CHINA MEDICAL TECHNOLOGIES, INC. (IN LIQUIDATION) v. WU XIAODONG AND OTHERS

HCA 3391/2016 & HCA 1417/2013

[2026] HKCFI 276

HCA 3391/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3391 OF 2016

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BETWEEN

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AND

HCA 1417/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1417 OF 2013

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(Consolidated by Order of Master Chow dated the 23^rd day of July 2018)

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J U D G M E N T

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Table of Contents

1.  This is the trial of two consolidated actions brought principally by China Medical Technologies, Inc (“CMED”) and its wholly owned subsidiary, CMED Technologies Ltd (“CMED Tech”), against their former directors and officers and other third parties in respect of substantial sums of money that were paid by CMED and CMED Tech before CMED was wound up in 2012. The Plaintiffs’ complaints against the Defendants include breaches of fiduciary duties, unlawful means conspiracy, fraudulent trading, dishonest assistance, knowing receipt and unjust enrichment. Out of the twenty-three defendants, only three parties were present at the trial (with two of them being legally-represented and the remaining defendant acting in person).

A.  THE FACTUAL BACKGROUND

2.  The facts set out in this section are either taken from the statement of agreed facts, or are undisputed or indisputable. I find them as facts.

A1.  CMED and its Group Structure

3.  The 1^st Plaintiff, CMED, was a public company incorporated under the laws of the Cayman Islands on 6 July 2004 as an exempted limited liability company. CMED changed its name to its present legal name on 22 July 2004.

4.  CMED was and is the ultimate holding company of the “CMED Group”, a group of companies held indirectly through the 2^nd Plaintiff, CMED Tech, the wholly owned subsidiary of CMED.

5.  CMED’s principal operating subsidiaries included:

(1)  Beijing Yuande Bio-Medical Engineering Co, Ltd (北京源德生物医学工程有限公司) (“Beijing Yuande”), which was incorporated in Mainland China on 26 July 1999, previously under the name Beijing Yuande Biological and Engineering Co, Ltd (北京源德生物医学工程股份有限公司). Beijing Yuande was the CMED’s predecessor and became part of the CMED Group in January 2005 as part of a restructure prior to the CMED’s initial public offering; and

(2)  Beijing GP Medical Technologies Co, Ltd (also known as Beijing Jin Pu Jia Medical Technologies Co, Ltd) (“Beijing GP”), which was incorporated in Mainland China on 22 May 2006.

6.  At all material times, the structure of the CMED Group was as follows:

7.  The CMED Group held itself out as having a principal business of developing, manufacturing and marketing advanced surgical and medical equipment in Mainland China to detect and monitor various diseases and disorders. The equipment included (1) from 1999 until December 2008, high-intensity focused ultrasound (“HIFU”) technology; (2) from 2004, in-vitro diagnostic products using enhanced chemiluminescence (“ECLIA”) technology; (3) from February 2007, Fluorescent In-Situ Hybridization (“FISH”) technology (“FISH Technology”); and (d) from October 2008, Surface Plasmon Resonance (“SPR”) technology (“SPR Technology”).

A2.  CMED’s Directors and Officers

8.  At the material times, CMED’s directors were as follows:

Name	Role	Appointment	Cessation
Wu Xiaodong	Chairman/CEO	14 Jul 2004	--
Samson Tsang	CFO	11 Jun 2007	21 Dec 2011
Iain Bruce (“Mr Bruce”)	INED	3 Feb 2005	3 Jul 2012
Lawrence Crum (“Dr Crum”)	INED	3 Feb 2005	16 Dec 2011
Yuedong Li (“Dr Li”)	INED	1 Oct 2007	15 Dec 2011
Guoming Qi (“Dr Qi”)	INED	16 Nov 2007	5 Jan 2012
Cole Capener (“Mr Capener”)	INED	1 Jun 2005	16 Nov 2007
Ruyu Du (“Dr Du”)	INED	1 Jun 2005	30 Sept 2007
Ting Zheng	NED	1 Feb 2005	1 Jun 2006
Minshi Shen	COO	28 Feb 2005	5 Jun 2006

9.  Each of Dr Crum, Mr Bruce, Mr Capener (until 16 November 2007), Dr Du (until 30 September 2007), Dr Li (from 1 October 2007) and Dr Qi (from 16 November 2007) were independent non-executive directors of CMED (collectively, “Independent Directors”).

10.  CMED’s audit committee (“Audit Committee”) was established by resolution of the board of directors (“Board”) dated 11 July 2005. Its members were as follows:

Name	Position	Appointment	Cessation
Mr Bruce	Chairman	11 Jul 2005	3 Jul 2012
Dr Crum	Member	11 Jul 2005	16 Dec 2011
Mr Capener	Member	11 Jul 2005	16 Nov 2007
Dr Li	Member	16 Nov 2007	15 Dec 2011

11.  The Audit Committee Charter empowered the Audit Committee to exercise its delegated responsibilities and powers at its sole discretion without requiring Board approval.

A3.  CMED’s Fundraising Activities

12.  On 10 August 2005, CMED was listed on the National Association of Securities Dealers Automated Quotations (“NASDAQ”). Its shares were traded on the NASDAQ through American Depositary Shares (“ADS”) until it was delisted on 26 March 2012.

13.  CMED raised approximately US$631 million (“Fundraising Proceeds”) as follows:

(1)  US$102.5 million was raised by way of an initial public offering in August 2005 of 7,360,000 ADS which were listed on the NASDAQ; and

(2)  US$528.5 million was raised by way of debt financing through the issuance of the following convertible notes:

(a)  CMED issued 3.5% senior unsecured convertible notes due in 2011 in the aggregate principal amount of US$150 million pursuant to an indenture dated 21 November 2006 between CMED as issuer and Wilmington Trust Company as indenture trustee (“3.5% Notes”);

(b)  CMED issued 4% senior unsecured convertible notes due in 2013 in the aggregate principal amount of US$276 million pursuant to an indenture dated 11 August 2008 between CMED as issuer and Wilmington as indenture trustee (“4% Notes”); and

(c)  CMED issued 6.25% senior unsecured convertible notes due in 2016 in the aggregate principal amount of US$150 million pursuant to an indenture dated 6 December 2010 between CMED as issuer and Wilmington as indenture trustee (“6.25% Notes”).

A4.  Collapse of the CMED Group

14.  CMED failed to make a required coupon payment of US$4,687,500 in respect of the 6.25% Notes within 30 days of the due date of 15 December 2011. It also failed to make a required coupon payment of US$4,930,000 in respect of the 4% Notes within 30 days after the due date of 15 February 2012.

15.  On 28 February 2012, the US Securities and Exchange Commission suspended trading of CMED’s shares. On 26 March 2012, CMED was delisted from the NASDAQ.

16.  On 15 June 2012, a petition for the winding up of CMED was presented to the Grand Court of the Cayman Islands on the basis of the events of default under CMED’s indentures. An order was made by the Cayman Islands Court for CMED’s winding up on 27 July 2012.

17.  On 11 October 2012, the United States Bankruptcy Court for the Southern District of New York ordered that the Cayman winding-up proceedings be recognised as “foreign main proceedings” for the purposes of Chapter 15 of the US Bankruptcy Code.

18.  A winding up order was made in Hong Kong on 1 September 2014. On 5 February 2015, Ms Yuen Lai Yee (Liz) (“Ms Yuen”) and Mr Cosimo Borrelli (“Mr Borrelli”) were appointed as the Joint and Several Liquidators of CMED in Hong Kong (together, “Liquidators”). Ms Yuen was subsequently replaced by Ms Chi Lai Man Jocelyn on 7 February 2024.

A5.  CMED Tech (2^nd Plaintiff)

19.  CMED Tech is a company incorporated in the British Virgin Islands (“BVI”) on 9 January 2006.

A6.  The Defendants

20.  Wu Xiaodong, the 1^st Defendant (“Mr Wu”),

(1)  entered into a contract with CMED, with the terms set out in a Director Agreement dated 1 December 2004 and a written employment and confidentiality agreement dated 4 January 2005;

(2)  at all material times, was a director, the founder, the Chairman, the Chief Executive Officer (“CEO”) and the largest shareholder of CMED beneficially owning 23% or more of CMED’s shares;

(3)  was a director of CMED Tech from 9 January 2006 to 31 July 2012;

(4)  was indicted for offences related to the subject matter of these proceedings by the criminal division of the United States District Court for the Eastern District of New York on 20 March 2017.

21.  Samson Tsang Tak Yung, the 2^nd Defendant (“Mr Tsang”),

(1)  entered into a contract with CMED, with the terms set out in a written employment and confidentiality agreement dated 4 January 2005;

(2)  was adirector of CMED from 11 June 2007 to 21 December 2011;

(3)  was the Chief Financial Officer (“CFO”) of CMED from 4 January 2005 until his resignation took effect on 6 January 2012;

(4)  was a director of CMED Tech from 9 January 2006 to 21 December 2011;

(5)  remains subject to an arrest warrant dated 11 February 2015 arising from his non-compliance with an order of the High Court of Hong Kong dated 15 September 2014 for him to attend for private examination to provide information orally to the Liquidators relating to the business and affairs of CMED;

(6)  was indicted for offences related to the subject matter of these proceedings, by the criminal division of the United States District Court for the Eastern District of New York on 20 March 2017.

22.  Chen Zhong, the 3^rd Defendant (“Dr Chen”),

(1)  from or about February 2007, was the Chief Technology Officer of CMED Tech pursuant to a written employment and confidentiality agreement dated 1 March 2007;

(2)  reported to Mr Wu and Mr Tsang in their capacity as directors of CMED Tech.

23.  Zhu Feng Charles, the 4^th Defendant (“Mr Zhu”), was CMED’s:

(1)  Vice President for Business Development and Investor Relations from 4 January 2005, pursuant to a written employment and confidentiality agreement, until October 2009;

(2)  Compliance Officer at all material times.

24.  Chong Wing Hip, the 5^th Defendant (“Mr Chong”), was:

(1)  a Hong Kong resident;

(2)  an acquaintance of Mr Wu and Mr Tsang;

(3)  a friend and acquaintance of the 13^th Defendant and her father;

(4)  a shareholder and director of the 10^th and 16^th Defendants.

25.  Hao Xiaoquing Allan, the 6^th Defendant (“Mr Hao”),

(1)  was a Hong Kong resident;

(2)  controlled and was the sole director and sole shareholder of Finnea International Limited (“Finnea”), an entity incorporated in the BVI, which was the sole shareholder of Clear Castle Investments Limited (“Clear Castle”) from 3 September 2007 to 7 January 2008;

(3)  until 7 January 2008, controlled and was the sole director of Clear Castle, a holding entity incorporated in the BVI, which was the sole shareholder of East Crest Enterprises Limited (“East Crest”) from 18 April 2007 to 7 January 2008;

(4)  until 7 January 2008, controlled and was the sole director of East Crest, a holding entity incorporated in Hong Kong on 17 July 2006;

(5)  was, from 16 March 2004 until 9 February 2007, the sole director and shareholder of the 12^th Defendant, Time Region Holdings Limited (“Time Region”);

(6)  was the sole director of the 21^st Defendant, Max Prosper Enterprises Limited (“Max Prosper”), until 3 November 2008 (when he was replaced as director by the 13^th Defendant), and caused Nedelva International Limited (“Nedelva”) (of which he was the sole director, sole shareholder and sole beneficial owner), to transfer its shareholding in Bondfair International Limited (“Bondfair”) (which in turn held the entire shareholding in Max Prosper and Beijing Maishengyuan Shengwu Gongcheng Jishu Youxian Gongsi or Beijing Maishengyuan Biomedical Engineering & Technology Co Ltd (北京麦圣元生物工程技术有限公司) (“BJ Co”), to be transferred to, inter alia, the 20^th Defendant, WB International Holding Pte Limited (“WB”) and the 11^th Defendant, Dynamic Sense Limited (“Dynamic Sense”);

(7)  was the sole director and legal representative of Max Prosper’s wholly owned subsidiary, BJ Co, until December 2008, when he was replaced in those capacities by Mr Wu, and in or about November 2008 when he caused Nedelva to transfer beneficial ownership of Bondfair in the manner described in the preceding sub-paragraph.

26.  Supreme Well Investments Limited, the 7^th Defendant (“Supreme Well”), was incorporated in the BVI on 28 March 2006. On 21 October 2019, Supreme Well was struck off the BVI Register of Companies due to non-filing of Register of Directors, and was dissolved on 4 July 2023.

27.  East Hope International Limited, the 8^th Defendant (“East Hope”), was incorporated in the BVI on 6 January 2006. On 1 November 2017, East Hope was struck off the BVI Register of Companies due to non‑payment of annual fees, and was dissolved on 4 July 2023.

28.  Cheer Link International Limited, the 9^th Defendant (“Cheer Link”), was incorporated in Hong Kong on 22 January 2007.

29.  Innovative Technology Investment Limited, the 10^th Defendant (“Innovative”), was incorporated as a BVI entity on 6 January 2006. It was struck off the BVI Register of Companies on 3 November 2015 due to non-payment of annual fees, and was dissolved on 2 November 2022.

30.  Dynamic Sense Limited, the 11^th Defendant (“Dynamic Sense”), was incorporated in the BVI on 17 March 2006. On 18 April 2006, Dr Chen became Dynamic Sense’s sole director and sole shareholder. Dynamic Sense was struck off the BVI Register of Companies on 1 November 2014 due to non-payment of annual fees, and was dissolved on 31 October 2021.

31.  Time Region, the 12^th Defendant, was incorporated as a BVI entity on 22 January 2004. Mr Hao was its sole authorised bank account signatory until 9 February 2007. On 1 November 2017, Time Region was struck off the BVI Register of Companies due to non-payment of annual fees, and was dissolved on 4 July 2023

32.  Bi Xiaoqiong, the 13^th Defendant (“Ms Bi”), was:

(1)  a Singapore resident;

(2)  the former wife of Mr Wu;

(3)  a shareholder of Beijing Chengxuan Economic and Trade Co, Ltd (“Beijing Chengxuan”);

(4)  a director and shareholder of Beijing Yuande prior to it becoming a subsidiary of CMED;

(5)  a director and shareholder of the 20^th Defendant, WB;

(6)  a friend or acquaintance of Mr Tsang, Dr Chen and Mr Zhu;

(7)  from the date of its incorporation in June 2010 until August 2012, a director of CMT Diagnostics (Singapore) Pte Ltd (“CMT Singapore”), a wholly owned indirect subsidiary of CMED incorporated in Singapore, and was a director of that entity in common with Mr Tsang from June 2010 to December 2011;

(8)  from October 2010, a director in common with inter alia Mr Zhu of Sincere Healthcare Group (Singapore) Pte. Ltd. (“Sincere Healthcare”), a company incorporated in Singapore of which inter alia Mr Zhu and the 20th Defendant, WB, were shareholders.

33.  Worldpro Investments Limited, the 14^th Defendant (“Worldpro”), was incorporated in the BVI on 17 April 2007. Worldpro was struck off on 2 November 2021 due to non-payment of annual fees and was dissolved on 4 July 2023.

34.  Long Chart Investments Limited, the 15^th Defendant (“Long Chart”), was incorporated in the BVI on 6 January 2006. Ms Bi was appointed as its sole director and one of its two shareholders from 11 March 2006. She became the sole shareholder of Long Chart from 3 November 2006. Long Chart was struck off the BVI Register of Companies on 1 November 2014 due to non-payment of annual fees, and was dissolved on 31 October 2021.

35.  Chavis Investments Limited, the 16^th Defendant (“Chavis”), was incorporated in the BVI on 5 September 2007 by Mr Wu. On the same day, Mr Chong was appointed as its initial director and Innovative was its initial shareholder. Chavis was struck off the BVI Register of Companies on 1 May 2015 due to non-payment of annual fees, and was dissolved on 30 April 2022.

36.  Sinowell International Investment Limited, the 17^th Defendant (“Sinowell”), was incorporated in the BVI on 3 October 2006. On 21 October 2019, Sinowell was struck off the BVI Register of Companies due to non-filing of Register of Directors, and was dissolved on 4 July 2023.

37.  Chengxuan International Limited, the 18^th Defendant (“Chengxuan”), was incorporated in the BVI on 11 June 2004. It was struck off the BVI Register of Companies on 23 October 2014 due to resignation of agent, and was dissolved on 4 July 2023.

38.  Weixiao Medical Technology Limited, the 19^th Defendant (“Weixiao”), was incorporated in the BVI on 17 November 2004. On the same day, Mr Wu became its sole director and sole shareholder. Weixiao was struck off the BVI Register of Companies on 3 May 2022 due to non‑payment of annual fees and resignation of agent, and was dissolved on 4 July 2023.

39.  WB, the 20^th Defendant, was incorporated in Singapore on 31 July 2008. Mr Wu and Ms Bi, until 27 April 2012, were WB’s shareholders. Until 31 March 2012, they were also WB’s directors.

40.  Max Prosper, the 21^st Defendant, was incorporated in Hong Kong on 2 March 2007. Mr Hao was the sole authorised signatory of Max Prosper’s bank account on 27 February 2008. Max Prosper was dissolved by striking off from the Hong Kong Companies Register on 7 December 2018.

41.  Jun Yun Bi, the 22^nd Defendant (“Ms JY Bi”), is daughter of Ms Bi and the step-daughter of Mr Wu.

42.  Global Flash Limited, the 23^rd Defendant (“Global Flash”), was incorporated in the BVI on 6 July 2006. From 17 August 2006, Mr Tsang became its sole director and sole shareholder. Global Flash was struck off the BVI Register of Companies on 3 May 2016 due to non‑payment of annual fees and was dissolved on 2 May 2023.

B.  THE PLAINTIFFS’ CASE

43.  The Plaintiffs’ case may be summarised as follows:

(1)  CMED raised US$631 million through its equity and debt offerings between August 2005 and December 2010.

(2)  Mr Wu and Mr Tsang assisted by Dr Chen and Mr Zhu (collective as “CMED Management”) persuaded CMED’s Board to approve CMED parting with over 80% of that US$631 million in two transactions: (a) the FISH transactionbetween November 2006 and February 2007 for US$176.8 million (“FISH Transaction”); and (b) the SPR transaction between July 2007 and December 2008 for US$345 million (“SPR Transaction”), (totalling US$521.8 million).

(3)  The FISH and SPR Transactions were presented to the Board as genuine arm’s-length commercial transactions in which CMED would acquire the FISH Technology and SPR Technology at fair value. It was represented that through CMED Management’s relationships and market knowledge, CMED could achieve unparalleled penetration into the diagnostics market in Mainland China with these technologies and derive huge returns.

(4)  The FISH and SPR transactions were a fraud on CMED, and a guise by which Mr Wu and Mr Tsang could steal all of the US$522 million paid by CMED in the transactions. The other Defendants assisted in that theft, to varying degrees and in different ways.

(5)  After the funds were stolen from CMED, they were laundered through an intricate web of transactions involving different payees, comprising both individuals associated with and entities controlled by Mr Wu and Mr Tsang.

(6)  The money laundering process involved four further individuals who were not members of CMED Management, but who received the stolen funds and assisted in other ways: Mr Chong, Mr Hao, Ms Bi and Ms JY Bi.

(7)  The remaining Defendants are all entities, mostly incorporated offshore in the BVI. Each of those entities received a portion of the stolen CMED funds, and was controlled by one or more of the individual Defendants.

(8)  Of the US$521.8 million stolen from CMED, US$355.5 million was paid to Supreme Well from bank accounts in Hong Kong and subsequently laundered. US$166.3 million was paid to nominees and subsidiaries of Supreme Well through bank accounts in Mainland China, and are therefore not able to be traced further.

