NATURAL DAIRY (NZ) HOLDINGS LTD (IN PROVISIONAL LIQUIDATION) v. CHEN KEEN (alias JACK CHEN) AND OTHERS

HCA 2218/2017

[2026] HKCFI 460

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2218 OF 2017

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D E C I S I O N

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A.  Introduction

1.  For reasons which will be apparent from below, and which include the connection with related criminal proceedings, this matter has proceeded slowly through the interlocutory process, though a Case Management Conference is fixed for 12 February 2026.

2.  In the meantime, the present consideration relates to matters only as between the Plaintiff (“P”) and the 1^st Defendant (“D1”) and the 3^rd Defendant (“D3”).

3.  On 31 December 2025, I heard two summonses:

(1)  D1’s summons dated 5 April 2024, seeking security for costs up to the exchange of witness statements in the estimated sum of HK$4.4 million; and

(2)  D3’s summons dated 11 November 2019 but amended on 2 May 2024, seeking to strike out selected paragraphs of the P’s Amended Statement of Claim (“ASOC”).

4.  At the hearing, P was represented by Ms Sharon Yuen of Counsel. D1 and D3 were each represented by Mr Brian Fan of Counsel. At the end of the hearing, I reserved my decision.

5.  This is my Decision.

B.  Background

6.  In so far as is necessary, I can set out the material background relatively succinctly. Though I have been given much more of the detail, I do not think it needs to be rehearsed for the purposes of this Decision.

7.  P is a Cayman Islands-incorporated company which was listed on the Hong Kong Stock Exchange (“SEHK”). Trading in P’s shares was suspended from 7 September 2020 until its listing was cancelled on 28 November 2022.

8.  D1 was the Joint Chairman, Executive Director and CEO of P from 7 May 2009 to 15 September 2009. It is P’s case that D1 remained a shadow or de facto director of P thereafter.

9.  D3 is D1’s wife.

10.  The 2^nd Defendant (“D2”) was a business associate of D1. At all material times, she was the sole director and owner of UNBZ Trustee, the vehicle used as the vendor in the material transaction acquisition (“Acquisition”).

11.  The 4^th Defendant (“D4”) is a Hong Kong company controlled by D1. The 5^th Defendant (“D5”) is a BVI company owned and controlled by D2.

12.  In these proceedings, P (under the control of Joint Provisional Liquidators) claims against D1 for breach of fiduciary duties with respect to the Acquisition entered into by P with entities under the control of D2 to acquire a number of dairy farms and assets to operate a dairy business in New Zealand.

13.  In short, in May 2009, entities under the control of D2 purchased the dairy assets for a total consideration of NZ$259 million. It is P’s case that P was not aware of this, but D1 (by then a director of P) was aware of this. Thereafter, P entered into agreements with entities under the control of D2 to acquire the same dairy assets in New Zealand at NZ$500 million – i.e. at almost double the price. The allegation is that D1 stood in a position of undisclosed conflict, secretly working with D2 to sell the assets to P at a highly inflated price.

14.  There is no dispute that P raised substantial funds for the Acquisition including through convertible notes and an optional bond, aggregating HK$955 million (“CDO Funds”).

15.  P claims substantial funds belonging to P and raised by P for the Acquisition had been paid out and diverted, of which a significant amount ended up with D1 and/or D3. At its most basic, the allegation is that the Acquisition was effectively a scheme operated by D1 and D2 to siphon off funds from P specifically raised for the Acquisition. It is said that various conduits were used to seek to conceal the misappropriation, and that some funds were used to purchase New Zealand properties (“NZ Property”) and discharge mortgages on property (“Mortgaged Properties”). Of the sums transferred to D3, of particular relevance are (1) the sum of HK$68.95 million (“D3 HK$68.95m Payment”) (routed through D4’s two accounts and D1’s personal solicitors) and (2) the sum of HK$24,221,420 (“D3 HK$24.2m Payment”) (routed through Nation Resources Ltd, a subsidiary of P).

16.  P also claims against D2 and the other Defendants for accessory liability in assisting D1 in his alleged breach of fiduciary duties (knowing receipt and dishonest assistance), and in conspiracy against all Defendants.

17.  These underlying events have also given rise to criminal proceedings.

18.  D1, D2 and an Eric Yee faced two counts of conspiracy to defraud the Stock Exchange of Hong Kong Ltd and P. D1 also faced a further count of dealing in property known or believed to represent the proceeds of an indictable offence, with the property said to be the alleged proceeds of the conspiracy to defraud. The accused were convicted after trial on both counts of conspiracy to defraud, and D1 was also convicted on the money laundering offence.

19.  Following an unsuccessful appeal to the Court of Appeal (“CA”), there was a further appeal to the Court of Final Appeal (“CFA”). The convictions were quashed and a retrial was ordered: see (2019) 22 HKCFAR 248. The basis of quashing the convictions was as a result of a duplicity problem arising from a situation of two conspiracies charged with different dishonest means alleged in a single count. It is of note that the CFA decided the final appeal without needing to address and decide two other grounds of appeal advanced, merely noting that they had some merit when leave was granted to bring the appeal.

20.  Upon retrial, D1 was convicted on four counts of conspiracy to defraud. He was sentenced to 7 years and 3 months imprisonment. But, D1 was acquitted of the additional count of money laundering.

21.  The matter is under an appeal, which has been argued and heard in January 2025, but where judgment is awaited. The appeal included two grounds similar to those on which the CFA had previously granted leave, but which it did not see the need to resolve in light of its rulings on other matters. It can also be noted that Macrae VP granted bail pending appeal to D1.

22.  D3 was charged with the offence of money laundering. She was convicted, but her conviction was quashed by the CA. At the re-trial before another District Judge, D3 was subsequently acquitted of all charges.

C.  Material Procedural History

23.  In 2019, D3 issued a summons seeking security for costs, which was ultimately ordered.

24.  D3 also issued a summons seeking to strike out certain paragraphs (“Impugned Paragraphs”) of the then statement of claim (SOC”). Originally, D3’s strike-out application was fixed for hearing on 29 September 2020. However, on the eve of the hearing, P was ordered to pay security for costs to D3, and P’s action against D3 was stayed pending payment. Consequently, the hearing was adjourned.

25.  In the meantime, on 7 October 2020, DHCJ Eva Sit SC (as she then was) heard an application for worldwide Mareva injunctions and proprietary injunctions against D1 to D4. She held (“Injunction Decision”) that a good arguable case had been established by P, and that it was appropriate in the circumstances to grant injunctive relief.

26.  Specifically, she held that a good arguable case had been established by P (1) against D1 for breach of fiduciary duty, to the extent of HK$776.07 million of the CDO Funds; (2) against D2 for dishonest assistance, to the same extent as D1 given her assistance was with respect to the entering of the SPA for the Acquisition and the receipt of consideration payable thereunder; and (3) against D3 for dishonest assistance, with respect to the D3 HK$68.95m Payment and her shares of the NZ Property and the Mortgaged Properties.

27.  Therefore, DHJC Eva Sit SC granted: (1) worldwide Mareva injunctions against (a) each of D1 and D2 up to HK$776.07 million, and (b) D3 up to the value of the HK$68.95m payment and her share of the NZ Property and Mortgaged Properties; and Proprietary injunctions against (a) D1 with respect to his share in the NZ Property and the Mortgaged Properties, and (b) D3 with respect to her share in the NZ Property and the Properties and the D3 HK$68.95m payment.

28.  In June 2022, P applied to amend its SOC, including to parts possibly significant to the present application. Neither D1 nor D3 objected to these amendments, which were therefore made in the ASOC. D1 and D3 also proceeded to file consequential amendments.

D.  D3’s Strike-Out Application

D.1  Introduction

29.  Following the amendments to the pleadings, D3 later amended and restored her strike-out application.

30.  As a result, D3 seeks an order that §§130-132, §146, §§194-199, and §§217-220 of the ASOC be struck out on one or more of the following grounds: (1) they disclose their reasonable cause of action; and/or (2) they are scandalous, frivolous or vexatious; and/or (3) they may prejudice, embarrass or delay the fair trial; and/or (4) they are otherwise an abuse of process of court.

