation to make Dr Kung’s Representation or was aware of its being made.

180.  However, the evidence establishes that:

(1)  Dr Kung did not require prior approval from other governors before he could arrange the Foundation to receive the money. If money was sourced by him, Dr Kung was the person who decided whether the Foundation should receive it or not.

(2)  When money came into the Foundation and the source of it was unclear, Mr Chan Kam Por would send an email to the governors including Dr Kung and Dr Kung would reply to it. Mr Chan Kam Por agreed that he had no way to verify the source except to trust Dr Kung.

(3)  There was no board resolution approving the payment out of the Foundation’s Bank Account to Wilkinson & Grist. Mr Chan Kam Por’s recollection was that all governors had already agreed in advance that once the Foundation had got the money, it had to be given to Wilkinson & Grist.

(4)  Dr Kung’s own evidence under cross-examination was that he knew that Mr Chan was the one making the donation.

(5)  Mr Chan Kam Por’s oral evidence was that there were emails among the governors of the Foundation concerning receipt of donations but none of those emails have been produced. There was no qualification in this piece of evidence. The inference was that the emails would have contained something about the HK$50 million from Mr Chan.

181.  If deceit were established and absent the inconsistency in pleading, it could be said that Dr Kung was the directing mind and will of the Foundation insofar as the sourcing of funds for the Estate Litigation was concerned. His knowledge could be attributed to the Foundation, for which the Foundation would be liable.

H.  CONSPIRACY CLAIM AGAINST THE SOLICITORS

H1.  The case against the Solicitors

182.  In contrast to the Plaintiffs’ case against the Foundation, it is pleaded that the Solicitors knowingly and dishonestly assisted in the furtherance of the conspiracy by performing 3 overt acts: (i) the incorporation of Hero Fortune, (ii) the opening and maintenance of D2’s Bank Account and (iii) the subsequent transfer of the HK$50 million from D2’s Bank Account to the Solicitors’ Bank Account and eventually to the Foundation. The Court is invited to infer fraud from the pleaded facts.

183.  In respect of the first overt and second acts, the pleaded facts (RRRASCO, §28) are that Hero Fortune was acquired as a shelf company in Macao through the assistance of the Solicitors on or about 15 January 2009 and D2’s Bank Account was opened on the same date in Macao. Hero Fortune used the office address of the Solicitors as its address in Hong Kong when opening D2’s Bank Account and provided the office number of the Solicitors and Mr Michael Wong’s personal mobile phone number as contacting phone numbers of Hero Fortune. Mr Michael Wong certified and provided all the required documents to DBS Bank which were required for the opening of D2’s Bank Account. D2’s Bank Account became effective on 21 January 2009. The Solicitors provided its office address to Hero Fortune on 15 January 2009 to convene 2 meetings of the board of directors of Hero Fortune: (i) to approve the opening of D2’s Bank Account; and (ii) to deal with the operation of D2's Bank Account by an authorized representative. Mr Michael Wong eventually became such an authorized representative. The Solicitors also answered the Due Diligence Questionnaire in respect of Hero Fortune as to its history and background.

184.  Despite being aware that Hero Fortune had only been incorporated for a short time, that its sole shareholder and director was Madam Song and that Madam Song had not submitted any proof of her credentials to the alleged experience, the Solicitors reported to the DBS Bank that Hero Fortune “was engaged in the business of property investment in Hong Kong/Macao having 2 employees.” No such investment was in fact made or business actually engaged by Hero Fortune from 2009 to 2013.

185.  Rather, the records of Hero Fortune showed that the only movement of funds in that account was to act as conduit to transfer funds to the Foundation as donations. Two sums came from King Base. Four subsequent transfers came from unknown sources.

186.  In respect of the 3^rd overt act, even before the Cheque was deposited into the D2’s Bank Account on 6 February 2009, Madam Song already expressed her wish to Mr Michael Wong on 30 January 2009 that she was considering donating the HK$50 million to the Foundation. The Plaintiffs rely on the facts as set out in §§32-34 above.

187.  Bank statements of D2’s Bank Account had been sent to the Solicitors and so they would have known the trail of the HK$50 million was handled by depositing the Cheque into D2’s Bank Account, the deception and false representation of Dr Kung as pleaded in §§17‑19, 28(j) and (k) of the RRRASOC.