44.  The Plaintiffs claim against each of Mr Wu, Mr Tsang, Dr Chen and Mr Zhu for:

(1)  the full US$521.8 million paid out by CMED, on the basis of their fraudulent breaches of duty to CMED, for their participation in an unlawful means conspiracy, and for their participation in fraudulent trading pursuant to s.275 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) (“CWUMPO”);

(2)  in the alternative, the amounts traceable to CMED’s stolen funds that they (a) personally received; and (b) as applicable, received into companies of which they were the ultimate beneficial owner and/or controller, in knowing receipt and unjust enrichment; and

(3)  in any event, salaries and other emoluments they received, in knowing receipt and unjust enrichment.

45.  As against Mr Chong, the Plaintiffs claim:

(1)  the full US$521.8 million paid out by CMED, on the basis that his uniquely central role in establishing the Supreme Well Group and laundering US$144 million of the stolen funds, amounted to participation in an unlawful means conspiracy and in dishonest assistance; and

(2)  in the alternative, the amounts traceable to CMED’s stolen funds that he personally received, in knowing receipt and unjust enrichment.

46.  As against Mr Hao, Ms Bi and Ms JY Bi, the Plaintiffs claim amounts that they (a) personally received, and (b) received into companies of which they were the ultimate beneficial owner and/or controller, in dishonest assistance, knowing receipt and unjust enrichment.

47.  As against Supreme Well, the Plaintiffs claim:

(1)  the full US$521.8 million paid out by CMED, on the basis of its knowing participation in CMED’s business being carried on for a fraudulent purpose pursuant to s.275 of CWUMPO; and

(2)  the US$521.8 million received by Supreme Well from CMED, in dishonest assistance, knowing receipt and unjust enrichment.

48.  As against each of the other corporate defendants, the Plaintiffs claim the amounts they respectively received that are traceable to CMED’s stolen funds, in dishonest assistance, knowing receipt and unjust enrichment. The Plaintiffs claim those amounts against the corporate defendants only in the alternative, to the extent those amounts are not recoverable against the relevant individual recipient who controlled the entity.

(1)  As can be seen from above, Cheer Link (D9) and WB (D20) are currently active companies.

(2)  Twelve of the BVI corporate defendants (D7, D8, D20-D22, D14-D19, D23) were dissolved from 2021 to 2023. The Plaintiffs rely on s.215(3)(b) of the BVI Business Companies (Amendment) Act 2022 to pursue their claims against each of the dissolved BVI corporate defendants through to judgment and execution.

(3)  Max Proper (D11) was a Hong Kong company and was dissolved in 2018. The Plaintiffs accept they cannot pursue a claim against a dissolved Hong Kong company through to judgment, and thus do not ask the court to award any judgment in respect of Max Prosper.

49.  In relation to the time bar defence raised by selective Defendants, the Plaintiffs seek to overcome that time bar by relying on ss. 26(1)(a) and 26(1)(b) of the Limitation Ordinance (Cap 347) to postpone the commencement of the limitation period to 24 December 2013, when the Liquidators first learned that Mr Tsang was the account signatory for Supreme Well’s bank account.

C.  THE DEFENDANTS’ RESPECTIVE PLEADED CASE

50.  Only three defendants were present at the trial. Dr Chen was acting in person, whilst Mr Hao and Ms Bi were legally represented. The other defendants were not legally represented and were absent from the trial. Amongst the absent defendants, only Mr Tsang and Mr Chong had previously through their legal representatives filed a defence. The remaining absent defendants have never participated at all in these proceedings.

51.  Given that Mr Tsang and Mr Chong have each filed a defence in these proceedings, it seems appropriate for the court to have some regard to the contents of their respective pleading in determining the issues at the trial. On behalf of the Plaintiffs, Mr Charles Manzoni SC referred to an authority to suggest that a plaintiff has an “obligation of fair presentation” to present his case fairly as against an absent defendant, which obligation has been described as “less extensive than the duty of full and frank disclosure on a without notice application”.[1] Whilst it is obviously right that a plaintiff should bring to the court’s attention all relevant matters and must not mislead the court, I do not believe there is an universal “obligation of fair presentation” on the part of a plaintiff to draw the court’s attention to “points, factual or legal, that might be to the benefit of [the defendant]” whenever the defendant is absent from the trial.[2] On the other hand, where there are materials before the court, for example, to indicate that a defendant has taken a position contrary to the plaintiff’s interest in a filed pleading, or has given admissible evidence undermining the plaintiff’s position, the plaintiff should naturally bring them to the court’s attention even if the defendant plays no part during the trial.

52.  In any event, I am satisfied that the Plaintiffs have drawn to the court’s attention all the matters mentioned in the respective defence of Mr Tsang and Mr Chong which may be relevant to the claims. During the trial, I also made an order that no party would be able to put Mr Tsang’s witness statement or Mr Chong’s witness statement into evidence, pursuant to RHC O.38, r.2A(6).

53.  Mr Hao unfortunately passed away on 15 August 2025. By an order dated 3 September 2025, Mr Hao’s widow was ordered to represent Mr Hao’s estate in these proceedings. A hearsay notice has been filed on behalf of Mr Hao in respect of the witness statement made by Mr Hao dated 16 July 2021.

C1.  Dr Chen’s Pleaded Case

54.  Dr Chen’s pleaded case may be summarised as follows:

(1)  In or about the end of 2005, Dr Chen’s acquaintance, Dr Li Xuan (“Dr Li”), contacted Dr Chen to seek finance assistance and introduction of investors to CytoTrend HK (to be defined below) so as to keep it afloat to continue its research and development in FISH technology.

(2)  Dr Chen then introduced the opportunity to another acquaintance, Mr Xu Ge (“Mr Xu”). In or about the end of 2005, Dr Chen then introduced Mr Xu to Mr Zhu, who was a senior staff of CMED. Dr Chen believed that CMED might have interest in the FISH technology developed and designed by CytoTrend HK.

(3)  Mr Xu became interested in acquiring CytoTrend HK and repeatedly assured Dr Chen that capital would be provided and that investors would be found. Accordingly, Dr Chen agreed with Mr Xu that (a) Dr Chen would negotiate with Dr Li for the purchase of CytoTrend HK, (b) Dr Chen would recruit experts to form his own research and development team and would be fully responsible for the research, scientific and technical aspects of the continuing development of the FISH technology of CytoTrend HK and (c) Mr Xu would be responsible for all the commercial matters and (d) Dr Chen would receive a beneficial share of CytoTrend HK in the region of 3%.

(4)  Pursuant to the agreement with Mr Xu, (a) Dr Chen acquired CytoTrend HK with all its know-hows in FISH technology at HK$1.2 million in about March 2006, (b) under the advices, instructions and arrangements of Mr Xu, various companies were incorporated by Dr Chen in Hong Kong which included Dynamic Sense, CytoTrend US, CytoTrend Beijing (all of which are to be defined below).

(5)  In about May 2006, Mr Xu told Dr Chen that some other investors had been found and assured Dr Chen that there would not be shortage of capital for the research and development expenses.

(6)  In or about November 2006, Mr Xu told Dr Chen that CMED had decided to acquire all FISH know-hows developed by CytoTrend group of companies on the condition that Dr Chen had to assist the smooth transfer of the know-hows and their implementation and integration with the existing establishment of CMED.

(7)  The deal with CMED was finalised in or about February 2007. Dr Chen entered into an employment contract with CMED Tech on 1 March 2007 to commence on 1 May 2007 for a period of 5 years as chief technology officer.

(8)  A total of US$5.5 million representing about 3% of the deal with CMED had been received by Dr Chen, of which US$1 million was paid to Dr Chen’s personal account in Hong Kong while the remaining US$4.5 million was paid to Dr Chen’s company called Dynamic Sense. However, Dr Chen had no knowledge of the manner in which the money was credited into his bank accounts and the identity of the persons who made the deposits.

55.  It is Dr Chen’s case that at all material times, he had no knowledge or suspicion that (1) Mr Xu might have any connection, association or collusion of concealed business or dealing with any officer of CMED and CMED Tech, (2) the deal of CMED to acquire the FISH know-hows from the CytoTrend group of companies might not be reached on a fair and arm’s length basis, and (3) the sum of US$5.5 million received by Dr Chen might be proceeds of fraud or theft, or originating from illegitimate means, or any breach of duty of officers of CMED and CMED Tech.

56.  Dr Chen also contends that the Plaintiffs’ claims against him are time-barred.

C2.  Mr Hao’s Pleaded Case

57.  The Plaintiffs’ case against Mr Hao involves 3 transfers: (1) a transfer of US$7.06 million on 1 June 2007, (2) a transfer of US$10 million on 5 September 2007 and (3) a transfer of US$700,000 on 19 February 2008.

58.  In a nutshell, Mr Hao’s case is that in 2006 to 2008, a person known as Mr Chen Shujun (“Mr Chen”) asked Mr Hao to facilitate certain corporate restructuring and to acquire or establish some companies. According to him, Mr Hao was at all material times acting under the instructions of Mr Chen as to all the steps required to implement such restructuring, acquisition and/or establishing, including transferring and/or receiving funds. It was in the process of carrying out Mr Chen’s instructions that the 3 transfers took place.

59.  It is Mr Hao’s case that Mr Hao at all material times was not aware of any link or connection between Mr Chen and the CMED Group and/or its officers (including Mr Wu to Mr Zhu), and believed them to be independent of each other.

60.  Mr Hao also contends that the Plaintiffs’ claims against him are time-barred.

C3.  Ms Bi’s Pleaded Case

61.  Ms Bi’s pleaded case may be summarised as follows:

(1)  Ms Bi was separated from Mr Wu in 2001, and they were divorced in 2012. Mr Wu did not involve Ms Bi in the business or affairs of CMED and CMED Tech.

(2)  At all material times, Ms Bi had no knowledge of and/or involvement in the affairs of CMED, CMED Tech or Supreme Well.

(3)  The bank accounts held by her were not used as a conduit for receiving and/or distributing the funds allegedly misappropriated from CMED and/or CMED Tech, and she did not have any knowledge or reason to believe that the accounts were used in such way or were connected to the alleged theft. The funds received by Ms Bi were the proceeds of sale from the joint investments between Mr Wu and Ms Bi in a number of companies/businesses which were unrelated to CMED, CMED Tech, the FISH Transaction or the SPR Transaction.

(4)  She did not know, and did not deliberately close her eyes to, or deliberately refrain from asking questions and was not recklessly indifferent to, the matters relied upon by the Plaintiffs.

(5)  She was unaware of facts which made her unconscionable to retain, apply or use the sums allegedly received by her, did not have knowledge or notice of fraud to render the receipt or dealing of the sums dishonest and/or unconscionable.

62.  Ms Bi also contends that the Plaintiffs’ claims against her are time-barred.

D.  THE ISSUES FOR DETERMINATION

63.  In my view, there are the following issues that require the court’s determination in this trial:

(1)  What duties were owed by Mr Wu, Mr Tsang, Dr Chen and Mr Zhu to CMED and CMED Tech?

(2)  Did Mr Wu, Mr Tsang, Dr Chen and Mr Zhu breach any such duties?

(3)  Was there a conspiracy between Mr Wu, Mr Tsang, Dr Chen, Mr Zhu and Mr Chong, or any two of more of them?

(4)  Were Mr Wu, Mr Tsang, Dr Chen, Mr Zhu and Supreme Well knowingly parties to the carrying on of CMED’s business with intent to defraud CMED’s creditors or for a fraudulent purpose under s.275(1) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32)?

(5)  Did each of the 5^th to 23^rd Defendants dishonestly assist in the breach of fiduciary duties by Mr Wu, Mr Tsang, Dr Chen and/or Mr Zhu?

(6)  Is each of the Defendants liable to CMED and CMED Tech for knowing receipt?

(7)  Is each of the Defendants liable to CMED and CMED Tech for unjust enrichment?

(8)  Is each of the Plaintiffs’ claims against Mr Tsang, Dr Chen, Mr Chong, Mr Hao and Ms Bi time-barred by operation of the Limitation Ordinance (Cap 347)?

(9)  What remedies are the Plaintiffs entitled to as against each of the Defendants?

E.  ISSUE 1: DUTIES

64.  The duties owed by a director arise from the director’s relationship with the company, and are essential to good corporate governance and to any effective system of law regulating the company. Such duties are governed by the law of the place of the company’s incorporation. See Base Metal Trading Ltd v Shamurin [2005] 1 WLR 1157 at [56] (Tuckey LJ), [69] (Arden LJ).

65.  CMED is a Cayman company and CMED Tech is a BVI company. However, no party in these proceedings has pleaded Cayman Islands laws or BVI laws as being applicable to determine the scope of duties owed by Mr Wu, Mr Tsang, Dr Chen and Mr Zhu. In these circumstances, the Hong Kong court applies Hong Kong law to determine the question by virtue of the “default rule”: Brownlie v FS Cairo (Nile Plaza) LLC [2022] AC 995 at [112] & [113] (Lord Leggatt); Dicey, Morris & Collins on The Conflict of Laws (16^th ed, 2022) vol 1, §3-025; High Fashion New Media Corporation Limited v Leong Ma Li [2024] HKCA 1067 at [63] (Kwan VP).

66.  It is right to mention that the Plaintiffs have pleaded that further to their fiduciary duties, Mr Wu and Mr Tsang also owed various duties to CMED under ss. 120 to 124 of the BVI Business Companies Act 2004 (“BVI Act 2004”). However, such statutory duties were not pleaded for the purpose of asking the court to determine the scope of duties by reference to BVI law. In my view, the references to BVI law in the Plaintiffs’ pleading do not displace the operation of the “default rule”.

67.  The Plaintiffs contend that each of Mr Wu, Mr Tsang, Dr Chen and Mr Zhu owed to CMED and CMED Tech various duties. Because Mr Wu, Mr Tsang, Dr Chen and Mr Zhu at the material times had different roles at CMED and CMED Tech, it is necessary to examine each of the alleged duties separately to determine whether the particular duty is applicable to each of them. This examination is carried out by applying Hong Kong law.

E1.  Duty to Act Bona Fide in the Best Interests of the Company

68.  It is well-established that directors must act bona fide in what they consider is in the interests of the company, and not for any collateral purpose: Re Smith and Fawcett Ltd [1942] Ch 304 at 306 (Lord Greene MR).

69.  Further, where self-interest of the directors is involved, they will not be permitted to assert that their action was bona fide thought to be, or was, in the interest of the company: Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821 at 834G (Lord Wilberforce).

70.  If a director failed to give any actual consideration to the question whether the transfer was in company’s interests, then the next question is whether an intelligent and honest man in the position of a director of the company concerned could, in the circumstances, have reasonably believed that the transaction was for the benefit of the company: Extrasure Travel Insurances Ltd v Scattergood [2003] 1 BCLC 598 at [138] (Jonathan Crow sitting as a Deputy Judge of the High Court); Wang Pengying v Ng Wing Fai [2021] 4 HKC 1 at [69], [72] (Kwan VP).

E2.  Duty to Exercise Powers for Proper Purposes

71.  It is well-established that the relationship between a director and his company is a fiduciary one: Hopcraft v Close Brothers Limited [2025] 3 WLR 423 at [110] (Lord Reed PSC, Lord Hodge DPSC, Lord Lloyd-Jones, Lord Briggs and Lord Hamblen JJSC). A director is unquestionably a fiduciary and has always been treated as a trustee for the company of his powers: Eclairs Group Ltd v JKX Oil & Gas plc [2015] Bus LR 1395 at [16] (Lord Sumption JSC).

72.  As Lord Richards said in Wong v Grand View Private Trust Co Ltd [2022] UKPC 47:

“[1] It is a fundamental principle of equity that a fiduciary power may be exercised only for a purpose for which the power has been conferred.

[55] … the proper purpose rule … involves identifying the purpose for which the power has been exercised and asking whether such purpose is a purpose for which the power has been given. While identification of the purpose of a power may well be relevant to the construction of the provision conferring it, the question raised by the proper purpose rule arises only once the scope of the power has been determined and once it has been determined that the exercise of the power was within the terms, or ‘scope’, of the power. This was made clear by Lord Sumption in Eclairs … at paras [15] and [30]:

‘[15] … The important point for present purposes is that the proper purpose rule is not concerned with excess of power by doing an act which is beyond the scope of the instrument creating it as a matter of construction or implication. It is concerned with abuse of power, by doing acts which are within its scope but done for an improper reason.’

‘[30] … The rule is not a term of the contract and does not necessarily depend on any limitation on the scope of the power as a matter of construction. The proper purpose rule is a principle by which equity controls the exercise of a fiduciary’s powers in respects which are not, or not necessarily, determined by the instrument.’”

73.  A convenient four-part test was laid down in Extrasure Travel Insurances Ltd (above) at [92] as follows: (1) identify the power whose exercise is in question; (2) identify the proper purpose for which that power was delegated to the directors; (3) identify the substantial purpose for which the power was in fact exercised; and (4) decide whether that purpose was proper.

E3.  Duty to Act as Trustee of the Company’s Property

74.  Directors are not strictly speaking trustees, but are in a closely analogous position because of the fiduciary duties which they owe to the company. In particular, they are treated as trustees as regards the assets of the company that are in their hands or under their control. See Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd [2012] Ch 453 at [34] (Lord Neuberger MR), applied in Liu Hsiao Cheng v Wong Shu Wai [2018] 1 HKLRD 1087 at [30]-[31] (Lam VP).

E4.  Duty not to Make an Unauthorised Profit

75.  A director is a fiduciary, who owes an obligation of loyalty to his principal, namely the company. This obligation of loyalty has several facets and includes a duty not to make an authorised profit: see Bristol & West Building Society v Mothew [1998] Ch 1 at 18B-C (Millett LJ).

E5.  Duty to Avoid Conflicts of Interest

76.  Another facet of a director’s obligation of loyalty is the duty not to place himself in a position where his duty and his interest may conflict, and a duty not to act for his own benefit or the benefit of a third person without the informed consent of his principal, namely the company: Mothew (above) at 18B-C (Millett LJ).

77.  The duty of not putting himself in a position where his interest and his duty conflict is an “inflexible rule” of equity: Bray v Ford [1896] AC 44 at 51 (Lord Herschell).

78.  The question of conflict is determined by asking whether a reasonable person “looking at the relevant facts and circumstances of the particular case would think that there was a real sensible possibility of conflict; not that you could imagine some situation arising which might, in some conceivable possibility in events not contemplated as real sensible possibilities by any reasonable person, result in conflict”: Boardman v Phipps [1967] 2 AC 46 at 124B-D (Lord Upjohn), applied in Esquire (Electronics) Ltd v Hong Kong and Shanghai Banking Corp Ltd [2007] 3 HKLRD 439 at [147] (Stock JA) & [204] (Tang JA).

E6.  Duty to Exercise Reasonable Care, Skill and Diligence

79.  Directors owe an equitable as well as a common law duty of care: Base Metal (above) at [19] (Tuckey LJ).

80.  In Re D’Jan of London Ltd [1994] 1 BCLC 561 at 563d-f, Hoffmann LJ said that the duty of care owed by a director at common law is the conduct of “a reasonably diligent person having both - (a) the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as are carried out by that director in relation to the company, and (b) the general knowledge, skill and experience that the director has”. Such a duty has now been codified s.465 of the Companies Ordinance (Cap 622).

E7.  Other Pleaded Duties

81.  In addition to the fiduciary and equitable duties mentioned above, the Plaintiffs also relied on (1) the contractual duties set out in the director agreements that Mr Wu and Mr Tsang entered into with CMED, (2) the contractual duties set out in the employment agreements with CMED, (3) the duty to act in good faith in the interests of the company in s.120(1) of the BVI Act 2004, (4) the duty to exercise powers for proper purposes in s.121 of the BVI Act 2004, and (5) the duty to exercise reasonable care, skill and diligence in s.122 of the BVI Act 2004.

82.  However, as Mr Manzoni rightly acknowledged during his oral opening, these contractual and BVI statutory duties do not add anything material to the Plaintiffs’ cause of action for breach of equitable duties against the 1^st to 4^th Defendants. In my view, it is only necessary to consider the contractual duties in the employment agreements if the court comes to the view that no fiduciary or equitable duties were owed.