31.  Those grounds are, of course, the well-known grounds provided for in Rules of the High Court (“RHC”) Order 18 rule 19.

D.2  Applicable Principles

32.  The principles generally applicable on an application made under that rule are trite, and can be traversed succinctly. Striking out is only for plain and obvious cases. There should be no trial upon affidavit. Disputed facts are to be taken in favour of the party sought to be struck out. The Court does not seem to decide difficult points of law in striking out proceedings. If the Court does not think the matter to be clear beyond reasonable doubt or if it fails to be satisfied that there is no reasonable cause of action or that the proceedings are frivolous or vexatious or obviously unsustainable, then, there should be no striking out.

33.  No evidence is admissible under the “no reasonable cause of action” ground. The Court simply looks at the pleading, assumes the truth of the facts as they are stated, and determines whether the claim is actionable in law. A point is “frivolous” when it is incapable of reasoned argument, without foundation or cannot possibly succeed. The “prejudice, embarrass and delay fair trial” ground applies to the situation where a party introduces a pleading which is unnecessary, and which tends to prejudice, embarrass or delay the trial of the action. The power to strike out for abuse of process connotes that the process of the Court must be used bona fide and properly and must not be abused. A prime example would be where the plaintiff begins a case without solid foundation hoping that something will turn up in the course of the proceedings.

34.  As to the pleading of fraud or conspiracy, it is settled that it must be distinctly pleaded with utmost particularity and distinctly proved, and it is not permissible to leave such pleas to be inferred from the facts.

35.  Indeed, in The New China Hong Kong Group Limited (In Creditors’ Voluntary Liquidation) v Ng Kwai Kai, Kenneth [2011] HKCFI 519 at §65, Fok JA (as he then was, sitting as an additional Judge of the Court of First Instance) also stressed the importance of particularizing facts properly in cases of fraud or dishonesty. Not only is it trite that fraud or dishonesty must be "distinctly alleged and as distinctly proved" and that it must be "sufficiently particularised", particulars of facts which are consistent with honesty are not sufficient. It is not open to the Court to infer dishonesty from facts which have not been pleaded or from facts which have been pleaded but are consistent with dishonesty.

36.  But it has also been pointed out that the practical reality of modern commercial life must also be considered. Fraud and conspiracy by their very nature are clandestinely difficult to uncover, so quite often proof is not readily obtained. Therefore, in an application to strike out a fraud or conspiracy claim, the Court will look at the application with care to these considerations. The broad question for the Court is whether from the facts as pleaded it can be argued that the defendants efficiently know the plaintiff’s case on the conspiratorial combination or agreement that they have to meet: see, for example, Ubiquiti Networks International Ltd v Chan Kim Chuen (unreported, HCA 1606/2016, 26 May 2017) at §81.

37.  I also keep in mind – as Ms Yuen invites me to – the observations of DHCJ Douglas Lam SC in Pacific Rainbow International Inc v Shenzhen Wolverine Tech Ltd (unreported, HCA 3023/2016, 2 May 2017) at §50, namely that a case brought by a plaintiff who seeks to trace and recover monies paid to the defendants as a result of an apparent fraud, and which monies have been subsequently onward transferred, may differ somewhat from ordinary commercial disputes where the court has to decide between two competing versions of events. The plaintiff may have no personal knowledge of the circumstances for the reasons for the money transfers, and whether the recipients are part of the apparent fraud or in fact innocent parties. The Court may need to form a broad brush view based on inherent improbabilities by reference to the available contemporaneous materials.

D.3  Preliminary Objections

38.  Ms Yuen raised 2 preliminary objections to the D3 Strike-Out Application, namely that:

(1)  the timing of D3’s application is peculiar; and

(2)  D3’s attempt to strike out the dishonest assistance claim against her in its entirety on the “no reasonable cause of action” limb is inconsistent with the Injunction Decision.

39.  I will first deal with these preliminary objections, each in turn.

D.3.1  Timing of Application

40.  After P provided security for D3’s costs in October 2020 (and the strike-out hearing was subsequently re-fixed for 20 January 2021), on 17 November 2020 D3 proposed to adjourn that hearing sine dine on the basis that she did not have sufficient funds to proceed on the strike-out hearing.

41.  In June 2022, P applied to amend its SOC, including proposed amendments to the paragraphs which D3 previously sought, and now continues to seek, to strike out. D3’s Strike-Out Application was not restored for over 3 years until April 2024, when D3 applied to amend the reference to SOC in the Summons to the ASOC.

42.  Ms Yuen submits that, since D3’s Strike-Out Application was extant at the time P applied to amend its SOC, D3 should have opposed the amendment application if D3 had considered the proposed amendments to be unsustainable: see Natamon Protpakorn v Citibank NA [2009] 1 HKLRD 455 at §25, which states that leave to amend is readily granted before the trial unless it can be demonstrated that the new claim based on the proposed amendment is bound to fail.

43.  Ms Yuen argues that proper procedure dictates that the amendment application would then be adjourned for argument together with a strike-out application. If the proposed amended pleadings should not be struck out, then the application to amend should be allowed and consequently the application to strike out should be dismissed. Therefore, Ms Yuen submits, as D3 did not oppose the amendments to the SOC, she should not now be allowed to raise these oppositions at the strike-out application stage.

44.  On the other hand, Mr Fan suggests that this is equivalent to an argument of res judicata, which does not apply to interlocutory proceedings, at least not with the same force. Whether D3’s Strike-Out Application constitutes an abuse of process depends on the particular circumstances of the case upon a broad merits-based assessment. Further, the point having been raised only in argument, the Court can take into account the lack of opportunity for D3 to explain in evidence why she did not oppose P’s application to amend the SOC in 2022, or raise such objections at the Injunction hearing: see Universal Corporation v Kazuo Okada [2020] HKCFI 1406 at §43. Mr Fan suggests there may yet be the possibility of an innocent explanation for D3 restoring D3’s Strike-Out Application by reason of D3’s indication that she did not have the funds to secure legal funding in 2021, when the application was adjourned and before the SOC was amended.

45.  Further, it is not the case that D3 unsuccessfully contested the amendment application. Rather, D3 did not oppose the amendments at all at that stage; as such, this is “one level removed from the classic case of Henderson abuse where there was a lost, contested application”. Whilst D3 could have opposed the amendments, even if D3 had done so the Court would have assessed the strike-out application on the draft amendments anyway. Hence, Mr Fan submits, there is no practical or substantive difference between re-raising the point at the amendment stage and raising it now in D3’s Strike-Out Application. Mr Fan points me to the principles laid out by Popplewell LJ in Koza Ltd v Koza Altin Isletmeleri AS [2021] 1 WLR 170 at §42 (first part):

42. The Henderson and Hunter principles apply to interlocutory hearings as much as to final hearings. Many interlocutory hearings acutely engage the court’s duty to ensure efficient case management and the public interest in the best use of court resources. Therefore the application of the principles will often mean that if a point is open to a party on an interlocutory application and is not pursued, then the applicant cannot take the point at a subsequent interlocutory hearing in relation to the same or similar relief, absent a significant and material change of circumstances or his becoming aware of facts which he did not know and could not reasonably have discovered at the time of the first hearing. This is not a departure from the principle in Johnson v Gore Wood & Co [2002] 2 AC 1 that it is not sufficient to establish that a point could have been taken on an earlier occasion, but a recognition that where it should have been taken then, a significant change of circumstances or new facts will be required if raising it on a subsequent application is not to be abusive. The dictum in Woodhouse v Consignia plc [2002] 1 WLR 2558 that the principle should be applied less strictly in interlocutory cases is best understood as a recognition that because interlocutory decisions may involve less use of court time and expense to the parties, and a lower risk of prejudice from irreconcilable judgments, than final hearings, it may sometimes be harder for a respondent in an interlocutory hearing to persuade the court that the raising of the point in a subsequent application is abusive as offending the public interest in finality in litigation and efficient use of court resources, and fairness to the respondent in protecting it from vexation and harassment. The court will also have its own interest in interlocutory orders made to ensure efficient preparations for an orderly trial irrespective of the past conduct of one of the parties, which may justify revisiting a procedural issue one party ought to have raised on an earlier occasion. …

46.  However, Ms Yuen points me to the latter half of §42, which states:

42. … There is, however, no general principle that the applicant in interlocutory hearings is entitled to greater indulgence; nor is there a different test to be applied to interlocutory hearings. In every case the principles are those identified in paras 30–40 above, the application of which will reflect that within a single set of proceedings, a party should generally bring forward in argument all points reasonably available to him at the first opportunity, and that to allow him to take them serially in subsequent applications would generally permit abuse in the form of unfair harassment of the other party and obstruction of the efficacy of the judicial process by undermining the necessary finality of unappealed interlocutory decisions.