188.  Further, as revealed from documents disclosed by DBS Bank, before the HK$50 million was finally transferred and donated to the Foundation, the Bank had called Mr Michael Wong and obtained confirmation from him to do so.

H2.  The Solicitors’ defence

189.  The Solicitors say that no factual foundation was established that the Solicitors knew of Dr Kung’s Representation. They had acted at all times on the instructions of Madam Song. Their conduct was consistent with the lawful and innocent provision of professional services to a client. Without more, those overt acts did not reasonably support the inference of a conspiracy. The JFIU Report set out the circumstances in support of their solicitors’ inference.

H3.  Legal principles

190.  A lawyer is normally entitled to proceed on the basis of his client’s instructions being correct. However, blind-eye knowledge, involving a deliberate decision of the Solicitors not to inquire into matters which are obvious and specific, approximates to knowledge for the purpose of conspiracy. The principles have been set out in De Krassel v Chu Vincent [2010] 2 HKLRD 937, Sakhrani J:

(1)  If a defendant believes that he has a lawful right to do what he is doing, he should not be liable for conspiracy to injure by unlawful means (§42).

(2)  The fraud or dishonesty is not sufficiently particularized if the facts pleaded are consistent with innocence or negligence (§44).

(3)  An allegation of dishonesty must be established with cogent and compelling evidence. The standard of proof is on balance of probabilities. The more serious the allegation, the stronger and more compelling the evidence is required (§§45-48).

(4)  A lawyer acting on the basis of their client’s instructions is normally entitled to proceed on the basis of his client’s instructions being correct (§51).

(5)  For there to be blind-eye knowledge, the suspicion must be firmly grounded and targeted on specific facts and not mere suspicion which may be no more than a vague feeling of unease (§§55-58).

191.  Dishonesty is tested by the ordinary standards of reasonable and honest people (objective test) and whether the defendant himself realized that by those standards that his conduct was dishonest (subjective): Twinsectra Ltd v Yardley [2002] 2 WLR 802, §§41-42; Royal Brunei Airlines v Tan [1995] 2 AC 378, §27.

192.  The principles for drawing inferences set out in §153 above equally apply.

H4.  Analyses of the case against the Solicitor

193.  First and foremost, great weight should be given to the JFIU Report as it was made 2 years after the material events and 3 years before this action commenced. It represented the first-hand account Mr Michael Wong, the handler of Madam Song’s instructions. All along the Solicitors believed that the donations made by Hero Fortune to the Foundation were genuine. They did not have reasonable grounds to believe that the payments represented proceeds of an indictable offence. The purpose of money laundering was to enable the criminal who caused the exercise to get the money back afterwards. However, as the ultimate beneficiary was a charitable foundation, there was nothing to make the Solicitors think that the donation would go back to the donor.

194.  It was not until 22 February 2011, 2 years after the donations, that Mr Kennedy Wong was told by Mainland acquaintances in Shenzhen that there was an investigation of suspected money laundering involving Dr Kung, which raised the Solicitors’ suspicions. Having taken senior counsel’s advice and out of abundance of caution, the Solicitors, on their own volition, made the JFIU Report and expressed a willingness to cooperate with JFIU in the investigation of that matter. It was a full and frank Report despite potential criminal charges of money laundering. It refuted any suggestion of subjective dishonesty.

195.  Secondly, it is inherently unlikely that a solicitor, having no interest in the client’s business and a professional reputation to uphold, would conspire with a client; all the more so when Madam Song was a new client.

196.  The Solicitors were not the ultimate recipient of any benefit beyond the fees billed to Madam Song/Hero Fortune, which were not suggested to be excessive.

197.  Mr Vincent Chen suggests that as Chinachem Group was one of the top 10 clients of the Solicitors, the latter would have the motive to please Dr Kung. In my view, this would not be surprising. However, it would mean that Mr Michael Wong had walked the extra mile to provide more personal service eg meeting Madam Song in Shanghai, accompanying her to Macao and letting her use his personal mobile phone number, but it is far-fetched to elevate it to a motive to conspire with Madam Song.