E8.  Duties of Mr Wu, Mr Tsang, Dr Chen and Mr Zhu

E8a.  Mr Wu’s duties

83.  Mr Wu was a director of CMED from 14 July 2004. He was also a director of CMED Tech from 9 January 2006 to 31 July 2012. In my view, there is no doubt that during the time when he was a director, Mr Wu owed to each of CMED and CMED Tech:

(1)  a duty to act bona fide in the best interests of the company;

(2)  a duty to exercise his powers for proper purposes;

(3)  a duty to act as trustee of the company’s property;

(4)  a duty not to make an unauthorised profit;

(5)  a duty to avoid conflicts of interest;

(6)  a duty to exercise reasonable care, skill and diligence.

E8b.  Mr Tsang’s duties

84.  Mr Tsang was the CFO of CMED from January 2005 until he resigned on 6 January 2012. He was adirector of CMED from 11 June 2007 to 21 December 2011, and a director of CMED Tech from 9 January 2006 to 21 December 2011.

85.  Further, before becoming a director of CMED in June 2007,

(1)  as can also be seen from the board meeting minutes from November 2005 to June 2007, Mr Tsang attended CMED’s board meetings as CFO, and actively participated in such board meetings;

(2)  as recorded in the registration statement for the Securities Exchange Commission (“SEC”) dated 15 July 2005, Mr Tsang was identified as a key individual in CMED’s management;

(3)  Mr Tsang signed the majority of documents filed with the SEC as CFO of CMED (e.g. the Quarterly Report dated 15 February 2006);

(4)  was an authorised signatory of CMED’s bank accounts with the Bank of China in Hong Kong, Merrill Lynch, Morgan Stanley and Citibank NA in Beijing.

86.  The Plaintiffs submitted that the above activities would be sufficient for Mr Tsang to have become a de facto director of CMED from November 2005 to June 2007. I reject this submission. It seems to me that Mr Tsang’s activities were entirely within the ambit of the discharge of his duties and responsibilities as the CFO of CMED, and that it is to that capacity that his acts have to be attributed: cf Revenue and Customs Commissioners v Holland [2010] 1 WLR 2793 at [42] (Lord Hope DPSC); [95] (Lord Collins JSC).

87.  Nonetheless, there was no doubt that Mr Tsang was the CFO of CMED between November 2005 and June 2007. As mentioned above, he carried out extensive activities in such a capacity for CMED. It becomes necessary to consider what duties Mr Tsang owed to CMED before he was formally appointed a director in June 2007, and in particular, whether he owed any of the fiduciary duties mentioned in Sections E1 to E5 above.

88.  Mr Tsang became the CFO of CMED under the employment and confidentiality agreement dated 4 January 2005 (“Mr Tsang’s Employment Agreement”). In the agreement, clause 4 (headed “Duties and Responsibilities”) relevantly provided as follows:

“You agree to serve as the Chief Financial Officer of the Company. In this position, you will be in charge of accounting and finance functions of the Company. Your duties at the Company … will also include other relevant jobs assigned by the Company’s Board of the Directors (the “Board”) or the Chairman/CEO …

You shall devote all of your working time, attention and skills to the performance of your duties and shall faithfully and diligently serve the Company in accordance with this Agreement, the Memorandum and Articles of Association of the Company …, and the guidelines, policies and procedures of the Company approved from time to time by the Board.

You shall use your best endeavor to perform your duties hereunder. You shall not, without the prior consent of the Board, become an employee of any entity other than the Company and any subsidiary of the Company, and shall not be concerned or interested in any other business directly competitive with that carried on by the Company … ”

89.  One of the guidelines of CMED was the Code of Business Conduct and Ethics (“the Code”), which was adopted by the Board by written resolution on 11 July 2005. The Code, inter alia, required “employees [to] fully disclose any situations that reasonably could be expected to give rise to a conflict of interest”.

90.  The employment relationship is not typically fiduciary. However, fiduciaries duties may arise out of the employment relationship. This arises where the employee has undertaken specific contractual obligations in the performance of which he has placed himself in a position where he must act solely in the best interests of his employer. See University of Nottingham v Fishel [2000] ICR 1462 at 1491C-D, 1493E-G (Elias J).

91.  The duties undertaken by Mr Tsang under his Employment Agreement were expressly in relation to the accounting and finance functions of CMED. Such duties must be owed exclusively to CMED. It is unimaginable that Mr Tsang would be allowed to have regard to his own interests when carrying out such important functions of the company. At the time, Mr Tsang was not working for any other employers outside the CMED Group. The express obligations for Mr Tsang to “devote all of [his] working time, attention and skills to the performance of [his] duties and shall faithfully and diligently serve the Company” and not to “become an employee of any entity other than the Company and any subsidiary of the Company” further suggest to me that Mr Tsang was intended to subordinate his interests and act solely in the interests of CMED.

92.  In these circumstances, it is my view that CMED was entitled to the single-minded loyalty of Mr Tsang when he was carrying out his functions as a CFO of CMED. As such, Mr Tsang would be subject to the various facets of the obligation of loyalty referred to by Millett LJ in Mothew. I note that Mr Tsang would in any event be subject to the no conflict duty provided under the Code. Further, Mr Tsang (as the CFO) would have access to the assets of CMED that were under his control, and would also be subject to the duty to act as trustee of the company’s assets.

93.  I consider that the Mr Tsang’s Employment Agreement has provided the foundation for the superimposition of the various fiduciary duties. As Mason J said Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 97:

“That contractual and fiduciary relationships may co-exist between the same parties has never been doubted. Indeed, the existence of a basic contractual relationship has in many situations provided a foundation for the erection of a fiduciary relationship. In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction.”[3]

94.  Accordingly, I find that between November 2005 and June 2007, Mr Tsang owed to CMED:

(1)  a duty to act bona fide in the best interests of the company;

(2)  a duty to act as trustee of the company’s property;

(3)  a duty not to make an unauthorised profit; and

(4)  a duty to avoid conflicts of interest.

95.  Given that Mr Tsang was a director of CMED from June 2007 to December 2011, and a director of CMED Tech from 9 January 2006 to 21 December 2011, he owed to each of the companies whilst being a director:

(1)  a duty to act bona fide in the best interests of the company;

(2)  a duty to exercise his powers for proper purposes;

(3)  a duty to act as trustee of the company’s property;

(4)  a duty not to make an unauthorised profit;

(5)  a duty to avoid conflicts of interest;

(6)  a duty to exercise reasonable care, skill and diligence.

E8c.  Dr Chen’s duties

96.  Dr Chen was never a director of CMED or CMED Tech.

97.  On 1 March 2007, he entered into an employment and confidentiality agreement with CMED Tech, pursuant to which he was to become the chief technology officer (“CTO”) of CMED Tech from 1 May 2007 (“Dr Chen’s Employment Agreement”) for an initial term of 5 years. Clause 4 (headed “Duties and Responsibilities”) relevantly provided as follows:

“You agree to serve as Chief Technology Officer of the Company. In this position, you will be responsible for research and development for Fluorescent In Situ Hybridization (“FISH”) and other molecular cytogenetic platforms of the Company. Your duties at the Company, which include your duties at Beijing Geneprobe Medical Technologies Co., Ltd (北京金菩嘉医疗科技有限公司) (“Geneprobe”) or any other subsidiary of CMED, will also include other relevant jobs assigned by the directors of the Company.

You shall devote all of your working time, attention and skills to the performance of your duties and shall faithfully and diligently serve the Company in accordance with this Agreement, the Memorandum and Articles of Association of the Company and the Memorandum and Articles of Association of CMED, and the guidelines, policies and procedures of the Company, Geneprobe and CMED approved from time to time.

You shall use your best endeavor to perform your duties hereunder. You shall not, without the prior consent of the Company, become an employee of any entity other than CMED and its subsidiaries, and shall not be concerned or interested in any other business competitive with that carried on by CMED or any of its subsidiaries.”

98.  At CMED’s Board meeting on 16 November 2007, it was resolved that upon the recommendation by the Nomination Committee, Dr Chen would be appointed as the CTO of CMED with immediate effect. In a document prepared by CMED’s Nomination Committee regarding the proposal to promote Dr Chen as the CTO (“Nomination Committee Document”), the following was stated:

“The management team proposes promotion of Dr. Zhong CHEN to be the Company’s Chief Technology Officer.

After the promotion, Dr. CHEN will play an important role in setting strategies in research and development of the Company. Dr. CHEN will monitor the development of new technologies, oversee selection of research projects and be responsible for their execution for the Company’s continuous business growth.

Dr. CHEN currently serves as the CTO of the Company’s subsidiary in FISH business on a full time basis as well as Professor of Pediatrics and Pathology at University of Utah and Medical Director of Cytogenetics Program, ARUP Laboratories in Utah (one of the top leading researchers and academicians in the US) on a part time basis. …

The management team believes that the promotion of Dr. CHEN to CTO will strengthen the research and development function of the Company and allocate resources strategically and effectively among numerous research projects of the Company.”

99.  The Board of CMED approved the Nomination Committee’s proposal to appoint Dr Chen as the CTO of CMED at the meeting on 16 November 2007.

100.  The Plaintiffs submitted that by virtue of Dr Chen’s senior officer role and his extensive responsibilities in the FISH and SPR transactions, Dr Chen owed to CMED and CMED Tech the same duties that Mr Wu and Mr Tsang owed as directors, from February 2007 onwards.

101.  I do not accept this submission.

(1)  First, Dr Chen only became the CTO of CMED Tech from 1 May 2007. He could not have owed any duty as an employee of CMED or CMED Tech before 1 May 2007.

(2)  Further, from 1 May 2007 to 16 November 2007, Dr Chen was the CTO of CMED Tech. As acknowledged in the above document prepared by CMED’s Nomination Committee, whilst serving as the CTO of CMED Tech, Dr Chen continued to act on a part time basis as a professor at the University of Utah and a medical director at ARUP Laboratories in Utah. Dr Chen had been employed by the University of Utah since 1998. The fact that Dr Chen was working for two other employers must have been known to CMED Tech when he was appointed as its CTO in 2007.

(3)  Moreover, when Dr Chen was appointed as CMED’s CTO in November 2007, CMED’s Board plainly knew that Dr Chen was still working for two other employers in addition to CMED Tech.

(4)  In these circumstances, and unlike the case of Mr Tsang and Mr Zhu, I do not think Dr Chen had undertaken his contractual obligations in the performance of which he had placed himself in a position where he must subordinate his interests and act solely in the best interests of CMED or CMED Tech (see Fishel referred to above). Neither CMED nor CMED Tech was in my view entitled to the single-minded loyalty of Dr Chen when he was carrying out his functions as the CTO of CMED or CMED Tech. Therefore, Dr Chen would not be subject to the various facets of the obligation of loyalty of a fiduciary. Given that the scope of fiduciary duties is moulded according to the nature of the relationship and the facts of the case (Hospital Products Ltd (above) at 102 (Mason J)), it is my view that, on the particular facts of this case, Dr Chen did not owe the pleaded fiduciary duties to CMED or CMED Tech to (a) act bona fide in the best interests of the company, (b) exercise his powers for proper purposes, (c) act as trustee of the company’s property, and (d) avoid making an unauthorised profit.

(5)  Dr Chen’s Employment Agreement was expressly subject to the guidelines of CMED, which included the duty to avoid conflicts of interest as set out in the Code quoted above. Therefore, as the CTO of CMED and CMED Tech, Dr Chen would owe to his employer a duty to avoid conflicts of interest.

(6)  The Plaintiffs relied on two Hong Kong authorities to support their submission that Dr Chen owed fiduciary duties as an employee to CMED and CMED Tech. In my view, the two authorities do not advance the Plaintiffs’ position any further; both authorities turned on their own facts.

(a)  In Leader Screws Manufacturing Co Ltd v Huang [2021] HKCFI 141, Q Au-Yeung J considered whether a default judgment should be granted against the defendant, who was formerly employed by the plaintiff as its senior accounting staff. When considering the plaintiff’s claim for breach of fiduciary duty, the learned Judge recognised that an employment relationship in itself would not attach fiduciary duties, citing Fishel [46]. At [48], it was said that “much depends on the employee’s role and functions”. Having considered that the defendant was a senior accounting staff responsible for a number of important matters, her Ladyship concluded that the defendant would owe fiduciary duties to the plaintiff [48].

(b)  HMM (Hong Kong) Ltd v Ma Chun Kit [2022] HKCFI 1153, DHCJ W Tsui (as she then was) considered whether judgment should be entered against the absent defendant at a trial. The learned Judge at [58] again recognised that an employment relationship would not automatically import fiduciary relationships and that a senior employee or manager may, depending on his role and function, be held to owe fiduciary duties to the employer when carrying out those duties. Her Ladyship at [59] found that the defendant had significant role to play in the operation of the plaintiff’s bank accounts and held that he would owe fiduciary duties to the plaintiff in the authorisation process.

102.  Accordingly, I find that Dr Chen owed the following duties:

(1)  a contractual duty to faithfully and diligently serve CMED Tech from 1 May 2007 as it CTO in relation to the research and development of FISH and other molecular cytogenetic platforms, and to avoid conflicts of interest;

(2)  a contractual duty to faithfully and diligently serve CMED from 16 November 2007 as its CTO in relation to the “setting of strategies in research and development”[4] of CMED, and to avoid conflicts of interest.

103.  In their closing submissions, the Plaintiffs appeared to suggest, for the first time, that D3 would owe “the director’s duty to promote the success of the company” and “the duty to report breaches of duty to his fellow directors”. The Plaintiffs have not pleaded these duties as against Dr Chen. In any event, given that Dr Chen never became a director of CMED or CMED Tech, and his contractual duties would not import a duty to promote the success of his employers, I do not think Dr Chen owed to CMED or CMED Tech any duty to report breaches of duty on the part of the directors.

E8d.  Mr Zhu’s duties

104.  Mr Zhu was the Vice President for Business Development and Investor Relations of CMED from January 2005 to October 2009, and the Senior Vice President of Operations from October 2009. At all material times, he was also CMED’s Compliance Officer appointed by the Board.

105.  As can also be seen from the board meeting minutes, Mr Zhu attended CMED’s board meetings from November 2005 to February 2007 as the Vice President and from 2009 to 2010 as the Senior Vice President of Operations. He gave a presentation to the CMED’s Board regarding the FISH Technology on 12 November 2006, gave a presentation on the SPR Technology on 12 November 2006 and 4 February 2007.

106.  Mr Zhu was also identified as a key individual in CMED’s management as recorded in the registration statement for the SEC dated 15 July 2005.

107.  For the same reason as that given above in relation to Mr Tsang, I reject the Plaintiffs’ submissions that Mr Zhu is to be treated as a de facto director of CMED. Mr Tsang’s activities carried out at the CMED’s Board were entirely within the ambit of the discharge of his duties and responsibilities as the Vice President and the Senior Vice President of Operations of CMED, and it is to those capacities that his acts have to be attributed.

108.  Mr Zhu became the Vice President of CMED under the employment and confidentiality agreement dated 4 January 2005. Clause 4 of this agreement was the same to that of Mr Tsang’s Employment Agreement, save that Mr Tsang would serve as the Vice President, and would be “in charge of Corporate Development”, of CMED.

109.  For reasons similar to those given in relation to Mr Tsang above, it is my view that Mr Zhu was also intended to subordinate his interests and act solely in the interests of CMED in his role as the Vice President (and later the Senior Vice President). I believe CMED was entitled to the single-minded loyalty of Mr Zhu when he was carrying out his functions as the Vice President of CMED.

110.  However, given that Mr Zhu was not responsible for CMED’s assets and none appeared to have been put in his possession or under his control at the material times, I do not believe he had a duty as the Vice President to act as trustee of CMED’s property.

111.  I find that at the material times when he was the Vice President, Mr Zhu owed to CMED:

(1)  a duty to act bona fide in the best interests of the company;

(2)  a duty to exercise his powers for proper purposes;

(3)  a duty not to make an unauthorised profit;

(4)  a duty to avoid conflicts of interest;

(5)  a duty to exercise reasonable care, skill and diligence.

E8e.  No duty to consider creditors’ interest

112.  The Plaintiffs submitted that each of Mr Wu, Mr Tsang, Dr Chen and Mr Zhu owed a duty to CMED and CMED Tech to consider the interests of the company’s creditors if the company was “insolvent or bordering on insolvency”, relying on BTI 2014 LLC v Sequana SA [2024] AC 211. As accepted by the Plaintiffs, the duty is engaged where there is “imminent insolvency (i.e. an insolvency which directors know or ought to know is just round the corner and going to happen) or the probability of an insolvent liquidation (or administration) about which the directors know or ought to know”: Sequana at [203] (Lord Briggs JSC).

113.  Given that Dr Chen and Mr Zhu were never directors of CMED and CMED Tech (and there is no basis for suggesting that they were de facto directors of either company at the material times), I do not see why either of them should be held to have owed a duty to consider creditors’ interest.

114.  Further, no evidence was adduced by the Plaintiffs to suggest that the directors (including Mr Wu and Mr Tsang) at the material times when being involved in the FISH and SPR transactions knew or ought to know that the insolvency of CMED or CMED Tech was just round the corner and was going to happen. Accordingly, there is no basis for the court to find that Mr Wu and Mr Tsang owed to CMED and CMED Tech a duty to consider creditors’ interest.

F.  ISSUE 2: BREACH OF DUTIES

115.  In order to determine whether there has been a breach of the duties by Mr Wu, Mr Tsang, Dr Chen and Mr Zhu, it is necessary for the court to make findings of fact relating to:

(1)  how Dr Chen acquired CytoTrend HK and how the group of companies, comprising Supreme Well, its shareholders and its subsidiaries (collectively the “Supreme Well Group”), was formed;

(2)  the bank accounts of East Hope and Supreme Well;

(3)  the FISH Transaction;

(4)  the SPR Transaction;

(5)  whether CMED overpaid the FISH and SPR Technologies;

(6)  the purported post-acquisition sales;

(7)  the transfers of funds from CMED and CMED Tech.

F1.  My Approach in Making Findings of Fact

116.  In making my findings of fact in this case, I am guided by a number of general principles which judges apply as to fact finding and the assessment of credibility.

117.  Generally speaking, contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility: Onassis v Vergottis [1968] 2 Lloyd’s Rep 403 at 431 (Lord Pearce).

118.  In deciding whether to accept a witness’ account, importance should also be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events: e.g. Lam Rogerio Sou Fung v Tan Soon Gin George (unreported, HCA 2576/2005, 5 May 2011) [39] (Chu J).

119.  In determining a witness’ credibility, I have also attached importance to the consistency of the witness’ evidence with undisputed or indisputable evidence, and the internal consistency of the witness’ evidence. The latter type of consistency is often tested by a comparison between the witness’ oral testimony and his or her witness statement.

120.  I have cautioned myself against the dangers of too readily drawing conclusions about truthfulness and reliability solely or mainly from the appearance of witnesses (Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336 at [36]-[37] (Bokhary PJ)), or from the assessment of the witnesses’ character (Esquire (Electronics) Ltd v HSBC [2007] 3 HKLRD 439 at [135] (Stock JA)), or from witness testimony through an interpreter (Compania Naviera Martiartu v Royal Exchange Assurance Corporation (1922) 13 Ll L Rep 83 at 97 (Scrutton LJ)).

121.  The practical approach to assessing credibility of witnesses generally may have best been summarised by the words of Robert Goff LJ in Armagas Ltd v Mundogas SA (The Ocean Frost) [1985] 1 Lloyd’s Rep 1 at 57 (even though his Lordship was only commenting on fraud cases):

“Speaking from my experience, I have found it essential in cases of fraud, when considering the credibility of witnesses, always to test their veracity by reference to the objective facts proved independently of their testimony, in particular by reference to the documents in the case, and also to pay particular regard to their motives and to the overall probabilities. It is frequently very difficult to tell whether a witness is telling the truth or not; and where there is a conflict of evidence such as there was in the present case, reference to the objective facts and documents, to the witnesses’ motives, and to the overall probabilities, can be of very great assistance to a judge in ascertaining the truth.”