47.  But I am inclined to agree with Mr Fan. I do not think D3 is asking for “greater indulgence” at this interlocutory hearing to rehear matters that were previously decided. Rather, P’s application to amend the SOC was unopposed by D3, and it can be said that the points now raised are raised for the very first time.

48.  Moreover, I note that the substance and target of a number of D3’s pleading objections do not actually relate to amendments made by P in the ASOC. Firstly, §146 of the ASOC was not the subject of substantive amendments, nor was it the subject of P’s application for injunction. Secondly, the crux of D3’s objections to ASOC §§194-199 relate to phrases which were present prior to the amendments, i.e. “knew or ought reasonably to have known or suspected” at ASOC §194 and “receiving the HSBC Payments and/or permitting the Chen Property Payments to be used to purchase the NZ Property and pay down the loans of the Mortgaged Property” at §195. Similarly, part of D3’s objections to §§217-220 relates to the plea that “D1 and D3 were reckless as to whether their actions would cause P loss and damage”, which again was present prior to the amendments. Hence many, if not all, of these claims carry the same substantive effect even if the amendments were not present.

49.  In any case, the parties came fully prepared to argue the merits of D3’s Strike-Out Application. I would not shut out consideration of it on the basis of this preliminary objection.

D.3.2  Inconsistent with Injunction Decision

50.  Ms Yuen also contends that D3’s attempt to strike out the “dishonest assistance” claim (§§194-199 ASOC) in its entirety on the “no reasonable cause of action” limb is inconsistent with the Injunction Decision, on the basis that a good arguable case was found by DHCJ Eva Sit SC against D3 for the dishonest assistance claim in the Injunction Decision, and D3 should not be allowed to re-litigate the merits of the entirety of P’s the dishonest assistance claim.

51.  Ms Yuen submits that D3, in resisting the injunction application, had argued that the particulars of knowledge pleaded at §§194-195 are insufficient for dishonest assistance. In granting the worldwide Mareva injunctions and proprietary injunctions against D3, DHCJ Eva Sit SC found a good arguable case had been established against D3 for the dishonest assistance claim, with respect to the HK$68.95m Payment as well as D3’s share of the NZ Property and the Mortgaged Properties.

52.  Further, D1 and D3 sought leave to appeal against the Injunction Decision. But, on 1 April 2021, Madam Recorder Eva Sit SC dismissed the application. Whilst D1 subsequently sought leave to appeal from the Court of Appeal – see Natural Dairy (NZ) Holdings Ltd v Chen Keen (Alias Jack Chen) [2022] HKCA 246 – D3 did not seek further leave to appeal the Injunction Decision.

53.  Ms Yuen submits that, in the circumstances where 5 years have passed since the Injunction Decision, deciding that the dishonest assistance claim against D3 has met the threshold of “good arguable case”, it must logically meet the lower “not bound to fail” threshold for resisting a strike-out application.

54.  Conversely, Mr Fan submits that the “good arguable case” threshold is different from that required for a finding of “no reasonable cause of action” for the purposes of strike-out: see Zimmer Sweden AB v KPH Hong Kong Ltd (unreported, HCA 2264/20130, 2 May 2014) at §§84-86. As I understand it, the distinction drawn is between the considerations involved in an injunction hearing (which invariably take into account the “totality of evidence” provided by the parties and not just the pleading), and procedural hearings such as strike-out applications (which are concerned, on the no reasonable cause of action limb, with the pleading itself). Here, D3 is challenging what is said to be a defective pleading, rather than challenging the merits of the case pleaded (which would be considered on the evidence).

55.  I accept this as a possible way to distinguish between the substantive way in which injunction applications are dealt with as opposed to strike-out applications. But, it seems to me that the procedural history of this case does not give rise to any complete bar to the hearing of the current strikeout application. Again, the matter has been fully argued, and I will deal with it. I shall address each challenged area as follows.

D.4  §§130-132 of the ASOC

56.  At the hearing, Mr Fan accepted that it is not plain and obvious that §§130-132 of the ASOC, which deal with the reflective loss claim, should be struck out, and D3 would no longer contest this issue.

57.  Therefore, in so far as it is necessary for me formally to do so, I dismiss the application as regards those paragraphs.

D.5  §146 of the ASOC

58.  D3 seeks to strike-out §146 and Schedule 8 referred to in it on three grounds under Order 18 rule 19(1)(a), (c) and (d) – namely that it discloses no reasonable cause of action, and/or it may prejudice, embarrass or delay the fair trial of the action, and/or it is otherwise an abuse of the process of the court.

59.  §146 in full – together with the heading immediately above it – is as follows:

Other payments made to the 3^rd Defendant’s HSBC Account

146. The JPL’s investigations have revealed further substantial payments into the 3^rd Defendant’s HSBC Account between 22 June 2010 and 19 October 2011 totaling HK$114,400,749.18 (approximately NZ$19,721,300). A full list of the payments is set out in Schedule 8. The JPLs are continuing to investigate the source of these payments to establish whether they are connected to the misappropriation of the Acquisition Funds. The Plaintiff reserves the right to further amend this Amended Statement of Claim accordingly.

60.  Schedule 8 of the ASOC sets out the particulars of payments made to D3’s HSBC Account, totalling 15 payments between 22 June 2010 and 19 October 2011 (“15 Payments”). D3 alleges that none of the 15 Payments were from P, and that a payment of HK$500,000 was said to be from an “Unnamed Person”.

61.  Mr Fan submits that:

(1)  P has made no attempt to plead a reasonable cause of action with respect to the 15 Payments received by D3 from third parties, nor has P pleaded any cause of action in the 6 years that have passed since D3’s strike-out summons was first taken out in 2019.

(2)  P’s assertion that there were doubts on the “substantial payments” received by D3 (expressed through P’s deponent Jong’s 3^rd affirmation) is irrelevant because affirmation evidence is irrelevant to a challenge that there is no reasonable cause of action pleaded.

(3)  P’s claims – that D3 makes no attempt to explain the basis on which she received such substantial payments, and that at the very least D3 should be required to give discovery in relation to these receipts – are a ‘fishing expedition’ by P, hoping to discover something at discovery or cross-examination.

(4)  That is a matter which may prejudice, embarrass or delay a fair trial, and amounts to an abuse of process.

62.  On the other hand, Ms Yuen submits that some of the 15 Payments under Schedule 8 relate to payments D3 claims to have received from D4 as consideration under the Transfer Agreement (as defined in the pleading), and are therefore relevant to D1 and D3’s pleaded case on the Transfer Agreement. It is further said that the HK$50 million payment into D3’s HSBC account on 2 September 2010 – see Schedule 8 item (d) – was a repayment of a bridging loan extended to D3’s acquaintance Lisa Du. Ms Yuen submits that the veracity of D3’s account in relation to the HK$50 million transfer is relevant to the true circumstances surrounding the alleged D3 Loan Agreements between 13 September 2010 and 17 November 2010, which is close-in-time to the alleged 50M Loan, and similarly interest-free and without security.

63.  First, I note that §146 of the ASOC seems to exist as a standalone paragraph, independent of any of P’s pleaded causes of action. It appears separately under the heading “Other payments made to the 3^rd Defendant’s HSBC Account”, and is the only paragraph under that heading – though I note that this heading is perhaps one of many of a similar ‘level’ below the ‘higher level’ heading of section E of the ASOC ‘USE OF ACQUISITION FUNDS’, which begins at §107 and continues to §146. This in turn is immediately before section F of the ASOC which seems to go on to set out the particular claims against the defendant on particular causes of action advanced.