198.  Thirdly, as between the Solicitors and Dr Kung, the pleaded case and the evidence do not show the Solicitors to be aware of Dr Kung’s deceit, the existence of Mr Chan or the Agreement. The evidence established that Dr Kung left, a few minutes after introducing Madam Song to Mr Michael Wong and Mr Kennedy Wong. Both Dr Kung and Mr Kennedy Wong confirmed that Dr Kung never gave instructions of any kind to the Solicitors and that since the initial referral, Dr Kung had little contact with the Solicitors.

199.  It is not necessary for the conspirators to all join the conspiracy at the same time, but the parties to it must be sufficiently aware of the surrounding circumstances and share the same object for it properly to be said that they were acting in concert at the time of the acts complained of: China Metal Recycling (Holdings) Limited v Chun Chi Wai [2021] HKCFI 378 at §93, DHCJ MK Liu. This is not shown as regards the Solicitors.

200.  Fourthly, as between the Solicitors and the Foundation, the only dealings between the two was the Solicitors’ sending over of the donations and the Foundation’s acknowledgements of receipt. There was nothing to show that the Foundation might have been involved in illicit conduct.

201.  Fifthly, whilst the RRRASOC contains a general plea of intent to injure against all 4 Defendants, there is no specific plea and no evidence of the Solicitors’ intent to injure the Plaintiffs. Once again, it is inherently unlikely for the Solicitors to intend to harm the Plaintiffs whose existence was unknown to the Solicitors, beyond the name of King Base on the Cheque.

202.  A solicitor properly acting in accordance with a client’s instructions may prejudice another person’s interest, eg by applying for an injunction which was ultimately discharged for lack of full and frank disclosure. But, without more, that should not be elevated to a situation of the Solicitors having the intent to harm that person.

203.  Even if Madam Song had intended to injure the Plaintiffs and acted contrary to the Investment MOU, she had given express written instructions to the Solicitors to dispose of the money and the reasons. Any illicit motive of hers could not be imputed to the Solicitor, who were entitled to act on those instructions.

204.  Even if the donations had depleted the HK$50 million from King Base, there was nothing to show that the Solicitors knew that Madam Song would not have other monies to repay King Base or had no intention to repay at the time the money was donated.

205.  Sixthly, the first and second overt acts (apart from the Due Diligence Questionnaire which I shall analyze separately) were the Solicitors’ ministerial acts in setting up Hero Fortune and D2’s Bank Account. The Solicitors might have provided more personal services beyond what was usual, but there was nothing that could have suggested dishonesty. It remained Madam Song’s choice to decide where to acquire a company and set up a bank account. As Mr Kennedy Wong testified, banks would feel more comfortable as to the trustworthiness of the persons opening the bank account when Mr Michael Wong was the referee for a new offshore client. The acts did not go beyond the bounds of de Krassel, §51.

206.  Seventhly, donations to the Foundation were on written instructions of Madam Song/Hero Fortune. It was consistent with the lawful and innocent provision of professional services.

207.  The Solicitors’ belief that the donations were genuine would have been supported by 4 further donations, made about a year after the 2 subject ones. Madam Song gave written instructions to make those 4 further donations in the same manner save that the covering letters from the Solicitors were for the attention of Dr Kung specifically. The 4 further donations were carried out without adverse claim by any person.

H5.  Blind eye knowledge and the Due Diligence Questionnaire

208.  I now come to the more problematic part of the Solicitors’ evidence, which may be relevant to Mr Vincent Chen’s submission of blind-eye knowledge.

209.  When dealing with a new client, back in 2009, a solicitor, under anti-money-laundering policy, had to make enquiries of a new client as to his/her background and the source of money. Mr Michael Wong did ask and Madam Song did answer the Due Diligence Questionnaire. However, there was no attempt by Mr Michael Wong to seek documentary verification of Madam Song’s bare assertions.

210.  Three questions and answers in Part II of the Due Diligence Questionnaire dated 14 January 2009 are relevant:

(1)  For the 1^st question, Mr Michael Wong recorded that he was asked to incorporate a Hong Kong company for investment in Macao. Then who had instructed him to acquire a BVI company instead? Madam Song cared to state her change of mind from investing to donating but the Solicitors’ file did not record her change of mind over the type of company. There must have been undocumented communication on this aspect. What’s more, Hero Fortune was acquired on 13 January 2009, the day prior to the alleged first meeting between Madam Song and the Solicitors. Neither the JFIU Report nor Mr Kennedy Wong’s evidence could explain why. Kennedy Wong-WS stated that “it appears that Madam Song instructed my firm to incorporate a BVI company prior to the meeting on 14 January 2009, as my firm acquired [Hero Fortune] on 13 January 2009.” His oral testimony that Hero Fortune was just routinely acquired by the Solicitors and not for a specific client simply contradicted his witness statement.