122.  In approaching the evidence in this case, I have also borne in mind that the allegations made by the Plaintiffs are very serious, and that the more serious the allegation sought to be proved is, the more cogent the evidence relied upon to support it must be: Re H (Minors) [1996] AC 563 at 586D-587F (Lord Nicholls) and Nina Kung v Wong Din Shin (2005) 8 HKCFAR 387 at [182]-[184] (Ribeiro PJ).

123.  In this case, because some relevant parties are absent from the trial, there are many occasions where inferences of fact have to be made. Moreover, the court has to make inferences to determine whether the Plaintiffs’ case of fraud is established. As Arden LJ said in Dadourian Group International Inc v Simms [2009] 1 Lloyd’s Rep 601 at [89],

“[f]raudsters rarely sit down and reduce their dishonest agreement to writing. Frauds are commonly proved on the basis of inviting the fact-finder to draw proper inferences from the primary facts.”

124.  In making my inferences, I have borne in mind the following well-established principles.

(1)  “[In a civil case] you need only circumstances raising a more probable inference in favour of what is alleged. In questions of this sort, where direct proof is not available, it is enough if the circumstances appearing in evidence give rise to a reasonable and definite inference: they must do more than give rise to conflicting inferences of equal degrees of probability so that the choice between them is mere matter of conjecture … But if circumstances are proved in which it is reasonable to find a balance of probabilities in favour of the conclusion sought then, though the conclusion may fall short of certainty, it is not to be regarded as a mere conjecture or surmise ...”: Luxton v Vines (1952) 85 CLR 352 at 358(Dixon, Fullagar and Kitto JJ) citing Bradshaw v McEwans Pty Ltd (1951) (Unreported), quoted in Nina Kung at [185] (Ribeiro PJ).

(2)  Accordingly, an inference may be drawn from “documentary evidence and known or probable facts” (Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC 3560 (Comm) at §22 (Leggatt J)).

(3)  Where the court is invited to reach a conclusion of fraud or forgery “as an inference to be drawn on the basis of circumstantial evidence, any such inference must be properly grounded in the primary facts found. The court guards against indulging in conjecture under the guise of drawing an inference where the primary evidence does not logically and reasonably justify the particular inference in question”: Nina Kung at [185] (Ribeiro PJ).

(4)  Inferences of fraud or serious misconduct are to be drawn only where they are compelling: Nina Kung at [187] (Ribeiro PJ).

(5)  Adverse inferences may be drawn from the absence or silence of a witness who might be expected to have material evidence to give on an issue. Such adverse inferences can only be drawn if there is already a prima facie case on that issue. The effect of drawing such adverse inferences may make the prima facie case to become a strong or even an overwhelming one. See Pacific Electric Wire & Cable Co Ltd v Texan Management Ltd (unreported, CACV 90-96/2012, 17 September 2013) §§106-107 (Kwan JA).

(6)  What was recently said by Lord Leggatt JSC in Efobi v Royal Mail Group Ltd [2021] 1 WLR 3863 at [41] about the drawing of adverse inferences also bears emphasis:

“So far as possible, tribunals should be free to draw, or to decline to draw, inferences from the facts of the case before them using their common sense without the need to consult law books when doing so. Whether any positive significance should be attached to the fact that a person has not given evidence depends entirely on the context and particular circumstances. Relevant considerations will naturally include such matters as whether the witness was available to give evidence, what relevant evidence it is reasonable to expect that the witness would have been able to give, what other relevant evidence there was bearing on the point(s) on which the witness could potentially have given relevant evidence, and the significance of those points in the context of the case as a whole. All these matters are inter-related and how these and any other relevant considerations should be assessed cannot be encapsulated in a set of legal rules.”

F2.  Witnesses’ Credibility

125.  In this section, I set out my observations on the credibility of the factual witnesses who attended the trial. My observations on the two expert witnesses are mentioned in Section F8 below.

F2a.  Plaintiffs’ witnesses

126.  Mr Borrelli is a joint and several liquidator of CMED, a director of CMED Tech and one of the 3^rd Plaintiffs. His evidence included a summary of the 3^rd Plaintiffs’ investigations and the work undertaken by them to secure information, books and records, an overview of the structure and history of the CMED Group, the 3^rd Plaintiffs’ findings in respect of the true nature of the FISH and SPR Transactions and their tracing of the funds.

127.  The only relevant matter to which Mr Borrelli has personal knowledge that was suggested to be questionable was an issue in relation to the tracing of funds. In his cross-examination, Mr Kerby Lau, counsel for Mr Hao, made a suggestion that Mr Borrelli has not proved that the funds set out in his witness statements could be traced, without providing any basis for the suggestion. Mr Borrelli disagreed. In closing submission, Mr Lau suggested that a total sum of US$380,000 could not be traced. However, Mr Borrelli was not asked in cross-examination why this sum was said to be untraceable. Further, I am unable to find fault in Mr Borrelli’s tracing methodology (see further Section F7c below). In these circumstances, I do not think the reliability of Mr Borrelli’s evidence was in any way undermined by the suggestion made on behalf of Mr Hao.

128.  I find Mr Borrelli to be straightforward witness. There was nothing in the cross-examination of Mr Borrelli that caused me to have any concern over the factual matters in his witness statements to which Mr Borrelli has personal knowledge.

129.  Mr Kwan Po Ming Toby (“Mr Kwan”) was the certified public accountant who provided company secretarial services, and nominee shareholder and director services to entities in the Supreme Well Group and entities which received the funds from CMED and CMED Tech. His evidence was virtually unchallenged and I have no hesitation to accept his evidence in full.

130.  Mr Capener and Dr Crum were CMED’s former independent, non-executive directors and members of CMED’s Audit Committee. Their evidence recounted first-hand how the FISH and SPR Transactions were presented to CMED’s Board in 2007 and 2008. Although both of them were subject to some cross-examination, none of their evidence was undermined. I find both of them candid and very forthcoming, and their evidence is accepted in their entirety.

F2b.  Dr Chen

131.  Dr Chen obtained his doctorate degree in medicine from Tongji Medical University of Wuhan in China in 1989. Thereafter, he went to the United States in 1990 and was engaged in postdoctoral research in medical genetics and cancer genetics in the genetics research programme jointly conducted by the Southwest Biomedical Research Institute and the University of Arizona in Phoenix. In 1993, he became the first US‑registered clinical cytogeneticist in Mainland China. In 1998, he was employed by the Faculty of Medicine of the University of Utah in the United States as an associate professor of the paediatrics department.

132.  On the basis of the evidence before the court, Dr Chen appeared to me to be a knowledgeable person on technical matters relating to the FISH technology. He appeared to be very accomplished in his field by having published numerous scientific papers and participated in the publication of many books.

133.  He gave his oral evidence in Putonghua with the assistance of the court’s interpreter. He appeared to be able to understand some basic English words and phrases but I do not believe his level in English comprehension is high, or his ability to speak English is good.

134.  I have some slight misgivings about Dr Chen’s oral testimony. During cross-examination, he did on occasions give speeches and did not always answer the questions. Although these features may sometimes constitute hallmarks of an unreliable witness, I did not get the impression that Dr Chen was seeking to improve his case or avoid the question when he gave a speech.

135.  The Plaintiffs submitted that Dr Chen was not a credible or reliable witness, and gave dishonest and deceptive evidence to the court. They gave 5 key examples.

136.  First, the Plaintiffs submitted that Dr Chen had given fundamentally different and inconsistent versions of facts, which can be seen by comparing those recorded in an office memorandum (“PW Memo”) of Paul, Weiss, Rifkind, Wharton & Garrison LLP (“Paul Weiss”) dated 6 July 2009 and those set out in his witness statement and given during the trial. I am unable to accept this submission.

(1)  Dr Chen accepted in cross-examination that he was interviewed by a lady attorney from Paul Weiss in 2009. He confirmed that no interpreter was present at the interview and he answered the questions in English. The Plaintiffs asserted in their closing submissions that someone from Paul Weiss’s Beijing office was also present at the interview and must have carried out interpretation if necessary. Given that this matter was not put in cross-examination even when Dr Chen said that he answered Paul Weiss’ questions in English, I place no weight on the Plaintiffs’ assertion.

(2)  The PW Memo was prepared by Ms Donna Ioffredo. As recorded in the Memo, the interview took place on 24 June 2009 at CMED’s offices in Beijing. On the first page of the Memo, Ms Ioffredo stated as follows:

“This memorandum contains my opinions and mental impressions of the meeting, and it has been prepared solely to assist counsel in providing legal advice to the Audit Committee of the Company. This memorandum is not, and is not intended to be, a verbatim account of the interview, and it has not been reviewed Dr. Chen. Therefore, it may be incomplete or contain inaccuracies.”

(3)  The PW Memo is simply a hearsay document, which on its face acknowledges that its contents have not been reviewed by Dr Chen and may be incomplete or contain inaccuracies. Further, Dr Chen explained in cross-examination that his interview with Paul Weiss took the form of questions and answers, and that the PW Memo had combined his answers to a number of short questions. It seems to me that the PW Memo is a summary of points derived from Dr Chen’s answers given at the interview which the author considered relevant. I have reminded myself that I need to assess the Plaintiffs’ submissions on Dr Chen’s alleged inconsistencies in this light.

(4)  The first alleged inconsistency is that Dr Chen said in his evidence in these proceedings that Dr Li (to be defined below) asked for provision of financial assistance or introduction to an investor, whereas Dr Chen was recorded in the PW Memo to have said that his brother introduced him to a group of investors. In cross-examination, Dr Chen explained that he did mention at the interview that his younger brother had mentioned a group of investors, one of whom was Mr Xu (to be defined below) whom his brother knew since childhood. I am unable to see the alleged inconsistency between Dr Chen’s account in these proceedings and what was recorded in the PW Memo. As I understand from the evidence, Dr Li first asked Dr Chen for assistance, and Dr Chen then eventually found Mr Xu as an investor.

(5)  The second alleged inconsistency is that Dr Chen identified the investor to be Mr Xu in these proceedings, but no reference was made to Mr Xu in the PW Memo. As mentioned in the previous sub-paragraph, Dr Chen said that he did mention Mr Xu’s name during the interview with Paul Weiss. Given the provenance of the PW Memo, I cannot rely on the absence of reference to Mr Xu as a basis to disbelieve Dr Chen in these proceedings.

(6)  The third alleged inconsistency is that Dr Chen referred to the involvement of Mr Zhu around the end of 2005 in his evidence, but that no reference was made to Mr Zhu at the initial stage of the acquisition of CytoTrend HK in the PW Memo. The fact that there was no reference to the meeting with Mr Zhu at the end of 2005 in the PW Memo does not mean that I should reject Dr Chen’s evidence now. The court cannot speculate the reason as to why a particular meeting between Dr Chen and Mr Zhu was not mentioned in the PW Memo.

(7)  The fourth alleged inconsistency is that Dr Chen did not identify the investors found by Mr Xu in May 2006 in his evidence, but that he mentioned Mr Chong as one of the investors in the PW Memo. Dr Chen did refer to Mr Chong (by his English name “Peter”) in his cross-examination as a potential investor mentioned by Mr Xu. I am not satisfied that there is an inconsistency.

(8)  The last alleged inconsistency is that Dr Chen said in these proceedings that he would obtain about 3% beneficial shareholding in CytoTrend HK, whereas there was no disclosure of any interest in CytoTrend HK or the acquisition proceeds in the PW Memo. There could be different reasons as to why the 3% was not recorded in the PW Memo. I do not think it is appropriate for the court to rely the absence of reference as a basis to reject Dr Chen’s evidence now.

(9)  For these reasons, I do not think the contents of the PW Memo can be used as a basis for me to find that Dr Chen was a dishonest witness.

137.  The second key example of the Plaintiffs was Dr Chen’s letter to the University of Utah dated 14 February 2007. In the letter, Dr Chen provided an update on his then current situation and asked the University to reduce his employment time to 20%. One of the reasons given by Dr Chen for his request was that a “family interested business” might require him to serve as an adjunct CTO and that no cytogenetics services would be involved and provided. Dr Chen confirmed in cross-examination that this “family interested business” was a reference to CMED’s acquisition of Supreme Well. It was suggested to Dr Chen in cross‑examination that this reason was untrue because there was no family interest in CMED, that he would be serving as a full-time CTO and that he would be providing cytogenetics services at CMED. Dr Chen disagreed with the suggestions. He explained what he meant by “family interested business”, and why he would not be providing cytogenetics services at CMED. On an objective reading of the letter, I do find that the reference to a family interested business is odd and did not accurately reflect the nature of CMED’s business. However, I cannot say that Dr Chen’s distinction between the provision of cytogenetics services and the research and development of FISH is artificial as contended by the Plaintiffs. What is clear to me is that I cannot rely on a misdescription in this 2007 letter as a basis to find Dr Chen as a dishonest witness in this trial.

138.  The Plaintiffs’ third key example related to the timing and proximity of Dr Chen’s receipts of the 3% of the income. It was pointed out to Dr Chen in cross-examination that his total receipt of the 3% of the income came in three tranches: US$2.5 million to Dr Chen on 30 March 2007, US$2 million to Dynamic Sense on 13 January 2009 and US$1 million to Dr Chen on 13 January 2009. It was suggested to Dr Chen that the total payments of US$3 million in January 2009 related to the SPR Transaction and could not have been attributable to his entitlement under the FISH Transaction. Dr Chen disagreed with the suggestion. He explained that as long as he received a total of about 3% of the income from the FISH Transaction, it would not matter as to when he would receive the money. I have some doubt about this explanation because the total of US$3 million which he and Dynamic Sense received happened quite a while after the first payment in March 2007. Dr Chen also provided other explanations in cross-examination on the timing of the payments. I find his other explanations to be somewhat speculative. Overall, after hearing Dr Chen’s explanations, I remain unclear as to the timing of Dr Chen’s receipts of the 3% of the income.

139.  The Plaintiffs’ fourth key example concerned the time when Dr Chen first met Mr Wu. It was stated on behalf of Dr Chen in his Defence that he “did not know or have any dealing with Mr Wu before he joined [CMED Tech] in May 2007”. Dr Chen acknowledged in cross‑examination that the statement in his Defence is incorrect, and that he first met Mr Wu in 2005 but had no dealings with him. Dr Chen explained that he had told his former solicitors what happened but his version came out as what appears in his Defence now. I do find this explanation difficult to understand. I accept that this is a valid example of inconsistency and it will be taken into account when I assess the overall credibility of Dr Chen.

140.  The last key example of the Plaintiffs related again to the PW Memo. The Plaintiffs pointed out that there were matters from the PW Memo which Dr Chen could recall, but there were some which he could not. I find this phenomenon quite normal and would certainly not attach any significance to it when assessing Dr Chen’s credibility.

141.  Despite the above criticisms of the Plaintiffs, I find that Dr Chen did answer the questions put to him in a spontaneous manner. I have taken into account the fact that he was conducting this case in person without the assistance of lawyers. I have also borne in mind that Dr Chen was being asked questions about matters which happened around 20 years ago in 2005 and 2006.

142.  Importantly, there is a very large degree of consistency between his Defence, his witness statement and his oral testimony. As far as overall probabilities are concerned, I think the events recounted by Dr Chen are more likely to have happened than those which the Plaintiffs now ask the court to find as part of their case of fraud against Dr Chen. I further note that Dr Chen’s initial involvement with Dr Li (to be defined below) was in fact supported by contemporaneous documents.

143.  Accordingly, although there were blemishes in his evidence as identified above, I do not find Dr Chen to be an incredible or unreliable witness as suggested by the Plaintiffs. As will be seen later, Dr Chen’s evidence will form a part of the findings in Section F3 below.

F2c.  Ms Bi

144.  After a holistic consideration of Ms Bi’s evidence, I do not find her to be a credible and reliable witness. I find that there are multiple inconsistencies in important areas of her evidence. These inconsistencies are set out in detail in Sections I3c, I3d and I3e below. They relate to the following matters:

(1)  whether Ms Bi was separated from Mr Wu from 2001 due to estrangement;

(2)  the reason for purchasing the joint-owned property in Clark County in Nevada;

(3)  Ms Bi’s involvement in Beijing Yuande in 2005 and 2008, and in CMT Singapore (to be defined below);

(4)  the source of the information in the United Overseas Bank application form;

(5)  the reason why the slide deck presentation concerning CMED was provided to Ms Bi;

(6)  whether or not she was at any time a shareholder of Weixiao Medical (to be defined below), or had any interest in it;

(7)  whether there was any arrangement between Mr Wu and her in relation to the transfers of money; and

(8)  whether the money Ms Bi received from 2007 to 2012 was her share of the sale proceeds from her joint investments with Mr Wu.

F3.  Dr Chen’s Acquisition of CytoTrend HK and Formation of the Supreme Well Group

145.  On 30 June 2004, CytoTrend Biotech Engineering Limited (“CytoTrend HK”) was incorporated in Hong Kong.

146.  According to its financial statements for the year ended 31 December 2005, (1) CytoTrend HK’s principal activities were developing and manufacturing products for both research and diagnostic purposes in the cytogenetic field, and (2) its directors during the year were Li Xuan, Luo Ken Yi, Sham Shum Tong and Zhang Minyue.

147.  In this trial, Dr Chen was the only witness who was able to give first-hand and direct evidence on how he came to be involved in CytoTrend HK and the formation of the Supreme Well Group.

148.  According to Dr Chen, Dr Li Xuan (“Dr Li”) was the CEO of CytoTrend HK and Dr Chen met her at an academic conference before 2004. At the time, Dr Chen and Dr Li were in different cities in the United States and Dr Li would discuss with Dr Chen on the telephone from time to time about the FISH technology.

149.  I note that the Plaintiffs accepted in their Reply to Dr Chen’s Defence that Dr Li was a director of CytoTrend HK from 30 June 2004 to 21 April 2006.

150.  At the end of 2005, Dr Li contacted Dr Chen over the telephone and asked if Dr Chen could provide financial assistance to CytoTrend HK or introduce an investor so as to maintain its normal operation. Dr Chen then referred the matter to his old friend, Mr Xu Ge (“Mr Xu”). Dr Chen brought Mr Xu to meet with Mr Zhu, whom Dr Chen had met at academic conferences and whom Dr Chen knew occupied a senior management position at CMED. Mr Xu became interested in acquiring CytoTrend HK.

151.  In his witness statement, Dr Chen claimed that he had made an agreement with Mr Xu as follows: (1) Dr Chen would negotiate with Dr Li about the acquisition of CytoTrend HK, (2) Dr Chen would be fully responsible for the research, scientific and technological work of CytoTrend HK in relation to continuous development of the FISH technology, (3) Mr Xu would be responsible for all the business affairs, and (4) Dr Chen would “obtain about 3% beneficial shareholding in CytoTrend HK”. In his cross-examination, Dr Chen accepted that his remuneration was inaccurately expressed in his witness statement and that he should get “around 3% of the beneficial income”. This was consistent with the answer to the Plaintiffs’ Request for Further and Better Particulars given by Dr Chen’s former solicitors in November 2018.

152.  On 18 January 2006, Molecular Diagnostic Technologies Limited (previously named Coretech Group Limited) (“Molecular”) was incorporated as a BVI entity. Dr Chen accepted in cross-examination that the specific purpose of incorporating Molecular was for the acquisition of CytoTrend HK.

153.  On 21 February 2006, Dr Chen as the purchaser faxed a letter of intent dated 15 February 2006 to CytoTrend HK as the seller (“CytoTrend Letter of Intent”). In the document, it was stated that the purchaser desired to acquire substantially all of the assets of CytoTrend HK, including all technologies and products developed by CytoTrend HK as well as tangible and intangible assets for HK$1 million. The CytoTrend Letter of Intent was signed by Dr Chen as the purchaser and was countersigned by Dr Li for CytoTrend HK. This is a contemporaneous document and the Plaintiffs did not suggest anything for doubting the veracity of the contents of this document.