64.  Ms Yuen concedes that §146 is not meant to disclose a cause of action on its own, but she submits that some of the 15 Payments set out in Schedule 8 relate to payments received by D3 under the Transfer Agreement, which is said by P to be a key aspect of D1 and D3’s defence. She points to (1) an already pleaded case in the ASOC on the Transfer Agreement, which is said to be one of a series of agreements which were not bona fide, genuine or legitimate commercial transactions, but sham transactions to conceal the misappropriation of Acquisition Funds from P and (2) other matters pleaded as regards D3’s HSBC account. As such, Ms Yuen submits this is not a ‘fishing expedition’, because the transactions are plainly relevant to D1 and D3’s pleaded case. Hence, contrary to D3’s assertions, it is not plain and obvious that the 15 Payments in Schedule 8 are completely irrelevant/immaterial, and therefore §146 should not be struck out.

65.  However, §146 is the only time these transfers are referred to in the ASOC. It is odd – and it seems to me to be incorrect – to claim that §146 relates to any pleaded cause of action, where there are no further references to the 15 Payments, either in the particulars specifically against D3 or more generally against other defendants to this action. Indeed, on its face, §146 reads like the expression of suspicion about the 15 Payments and the attempted reservation of the right actually to plead something more than mere suspicion on some future occasion, if anything turns up upon further investigation. In other words, this reads to me expressly like an intended ‘place-holding’ pleading, pending anything which might turn up in future, including from a ‘fishing expedition’.

66.  Further, although Ms Yuen points to the HK$50 million transfer as allegedly relevant to the “true circumstances surrounding the Alleged D3 Loan Agreements between 13 September 2010 and 17 November 2010” due to their proximity in time and the similarity of circumstances in which the transfers were made/received, this is not actually pleaded in the ASOC.

67.  I have already noted that it is an abuse of process to start a case without a solid foundation, hoping that something will turn up in the course of the proceeding for example at the stage of discovery or on cross-examination, or to stop time from running: see The New China Hong Kong Group Limited (In Creditors’ Voluntary Liquidation) v Ng Kwai Kai, Kenneth [2011] HKCFI 519 at §70.

68.  I am also inclined to agree with Mr Fan (on preliminary examination of Schedule 8) that P is not the payer of any of the 15 Payments there set out. Any allegations that the 15 Payments were linked to any alleged misappropriation would be material facts which should have been pleaded with respect to the specific sum said to be misappropriated from P.

69.  It is difficult for the other parties to know precisely the nature of the case that they have to meet on §146. As I say, on the face of the pleading, P merely questions the purpose of the 15 Payments without full knowledge of the circumstances in which the payments were received, and it does appear that P is attempting or hoping to ascertain the way in which these payments are related to P’s causes of action before properly pleading it in the ASOC. That is a situation where, as Mr Fan rightly points out, P is trying to “salvage” the Schedule 8 Payments by submitting that they relate to the Transfer Agreement (to which P is not a party). As such, I find that ASOC §146 discloses no reasonable cause of action and is an abuse of process.

D.6  §§194-199 of the ASOC

70.  §§194-199 of the ASOC read as follows:

194. As set out above, the 1^st Defendant committed numerous breaches of the fiduciary duties which he owed to the Plaintiff by causing and/or procuring and/or permitting the Acquisition Funds to be used to make the Chen Family Payments. At all material times the 3^rd Defendant knew or ought reasonably to have known or suspected that the 1^st Defendant was acting in breach of duty in doing so. Paragraph 170 above is repeated.

195. The 3^rd Defendant assisted the 1^st Defendant in the commission of the aforementioned breaches by (i) receiving the HSBC Payments and/or permitting the Chen Property Payments to be used to purchase the NZ Property and pay down the loans on the Mortgaged Properties and/or (ii) facilitating the concealment of the misappropriation and/or diversion of the Acquisition Funds to make Chen Family Payments from the Plaintiff, including by entering into the Transfer Agreement and the D3 Loan Agreements to conceal the aforesaid by dressing up the making of the HSBC Payments as genuine and/or legitimate commercial transactions.

196. At all material times, the 3^rd Defendant’s actions transgressed the ordinary standards of honest behaviour and she acted dishonestly in rendering assistance to the 1^st Defendant’s breaches of duties and/or trust. The dishonesty of the 3^rd Defendant is apparent or is to be inferred from the fact that she well knew or turned a blind eye to or was recklessly indifferent to the fact that the 1^st Defendant acted in breach of duties and/or trust by causing and/or procuring and/or permitting the Acquisition Funds to be used to make the Chen Family Payments. The Plaintiff also relies on the matters pleaded at paragraph 170 above.

197. By reason of the wrongful acts of the 3^rd Defendant as set out above, the Plaintiff has suffered loss and damage, including in particular the amount of the HSBC Payments and the Chen Property Payments. In the premises, the 3^rd Defendant is liable to pay damages and/or equitable compensation in respect of the loss and damage suffered by the Plaintiff as a result of the dishonest assistance of the 3^rd Defendant as pleaded above.

198. Further or alternatively, by reason of the facts and matters pleaded above, the 3^rd Defendant is liable to account to the Plaintiff as constructive trustee for any benefits she personally received as a consequence of dishonestly assisting the 1^st Defendant in relation to the Acquisition including any commissions or profits (of whatsoever nature) she has received consequent thereon. Further, or alternatively, the Plaintiff is entitled to recover those benefits by following and/or tracing the same. The Plaintiff will seek an account of all sums due to it (further or alternatively an inquiry into the same) together with an Order for the payment of all sums due on the taking of such account (and/or inquiry).

199. Further or alternatively, the Plaintiff is entitled to a declaration that all the Acquisition Funds received by the 3^rd Defendant and/or the proceeds thereof and/or any assets on which such sums or any part thereof have been expended constitute in equity the property of the Plaintiff and an order that the 3^rd Defendant do transfer to the Plaintiff, or procure the transfer to the Plaintiff of, any assets to which the Plaintiffs are beneficially entitled and which assets in whole or in part may be said to represent or constitute the product of the Acquisition Funds.

71.  Because of the references back to §170, it may be helpful to set out the content of that paragraph as well:

170. As also above pleaded, at all material times, the 3^rd Defendant was the wife of the 1^st Defendant and a housewife. The 3^rd Defendant knew, or reasonably ought to have known or suspected that:

(a) she had no equitable or legal right to receive any part of the Chen Family Payments; and

(b) the 1^st Defendant had no equitable or legal right to receive any part of the Chen Family Payments; and/or

(c) the Chen Family Payments constituted breaches of duty and/or breaches of trust on the part of the 1^st Defendant and/or were not in the best interests of the Plaintiff and/or were not made for the proper purposes of the Plaintiff’s business.

More specifically, as pleaded above (i) the 3^rd Defendant is a party to the Transfer Agreement together with the 4^th Defendant (owned and/or controlled by the 1^st Defendant), which is a sham to conceal the misappropriation of Acquisition Funds; and (ii) the 3^rd Defendant knew that she did not contribute her own funds to make the D3 Loans, and/or new, turned a blind eye to or was recklessly indifferent to the fact that the source of the D3 Loans was the Acquisition Funds.

72.  These paragraphs §§194-199 relate to P’s claims against D3 for dishonest assistance arising from the defined Chen Family Payments. D3 seeks to have them all (i.e. the entirety of the dishonest assistance claim) struck out on the bases that (1) the reference to “at all material times [D3] knew or ought reasonably to have known or suspected that [D1] was acting in breach of duty” is fatal to P’s dishonest assistance claim, and hence discloses no reasonable cause of action, and (2) P’s pleading of D3 “receiving the HSBC Payments and/or permitting the Chen property payments to be used to purchase the NZ Property and pay down the loans on the Mortgaged Property” cannot support a case of dishonest assistance.

73.  On the first point, it appears D3 takes particular issue with the wording of “knew or ought reasonably to have known or suspected”. Mr Fan submits that it conflicts with the plea that D3 was dishonest given there was no alleged “actual knowledge”, and therefore it cannot be open to the Court to find fraud. Ms Yuen contends that this is not fatal to P’s case of dishonest assistance on the basis that “imprudence may be carried recklessly to lengths which call into question the honesty of the person making the decision”: see Royal Brunei Airlines v Tan [1995] 2 AC 378 at §389H-391B.