(2)  The 2^nd question was whether the Solicitors would be “instructed to handle money on behalf of the client”. The answer was “yes, to handle money for the transaction”. That must mean money for the “investment in Macao”. It turned out that the HK$50 million was not handled for investment.

(3)  The 3^rd question was, “Are you satisfied that there is no suspicion on the source of fund?” Mr Michael Wong answered “yes”. There was nothing to show how he satisfied himself. Mr Kennedy Wong could not suggest anything either, despite his testimony that partners would have to understand where the money came from. He was starkly contradicted by his own JFIU Report which stated that “On 21 January 2009, Madam Song’s investment partner, [King Base], a company incorporated in Hong Kong sent us a cheque of HK$50,000,000 being its share of investment capital. King Base asked us to deposit this in [D2’s Bank Account].” This contradicted Mr Chan’s evidence that he delivered the Cheque to Mr Hui. Anyway, with the Investment MOU in their possession, the Solicitor knew or must have known that the HK$50 million had its source from King Base and that the money represented King Base’s share of the investment capital. A simple company search would reveal that Madam Song was not a director or shareholder of King Base. The bank statements that the Solicitors received would show that the Solicitors knew that, within about 2 weeks, Madam Song had used money not from herself to make donations and that she had never contributed her share of capital into D2's Bank Account.

211.  By a letter dated 16 January 2009, Mr Michael Wong represented to Offshore Incorporations Limited (“OIL”) that Madam Song had an urgent need to commence business. As borne out by the facts, Hero Fortune had no business. Once again, if Mr Michael Wong’s representation was correct, there had been undocumented communications between him and Madam Song or someone for that purpose. However, I would not hold against him because a conscientious solicitor, acting innocently, may also press OIL to act expeditiously for the benefit of the client.

212.  However, I have 3 observations arising from the answers to the Due Diligence Questionnaire:

213.  Firstly, the Solicitors did more than just ministerial work in acquiring a BVI company before meeting Madam Song and against her express instructions. However, it was not put to Dr Kung or other Defendants that it was his/its wish to have a BVI company acquired for Madam Song.

214.  Secondly, Mr Vincent Chen submits that the Solicitors had simply turned a blind eye when answering “yes” to the 3^rd question. Any prudent and reasonable enquiries would have easily revealed that she never had a job; never had any investments in Hong Kong or Macau; never had employees and that she was not a wealthy individual. Given the limited means of Madam Song, when a substantial sum of HK$50 million was arranged to be transferred by Madam Song from the recently acquired BVI company to the Solicitor’ bank account, reasonable questions must have occurred to Michael Wong, namely, where did she get the money from? Whether she had consent of King Base to use the money as donation? Mr Michael Wong simply allowed the Solicitors’ Bank Account to be used to facilitate the transfer of substantial sums of money from Hero Fortune to the Foundation to fund the Estate Litigation.

215.  I agree that Mr Vincent Chen’s submission pointed to a prudent and sensible approach of a solicitor. Unfortunately, the law/policy requiring the Solicitors to do due diligence of a new client is not placed before the Court. It is not clear what the extent of enquiries a solicitor must undertake. In my view, at worst,

(1)  The Solicitors had been failed to understand and implement the spirit behind the anti-money-laundering policy, but it is a quantum leap to say that they were dishonest or had the intention to conspire or to inure;

(2)  It was a conspiracy between the Solicitors and Madam Song to launder money for her but that would not implicate other Defendants.

216.  The Plaintiffs fail to satisfy both the subjective and objective tests of dishonesty and the tests for conspiracy against the Solicitors.

217.  In summary, even if Dr Kung’s deceit is proved, the conspiracy claim can only be established against Dr Kung and Hero Fortune but not the Foundation or the Solicitors.

I.  AMOUNT OF DAMAGES FOR CONSPIRACY

218.  Damages for the tort of deceit or unlawful means conspiracy should put the innocent party back in the financial position he was in before he sustained the wrong: Xie Li Xin, at §203.