154.  On 27 February 2006, Ms Bi transferred US$15,000 to Dr Chen. Dr Chen was unable to recall the purpose of this payment when asked about it in cross-examination. But he then said:

“No. It was introduced by Mr Tsang by offering assistance to us. Actually, I have mentioned that during that period of time Sam [Mr Tsang] had offered great assistance to us by finding the law firm, the lawyers for us, and because Dr Li Xuan was in the United States and he also assist us in making those payments and to find a channel so that it could be paid to the US. I don’t know whether it’s because Chief Xu had arranged with Sam Tsang or Charles Zhu and then Chief Bi offered assistance so that the money would be remitted to me and I could transfer it to the other party. It may be the case. Because when I am looking at it now, for those US$15,000, it’s more or less the same as the HK$1 million for the acquisition. So I’m now recollecting it, maybe it has something to do with the payment, then Sam was asked to offer assistance, then he enlisted the assistance of Chief Bi.”

155.  The fact that Dr Chen was unable to recollect the specific purpose of the payment is not surprising given that the event happened almost 20 years ago. Further, as confirmed by Mr Manzoni in his oral closing submission, this matter was not pleaded by the Plaintiffs as a material fact as against Dr Chen. It was therefore not a matter that needed to be dealt with in Dr Chen’s defence filed in May 2018, or in his witness statement filed in June 2021.

156.  Ms Bi’s evidence on this payment of US$15,000 was that she acted according to Mr Wu’s instruction and was not aware of the purpose of the remittance.

157.  Under clause 2(a) of the CytoTrend Letter of Intent, Dr Chen would need to pay HK$100,000 as “good-faith deposit” to CytoTrend HK within 5 working days after the signing of the document. Given the closeness in time between the remittance of US$15,000 (which was equivalent to around HK$115,000) and the time required for the payment of the deposit, it seems reasonable to infer that the US$15,000 received by Dr Chen was for the purpose of settling the deposit in the acquisition transaction. In the light of Dr Chen’s evidence that Mr Tsang was providing “great assistance” to him at the time, I find that the payment of US$15,000 to Dr Chen was procured by Mr Tsang, who in turn asked Mr Wu to arrange the payment. The payment was then made by Ms Bi as a result of a request from Mr Wu.

158.  On 1 March 2006, Ms Mandy Yim, a solicitor of Mallesons Stephen Jaques (“Mallesons”) engaged to provide legal services in the acquisition, sent by fax a copy of the CytoTrend Letter of Intent to Mr Tsang for his information.

159.  On 14 March 2006, Dr Chen became Molecular’s sole director and initial shareholder. According to Dr Chen, it was Mr Xu who considered that a new company should be established to acquire CytoTrend HK.

160.  As mentioned above, Dynamic Sense was incorporated as a BVI entity on 17 March 2006, and Supreme Well was incorporated as a BVI entity on 28 March 2006. As Dr Chen said in cross-examination, the incorporation of Supreme Well was arranged by Mr Xu and with the assistance of Mr Tsang.

161.  On 8 April 2006, KP Law & Company, a firm of Certified Public Accountants engaged by CytoTrend HK to review CytoTrend HK’s financial due diligence work in relation to the acquisition, addressed its letter of engagement to Mr Tsang’s email address, and had originally named Mr Tsang as the recipient.

162.  On 12 and 13 April 2006, Mr Tsang corresponded directly with, and received updates directly from, Ms Mandy Yim of Mallesons.

163.  Dr Chen accepted in his cross-examination that it was Mr Tsang who referred Ms Mandy Yim of Mallesons and KP Law & Company to Dr Chen for the acquisition of CytoTrend HK. Dr Chen also mentioned in cross-examination that he had described Mr Tsang’s background to Mr Xu, and that Mr Tsang did offer assistance to him (Dr Chen) and Mr Xu.

164.  On 18 April 2006, Dr Chen became Dynamic Sense’s sole director and sole shareholder. According to Dr Chen, this was done upon Mr Xu’s advice.

165.  On the basis of the above contemporaneous documents, it seems clear to me that as early as 1 March 2006, Mr Tsang was already involved in the acquisition of CytoTrend HK by Dr Chen. Indeed, Dr Chen in his cross-examination acknowledged that (1) Mr Tsang and Dr Chen were in communication with each other about the CytoTrend acquisition before March 2006, and (2) Mr Tsang probably drafted or amended the CytoTrend Letter of Intent for Dr Chen. I find that Mr Tsang was already involved in Dr Chen’s acquisition of CytoTrend HK before the date of the CytoTrend Letter of Intent (namely 15 February 2006).

166.  By a share purchase agreement dated 21 April 2006, Molecular purchased all shares in CytoTrend HK from Kings Gene Technologies Inc, Time Ever Holdings Limited, Anchor Success Associates Limited and Zhang Minyue for HK$1.2 million or approximately US$153,846. One share in CytoTrend HK was transferred to Dr Chen to hold on trust for Molecular, and the remaining 999,999 shares were transferred to Molecular. Dr Li signed the share purchase agreement and all the instruments of transfer as the authorised representatives for all of CytoTrend HK’s shareholders. On the same date, Dr Chen and Molecular became CytoTrend HK’s directors.

167.  The Plaintiffs contended that in April, Dr Chen purchased CytoTrend HK on behalf of Mr Wu and Mr Tsang, and knew that they would later acquire the FISH Technology. I reject this submission. It is true that Dr Chen knew that Mr Wu and Mr Tsang were officers of CMED. However, I see no basis to infer from this that Dr Chen was in fact purchasing CytoTrend HK on behalf of Mr Wu and Mr Tsang, or that he knew CMED would later acquire the FISH Technology. I also note that the contention was neither pleaded nor suggested to Dr Chen in his cross‑examination.

168.  According to Dr Chen, in around May 2006, Mr Xu told Dr Chen that other investors had been found and warranted to Dr Chen that there would not be shortage of fund for research and development.

169.  On 10 May 2006, Dr Chen incorporated CytoTrend Biotech Engineering Limited-USA Inc (“CytoTrend US”) as an entity in the State of Utah, the United States of America, and became CytoTrend US’s initial director and sole shareholder. On 1 June 2006, Dr Chen transferred 999 of the shares in CytoTrend US to CytoTrend HK and retained the remaining one share in CytoTrend US. According to Dr Chen, it was Mr Xu’s idea for CytoTrend US to be established for the purpose of handling intellectual property rights in the United States.

170.  On 5 July 2006, Dr Chen became Supreme Well’s initial director and Dynamic Sense became Supreme Well’s initial shareholder.

171.  According to Dr Chen, when he went to Mainland China or Hong Kong, Mr Xu would request Dr Chen to sign various kinds of documents in relation to the CytoTrend Group.

172.  In July 2006, the following entities were incorporated as BVI entities (“the 5 BVI Entities”),

(1)  Sharp Pearl Limited (“Sharp Pearl”), on 6 July 2006;

(2)  Ally Brilliant Investments Limited (“Ally Brilliant”) and Charm Health Investments Limited (“Charm Health”), on 10 July 2006;

(3)  Takashi Investments Limited (“Takashi”), on 26 July 2006; and

(4)  Kahtani International Limited (“Kahtani”), on 28 July 2006.

173.  According to the evidence of Mr Kwan, which I accept, he was the corporate services provider who incorporated each of the BVI 5 Entities in July 2006. He met with Mr Tsang in July 2006 and it was Mr Tsang who asked him to incorporate the 5 BVI Entities for Mr Chong.

174.  On 14 August 2006, Dr Chen became CytoTrend HK’s sole director. On the same date, Dr Chen transferred all shares in Molecular to Supreme Well such that Molecular became Supreme Well’s wholly owned direct subsidiary. A chart showing how the shares in Molecular, CytoTrend HK, Dynamic Sense and Supreme Well were being held before and after 14 August 2006 is annexed as Annexure A.

175.  The Plaintiffs submitted that Dr Chen arranged for Supreme Well to become the owner of CytoTrend HK on the instructions of Mr Wu and Mr Tsang and knew that there was no legitimate purpose for this restructuring. I do not accept this submission. Dr Chen said in cross‑examination that this was done on behalf of Mr Xu and that he did not know whether any assistance or guidance was provided by Mr Tsang. Dr Chen also said that he would not be surprised if there was communication between Mr Xu and Mr Tsang because he (Dr Chen) had introduced Mr Xu to Mr Zhu who was Mr Tsang’s colleague. I accept Dr Chen’s oral testimony in this regard.

176.  In August 2006 the following individuals (together “5 Individuals”) were appointed as the named shareholders and directors of the following entities:

(1)  Mr Ng Ka Yu, who was the brother-in-law of Mr Chong, was appointed as the sole director and shareholder of Ally Brilliant;

(2)  Mr Ng Kei Yan, who was the father-in-law of Mr Chong, was appointed as the sole director and shareholder of Charm Health;

(3)  Mr Chan Kwan Yan (“Mr Chan”), who was a close friend of Mr Chong, was appointed as the sole director and shareholder of Kahtani;

(4)  Madam Chong Kam Chu (“Madam Chong”), who was the sister of Mr Chong, was appointed as the sole director and shareholder of Sharp Pearl; and

(5)  Ms Tsoi Po Mat, who was the niece of Mr Chong, was appointed as the sole director and shareholder of Takashi.

177.  Mr Ng Kei Yan, Mr Chan, Madam Chong and Ms Tsoi Po Mat had each provided an affirmation to the Liquidators confirming he/she had never agreed to become a director or shareholder of, and had never signed any documents in relation to the relation to, the relevant BVI entity. No similar affirmation could be sought from Mr Ng Ka Yu as he had passed away.

178.  Further, according to Mr Kwan’s evidence, which I accept, it was Mr Tsang who gave Mr Kwan copies of the Hong Kong Identity Cards of the five individuals and instructed him to appoint them as shareholder/director of the 5 BVI Entities. Given that each of the 5 Individuals was related to or acquainted with Mr Chong, I infer that copies of the identity cards were given to Mr Tsang by Mr Chong. Mr Kwan provided Mr Tsang with the necessary corporate documents required to be signed by the relevant shareholder/director. Subsequently, Mr Tsang returned the signed documents to Mr Kwan, who then forwarded them to the BVI registered agent for the companies. Mr Kwan never met and had no knowledge of the 5 Individuals who became the shareholder/director of the 5 BVI Entities.

179.  After setting up the 5 BVI Entities, Mr Kwan then passed their books and records to Mr Tsang, who instructed Mr Kwan to take instructions from Mr Chong in relation to the 5 BVI Entities. Subsequently, all of Mr Kwan’s dealings in regard to the 5 BVI Entities were with Mr Chong. I infer that after the incorporation of the 5 BVI Entities, Mr Chong maintained these companies, gave instructions to Mr Kwan for their statutory filings and settled Mr Kwan’s fees.

180.  Based on the existing evidence, I find that (1) 5 Individuals never consented to become the shareholder and director of the 5 BVI Entities, and that each of their identity was used without their knowledge, (2) the signatures found in the corporate documents that were returned to Mr Kwan for the incorporation of the 5 BVI Entities were forged, (3) Mr Tsang and Mr Chong procured one individual director and shareholder to each of the 5 BVI Entities without their knowledge and consent, and (4) the forged signatures in the corporate documents for the incorporation of the 5 BVI Entities were procured by Mr Tsang and Mr Chong.

181.  I consider there is a compelling case for me to infer on a balance of probabilities that both Mr Tsang and Mr Chong actually knew that the 5 BVI Entities were incorporated without the knowledge and consent of the 5 Individuals. This (adverse) finding is further supported from the fact that Mr Tsang and Mr Chong failed to turn up at the trial to give evidence and be cross-examined, despite each having filed a defence and witness statement in these proceedings, and each having been legally represented until shortly before the trial commenced.

182.  On 24 August 2006, CytoTrend (Beijing) Biotech Engineering Co Ltd (“CytoTrend Beijing”) was incorporated in Mainland China and CytoTrend HK became its sole shareholder. According to Dr Chen, CytoTrend Beijing was set up for handling research and development of the FISH technology in Beijing, and this was Mr Xu’s idea.

183.  Li Hongzeng (“Mr Li Hongzeng”) held the position of General Manager of CytoTrend Beijing from the time of its incorporation until on or about 31 May 2009. Mr Li Hongzeng had in fact been an employee of the China Medical Group immediately prior to his appointment to the Supreme Well Group, holding the position of Procurement Director at the CMED’s Mainland subsidiary, Beijing Yuande, from in or about December 2005 to August 2006.

184.  On 8 September 2006, Dr Chen transferred his 1 share in CytoTrend HK to Molecular, such that Molecular became CytoTrend HK’s sole shareholder.

185.  On 10 October 2006, Dr Chen caused Dynamic Sense to transfer all shares of Supreme Well to the 5 BVI Entities, as to 20% each, and caused (1) the 5 BVI Entities to become Supreme Well’s named shareholders and (2) the 5 Individuals become Supreme Well’s named beneficial owners.

186.  As confirmed in their respective affirmation, each of Mr Ng Kei Yan, Mr Chan, Madam Chong and Ms Tsoi Po Mat had no knowledge of Supreme Well, CMED and its business, CytoTrend HK (in the case of Mr Chan), and Molecular (in the case of Mr Chan and Madam Chong), and had never signed any documents in relation to any of these companies. I find that the signatures of the transferee in the five instruments of transfer in relation of the Supreme Well shares were all forged.

187.  The Plaintiffs submitted that Dr Chen transferred away all the shares in Supreme Well at the behest of Mr Wu and Mr Tsang and that he (Dr Chen) knew that there was no legitimate reason to make such a transfer. This was not something that was put to Dr Chen in his cross-examination. In any event, the Plaintiffs have not identified any cogent evidence to support the inference that the transfer was done on behalf of Mr Wu and Mr Tsang, or that Dr Chen knew that the transfer was illegitimate.

188.  On 25 October 2006, Dr Chen resigned as director of Supreme Well, Molecular and CytoTrend HK, and Mr Chan and Madam Chong were appointed as the named directors of each of Supreme Well, Molecular and CytoTrend HK. On the basis of the evidence mentioned earlier, I find that (1) the signatures of Mr Chan and Madam Chong in Supreme Well’s board resolution dated 25 October 2006 were forged and (2) each of them became a director of Supreme Well, Molecular and CytoTrend HK without their knowledge or consent. A chart showing the Supreme Well Group structure as at 10 October 2006 is annexed as Annexure B.

189.  In cross-examination, Dr Chen said that the arrangements concerning the 5 BVI Entities came from Mr Xu and the 5 BVI Entities were brought in by Mr Chong. It is true that the explanations were not mentioned in Dr Chen’s witness statement. However, I do not consider such explanations to be inherently incredible. I certainly find Dr Chen’s account of events concerning Mr Xu Ge’s involvement more likely to have happened than the Plaintiffs’ suggestion that Dr Chen wilfully closed his eyes and transferred his ownership and directorship of Supreme Well to the 5 BVI Entities on the instruction of Mr Tsang.

190.  According to Dr Chen, Mr Xu told Dr Chen in November 2006 that CMED decided to acquire all the FISH technology developed by the CytoTrend Group, and one of the acquisition conditions was that Dr  Chen must assist in the transfer of the technologies and integrate them into the facilities of CMED.

191.  On 9 July 2007, Madam Chong was appointed as a named director and the Vice President of CytoTrend US. Madam Chong’s affirmation did not refer to CytoTrend US. However, in all likelihood, it is more likely than not that the appointments were made without her knowledge or consent.

192.  In their closing submissions, the Plaintiffs submitted that (1) Dr Chen has put forward a false and deceptive narrative about the involvement of Mr Xu in the transaction, and (2) Dr Chen was instead brought into the transaction by a combination of Mr Wu, Mr Tsang, Mr Zhu[5] and Ms Bi. I have carefully considered this submission and have come to the view that it must be rejected.

(1)  The Plaintiffs’ case that Dr Chen was brought into the transaction in question by a combination of Mr Wu, Mr Tsang, Mr Zhu and Ms Bi was advanced, for the first time, in the Plaintiffs’ written closing submission.[6] The Plaintiffs opened their case simply by contending that it was not clear how Dr Chen came to be involved in the acquisition of CytoTrend HK, without putting forward any positive case.

(2)  This is consistent with the Plaintiffs’ Re-Amended Statement of Claim (“RASOC”). In the RASOC, there are general pleas that “Mr Wu, Mr Tsang, Dr Chen, Mr Zhu and/or Mr Chong Wing Hip orchestrated and/or perpetrated the Theft”. However, other than pleading Dr Chen’s specific involvements at certain stages in the transaction, the Plaintiffs did not specifically plead how Dr Chen came to be involved in it.

(3)  Mr Xu’s involvement in the CytoTrend transaction was pleaded by Dr Chen in his Defence as early as May 2018. In their Reply dated August 2018, the Plaintiffs joined issue with all of Dr Chen’s pleas in relation to Mr Xu’s involvement, which has the effect of making a non-admission against all of them by virtue of RHC O.18 r.14.

(4)  In short, on the pleadings, the Plaintiffs have simply required Dr Chen to prove his case in relation to Mr Xu’s involvement, and there is no positive specific case on how Dr Chen became involved in the acquisition of CytoTrend HK.

(5)  Importantly, I consider that Dr Chen has proved his case as to how he acquired CytoTrend HK in 2005 and 2006. As mentioned in Section F2b above, I acknowledge that there are some unsatisfactory aspects in Dr Chen’s evidence and the way how his oral testimony was given. However, looking at his evidence on the whole, I accept Dr Chen’s account on how he became involved, even though that many of events cannot be corroborated by contemporaneous documents. They did after all take place many years ago. In particular, the Plaintiffs have not established that there should have been contemporaneous documents to account for Mr Xu’s involvement but that Dr Chen failed to produce them in these proceedings. I note that Dr Chen did mention in cross‑examination that he tried to seek corroboration from Mr Xu and Dr Li when Dr Chen was preparing his witness statement in 2021, but found out that both of them had already passed away. I further note that the Plaintiffs have not sought to challenge Dr Chen’s dealings with Dr Li, whose existence can be shown by various contemporaneous documents.

(6)  Looking at all the evidence holistically and on the basis of the findings made above, it is clear that certain fraud had taken place during the setting up of Supreme Well which involved Mr Tsang and Mr Chong in 2006. However, I do not believe I can infer from the existing evidence that Dr Chen was involved in, or had any actual or blind-eye knowledge of, such fraud. Bearing in mind that cogent evidence is required to establish fraud, I consider that the Plaintiffs have not proved the serious accusations that Dr Chen had deliberately fabricated the involvement of Mr Xu, and that Dr Chen was brought into the transaction by a combination of Mr Wu, Mr Tsang, Mr Zhu and Ms Bi.

F4.  Bank Accounts of East Hope and Supreme Well

F4a.  East Hope’s accounts

193.  On 4 May 2006, Mr Shang Shaohong signed an account opening form and mandate each dated 4 May 2006. The mandate was also signed by Mr Wu, as a result of which account number 012-737-9-203955-2 in the name of East Hope wasopened at Bank of China (Hong Kong) Limited (“BOCHK”) (“East Hope BOCHK Account”) and Mr Shang Shaohong and Mr Wu were appointed the joint authorised signatories of that account.

194.  In about April 2009, Mr Tsang was added as an authorised signatory to the East Hope BOCHK Account.

195.  On 12 December 2006, Mr Tsang and Mr Kwan signed an account opening form dated 12 December 2006, as a result of which account number 260-81-01521-5 in the name of East Hope was opened at The Bank of East Asia Limited (“BEAHK”) (“East Hope BEAHK Account”) and Mr Tsang was appointed as the sole authorised signatory of that account, and was authorised to operate the account singly and without company chop.