74.  In determining whether D3 was acting dishonestly for the purposes of striking out, one can only look to the pleadings alone on an assumption that the facts pleaded in it are true. As to the approach, see the Royal Brunei Airlines case at §391:

An honest person would have regard to the circumstances known to him, including the nature and importance of the proposed transaction, the nature and importance of his role, the ordinary course of business, the degree of doubt, the practicability of the trustee or the third party proceeding otherwise, and the seriousness of the adverse consequences to the beneficiaries. The circumstances will dictate which one or more of the possible courses should be taken by an honest person. He might, for instance, flatly decline to become involved. He might ask further questions. He might seek advice, or insist on further advice being obtained. He might advise the trustee of the risks but then proceed with his role in the transaction. He might do many things. Ultimately, in most cases, an honest person should have little difficulty in knowing whether a proposed transaction, or his participation in it, would offend the normally accepted standards of honest conduct ... Likewise, when called upon to decide whether a person was acting honestly, a court will look at all the circumstances known to the third party at the time.

75.  Mr Fan points me to Top Point Ltd v K&L Gates (A Firm) [2020] 1 HKLRD 814 at §19, where Lok J held that a “rolled up plea” – i.e. a plea which, on its face, alleges actual or alternative constructive knowledge – is not treated as making two alternative allegations. Instead, it is treated as a single allegation that a person ought to have known. Therefore, where a claim involves an allegation of dishonesty or fraud which requires a plea of actual knowledge, and yet the pleader only makes a rolled-up plea, the claim is liable to be struck out for disclosing no reasonable cause of action or defence or being embarrassing.

76.  But Ms Yuen submits that, not least in light of the Royal Brunei Airlines case, the way in which §194 is pleaded is not fatal to P’s case of dishonest assistance. What D3 ought reasonably to have known about D1’s acting in breach of duty could well be evidence that D3 acted dishonestly by objective standards. Further, actual knowledge is not a prerequisite to dishonesty, and actual knowledge that someone is acting in breach of duty or breach of trust is not necessary to ground a claim of dishonest assistance.

77.  I agree with Ms Yuen that the complaint about the wording “ought reasonably to have known” in §194 cannot justify the striking out of the entirety of the dishonest assistance case against D3. It is correct that in the Top Point Ltd case, Lok J held that the plaintiff should have made clear that they were pleading “blind-eye” knowledge and not just carelessness or negligence on the part of the defendants. However, Lok J only struck out the specific wording of “ought to have known” in the pleading, and further granted general leave to the plaintiff to amend their pleading and particularize their case.

78.  It follows, therefore, that a defective pleading as to the knowledge requirement in a dishonesty plea would not necessarily be fatal to P’s pleading as a whole. It is not plain and obvious that this is a pleading that is “unarguably bad” or so beyond the possibility of correction that it should be struck down as a whole.

79.  Further, in China Shanshui Cement Group Limited v Zhang Caikui [2025] HKCFI 1868 at §391-393, I attempted a summary of the following principles on dishonest assistance:

391. The general requirements for dishonest assistance liability are as follows: (1) there is a trust; (2) there is a breach of trust by the trustee of that trust; (3) the defendant induces or assists that breach of trust; and (4) the defendant does so dishonestly.

392. Whether someone has acted dishonestly is to be evaluated objectively, based on the person’s subjective knowledge. It may consist in knowledge that the transaction is one in which he cannot honestly participate, or it may consist in suspicion combined with a conscious decision not to make any enquiries which might result in knowledge. Although a dishonest state of mind is a subjective mental state, the standard by which the law determines whether it is dishonest is objective. If by ordinary standards a defendant’s mental state would be characterised as dishonest, it is irrelevant that the defendant judges by different standards. The Court will take into account the circumstances known to the person providing the assistance, his personal attributes such as his experience and intelligence, and the reason why he acted as dead.

393. In this context, ‘blind-eye’ knowledge is equated with actual knowledge. But the imputation of ‘blind-eye’ knowledge requires two considerations to be satisfied: (1) the existence of a suspicion that certain facts may exist, which is to be judged subjectively by reference to the beliefs of the relevant person; and (2) a conscious decision to refrain from taking any step to confirm their existence, where the decision to avoid obtaining confirmation must be deliberate.

80.  Here, on the facts alleged by the pleadings, in the circumstances known to her, D3 ought reasonably to have at the very least inquired as to the nature of the source of the funds that were received by her, and by failing to do so and/or “turning a blind eye” it could very well be argued that D3 acted dishonestly. Ms Yuen also submits that the plea of dishonesty is expressly pleaded at ASOC §196, and that it is clear and unequivocal that P’s case is that D3 “rendered assistance dishonestly, which transgressed ordinary standards of honest behaviour”. I accept that point.

81.  On the second point, Mr Fan submits that mere passive receipt of misappropriated funds or the benefit thereof does not amount to assistance. Therefore, he says, in respect of the HK$68.95m Payment and HK$24,221,420 Payment received into D3’s HSBC Account, and in respect of “permitting Chen Property Payments” in §195 Limb (i), these pleas cannot support a case of actionable assistance, particularly where §195 Limb (ii) pleads a more active form of dishonest assistance, being “facilitating the concealment of the misappropriation and/or diversion of the Acquisition Funds to make Chen Family Payments from the Plaintiff, including by entering into the Transfer Agreement and the D3 Loan Agreements to conceal the aforesaid by dressing up the making of the HSBC Payments as genuine and/or legitimate commercial transactions”.

82.  Ms Yuen submits that this is not a case where D3 is a wholly passive recipient. P’s dishonest assistance case against D3 must be taken as a whole to determine if D3 is merely a “wholly passive” recipient, and §195 Limb (i) cannot be read on its own to justify a finding that that D3 was a “wholly passive” recipient. I accept that submission.

83.  Indeed, it is not plain and obvious to me that P’s case on dishonest assistance should fail at this juncture. I certainly do not see how P’s entire claim in this regard must fail. I resist any invitation, or any temptation, to descend further into the factual arguments by reference to the evidence, which seems to me to fall foul of the requirement that there should be no trial on affidavit. It is not plain and obvious that D3 has not acted dishonestly, and this is a fact-specific matter to be determined at trial.

84.  I have considered whether I should strike out the phrase “ought reasonably to have known or suspected” in §194, but also grant general leave to P to amend §194 better to particularize its case. However, I do not think that is the appropriate course. First, the attack mounted as to the whole of the dishonest assistance claim (even if a particular phrase in the pleadings is used as part of the argument). Secondly, even that wording viewed in the context of the relevant pleading as a whole, I cannot see that the dishonest assistance claim is plain and obviously want to be struck out.

85.  Therefore, I refused this aspect of D3’s Strike-Out Application.

D.7  §§217-220 of the ASOC

86.  §§217-220 of the ASOC are as follows:

217. From approximately 12 March 2010 (at the latest) and after, the 3^rd Defendant wrongfully conspired and combined together by unlawful means with the 1^st Defendant to defraud the Plaintiff by misappropriating and/or diverting the Acquisition Funds of the Plaintiff to make the Chen Family Payments for the benefit of the 1^st and/or 3^rd Defendants and to conceal such fraud and the proceeds of such fraud from the Plaintiff (“D1&D3 Conspiracy”). Pending discovery and interrogatories, the Plaintiff will rely on the matters pleaded at Section E above insofar as the Chen Family Payments are concerned, paragraphs 152 (the breach of duties of the 1^st Defendant) and paragraphs 194 to 196 (the dishonest assistance of the 3^rd Defendant) to prove the existence and terms of the D1&D3 Conspiracy.