219.  The only party who has suffered loss was King Base. Mr Kat, counsel for the Solicitors, submits that King Base has failed to prove (eg by way of accounting documents) that it suffered an actual loss of asset of HK$50 million by reason of the conspiracy. Mr Kat went further to say that King Base could be holding the money “as a trustee, or if the money just passed through its account like water through a tap”, then there would be no loss.

220.  Only Mr Kat took this point. With respect, this point needs only to be stated to be rejected. Whilst accusing the Plaintiffs of not advancing proper pleading for its case on conspiracy, the Solicitors committed the same error of relying on an unpleaded case. Apart from a bare denial, there has been no assertion of trusteeship or that the money did not belong to King Base. How did Mr Kat expect the Plaintiffs to prepare proof on a non-issue?

221.  Further, beneficial ownership follows the legal ownership. The money from P2’s Bank Account, prima facie, belonged to King Base. It is for the Solicitors asserting the contrary to adduce evidence in proof. The Solicitors did not and did not even cross-examine Mr Chan on this.

222.  Even if King Base had, say, borrowed the HK$50 million from someone or held it on trust for someone, that was a matter between King Base and the lender/trustee. It could not be used as an excuse for the wrongdoer to deny King Base’s loss.

223.  Mr Kat relies on the case of In Madoff Securities International Limited (in liquidation) v Stephen Raven [2013] EWHC 3147 (Comm), §§303-304. Without disrespect, the facts of that case were far removed from the present one. It was a case on breach of fiduciary duties. The Court made a distinction between an entity VTB who obtained funding by way of a loan with a concomitant liability to repay, and another, MSIL, who received a donation but then made payments with that donation such that the overall result of the transaction was asset neutral for MSIL. The challenge that MSIL suffered no loss was pleaded (§16(3) of the judgment)

224.  I find that the damages for conspiracy (and deceit), if proved, to be HK$50 million.

J.  CONVERSION CLAIM AGAINST D1-D3 (SUB-ISSUE 14)

225.  Given my findings that deceit was not established, conversion would also fall away. I only deal with it briefly.

226.  The Plaintiffs’ case is that D1-D3 had converted the Cheque and its proceeds to their own use, alternatively, to the use of the Foundation. Dr Kung and the Foundation say that the claim is unsustainable as there was nothing to show that Dr Kung or the Foundation had ever dealt with the Cheque in any way.

227.  Conversion consists of the dealing with a chattel in a way which is inconsistent with the rights of the true owner. A person may be liable for conversion even if he has not had actual or constructive possession of the chattel (Douglas Valley Finance v Hughes [1969] 1 QB 738, 750.

228.  Specifically, a cheque which has passed into currency can form the subject of a claim in conversion. In China Everbright-IHD Pacific Ltd v Ch’ng Poh (2002) 5 HKCFAR 630, §§103-105, Lord Millett NPJ held that:-

“103. … It is trite law that conversion must be conversion of corporeal personal property; choses in action cannot be converted: see Clerk & Lindsell on Torts (18^th ed.) p.744 para.14-41. A cheque can be converted because it is a piece of paper. It is treated as the means of obtaining the money in the account on which it is drawn and as having the value of the sum payable. As the payee of the cashier orders the Company could maintain an action for their conversion. But were they converted?

104. In the present case the cashier orders were drawn in favour of the Company and the proceeds were duly credited to its account. In the ordinary way that would not be a conversion of the orders. They then became paid orders and were of no further value. True, the moneys in the Company’s account were immediately misapplied, but that was not itself a conversion of the orders which by then had fulfilled their purpose.

105. Nevertheless, I agree with the Court of Appeal that in the unusual circumstances of this case the cashier cheques were converted. This is because the proceeds were paid into the Company’s account with the specific purpose that they should be immediately withdrawn and misapplied. The payment to the Company was “not in reality a payment for the Company to have at all”. The difficult question is whether the fact that the Company has affirmed the transaction by accepting the payment as satisfaction of the indebtedness in respect of which it was paid precludes it from claiming that the payment constituted a conversion. But I have come to the conclusion that it should not. The money was paid with the intention not only that the existing indebtedness to the Company should be discharged but also to fund the appellant’s purchase of the shares. This is what has caused the Company loss, and it has in no sense been authorised by the Company.”