196.  On 30 January 2009, Mr Wu was added as an authorised signatory to the East Hope BEAHK Account.

F4b.  Supreme Well’s accounts

197.  On 17 September 2006, Dr Chen signed an account opening form and mandate each dated 17 September 2006. The mandate was also signed by Mr Tsang, as a result of which account number 012-737-9-204295-0 in the name of Supreme Well was opened at BOCHK (“Supreme Well Primary BOCHK Account”) and Mr Tsang was appointed as the sole authorised signatory of that account.

198.  On the same day, Dr Chen signed an account opening form and mandate each dated 17 September 2006. The mandate was also signed by Mr Tsang, as a result of which account number 012-737-1-009994-1 in the name of Supreme Well was opened at BOCHK (“Supreme Well Secondary BOCHK Account”) and Mr Tsang was appointed as the sole authorised signatory of that account.

199.  The signatures of Mr Tsang and Dr Chen can be seen from the BOCHK bank documents. Further, a copy of Mr Tsang’s HKID and a copy of Dr Chen’s US passport were found amongst the BOCHK account opening documents together with the signatures of two bank staff as witnesses. I therefore infer that both Mr Tsang and Dr Chen attended the bank on 17 September 2006 together for the purpose of opening the accounts.

200.  The Plaintiffs submitted that Dr Chen knew that the appointment of Mr Tsang as the sole signatory of Supreme Well’s BOCHK was illegitimate. This contention was neither pleaded nor specifically put to Dr Chen. In any event, Dr Chen said in cross-examination that he authorised Mr Tsang because he believed “that [was] for the development of the company” and he never queried it. The following passage from his cross-examination further shows why Dr Chen did it. I accept Dr Chen’s explanations.

“Q. My question is this. Why did you make Mr Tsang a signatory on the Supreme Well account?

A. I gave an answer in relation to the question earlier on. Point one. I never queried that back in that time. And because Chief Xu mentioned that with the assistance of Mr Tsang, we would have higher chance of getting financing in future. That is the reason why I never queried that and it’s for the survival of the company and for the start-up of the company and it was the critical stage for the company’s survival. If you have time, I can tell you why as to I reckon it to be the critical time of survival.

Q. No, thank you. I don’t want --

A. And what I want to say is that I never queried it and I was just cooperating and it was lawful to do so at that time.”

201.  On 19 October 2006, Dr Chen signed an account opening form dated 19 October 2006, which was also signed by Mr Tsang, as a result of which account number 015-260-81-01388-3 in the name of Supreme Well was opened at BEAHK (“Supreme Well BEAHK Account”) and Mr Tsang was appointed as the sole authorised signatory of that account, who was authorised to operate the account singly and without company chop.

202.  In the account opening form, Dr Chen was put down as being the beneficial owner of Supreme Well. However, by 19 October 2006, Dr Chen had already transferred away all the shares in Supreme Well and was not Supreme Well’s beneficial owner. Further, an outdated certificate of incumbency in relation to Supreme Well had been provided to BEAHK showing that Dr Chen was appointed as a director of Supreme Well on 5 July 2006. The Plaintiffs submitted that Mr Tsang was only able to be appointed as the sole signatory of the Supreme Well BEAHK Account because Dr Chen told the bank that he was the beneficial owner of Supreme Well and provided the out-of-date certificate of incumbency. They submitted that Dr Chen knew that it was wrong but did it anyway.

203.  In cross-examination, Dr Chen said that the account opening form was not filled in by him and that he did not read and understand everything in the form. He also did not believe that it was he who provided the bank with the outdated corporate document. I note that no positive evidence was adduced on the identity of the person who filled in the BEAHK account opening form. In any event, I find the explanations given by Dr Chen credible and do not think there is sufficient basis for me to make the inference as suggested by the Plaintiffs.

204.  I accept Dr Chen’s evidence that he opened Supreme Well’s bank accounts because he believed what Mr Xu said that there would be a higher chance of getting finance in the future with the assistance of Mr Tsang. As to how Mr Xu dealt with Mr Tsang in relation to the accounts, there was no cogent evidence before the court and I am not prepared to make any inference about it. Nonetheless, the evidence clearly suggests that Mr Tsang was directly involved in the opening of the Supreme Well bank accounts. I find that Mr Tsang procured Dr Chen to name himself (Mr Tsang) as the sole authorised signatory of the Supreme Well bank accounts.

205.  There was some evidence that BOCHK would inform Mr Wu of payment from the Supreme Well BOCHK Account. In a fax dated 24 October 2008 purportedly from Supreme Well to BOCHK, some handwritten note can be seen on it to the effect that Mr Wu had been informed of the intended payment of US$5 million from Supreme Well to Kam Hing Trading Co.

F5.  The FISH Transaction

F5a.  FISH Letter of intent

206.  On 1 November 2006, Mr Wu, in his capacity as Chairman and CEO of CMED, signed a document which purported to be a letter of intent dated 1 November 2006 between CMED and Supreme Well (“FISH Letter of Intent”).

207.  The FISH Letter of Intent was purportedly signed by Mr Chan as a director of Supreme Well. As mentioned earlier, Mr Chan has provided an affirmation to the Liquidators confirming that he had no knowledge of the Supreme Well Group, the China Medical Group, the FISH Letter of Intent, the FISH Transaction or medical technology. I accept the affirmation evidence and find that Mr Chan did not sign the FISH Letter of Intent on behalf of Supreme Well. I also find that the signature purporting to be that of Mr Chan in the FISH Letter of Intent was forged. As the evidence suggested that Mr Wu was the only person responsible for and involved in the execution of the FISH Letter of Intent on behalf of CMED, I infer that Mr Chan’s forged signature was made or procured by Mr Wu.

208.  In these circumstances, at the time when the FISH Letter of Intent was signed on 1 November 2006, I find that Mr Wu clearly knew that there was no genuine counter party in the FISH Transaction.

209.  The FISH Letter of Intent also provided, inter alia, that:

(1)  CMED proposed to acquire the entire business of Molecular, including the FISH Technology and the SPR Technology;

(2)  CMED would transfer the amount of US$30 million as a “good-faith deposit” to Supreme Well and Molecular by bank draft drawn in a Hong Kong bank within three working days after the signing of the FISH Letter of Intent.

210.  On 3 November 2006, CMED paid US$30 million to Supreme Well by way of 5 cashier orders of US$6 million each (see further Section F7a below). The instruction to BOCHK to pay to Supreme Well was signed by Mr Wu and Mr Tsang on behalf of CMED; it was clearly Mr Wu and Mr Tsang who caused CMED to pay US$30 million to Supreme Well.

211.  I accept the evidence of Mr Capener and Dr Crum and find that (1) the FISH Letter of Intent was not provided to the Board for consideration or approval before it was signed by Mr Wu, and (2) the payment of US$30 million was made to Supreme Well without the knowledge or prior approval of the Board.

212.  On 7 November 2006 and 19 December 2006, Mr Tsang caused US$28 million and US$1.5 million respectively to be transferred from Supreme Well BEAHK Account to East Hope BOCHK Account.

213.  By 7 November 2006:

(1)  Mr Wu had forged or procured the signature in the FISH Letter of Intent and knew that Supreme Well did not execute the FISH Letter of Intent, but still Mr Wu caused CMED (together with Mr Tsang) to pay US$30 million to Supreme Well;

(2)  Mr Tsang had become the sole authorised signatory of Supreme Well BEAHK Account and caused the bulk of the US$30 million from CMED to be transferred from Supreme Well to East Hope BOCHK Account of which Mr Wu was an authorised signatory. I further infer that Mr Tsang also knew that the signature made on behalf of Supreme Well in the FISH Letter of Intent was forged.

214.  In these circumstances, there is compelling evidence to infer that Mr Wu and Mr Tsang acted together to perpetrate a fraud by causing CMED to enter into a bogus document (FISH Letter of Intent) and thereby enabling the funds of CMED to be subsequently misappropriated to third parties associated with Mr Wu and Mr Tsang.

F5b.  Board Approval of the FISH Transaction

215.  The Board of CMED had a meeting on 12 November 2006. During the meeting, Mr Zhu made a presentation to the Board about a potential acquisition of CytoTrend HK (with its subsidiaries CytoTrend Beijing and CytoTrend US) (together “CytoTrend”). The questions raised by the directors at that stage covered topics such as the acquisition cost, revenue generation, the acquisition timetable, and intellectual property concerns. Mr Capener cautioned the management that over-evaluation of biotech companies was a recurring risk and the management should avoid payment of excess price. Mr Wu allayed those concerns by representing that the management had engaged third-party evaluator and financial advisors to evaluate CytoTrend in addition to the research carried out by the management. After the discussions, it was decided that management should gather more information about CytoTrend and report to the Board on a timely basis.

216.  A T Kearney (HK) Ltd (“AT Kearney”) performed a review of CytoTrend HK in late 2006 and produced a report dated November 2006. The discounted cash flow valuation carried out by AT Kearney estimated that the base case’s business value of FISH and SPR platforms were US$131 million and US$150 million respectively. However, as stated in the report, the revenue forecast on matters such as assumed pricing level, marketing and sales strategy, cost structure and production capacity in the AT Kearney report was “heavily influenced” by CMED’s business plan.[7] Mr Capener said that he did not recall being provided with a copy of the AT Kearney report at the relevant time. His recollection is consistent with the absence of reference in the minutes and notes of the Board meetings to the Board having been provided with such a report. I find that AT Kearney report was not provided to CMED’s Board at the material times.

217.  By a letter dated 1 December 2006, Credit Suisse Securities (USA) Inc (“Credit Suisse”) confirmed its agreement to act as CMED’s exclusive financial advisor with respect to CMED’s proposed acquisition of CytoTrend HK. The scope of Credit Suisse’s services consisted of assisting CMED in “(a) analysing and evaluating the business, operations and financial position of [CytoTrend HK]”; (b) developing a strategy to effect the Transaction, including financial alternatives; (c) structuring and negotiating the Transactions and (d) managing and developing its communications strategy with its stockbrokers regarding the Transaction.

218.  Credit Suisse asked a series of due diligence questions for their model and it was recorded in a document (headed “Model Due Diligence”) that Dr Chen had provided “feed back” on 11 January 2007. Dr Chen was cross-examined about this document. He said he could not recall whether he had given feedback to Credit Suisse. Although he initially said he must have provided the feedback to Credit Suisse, he immediately said he could not recall if that was the case. He also said that he was confused about the document because it contained a lot of “track change” amendments in the document. The document shows the contents in four different colours (excluding black), which on its face suggests that four different persons had made changes to it. The document refers to Dr Chen as “Professor Chen” in the third person; this on its face may suggest that the document was not written by Dr Chen himself. No evidence was adduced as to the identity of the maker of the document. In these circumstances, I am not satisfied that all the information from this document came from Dr Chen.

219.  PricewaterhouseCoopers (“PwC”) produced a draft report dated 22 December 2006 on CytoTrend Group for CMED. In the report, PwC stated that the information contained from the report was obtained from officials of the CytoTrend Group, including Dr Chen (Chief Scientific Advisor) and Mr Li Hongzeng (General Manager of CytoTrend BJ), Ms Zhao Yujie (Financial Manager of CytoTrend BJ) and Ms Wang Wei (Human Resources Manager of CytoTrend BJ). Dr Chen was recorded in the report as having provided “summary information” on CytoTrend US to PwC.

220.  Mr Zhu was a primary point of contact with CMED’s independent non-executive directors as to the FISH Transaction and due diligence process, and responded to enquiries raised by the independent directors. As recorded in an email from Credit Suisse, Mr Zhu had represented to Credit Suisse that there was a “principal-to-principal” meeting (i.e. between Supreme Well and CMED) on 27 December 2006 which was attended by Mr Wu and Mr Zhu for CMED, and one shareholder and “one informal advisor” from Supreme Well. Given that there was no genuine counter party in the FISH Transaction, there could not have been a “principal-to-principal” meeting on 27 December 2006. I find that Mr Zhu by this time also knew that Supreme Well was not a genuine counter party and deliberately made a false representation to Credit Suisse. By 27 December 2006 at the latest, I find that Mr Zhu had become a party to the fraud perpetrated by Mr Wu and Mr Tsang to procure CMED to enter into the FISH Transaction.

221.  Morrison & Foerster (“MoFo”) was CMED’s legal counsel and carried out legal due diligence for the FISH Transaction. From December 2006 to February 2007, Mr Li Hongzeng, on behalf of CytoTrend Beijing, liaised with Mr Zhu to update MoFo’s due diligence requests for the purpose of the FISH Transaction and in respect of the documentation of the FISH Transaction.

222.  In late January 2007, Dr Chen had given answers to some due diligence questions and requests as set out in the “Additional Due Diligence Request List” prepared by MoFo. MoFo made many requests, including a request for the share transfer agreement among the 5 BVI Entities, to which Dr Chen answered “N/A” (meaning “not applicable”).

223.  The Plaintiffs submitted that Dr Chen refused to reveal to MoFo what he knew about (1) the background to Supreme Well and CytoTrend HK and (2) Mr Wu and Mr Tsang were the true controllers, (3) the 5 BVI Entities were a façade and (4) him acquiring CytoTrend HK for only US$155,000. I do not find that Dr Chen had deliberately refused to reveal such information to MoFo.

224.  In cross-examination, Dr Chen acknowledged that he did answer MoFo’s requests. He said he put down “N/A” as his answers because he believed he was not the suitable person to answer the relevant questions. I do not find Dr Chen’s explanation incredible. It can be seen from the document that Dr Chen had answered “N/A” to other questions which on their face did not concern him as the Chief Scientific Advisor of the CytoTrend Group, such as whether MoFo could speak with the relevant lawyer at Mallesons to ask for information. There is also no basis to suggest that Dr Chen at the time knew that Mr Wu and Mr Tsang were the true controllers of the transaction and that the 5 BVI Entities were just a façade. Whilst it may be true that Dr Chen could have volunteered more information to MoFo with the benefit of hindsight, I do not find that he had deliberately concealed information from MoFo in the process.

225.  By an email dated 31 January 2007 to CMED’s independent non-executive directors (and copied to Mr Tsang), Mr Zhu made representations about a purported conference call with Supreme Well in relation to the FISH Transaction. This call could never have happened and I find that Mr Zhu made deliberately false misrepresentations in his email.

226.  On 4 February 2007, Credit Suisse provided to CMED’s Board of directors a separate opinion on the fairness of the purchase price proposed to be paid by CMED in the FISH Transaction. In providing such opinion, Credit Suisse stated, amongst other things, the following:

“With respect to the financial forecasts (and adjustments thereto) for the Transferred Business that we have reviewed, we have been advised by the management of Seller in connection with such forecasts and the management of [CMED] in connection with such adjustments, and we have assumed, that such forecasts and adjustments have been reasonably prepared on bases reflecting the best currently available estimates and judgments of the managements of Seller and [CMED] as to the future financial performance of the Transferred Business.”

227.  Also on 4 February 2007, a further CMED Board meeting was held to discuss the proposed acquisition of the FISH Technology from Supreme Well.

(1)  Mr Zhu presented the proposed FISH Transaction to the Board, supported by a slide deck prepared by Credit Suisse. It was Credit Suisse’s opinion that the money paid in the proposed transaction was “fair” from a financial point of view to CMED.

(2)  Mr Zhu’s presentation included an introduction of the FISH Technology and its purported applications, the commercial rationale for the transaction and an introduction to Supreme Well. I find that Mr Zhu falsely presented the transaction as an arm’s length transaction.

(3)  Various questions were raised by the Board, in particular Mr Capener and Dr Crum, including the relationship between Dr Chen and Supreme Well, the reasons why there were no competitors in Mainland China, and intellectual property protection. In particular, Mr Capener asked a Credit Suisse representative whether Credit Suisse relied on CMED’s data, or whether Credit Suisse did its own research. He was told that the underlying projections came from CMED’s management, but Credit Suisse had accompanied management on various visits and consulted a report by AT Kearney.

(4)  Eventually, the Board resolved at that meeting to approve the proposed FISH Transaction and authorise Mr Wu to do all such things and take such actions to proceed with the execution of the acquisition agreement.

228.  By the time when CMED held its Board meeting on 4 February 2007, Mr Wu and Mr Tsang had already misappropriated the bulk of the US$30 million paid by CMED to East Hope through Supreme Well. It is plain that Mr Wu and Mr Tsang failed to disclose to the Board their dishonest involvement in the execution of the FISH Letter of Intent and the subsequent payment of the US$30 million from CMED to Supreme Well. Further, Mr Wu, Mr Tsang and Mr Zhu failed to disclose to the Board that the FISH Transaction was not an arm’s length acquisition of the FISH Technology, and had deliberately concealed from the Board that the FISH Transaction was a related party transaction. There was also a deliberate failure on the part of Mr Tsang to disclose his assistance to Dr Chen in the acquisition of CytoTrend HK and the fact that he (Mr Tsang) was already the sole authorised signatory for Supreme Well’s bank accounts. Mr Wu, Mr Tsang and Mr Zhu caused CMED to enter into the FISH Transaction.

229.  The Plaintiffs submitted that Dr Chen provided MoFo, PwC and Credit Suisse with what appeared to be independent corroboration of CMED management’s assumptions as to the clinical viability of the technology and business plans, and that Dr Chen knew that he “was a vital input into due diligence and valuation exercises needed to persuade the Board to part with US$176.8 million of CMED’s cash”. I cannot accept this submission. On the basis of the matters set out above relating to what the contemporaneous documents show and Dr Chen’s evidence, there is insufficient basis for me to draw the inference as suggested by the Plaintiffs in relation to Dr Chen’s knowledge.

F5c.  FISH Acquisition Agreement and other documents

230.  On 6 February 2007, Mr Wu on behalf of CMED and CMED Tech signed a business acquisition agreement between CMED, CMED Tech, Supreme Well and Molecular for the purchase of the FISH Technology by CMED and certain of its subsidiaries from the Supreme Well Group for the total purchase consideration of up to US$176.8 million in cash including two contingent earnout payments of US$20 million each and warranty and holdback provisions (“FISH Acquisition Agreement”).

231.  The FISH Acquisition Agreement was in English and purportedly signed by Madam Chong as a director of Supreme Well and as a director of Molecular.

232.  Mr Chong was the named contact person on behalf of Supreme Well in the FISH Acquisition Agreement, using his English name, Peter Chong. He was also copied in on the purported negotiations for the FISH Transaction at his personal email address.

233.  On 1 March 2007, Mr Wu on behalf of CMED and CMED Tech signed an undertaking (“FISH Undertaking”) and an asset transfer agreement (“First FISH Asset Transfer Agreement”) relating to the FISH Transaction. These documents were in English and also purportedly signed by Madam Chong as a director for Supreme Well and Molecular.

234.  In the affirmation provided to the Liquidators, Madam Chong confirmed that she had no knowledge of the Supreme Well Group, the China Medical Group, the FISH Acquisition Agreement, the FISH Transaction or medical technology, and did not understand English. Accordingly, I find that the FISH Acquisition Agreement, the FISH Undertaking and First FISH Asset Transfer Agreement were not signed by Madam Chong on behalf of Supreme Well and Molecular, and that the signatures of the director of Supreme Well and Molecular in those documents were forged. The evidence suggested that Mr Wu was the only person responsible for and involved in the execution of the various documents on behalf of CMED and CMED Tech. I infer that the forged signatures of the director of Supreme Well and Molecular were made or procured by Mr Wu, and that both Mr Tsang and Mr Zhu knew about this.

235.  Also on 1 March 2007, the following three documents in respect of the FISH Transaction were signed on behalf of CytoTrend Beijing (1) an asset transfer agreement between Beijing GP and CytoTrend Beijing (“Second FISH Asset Transfer Agreement”) signed on behalf of Beijing GP by Mr Wu as its legal or authorised representative, (2) an asset transfer agreement between Beijing GP and CytoTrend Beijing (“Third FISH Asset Transfer Agreement”) signed on behalf of Beijing GP by Mr Zhu as its legal or authorised representative, and (3) an asset transfer agreement between Beijing GP and CytoTrend Beijing (“Fourth FISH Asset Transfer Agreement”) signed on behalf of Beijing GP by Mr Zhu as its legal or authorised representative.