218. Pursuant to and in furtherance of the D1&D3 Conspiracy, the 1^st Defendant carried out the breach of duties as pleaded at paragraph 152 above by diverting the Acquisition Funds to make the Chen Family Payments and the 3^rd Defendant dishonestly assisted the breach of duties of the 1^st Defendant as pleaded at paragraphs 194 to 196 above, as a result of which the Plaintiff suffered loss and damage. At all material times, the 1^st Defendant and the 3^rd Defendant knew, or were reckless as to whether their aforesaid actions were unlawful, including whether the receipt and use of the Chen Family Payments constituted unlawful breaches of the duties which the 1^st Defendant owed to the Plaintiff.

219. Further, at all material times, the 1^st Defendant and the 3^rd Defendant knew and intended that their actions would cause the Plaintiff loss and damage. Their intention to injure the Plaintiff is to be inferred from the fact that they took concerted action in furtherance of a common design to carry out the D1&D3 Conspiracy and to conceal the same from the Plaintiff by way of, inter alia, the Transfer Agreement and the D3 Loan Agreements. Alternatively, the 1^st Defendant and the 3^rd Defendant were reckless as to whether their actions would cause the Plaintiff loss and damage.

220. By reason of the wrongful acts of the 1^st Defendant and 3^rd Defendant as set out above, the Plaintiff has suffered loss and damage, including in particular the amount of the Chen Family Payments.

87.  These are pleas which have been significantly amended from those in the SOC at the time the strike-out application was originally launched in 2019. The amendments seek to plead the alleged overt acts relied upon in support of the allegation of an unlawful means conspiracy.

88.  D3 invites this Court to strike out the above paragraphs on the basis that the “overt act” relied upon to plead the unlawful means conspiracy is the alleged dishonest assistance of D3, and the unlawful means conspiracy against D3 fails if the dishonest assistance pleas are struck out. As to this point, my above findings relating to the dishonest assistance claim precludes further argument.

89.  However, Mr Fan also submits that §§217-220 should be struck out for the reason that the plea of recklessness in §219 is inconsistent with the essential element of “intention to cause loss” in unlawful means conspiracy claims.

90.  In the Top Point Ltd case at §43, Lok J distinguished between “ought to have known” and “blind-eye knowledge”, finding that mere negligence or carelessness on the part of the defendant cannot sustain a case on conspiracy to injure the plaintiff. He pointed to the difference between a phrase which suggests carelessness or negligence and one which suggests something like recklessness, or turning a blind eye to something that is quite obvious. He was prepared to accept that ‘blind eye knowledge’ may approximate to ‘knowledge’, but he thought that to avoid confusion and embarrassment, the pleading should be amended to make clear that the plaintiff was not relying on mere constructive knowledge, or carelessness or negligence, to support the claim of conspiracy to injure.

91.  Again in China Shanshui Cement Group Limited v Zhang Caikui [2025] HKCFI 1868 at §354, I also considered the intention to injure element of unlawful means conspiracy as follows:

(1) Knowledge and intention are connected, because the element of intention to injure (and indeed acting in concert) cannot be inferred in the absence of the requisite knowledge.

(2) This is why there must be sufficient identity of object amongst the parties to a conspiracy or combination, even though the advantage to be derived from that same object may not be the same.

(3) Possession of a separate aim may be evidence that the person concerned has not participated in the conspiracy combination at all, at any rate if he acted throughout in ignorance of the true facts.

(4) The suggestion that the Court can adopt a test of “constructive intent”, derived from the fact that the defendant should have known the injury to the plaintiff would ensue, is contrary to the requirement for the unlawful means to be directed towards the plaintiff.

(5) Hence, it is not sufficient in seeking to meet the element of intention to show merely that there was knowledge to found an awareness of the likelihood of particular consequences.

(6) Rather, lesser states of mind, such as an appreciation that the course of conduct would inevitably harm the plaintiff, would not amount to an intention to injure.

(7) The unlawful acts in question must be the instrument by which the loss is inflicted.

(8) Unlawful acts will not be the instrument in this sense, if the unlawful acts are only incidental to, or collateral to, the loss.

(9) This is because the unlawful means must be the means by which the defendant intended the harm to the plaintiff, and the means by which the harm is intentionally inflicted.

92.  Reading Top Point Ltd in conjuncture with China Shanshui Cement Group Ltd, it is clear that the “lower” knowledge requirement of carelessness, i.e. “should have known”, is not enough for a finding of intention to injure. However, that does not mean that only the most stringent finding that a defendant objectively intended to injure the plaintiff would satisfy the requirement. Thus, the standard to be met is one that may lie in the middle. I find that recklessness, in the manner that a defendant knew his acts would likely injure the plaintiff and consciously disregarded such an outcome, would suffice.

93.  Indeed, I agree with Ms Yuen that it is not plain and obvious from E D & F Man Capital Markets v Come Harvest Holdings Ltd [2022] EWHC 229 that recklessness can never satisfy the requisite intention for unlawful means conspiracy. It was held at §489 that, if harm to the claimant was the necessary consequence of the defendant’s actions and the defendant knew this, then although the purpose of the defendant’s action was not to harm the claimant, he/she will be considered as having intended to harm the claimant. Insofar as harm to the plaintiff is the outcome of the defendant’s actions, the defendant need not have deliberately intended to harm the plaintiff.

94.  As such, I dismiss the application to strike out §§217-220.

E.  D1’s Security for Costs Application

E.1  Introduction

95.  D1’s application for security for costs up to the stage of witness statements is made under section 905 of the Companies Ordinance Cap 622 (“CO”). The estimated costs sought by way of security total HK$4.4 million, set out in the expected skeleton bill of costs.

E.2  Applicable Principles

96.  The applicable principles are well known. The Court adopts a two-stage test for security for costs, consisting of the jurisdiction stage and the discretion stage.

97.  If the applicant can show that the Court has jurisdiction to order security under one of the grounds set out in Order 23 rule 1(1)(a)-(d) or section 905 of the CO, the Court will proceed to consider whether it is appropriate in the circumstances of the case to exercise the discretion to make an order for security, and if so in what amount.

98.  The exercise of discretion involves having regard to all of the circumstances of the case. Those circumstances include taking into account the merits of the plaintiff’s claim. Hence, if the plaintiff’s case is genuine and strong, it may be that no order for security would be granted. On the other hand, an order for security would usually be granted if the plaintiff cannot clearly demonstrate that it has a high degree of probability of success at trial. Reference can also be made to considering the defendant’s prospects of success, including whether it has an arguable defence. These are matters to be approached on a broad-brush basis.

99.  Consistent with this broad-brush approach, it is not necessary for the plaintiff to demonstrate a high probability of success in every single cause of action, or on both liability and quantum. Security for costs may be refused where the plaintiff demonstrates a high probability of success on one of the various causes of action, or where there is demonstrated a strong likelihood of success on liability, even though quantum is more questionable.

100.  However, it is not the function of the Court to make a preliminary assessment at deciding the ultimate success or failure of the claim. Therefore, the Court should not delve into the respective merits of the parties’ cases, unless it can clearly be demonstrated one way or the other that there is a high probability of success or failure.

101.  While it is relevant that the plaintiff’s impecuniosity is caused by the defendant, if the allegation depends on the relative merits of the parties’ cases, the Court should avoid delving into the respective merits, again unless it can be clearly demonstrated one way or the other that there is a high probability of success or failure.

102.  Whilst the delay is not in itself a bar to making an application for security for costs, delay is a relevant consideration to the exercise of the Court’s discretion to order security, and if so as to how much.

E.3  Jurisdiction Stage

103.  P is in liquidation, so that there is prima facie evidence that he would be unable to pay the costs, in the absence of evidence to the contrary. Here, there is no evidence to the contrary, and there is also no evidence or assertion that P’s claim will be stifled if ordered to pay security.

104.  I am satisfied that there is jurisdiction to make an order for security for costs, and it is appropriate to consider whether to do so in the exercise of my discretion. To be fair, Ms Yuen does not contest the jurisdiction point, but raised various reasons as to why she says the Court should not exercise its discretion to make any order for security for costs in favour of D1.

E.4  Discretion Stage

105.  In the affidavit evidence filed for P in opposition to the application, the basis of opposition was threefold: (1) P’s claim is bona fide; (2) P has a reasonably good prospect of success; and (3) P’s present want of means is brought about by the conduct of D1. However, all of these points essentially come back to the merits of the claim, and that is the focus of Ms Yuen’s submissions. Assuming the claim is bona fide, she says that P can demonstrate, primarily by reference to the Injunction Decision and D1’s criminal convictions, that P enjoys a high probability of success, at least with respect to its core claims against D1 for breach of fiduciary duties and misappropriation of Acquisition Funds.