229.  As deceit is not established and with my serious doubts that Mr Chan’s act in issuing the Cheque was pursuant to other undisclosed representations, I am not satisfied that the Cheque was dealt with in a way inconsistent with the Plaintiffs’ rights.

230.  On the other hand, if deceit could be established, there is no evidence as to who filled in the name of the payee on the Cheque. However, I have found that the Cheque was delivered personally by Mr Chan to Mr Hui. The Cheque could not have left the hands of Mr Hui without the authority of Dr Kung. Nor could the name of Hero Fortune be written as payee without the knowledge and authority of Dr Kung, as he was the only one who knew Madam Song was involved. I find that Dr Kung had converted the Cheque as he dealt with it in a way inconsistent with the rights of King Base (who had intended the Cheque to be for investment).

231.  Given the conspiracy (if established) between Dr Kung and Hero Fortune, the latter had likewise converted the Cheque by its receipt of the HK$50 million as deposit into its account, payment out to the Solicitors and then to the Foundation, against the original purpose of investment.

232.  In respect of the Foundation, it was not the first or even second‑tier recipient of the Cheque but had received the donations only from the Solicitors. Conversion is not established against it.

233.  Accordingly, the claim in conversion would be established against Dr Kung and Hero Fortune at most.

K.  CONCLUSION AND COSTS

234.  I do not find Mr Chan to be credible. His evidence created serious doubts in my mind as to what other representations have been made to him to issue the Cheque in such a bizarre manner. There was no genuine agreement to invest.

235.  Costs should follow the event and be borne by the Plaintiffs.

236.  The Foundation seeks indemnity costs for the trial. The reasons are that this was a case being prosecuted maliciously and the proceedings were scandalous or vexatious. Where serious allegations of fraud had been made and was found by the Court after trial as unfounded and/or unsupported by evidence, that would be a special and unusual feature to justify indemnity costs.

237.  The Foundation submits that the Plaintiffs have insisted on launching accusations of fraud or dishonesty where they were unsupported by evidence or ought never to have been made in the first place. This was exacerbated by Mr Chan proffering testimony incapable of belief in open court.

238.  I do not consider the Plaintiffs to have acted in an utterly unreasonable manner. Even though I disbelieve Mr Chan, I have also found Dr Kung to be an unreliable witness. Dr Kung’s close connection with the Foundation and the undeniable fact that the Foundation had actually received the HK$50 million did give rise to cause for the Plaintiffs’ claims. The fact that the Plaintiffs have not been successful in establishing the claims is not a reason for penalizing them with an indemnity costs order in the present circumstances.

239.  However, the COSCO claims warrant separate treatment. Two weeks before the trial was due to commence, the Plaintiffs, for the first time, confirmed that they would no longer pursue the COSCO Claims against the Foundation. I agree with the Foundation that costs on those claims should be on indemnity basis for the following reasons:

(1)  DHCJ M Ng (as she then was) had, 5 years before trial, dealt with the Solicitors’ application to strike-out similar COSCO Claims against the Solicitors as they were not reasonable causes of action. See the decision dated 18 May 2017 (“2017 Judgment”), §81. A valid argument can be made that the COSCO Claims should also be struck out on similar grounds.

(2)  At the pre-trial review, this Court asked the Plaintiffs as to the viability of the COSCO Claims against the Foundation, whereupon the Foundation referred to the 2017 Judgment.

(3)  The abandonment of the COSCO Claims was unreasonably late by any standard.

240.  As for the overall costs, I have queried at the pre-trial review whether the parties needed the full 14 days for trial. The parties never came back to adjust the time needed. In the end, only 7 out of 14 days were taken to dispose of the trial.

241.  Accordingly, whilst costs should follow the event, I direct the taxing master to do taxation on the notional basis that the trial period had been reduced to 7 days.

242.  I make an order nisi, that:

(1)  Costs on the COSCO Claims as against the Foundation be borne by the Plaintiffs on indemnity basis from 19 May 2017;

(2)  Costs of this action be taxed as if the trial had been fixed for 7 days;

(3)  Subject to sub-paragraphs (1) and (2), the Defendants’ costs of this action be borne by the Plaintiffs, to be taxed if not agreed; and

(4)  There be certificates for 2 counsel as regards the 4^th Defendant.

243.  I thank counsel for their assistance.