236.  By 1 March 2007, Mr Wu, Mr Tsang and Mr Zhu had already caused CMED to enter into the FISH Transaction through fraudulent misrepresentations, non-disclosures and deliberate concealments as mentioned above. I find that the FISH Undertaking and the various FISH Asset Transfer Agreements were executed as part of the fraud of Mr Wu, Mr Tsang and Mr Zhu.

F6.  The SPR Transaction

F6a.  SPR Letter of Intent and SPR Letter of Guarantee

237.  Mr Zhu gave presentations regarding the SPR Technology at the meetings of the Board on 12 November 2006 and 4 February 2007.

238.  The SPR Technology was further discussed at Board meetings on 26 February 2007 and 11 June 2007.

239.  On 20 July 2007, Mr Wu on behalf of CMED Tech signed (1) a letter of intent between CMED Tech and Supreme Well (“SPR Letter of Intent”); and (2) a letter of joint and several guarantee (“SPR Letter of Guarantee”), whereby the 5 Individuals provided a guarantee in favour of CMED Tech in consideration of it agreeing to enter into the SPR Letter of Intent.

240.  I accept the evidence of Mr Capener and Dr Crum and find that the SPR Letter of Intent and the SPR Letter of Guarantee were signed without the knowledge of the CMED Board. Indeed, at CMED’s Board meeting on 24 August 2007, Mr Wu expressly acknowledged that “all independent directors were not aware of the [SPR Letter of Intent] before this meeting”.

241.  The SPR Letter of Intent was purportedly signed by Madam Chong as a director of Supreme Well. It provided that, inter alia,(1) CMED Tech proposed to acquire the business of the Supreme Well Group in relation to SPR Technology, and (2) CMED Tech would pay the amount of US$22 million as a “good-faith deposit” to Supreme Well within ten working days after the signing of the SPR Letter of Intent and the execution of a guarantee by all ultimate shareholders and beneficial owners of Supreme Well.

242.  The SPR Letter of Guarantee was purportedly signed by the 5 Individuals as the ultimate shareholders and beneficial owners of Supreme Well.

243.  On the basis of the affirmation evidence mentioned earlier, I find that (1) Madam Chong did not sign the SPR Letter of Intent, (2) the purported signature of Madam Chong in the SPR Letter of Intent was forged, (3) the 5 Individuals did not sign the SPR Letter of Guarantee, and (4) the purported signatures of the 5 individuals in the SPR Letter were all forged. The evidence suggests that Mr Wu was the only person responsible for and involved in the execution of the SPR Letter of Intent and the SPR Letter of Guarantee on behalf of CMED. I infer that the forged signatures in those documents were made or procured by Mr Wu, and that both Mr Tsang and Mr Zhu knew about this.

244.  On 2 August 2007, CMED paid US$22 million to Supreme Well (see further Section F7a below). I accept the evidence of Mr Capener and Dr Crum and find that the payment of US$22 million was made without the knowledge or prior approval of the CMED Board. The instruction to BOCHK to pay to Supreme Well was signed by Mr Wu and Mr Tsang on behalf of CMED. I find that it was Mr Wu and Mr Tsang who caused CMED to pay US$22 million to Supreme Well.

F6b.  Board Approval of the SPR Transaction

245.  The Board was first informed that the SPR Transaction was going ahead at the meeting of the Board on 24 August 2007.

246.  In September 2007, BMI Appraisals Limited (“BMI”) produced its final report on the “market values” of the tangible and intangible assets in the FISH Transaction. It produced a figure of US$212.6 million in the final report, having started in its first draft with a valuation of US$96 million. BMI’s valuations on the intangible assets were also prepared on the basis of the “estimates that have been arrived at after due and careful consideration by the senior management of [CMED]”.

247.  In October 2007, PwC informed CMED that it had performed “valuation analyses of certain tangible and identifiable intangible assets associated with the [FISH Transaction]”. PwC derived a fair value of US$4.6 million for the tangible assets, and US$39.1 million for the intangible assets, acquired by CMED. However, as mentioned by PwC in its report, the FISH Business [had] not commenced commercial operations as of [1 March 2007] and “[as] a result, the financial projection (the “Projections”) prepared by [CMED’s] management and [Credit Suisse] rely extensively on a number of assumptions and are subject to many uncertainties, the financial effects of most of which could not be easily quantified or ascertained”. PwC also stated that it did not attempt to verify the assumptions in the Projections.

248.  In March 2008, Mr Li Hongzeng on behalf of Supreme Well responded to MoFo’s due diligence requests.

249.  By a letter dated 27 March 2008, Credit Suisse confirmed its agreement to act as CMED’s exclusive financial advisor with respect to CMED’s proposed acquisition of the SPR business. The scope of Credit Suisse’s services was identical to that as set out in the earlier letter in relation to the FISH Transaction. Credit Suisse derived a figure of US$490.9 million for the SPR Technology.

250.  In May 2008, Mr Li Hongzeng on behalf of Supreme Well provided financial information to Credit Suisse.

251.  On 27 May 2008, Dr Chen provided answers to MoFo’s “Special Due Diligence Questions” in relation to the SPR Transaction. He answered “not applicable” to some questions, including the question of whether there was any “agreement/relationship/connection between Dr Chen and the shareholders of Supreme Well”. He answered “irrelevant” to some other questions, including the question asking for the “background information of the individual shareholders” of the 5 BVI Entities.

252.  The Plaintiffs submitted again that Dr Chen concealed from MoFo his knowledge of the background to CytoTrend HK and Supreme Well by giving such answers. In cross-examination, Dr Chen explained that he answered “not applicable” because he did not consider he was the suitable person to answer the question, and that he answered “irrelevant” because he considered the question was irrelevant to him. Whilst Dr Chen could certainly have adopted a more forthcoming approach, I am unable to say that he deliberately concealed information from MoFo by answering the questions in the way he did.

253.  At CMED Board meeting on 6 June 2008, Mr Wu reported to the Board that CMED intended to acquire the SPR Technology but that the negotiation with Supreme Well was on hold because of a gap in price expectation. This was untrue because there could not have been any genuine negotiations with Supreme Well. This false representation must have been deliberately made by Mr Wu.

254.  On 29 September 2008, the Board resolved that (1) the form of the asset acquisition agreement, the various actions contemplated by the agreement and the total consideration of US$345 million for the SPR Transaction be approved and that all and any prior actions performed and documents entered into in the name or on behalf of CMED in connection with the consummation of the SPR Transaction be approved, confirmed and rectified, and (2) each of Mr Wu and Mr Tsang be authorised and directed, in the name and on behalf of CMED, to do all such things and take such actions as may be necessary or desirable to carry out the SPR Transaction.

255.  Mr Wu, Mr Tsang and Mr Zhu attended all meetings of CMED Board at which the SPR Transaction was discussed. They proposed and promoted the SPR Transaction to the Board and, allayed the concerns raised by other directors. Each of them Mr Wu, Mr Tsang and Mr Zhu failed to disclose to the Board that the SPR Transaction was not an arm’s length acquisition of the SPR Technology, and deliberately concealed from the Board that the SPR Transaction was a related party transaction. Again, there was also a deliberate failure on the part of Mr Tsang to disclose his assistance to Dr Chen in the acquisition of CytoTrend HK and the fact that he (Mr Tsang) was already the sole authorised signatory for Supreme Well’s bank accounts. Mr Wu, Mr Tsang and Mr Zhu caused CMED to enter into the SPR Transaction.

F6c.  SPR Acquisition Agreement and other documents

256.  On 5 October 2008, Mr Wu on behalf of CMED and CMED Tech signed an asset acquisition agreement between CMED and CMED Tech, Supreme Well and Molecular for the purchase of the SPR Technology by CMED and certain of its subsidiaries from the Supreme Well Group for total purchase consideration of US$345 million in cash (“SPR Acquisition Agreement”).

257.  The SPR Acquisition Agreement was purportedly signed by Madam Chong as a director of Supreme Well and Molecular. On the basis of the affirmation evidence mentioned earlier, I find that the SPR Acquisition Agreement was not signed by Madam Chong on behalf of Supreme Well and Molecular. The evidence suggested that Mr Wu was the only person responsible for and involved in the execution of the SPR Acquisition Agreement on behalf of CMED and CMED Tech. I infer that the forged signatures of the director of Supreme Well and Molecular were made or procured by Mr Wu, and that both Mr Tsang and Mr Zhu knew about this.

258.  Mr Chong was the named contact person on behalf of Supreme well in the SPR Acquisition Agreement, using his English name, Peter Chong. He was also copied in on the purported negotiations for the SPR Transaction at his personal email address.

259.  On 7 Oct 2008, Mr Wu, Mr Tsang, Dr Chen and Mr Zhu attended CMED’s investor conference call regarding the SPR Transaction (“2008 Investor Conference Call”). Mr Wu made false representations about the Supreme Well Group. He deliberately gave the false impression that the Supreme Well Group was an independent third-party, when in reality its bank accounts were controlled by Mr Tsang.

260.  On 3 December 2008, Mr Wu on behalf of Beijing GP signed an asset acquisition agreement in respect of the SPR Transaction between Beijing GP and CytoTrend Beijing (“SPR Asset Acquisition Agreement”).

261.  By December 2008, Mr Wu, Mr Tsang and Mr Zhu had already caused CMED and CMED Tech to enter into the SPR Transaction through fraudulent misrepresentations, non-disclosures and deliberate concealments as mentioned above. I find that the SPR Asset Agreement and the SPR Asset Acquisition Agreement were executed as part of the fraud of Mr Wu, Mr Tsang and Mr Zhu.

262.  In September 2009, Deloitte and Touche Corporate Finance Limited (“Deloitte”) performed a purchase price allocation in respect of the SPR Technology. Its report estimated the fair value of the assets acquired by CMED in the SPR Transaction at US$346.1 million as of 4 December 2008. Deloitte listed the sources of information as being CMED (including Mr Tsang and Dr Chen) and the “[f]inancial forecast for years 2008 to 2018 prepared by [CMED] and Credit Suisse”. It also stated that “[it] relied on the integrity of the information and data supplied to [it] by management” and had not “independently verified the information or documentation provided to [it]”.

F7.  The Transfers of Funds from CMED and CMED Tech

263.  The Liquidators’ investigations have revealed that pursuant to the FISH and SPR Transactions, US$521.8 million was transferred from the CMED Group as purported payment for the FISH and SPR Transactions. Of the US$521.8 million, the Liquidators’ tracing exercise showed that:

(1)  US$355.5 million was paid to Supreme Well from bank accounts held in the names of CMED and CMED Tech in Hong Kong, and then transferred to bank accounts held by or associated with the Defendants (“Hong Kong Payments”); and

(2)  amounts in RMB totalling approximately US$166.3 million were paid to nominees and subsidiaries of Supreme Well through bank accounts, primarily in the Mainland (“Mainland Payments”).

264.  In some cases, the Liquidators were not able to identify the ultimate recipients of the funds, and therefore in those cases the tracing exercise was carried out to the extent possible on the documents available to the Liquidators.

265.  As demonstrated below in Sections F7a and F7b, through their control of CMED’s bank accounts, Mr Wu and Mr Tsang caused CMED to pay US$521.8 million to Supreme Well for the FISH and SPR Technologies.

F7a.  Hong Kong Payments

266.  The Hong Kong Payments were effected by payment from either CMED’s bank account at BOCHK (“CMED’sAccount”) or CMED Tech’s bank account at Standard Chartered Bank (“CMED Tech’sAccount”) into the Supreme Well Accounts. At all material times, Mr Wu and Mr Tsang were authorised signatories of both CMED’s Account and CMEC Tech’s Account.

267.  The Hong Kong Payments were as follows:

(1)  5 cashier orders of US$6 million each, totalling US$30 million, on 3 November 2006 from CMED’s Account (“November 2006 Payment”);

(2)  13 cashier orders (12 in the amount of US$6 million each and one in the amount of US$4.8 million), totalling US$76.8 million, on 5 March 2007 from CMED’s Account (“March 2007 Payment”);

(3)  2 cashier orders (one in the amount of US$6 million and one in the amount of US$1.45 million), totalling US$7.45 million, on 29 May 2007 from CMED’s Account (“May 2007 Payment”);

(4)  4 cashier orders each in the amount of US$5.5 million, totalling US$22 million, on 2 August 2007 from CMED’s Account (“August 2007 Payment”);

(5)  4 cashier orders each in the amount of US$5 million, totalling US$20 million, on 11 February 2008 (“February 2008 Payment”);

(6)  8 cashier orders (seven in the amount of US$6 million and one in the amount of US$5 million), totalling US$47 million, on 16 October 2008 from CMED’s Account (“October 2008 Payment”);

(7)  16 cashier orders (15 in the amount of US$6.3 million, and one in the amount of US$6 million), totalling US$100.5 million, on 4 December 2008 from CMED’s Account (“December 2008 Payment”);

(8)  1 cashier order of US$10 million on 10 March 2009 from CMED Tech’s Account (“March 2009 Payment”);

(9)  1 cashier order of US$21.75 million on 3 July 2009 from CMED Tech’s Account (“July 2009 Payment”);

(10)  1 cashier order of US$20 million on 4 December 2009 from CMED Tech’s Account (“December 2009 Payment”).

268.  In the remaining parts of this section, I shall make the necessary findings in relation to each of the Hong Kong Payments.

269.  November 2006 Payment of US$30 million

(1)  On 2 November 2006, Mr Tsang sent a fax to BOCHK requesting US$30 million to be paid from CMED’s Account to Supreme Well by way of a cashier order. The direction stated “Mr Tsang will come to collect the bank draft”. The fax was also signed by Mr Wu and Mr Tsang on behalf of CMED.

(2)  Following this request, 5 cashier orders in the amount of US$6 million each were purchased with funds from CMED’s Account and drawn in favour of Supreme Well. US$30 million was immediately debited from CMED’s Account upon the cashier orders being issued on 3 November 2006.

(3)  On 3 November 2006, I infer that Mr Tsang attended a BOCHK branch and collected the cashier orders, and on the same day, deposited them into the Supreme Well BEAHK Account, which was consequently credited in the amount of US$30 million on 3 November 2006.

(4)  The funds received by Supreme Well on 3 November 2006 were paid out over the period from 7 November 2006 to 31 July 2007, with US$28 million of the US$30 million being transferred to the East Hope BOCHK Account within just four days, on 7 November 2006.

(5)  The November 2006 Payment cannot be regarded as the good‑faith deposit pursuant to the FISH Letter of Intent because the document was procured by fraud as I found earlier.

270.  March 2007 Payment of US$76.8 million

(1)  On 5 March 2007, Mr Tsang sent a fax to BOCHK requesting US$76.8 million to be paid from CMED’s Account to Supreme Well. The direction stated “Mr Tsang will come to collect the bank drafts”. The fax was also signed by Mr Wu and Mr Tsang on behalf of CMED.

(2)  Following this request, 13 cashier orders were purchased with funds from CMED’s Account and drawn in favour of Supreme Well (12 in the amount of US$6 million each and one in the amount of US$4.8 million). US$76.8 million was immediately debited from CMED’s Account upon the cashier orders being issued on 5 March 2007.

(3)  On 5 March 2007, I infer that Mr Tsang attended a BOCHK branch and collected the cashier orders, and on the same day, deposited them into the Supreme Well BEAHK Account, which was consequently credited in the amount of US$76.8 million on 5 March 2007.

(4)  The funds received by Supreme Well on 5 March 2007 were paid out over the period from 6 March 2007 to 29 March 2007, with US$50 million of the US$76.8 million being transferred to the East Hope BOCHK Account the very next day, on 6 March 2007.

(5)  The March 2007 Payment cannot be regarded as having paid pursuant to the FISH Undertaking because the document was procured by fraud as I found earlier.

271.  May 2007 Payment of US$7.45 million

(1)  On 29 May 2007, Mr Tsang sent a fax to BOCHK requesting US$7.45 million to be paid from CMED’s Account to Supreme Well. The direction stated “Mr Tsang will come to collect the bank drafts”. The fax was also signed by Mr Wu and Mr Tsang on behalf of CMED.

(2)  Following this request, 2 cashier orders were purchased with funds from CMED’s Account and drawn in favour of Supreme Well (one in the amount of US$6 million and one in the amount of US$1.45 million). US$7.45 million was immediately debited from CMED’s Account upon the cashier orders being issued on 29 May 2007.

(3)  On 29 May 2007, I infer that Mr Tsang attended a BOCHK branch and collected the cashier orders, and on the same day, deposited them into the Supreme Well BEAHK Account, which was consequently credited in the amount of US$7.45 million on 29 May 2007.

(4)  The funds received by Supreme Well on 30 May 2007 were paid out over the period from 31 May 2007 to 3 July 2007, with US$7.2 million of the US$7.45 million being transferred to the East Hope BOCHK Account the very next day, on 31 May 2007.

(5)  The May 2007 Payment cannot be regarded as having paid pursuant to section 1.4 of the FISH Acquisition Agreement because the document was procured by fraud as I found earlier.

272.  August 2007 Payment of US$22 million

(1)  On 31 July 2007, Mr Tsang sent a fax to BOCHK requesting US$22 million to be paid from CMED’s Account to Supreme Well. The direction stated “Mr Tsang will come to collect the bank drafts”. The fax was also signed by Mr Wu and Mr Tsang on behalf of CMED.

(2)  Following this request, 4 cashier orders each in the amount of US$5.5 million were purchased with funds from CMED’s Account and drawn in favour of Supreme Well. US$22 million was immediately debited from CMED’s Account upon the cashier orders being issued on 2 August 2007.

(3)  On 2 August 2007, I infer that Mr Tsang attended a BOCHK branch and collected the cashier orders, and on the same day, deposited them into the Supreme Well Primary BOCHK Account, which was consequently credited in the amount of US$22 million on 2 August 2007.

(4)  The funds received by Supreme Well on 2 August 2007 were paid out over the period from 3 August 2007 to 4 September 2007, with US$5.5 million of the US$22 million being transferred to a BOCHK account in the name of Kam Hing Trading Co with account number 033-662-9-202963-8 (“First Kam Hing Trading BOCHK Account”) and the East Hope BOCHK Account the very next day, on 3 August 2007.

(5)  The August 2007 Payment cannot be regarded as the good‑faith deposit pursuant to section 2 of the SPR Letter of Intent because the document was procured by fraud as I found earlier.

273.  February 2008 Payment of US$20 million

(1)  On 10 February 2008, Mr Tsang sent a fax to BOCHK requesting US$20 million to be paid from CMED’s Account to Supreme Well. The direction stated “We will arrange the collection of the bank draft”. The fax was also signed by Mr Wu and Mr Tsang on behalf of CMED.

(2)  Following this request, 4 cashier orders each in the amount of US$5 million were purchased with funds from CMED’s Account and drawn in favour of Supreme Well. US$20 million was immediately debited from CMED’s Account upon the cashier orders being issued on 11 February 2008.

(3)  On 11 February 2008, I infer that Mr Tsang attended a BOCHK branch and collected the cashier orders, and on the same day, deposited them into the Supreme Well BEAHK Account, which was consequently credited in the amount of US$20 million on 11 February 2008.

(4)  The funds received by Supreme Well on 11 February 2008 were paid out over the period from 12 February 2008 to 10 March 2008.

(5)  I am not satisfied that the February 2008 Payment was paid pursuant to section 1.5 of the FISH Acquisition Agreement because the document was procured by fraud as I found earlier.

274.  October 2008 Payment of US$47 million

(1)  On 16 October 2008, Mr Tsang sent a fax to BOCHK requesting US$47 million to be paid from CMED’s Account to Supreme Well. The direction stated “Mr Tsang will come to collect the bank drafts”. The fax was also signed by Mr Wu and Mr Tsang on behalf of CMED.