106.  As to the benefit of the Injunction Decision, Ms Yuen referred to XY LLC v Jesse Zhu [2024] HKCA 653 at §§22-25. There it was held that:

(1)  The threshold required for the granting of a Mareva injunction was different from the standard to be applied in security for costs applications.

(2)  The former required demonstrating that the applicant has a “good arguable case”, whereas the latter required demonstrating that the applicant has a “very high probability of success”.

(3)  However, the evidence which was found to be capable of satisfying the threshold for granting a Mareva injunction might also be capable of meeting the higher threshold that the plaintiff’s case had a very high probability of success.

(4)  This is a matter of assessment of the evidence at this interlocutory stage, and it does not involve conflating the different thresholds.

(5)  Whether the state of evidence found sufficient for the grant of a Mareva injunction is also sufficient to support a plaintiff’s case with a very high probability of success is a matter of assessment of the evidence concerned.

(6)  Thus, the assessment must be dependent on the particular circumstances and facts of each case.

107.  Ms Yuen submitted – by reference to the findings made in the Injunction Decision – that:

(1)  There is sufficiently cogent evidence to show that D1 was in a position of conflict with respect to P’s entering into the SPA during the period when he was a de jure director between 7 May 2009 and 15 September 2009.

(2)  D1 had a significant indirect interest in the vehicle used to acquire the dairy assets, and was prima facie entitled to commission under the Commission Agreement for the successful sale of them.

(3)  The “Eric Yee 2009 Emails” (as they are described) show that D1 was aware that the financial information about the assets had been manipulated, and D1’s failure to disclose that to P was contrary to P’s best interests.

(4)  D1 had a pivotal role in the structuring of the Acquisition and the terms of the SPA.

(5)  A good arguable case was demonstrated for the misappropriation of the HK$776 million CDO Funds.

(6)  The agreements relied upon in the defence are inconsistent with the case advanced by D1 and D3, and also internally inconsistent.

108.  I acknowledge the findings made in the Injunction Decision, though they were obviously on the different and lower standard than is applicable to the current application. I do not think the Injunction Decision can be read as identifying evidence strong enough to satisfy the higher standard. Nor is this application the proper place for me to have any preliminary run at the merits by revisiting the same evidential materials. Suffice to say that I am not persuaded at this stage of the high probability of success.

109.  As to the criminal convictions, Ms Yuen said D1’s convictions on Counts 3 and 4 are of particular relevance, because they concern D1’s conviction for conspiracy to defraud P and its shareholders. Those counts are:

Count 3: D1 and D2, between the 7^th day of May 2009 and the 19^th day of July 2010, both dates inclusive, in Hong Kong, conspired together to defraud P and its existing shareholders by dishonestly:

(a) Falsely representing that UBNZ Trustee Limited, UBNZ Funds Management Limited and their respective ultimate beneficial owners were independent third parties to P and its connected persons;

(b) Falsely representing that there was no existing or prior relationship or understanding between the said D1 and D2 with respect to the acquisition of the entire issued share capital of UBNZ Assets Holdings Limited by P from UBNZ Trustee Limited;

(c) Concealing or failing to declare that the said D1 had an interest in the Acquisition, in that the said D1 and D2 were parties to an agreement signed between them and Latitude Asia Limited dated the 8^th day of October 2008 to share the commission arising from or received through the sale and purchase of dairy farms owned by the CraFarms Group in New Zealand;

(d) Causing P and its existing shareholders to approve the agreement for the Acquisition;

(e) Causing P to issue and release convertible notes and an optional bond for the payment of the Acquisition.

Count 4: D1, D2 and Eric Yee, between the 7^th day of May 2009 and the 19^th day of July 2010, both dates inclusive, in Hong Kong, conspired together to defraud P and its existing shareholders by dishonestly:

(a) Falsely representing that the gross profit of the properties and fixed assets relating to dairy farms owned by the CraFarms Group in New Zealand for the year ended the 31^st day of May 2009 was approximately HK$92,520,000;

(b) Causing P and its existing shareholders to approve the agreement for the acquisition of the entire issued share capital of UBNZ Assets Holdings Limited by P from UBNZ Trustee Limited;

(c) Causing P to issue and release convertible notes and an optional bond for the payment of the Acquisition.

110.  Ms Yuen contends that the fact there is a subsisting conviction is highly material and relevant to P’s resistance to the current application. She draws to attention section 62(2) of the Evidence Ordinance Cap 8, which states that in any civil proceedings in which a person is proved to have been convicted of an offence by or before any court in Hong Kong, he shall be taken to have committed that offence, unless the contrary is proved. Ms Yuen submits that the conviction proves D1 has acted fraudulently and dishonestly beyond a reasonable doubt, and that the application of the “beyond reasonable doubt” standard satisfies the relatively lower threshold of “high probability of success” required to resist the current application.

111.  But, as Mr Fan points out, RHC Order 18 rule 7A states that any party intending to adduce evidence that a person was convicted of an offence by or before a Court in Hong Kong must include in his pleading a statement of his intention with particulars of (a) the conviction and the date thereof, (b) the court which made the conviction, and (c) the issue in the proceedings to which the conviction is relevant. Yet, it is not in dispute that the convictions have not been pleaded – even though Ms Yuen seeks to explain that is because the convictions upon retrial had not occurred at the time of the amendments leading to the ASOC.

112.  In any event, Mr Fan also asserts that the prospects of the appeal and the uncertainty of future proceedings cannot be discounted. Indeed, this may be why P has not yet sought to amend the claim so as expressly to rely upon the convictions – and will not do so unless and until those convictions are upheld on appeal.

113.  The fact is that the appeal is still underway – in the sense that it has been heard, but not yet determined. Furthermore, as noted above, two of the grounds of appeal that D1 has pursued before the CA relating to Count 3 were previously raised before the CFA, and leave to appeal on these grounds was granted. The final appeal did not actually decide those grounds because it was “unnecessary and undesirable” to deal with them when the conviction was quashed on other grounds. I also note that – whilst the decision is awaited on the substantive appeal – when granting bail pending appeal to both D1 and D2, Macrae VP earlier found that there were several grounds of appeal “which are reasonably arguable, although I am not prepared to say at this stage that any one ground reaches the threshold of a strong likelihood or prospect of success”.

114.  I accept that – at least when properly pleaded – D1’s criminal conviction would certainly relevant to the matter at hand. But again, given the complexity of the case and the fact that appeals are currently pending (and there is a possibility of further appeal on points on which the CFA has already expressed the view as to arguability), this is not a factor which I am prepared to say points to a “high probability of success” in favour of P.

115.  I also do not accept Ms Yuen’s submission that the finding of good arguable case under the Injunction Decision and the criminal convictions of D1 identify strong merits at least with respect to the “fundamental planks” of its case against D1. That seems to me to be merely the same argument put in different form, and would lead to the same response and conclusion.

116.  As to the submission that P’s want of means is brought about by D1’s fraudulent and dishonest wrongdoings committed against P, I think that also involves delving into the merits in a way which is impermissible.

117.  Lastly, Ms Yuen sought to rely upon an ‘after-the-event’ policy (“ATE Policy”) which offers protection to the defendants’ costs position. She submitted that an appropriately framed policy may mean that there is no reason to believe that a claimant will be unable to pay the defendant’s costs. Further, in determining whether security should be ordered, the Court will consider whether the ATE Policy offers sufficient protection for D1, in particular whether the defendant would be entitled to some assurance that the policy is not liable to be avoided for misrepresentation or non-disclosure.

118.  In this case, under the ATE Policy, the insurer shall indemnify P in respect of the defendants’ costs in these proceedings up to the limit of indemnity of US$1.8 million (i.e. around HK$14 million). Even though the Insurer reserves the right to cancel the Policy under Clause 10 of the ‘Conditions’ of the ATE Policy on grounds of misrepresentation or non-disclosure, Clause 10.2 specifically provides that only “failure to provide accurate and complete information [to the Insurer] to the best of [P’s] knowledge” would result in potential cancellation of the policy. This, Ms Yuen submits, militates against the risks of avoidance, particularly when the relevant information was provided to the insurer by independent provisional liquidators. Further, P is prepared to offer an undertaking immediately to notify D1 if P receives any indication from the Insurer that it intends to cancel or terminate the Policy.

119.  Ms Yuen acknowledges that the ATE Policy was not considered to be adequate protection for D3 when the Master ordered security for costs in her favour. But Ms Yuen submits that D1 is in a different position where (apart from the strength of the claim against him) D1 saw fit not to apply for any security for costs where more than five years had elapsed since D3’s application for security for costs. Nor is there any apparent lack of funds explain that long delay where D1 has been represented by King’s Counsel in the lengthy criminal retrial and appealed to the CA.

120.  I accept that there is little explanation for D1’s delay in making the application. On the other hand, his ability to fund his criminal proceedings does not seem to me to be of great relevance, as he is not seeking funding for his civil proceedings; rather, he is seeking protection against his own provision of funding to be provided by the security from P available and circumstances that costs would be ordered against P in favour of D1.

121.  As to the terms of the ATE Policy, Mr Fan brings to my attention Clause 3 of the ‘Conditions’, which permits the ATE Policy to be terminated at any stage if P changes its solicitors, or the solicitors terminate the retainer, unless the Insurer provides consent to the continuance of the policy. It may well be that there has as yet been no change of solicitors since the action commenced, but I do not think the risk is fanciful. As the Master said when granting security for D3’s costs, the landscape of litigation changes with time and it is difficult to anticipate what a plaintiff may do at different stages, so that this is a possibility against which a defendant is entitled to guard.

122.  Further, though I accept that Clause 10.2 might be thought of as being in the ‘middle ground’ of the range of similar types of exclusion, the anti-avoidance protection is therefore relatively limited. It is not possible for P to be sure that it has properly disclosed everything which the Insurer might one day say should have been disclosed – not least in the complex circumstances of this case, with the voluminous documentation involved. Moreover, the Insurer does not have to seek to avoid cover under Clause 10.2 until the claim is made under the ATE Policy. Rather it seems that the adverse costs would only be paid when proceedings are finally concluded, and there is no requirement for continuous monitoring of proceedings. So it may not be possible for P – under its offered undertaking – to notify D1 of the Insurer’s intention to avoid until it is simply too late.

123.  There is also the slight conundrum which arises on Clause 2 of the ATE Policy, which gives the Insurer the right to withdraw its support of the legal proceedings if the insured (i.e. P) is bankrupt, insolvent or becomes bankrupt or insolvent during the period of insurance – and where insolvency is deemed by the appointment of an office holder such as the provisional liquidator in this case. On the face of the ATE Policy, P was described as being in provisional liquidation, and it is unclear why Clause 2 was either not deleted or is present – but that at least raises further doubts about the effectiveness of the policy.

124.  As to the delay, I do not think that is of significant weight on the balance in the circumstances of this case. The fact is that there has been very little progress in the proceedings in the five years since D3 obtained her order for security for costs. This may be for many reasons, including recognition of the impact of the ongoing criminal proceedings, but it means that there is little if any real practical detriment to P even if it had thought that it would not face an application from D1. On the other hand, I do think that the delay may be relevant to, and brought into the discretionary mix for, the assessment of the sufficient quantum of costs to be ordered as security.

125.  Overall, it seems to me that there is reason to exercise my discretion to make an order for security for costs.

E.5  Quantum

126.  The principles concerning quantum of security for costs can be summarised shortly:

(1)  A party is only entitled to sufficient (and not complete) security that would be just in all the circumstances, and not necessarily on full indemnity basis.

(2)  What constitutes sufficient security depends on the circumstances of each case.

(3)  It is for the party seeking security to place materials before the Court to enable the Court to come to a view on the quantum to be ordered as security for costs.

(4)  If the applicant fails to provide a properly itemised bill of costs with the necessary breakdown for each item, the Court may use its own experience to decide on the amount to be ordered as security for costs.

(5)  In some cases, it would be appropriate for a party’s solicitors to involve two fee-earners, but if there would be significant involvement of Counsel at a PTR and trial, the bulk of the solicitors’ professional work would likely be undertaken by the junior fee-earner with the senior fee-earner taking on a supervisory role and managing client/counsel liaison on key matters.

(6)  There is usually no need for more than one fee-earner to be involved to the same extent in correspondence with the client and Counsel.

(7)  When faced with an unhelpful (and especially overly ambitious) skeleton bill, the Court is entitled in an appropriate case to dismiss the application for security on this ground alone – though this must be a consideration of last resort.

127.  As to quantum in this case, there is no need to have regard to that last resort. Instead, I have already mentioned that the latest version of D1’s skeleton bill of costs seeks security in the rounded figure of HK$4.4 million. Of that sum, HK$1 million is attributed to past costs, and HK$3.8 million is attributed to future costs (up to the exchange of witness statements).

128.  Ms Yuen submits, adopting a broad brush approach to the revised skeleton bill, the following main points of criticism that the security sought is excessive:

(1)  the sum of HK$800,000 claimed for “perusal of documents related to HCA 2218 of 2017 (2021)” by Counsel, without any breakdown or explanation, is excessive;

(2)  there are duplicate costs in relation to drafting the Defence and settling the Amended Defence;

(3)  under section B of Part 2 (solicitors’ fees totalling HK$1.254 million), it is excessive to cater for 3 fee earners for each item, with the most senior fee earner taking up an equal if not largest number of hours for each of them.

(4)  While the estimate is alleged to cover only D1’s costs, the overall figure of HK$4.4 million up to the stage of witness statements is excessive when compared to the sum of HK$4 million orders in favour of D3 up to the conclusion of the trial.

129.  Mr Fan submits that the above elements are appropriate in the circumstances of the case. He says the “perusal of documents” costs are necessary due to the number of criminal judgments the defendants were involved in, and the sheer volume and complexity of documents involved. Mr Fan further submits that the setting out of multiple solicitors in the same items is not “duplication”, but rather a division of labour in complex cases resulting in the combined efforts of more than one fee earner. Furthermore, he says that the sum of HK$1 million was already discounted by 50% from the actual total amount of HK$2.1 million to reflect the duplicated work completed for D3 as well. On the other hand, Mr Fan concedes that D1 will not be insisting on the full costs for settling the Amended Defence, so that it can be reduced by half.

130.  I think aspects of the skeleton bill are lacking breakdown or proper explanation, not least in relation to the “perusal” item, and the use of three fee-earners with significant time spent by the most senior of them. On the other hand, I note that the crux of P’s claims lie against D1, and the allegations made are of a serious and grave nature. The sum at issue on the claim is also significant.

131.  Adopting the broad brush approach applicable, and in the exercise of my discretion, it seems to me that the sufficient sum of security that would be just in all the circumstances – up to the stage of witness statements is HK$3 million.

F.  Result

132.  On D3’s Strike-Out Application, I order §146 of the ASOC to be struck out, but otherwise dismiss the application.

133.  On the basis that P has been substantially successful in opposing D3’s Strike-Out Application (where only the standalone §146 has been struck out), I think that costs should follow that broad event. Therefore, I order D3 to pay P’s costs of the application, to be taxed if not agreed.

134.  On D1’s Security for Costs Application, I order P to provide security for D1’s costs from the commencement of this action up to the exchange of witness statements in the sum of HK$3 million, by way of payment into Court on before 6 March 2026. Save in respect of the Case Management Conference already fixed to be heard on 12 February 2026, all further proceedings against D1 in this action be stayed until the ordered security is provided. I also grant liberty to apply.

135.  On the basis that D1 has succeeded on D1’s Security for Costs Application, it seems to me that costs should follow that event. Therefore I order P to pay D1’s costs of the application, to be taxed if not agreed.

136.  Both of the above costs orders are made by me in the first instance on a nisi basis, and will become absolute if no application for variation is made on or before 20 February 2026. Any such variation application as is made will be dealt with on paper.