(2)  Following this request, 8 cashier orders were purchased with funds from CMED’s Account and drawn in favour of Supreme Well (7 in the amount of US$6 million and one in the amount of US$5 million). US$47 million was immediately debited from CMED’s Account upon the cashier orders being issued on 16 October 2008.

(3)  On 16 October 2008, I infer that Mr Tsang attended a BOCHK branch and collected the cashier orders, and on the same day, deposited them into the Supreme Well BEAHK Account, which was consequently credited in the amount of US$47 million on 17 October 2008.

(4)  The funds received by Supreme Well on 17 October 2008 were paid out over the period from 21 October 2008 to 12 March 2009, with US$15 million of the US$47 million being transferred to the East Hope BOCHK Account and the First Kam Hing Trading BOCHK Account within just four days, on 21 October 2008.

(5)  I am not satisfied that the October 2008 Payment was paid pursuant to section 1.6 of the SPR Acquisition Agreement because the document was procured by fraud as I found earlier.

275.  December 2008 Payment of US$100.5 million

(1)  On 3 December 2008, Mr Tsang sent a fax to BOCHK requesting US$100.5 million to be paid from CMED’s Account to Supreme Well. The direction stated “Mr Tsang will come to collect the bank drafts”. The fax was also signed by Mr Wu and Mr Tsang on behalf of CMED.

(2)  Following this request, 16 cashier orders were purchased with funds from CMED’s Account and drawn in favour of Supreme Well (15 in the amount of US$6.3 million and one in the amount of US$6 million). US$100.5 million was immediately debited from CMED’s Account upon the cashier orders being issued on 4 December 2008.

(3)  On 4 December 2008, I infer that Mr Tsang attended a BOCHK branch and collected the cashier orders, and on the same day, deposited them into the Supreme Well BEAHK Account, which was consequently credited in the amount of US$100.5 million on 4 December 2008.

(4)  The funds received by Supreme Well on 4 December 2008 were paid out over the period from 11 or 12 December 2008 to 2 February 2009.

(5)  I am not satisfied that the October 2008 Payment was paid pursuant to section 1.7 of the SPR Acquisition Agreement because the document was procured by fraud as I found earlier.

276.  By December 2008, a bank account in the name of CMED Tech was opened at SCBHK (“CMED Tech’s Account”). On 16 December 2008, CMED made a payment of US$85 million from CMED’s Account to CMED Tech’s Account. On 7 January 2009, CMED made a payment of US$19,999,998.70 from CMED’s Account to CMED Tech’s Account.

277.  March 2009 Payment of US$10 million

(1)  On 10 March 2009, a cashier order was caused to be issued in the amount of US$10 million in favour of Supreme Well from the CMED Tech’s Account.

(2)  Following this request, a cashier order in the amount of US$10 million was purchased with funds from CMED Tech’s Account and drawn in favour of Supreme Well. US$10 million was immediately debited from CMED Tech’s Account upon the cashier order being issued on 10 March 2009.

(3)  On 11 March 2009, I infer that Mr Tsang attended the BOCHK King’s Road Branch and deposited the cashier order with BOCHK into the Supreme Well Primary BOCHK Account, which was consequently credited in the amount of US$10 million on 11 March 2009. The inference on the identity of the person who made the deposit is made on the basis of Mr Tsang’s previous written instructions that it was Mr Tsang who requested the bank to prepare the other cashier orders.

(4)  The funds received by Supreme Well on 11 March 2009 were paid out over the period from 12 March 2009 to 6 July 2009, with US$9 million of the US$10 million being transferred to the East Hope BOCHK Account the very next day, on 12 March 2009.

(5)  I am not satisfied that the March 2009 Payment was paid pursuant to section 8.4(b) of the FISH Acquisition Agreement because the document was procured by fraud as I found earlier.

278.  July 2009 Payment of US$21.75 million

(1)  On 3 July, Mr Tsang sent an instruction to SCBHK requesting US$21.75 million to be paid from CMED Tech’s Account to Supreme Well by cashier order. The document was also signed by Mr Wu and Mr Tsang on behalf of CMED Tech.

(2)  Following this request, a cashier order in the amount of US$21.75 million was purchased with funds from CMED Tech’s Account and drawn in favour of Supreme Well. US$21.75 million was immediately debited from CMED Tech’s Account upon the cashier order being issued on 3 July 2009.

(3)  In early July March 2009, I infer that Mr Tsang collected the cashier order from the SCBHK Sheung Wan Express Counter and, on 6 July 2009, deposited the cashier order with BOCHK into the Supreme Well Primary BOCHK Account, which was consequently credited in the amount of US$21.75 million on 6 July 2009.

(4)  The funds received by Supreme Well on 6 July 2009 were paid out over the period 7 July 2009 to 9 December 2010, with US$21 million of the US$21.75 million being transferred to the East Hope BOCHK Account on the very next day, on 7 July 2009.

(5)  I am not satisfied that the March 2009 Payment was paid pursuant to section 1.8 of the SPR Acquisition Agreement because the document was procured by fraud as I found earlier.

279.  December 2009 Payment of US$20 million

(1)  On 4 December 2009, a cashier order was caused to be issued in the amount of US$20 million in favour of Supreme Well from the CMED Tech’s Account. US$20 million was immediately debited from CMED Tech’s Account upon the cashier order being issued on 4 December 2009.

(2)  On 7 December 2009, I infer that Mr Tsang attended a branch of BEAHK and deposited the cashier order into the Supreme Well BEAHK Account, which was consequently credited in the amount of US$20 million on 7 December 2009. The inference on the identity of the person who made the deposit is made on the basis of Mr Tsang’s previous written instructions that it was Mr Tsang who requested the bank to prepare the other cashier orders.

(3)  The US$20 million received by Supreme Well on 7 December 2009 was transferred on 23 December 2009 to the East Hope BEAHK Account.

(4)  I am not satisfied that the March 2009 Payment was paid pursuant to section 1.8 of the SPR Acquisition Agreement because the document was procured by fraud as I found earlier.

280.  A summary of the flow of funds to Supreme Well in respect of the Hong Kong Payments can be shown diagrammatically in a chart at Annexure C. I also find that the transfers of money shown in Annexure C were made.

F7b.  Mainland Payments

281.  The Mainland Payments comprise the following 10 payments between June 2007 and December 2009:

(1)  A payment RMB2,421,083 was made on 11 June 2007 (equivalent to approximately US$313,000).

(2)  A payment of RMB17,335,921 was made on 14 June 2007 (equivalent to approximately US$2.24 million).

(3)  A payment of RMB71.5 million was made on 4 March 2008 (equivalent to approximately US$10 million).

(4)  A payment of RMB142 million was made on 17 March 2008 in the amount (equivalent to approximately US$20 million).

(5)  A payment of RMB20,490,000 was made on 10 December 2008 (equivalent to approximately US$3 million).

(6)  A payment of RMB150 million was made on 3 March 2009 (equivalent to approximately US$22 million).

(7)  A payment of RMB150 million was made on 9 March 2009 (equivalent to approximately US$22 million).

(8)  A payment of RMB171,270,000 was made on 16 March 2009 (equivalent to approximately US$25 million).

(9)  A payment of a sum equivalent to US$30 million was made in July 2009.

(10)  A payment of a sum equivalent to US$31.75 million was made in December 2009.

282.  Mr Borrelli’s evidence in relation to the Mainland Payments was as follows:

(1)  The Mainland Payments were largely made in RMB by CMED’s former wholly owned Mainland incorporated subsidiaries (“Mainland Subsidiaries”) through bank accounts in the Mainland.

(2)  Although these payments were ostensibly made by the Mainland Subsidiaries, the payments were ultimately from CMED and CMED Tech. Mr Borrelli explained as follows.

(a)  Each of the Mainland Payments was a payment pursuant to the FISH and SPR Transactions, and was recorded as such in the audited accounts of CMED. The obligation to make the payments under the contractual terms of the FISH and SPR Transactions was on CMED or CMED Tech, and not on the Mainland Subsidiaries.

(b)  The Mainland Payments were recorded in the financial statements of CMED and CMED Tech as being a debit entry for “C/A with China Medical”, suggesting it was a current account expense of CMED or CMED Tech. Such entries would generally describe the payment as “paid on behalf of China Medical”, or words to similar effect. Similarly, the Mainland Payments were generally recorded in the company financial journals of the Mainland Subsidiaries as payments “paid on behalf of China Medical”, or words to similar effect. For example, Mr Tsang sent an email to Ms Li Yaru (staff in Beijing Yuande’s finance department) on 16 March 2008 instructing her to make a payment of RMB142 million to Beijing Shangjia and record such payment as “current account with China Medical”.

(3)  The precise manner by which the Mainland Payments were transferred from the CMED and CMED Tech to the Mainland Subsidiaries was to some extent obscured because the financial records of the Mainland Subsidiaries were unobtainable. The Liquidators have been able to identify a payment of US$29.7 million from CMED’s account with Citibank to Beijing Yuande, which would have been the source of some of the Mainland Payments. In addition, throughout the relevant period, there were significant and unexplained payments from accounts held by CMED and CMED Tech to related parties, to unknown recipients and to other recipients, for which the Liquidators did not have the underlying documents to explain the relevant transfers.

283.  I accept the above evidence from Mr Borrelli, which was unchallenged during the trial. Based on the evidence, I infer that all the Mainland Payments originated from CMED and CMED Tech.

F7c.  Supreme Well Payees and Further Supreme Well Payees

284.  The vast majority of the funds from CMED and CMED Tech from the Hong Kong Payments, deposited in Supreme Well’s BOCHK and BEAHK accounts in relation to the FISH and SPR Transactions, were subsequently transferred to bank accounts in the names of Dr Chen, Mr Zhu, Mr Chong (in his personal capacity and formerly trading as Kam Hing Trading Co), Mr Hao, East Hope (D8), Cheer Link (D9), Innovative (D10), Dynamic Sense (D11) and Time Region (D12) (together, the “Supreme Well Payees”).

285.  A summary of the total amounts paid by Supreme Well to the Supreme Well Payees can be shown diagrammatically in a chart at Annexure D. Given that the evidence was unchallenged at the trial, I find that each of the Supreme Well Payees did receive the relevant amounts as shown in Annexure D.

286.  Various Supreme Well Payees further disbursed the funds originating from CMED and CMED Tech by transfers to bank accounts in the name of Mr Wu, Mr Tsang, Dr Chen, Mr Zhu, Mr Chong (in his personal capacity and trading as Kam Hong Trading Co), other Supreme Well Payees and Ms Bi (in her personal capacity and as trustee of The Xiao Qiong Bi Trust and the Alisa Wu Irrevocable Trust), Worldpro (D14), Long Chart (D15), Chavis (D16), Sinowell (D17), Chengxuan (D18), Weixiao (D19), WB (D20), Max Prosper (D21), Jun Yun Bi (D22) and Global Flash (D23) (together, the “Further Supreme Well Payees”).

287.  The funds from CMED and CMED Tech that the Liquidators have traced to each of the Defendants were set out in a detailed table at Annexure 58 of Mr Borrelli’s supplemental witness statement. As to how the funds represented by the Hong Kong Payments were transferred from CMED and CMED Tech through Supreme Well and ultimately to each of the Defendants, they can be shown in the funds flow diagrams at Annexure E.

288.  The Plaintiffs also adduced evidence of how the Liquidators conducted the tracing exercise. In particular, in an annexure to his first witness statement, Mr Borrelli gave a detailed account of the Liquidators’ methodology for tracing the flow of the US$355.5 million (i.e. the Hong Kong Payments) paid by CMED and CMED Tech into Supreme Well’s bank accounts. I am satisfied that the tracing exercise conducted by the Liquidators was a proper one. On the basis of the unchallenged evidence (see also Section F2a above), I find that each of the Defendants did receive the relevant amounts as shown in Annexure E traceable to the funds of CMED and CMED Tech.

289.  Mr Wu controlled seven companies and caused each of them to receive the funds from CMED and CMED Tech on his behalf, namely: East Hope (D8), Innovative (D10), Chavis (D16), Sinowell (D17), Chengxuan (D18), Weixiao (D19) and WB (D20). Together, these companies received at least US$433.57 million of the funds on behalf of Mr Wu and made onward payments at his direction.

290.  Mr Tsang controlled six companies and caused each of them to receive the funds from CMED and CMED Tech on his behalf, namely: East Hope (D8); Cheer Link (D9); Innovative (D10); Worldpro (D14); Long Chart (D15); and Global Flash (D23). Together, these companies received at least US$394.96 million of the funds on behalf of Mr Tsang and made onward payments at his direction.

291.  Mr Chong had control over Innovative (D10) and Chavis (D16), which together received at least US$67.48 million of the funds from CMED and CMED Tech.

F8.  Overpayment of FISH and SPR Technologies

292.  The Plaintiffs adduced expert evidence from Mr Yang Yi Ming (“Mr Yang”) on the FISH and SPR Technologies and Mr Ian Coleman (“Mr Coleman”) on valuation to show that the FISH and SPR Technologies could not be marketed and sold in the way CMED suggested, and in any event no market participant at the time would have paid anything close to the price CMED was caused to pay.

293.  None of the Defendants has adduced expert evidence in these proceedings. Mr Tsang was the only defendant who sought leave to adduce expert evidence on valuation but no report was eventually filed on his behalf. I particularly note that no leave was sought by Dr Chen to adduce any expert evidence when he was still being legally represented. It is also right to mention that Dr Chen in October 2023 sought to file a supplemental witness statement which, according to Ng J, had the effect of adducing expert evidence for Dr Chen. That application was dismissed principally on the basis that Dr Chen is not an independent expert and had decided not to adduce any expert evidence in the proceedings: Ng J’s Decision dated 30 January 2024 [2024] HKCFI 278 at [20]-[21], [26], [41]-[45].

294.  Although Dr Chen did seek to challenge the respective opinions of Mr Yang and Mr Coleman in cross-examination, the vast majority of the materials put to the experts came from Dr Chen’s opinions, which were not verified by any independent experts or supported by any expert evidence adduced by Dr Chen. I therefore put minimal weight on Dr Chen’s challenges of Mr Yang and Mr Coleman’s expert evidence. In particular, I place no weight on the technical literature referred by Dr Chen when he cross-examined Mr Yang and Mr Coleman. Technical literature and materials may be introduced by proper expert evidence in court proceedings. But it is impermissible for the court to form any opinion on such materials without proper admission through an expert witness: In re D [2025] 1 WLR 1383 at [83]-[85] (Baker LJ).

295.  In any event, many of Dr Chen’s criticisms of the expert evidence that appeared in Dr Chen’s written closing are in my view based on a misunderstanding of the expert’s opinion.

F8a.  Expert evidence on FISH and SPR Technologies

296.  Before the trial, leave was granted to the Plaintiffs to adduce expert evidence on the nature of FISH and SPR Technologies as at 1 March 2007, including (1) the key components and steps of applying the FISH/SPR technologies to conduct a FISH/SPR test; (2) the history of its development; (3) the equipment, standardised operating procedures, staff and regulatory approval (if any) which would be required to produce and market (a) FISH image analysis systems and probes for clinical applications on a commercial scale and (b) SPR technology for clinical applications in (i) HPV (human papillomavirus) detection; (ii) life sciences applications; (iii) tumour and blood screening, on a commercial scale; and (4) the size of the market for FISH/SPR technologies and likely future growth and development in Mainland China.

297.  Mr Yang’s report was dated 23 June 2023 and was filed on behalf of the Plaintiffs.

298.  Mr Yang has worked in the life science and medical device industry for over 30 years. He currently holds a senior position at a strategic advisory firm focused on assisting healthcare, life sciences, molecular diagnostics, and medical device companies in strategic planning, fundraising, strategic joint venture projects, post-deal operations, licensing deals and business development projects. I disagree with Dr Chen’s suggestion that Mr Yang lacks expertise to give expert evidence because he has no “frontline experience” or has no academic achievements. Mr Yang has been in the medical diagnostics market in a commercially‑oriented (rather than clinical) role and was in my view qualified to opine on the FISH and SPR Technologies and the market for them.

299.  The relevance of Mr Yang’s evidence was principally two‑fold. First, his evidence sought to provide basic and background information on the FISH and SPR Technologies to assist the court in understanding the technology. In summary, Mr Yang explained the technologies as follows:

(1)  Fluorescent In Situ Hybridization (FISH) is a molecular biology technique which uses fluorescence-labelled specific‑sequenced DNA segments (probes) which bind to only particular parts of a nucleic acid sequence and allows detection of the number, size, and location of DNA and RNA segments within individual cells in a tissue sample.

(2)  FISH is a mature technology and has, since the eighties, been widely used in the field of molecular research for locating the positions of specific DNA sequences on chromosomes in a cell. FISH and its predecessor technology, in situ hybridization (ISH) have advanced the study of gene structure and contributed to the general body of scientific knowledge concerning genetic aberrations, genetic diseases, gene mapping, and identification of chromosomal abnormalities, such as Down Syndrome.

(3)  The FISH technology comprises two principal components. An imaging analysis system (IAS) and probes. The IAS consists of a fluorescence microscope, which is the most expensive part of the system, a CCD digital camera and image processing/analysis software. The FISH IAS is an “open system” meaning components can be sourced from different distributors and probes can be used interchangeably.

(4)  Surface Plasmon Resonance (SPR) is an optical phenomenon for observing the interaction between biological molecules in real time and in their native state. This enables scientists to obtain a more complete picture of the binding process between molecules.

(5)  SPR technology has been used in laboratories around the world since 1990 for life science research applications, particularly advanced investigations into the process by which information is used in biomolecular proteins under different conditions, and drug research. One of the most important features of SPR is that it allows researchers to study the effects of different drugs on a target molecule in real time.

(6)  The key components of an SPR instrument are: (a) a sensor chip system, (b) a liquid handling (microfluidic) system, (c) a SPR detection system, (d) sundry equipment to control temperature and process signal data; and (e) analysis software. Unlike a FISH IAS, the components of the SPR technology are integrated into a closed system (an SPR instrument looks a little like a commercial photocopying machine). At the heart of the SPR technology is the gold-plated sensor chip, which is the consumable in the SPR test.

300.  I do find the above matters set out in Mr Yang’s report informative and helpful.

301.  Further, Mr Yang’s opinions on the market potential of the FISH and SPR Technologies in 2007 to 2009 would enable Mr Coleman to form his opinion on the fair value of the technologies. In that regard, Mr Yang’s evidence on the market size of FISH in 2007 to 2009 can be summarised as follows:

(1)  By 2007 and in countries such as the USA, there was nothing novel about the FISH IAS and all the components were widely available.

(2)  At the time of the FISH acquisition in 2007, the China FDA had not approved the use of FISH as a clinical diagnostic tool (that is the process of identifying a disease) and its use in China was limited to research.

(3)  The US was the largest molecular diagnostic market in 2007 and FISH had limited clinical application. FISH’s clinical diagnostics capabilities were limited to detection of chromosomal abnormalities and for certain cancers’ recurrence or therapeutic prognosis.

(4)  One of the principal drawbacks of FISH Technology, which was known in 2007, was that FISH was not well suited as a clinical diagnostic tool of commercial application for high volume detection of diseases, including many cancers. Much of FISH’s clinical value could also be addressed by other more accessible technologies, such as PCR and DNA Chips.

(5)  Compared to existing technologies such as PCR, whose use was widespread in 2007, including in China, FISH required complex supporting equipment, the experimental procedures are relatively complicated, time consuming and costly and determining the result requires experienced pathologists with diagnostic experience.

(6)  Around 2007-2009, the Chinese clinical molecular diagnostics market was worth between US$70 million and US$120 million. FISH occupied approximately 2% of that market, that is US$1 million to US$2 million.

302.  Mr Yang’s evidence on the market size of SPR in 2008 can be summarised as follows:

(1)  SPR has not been approved for clinical diagnostics use anywhere in the world. In 2008, the challenge facing SPR technology outside of life science research, particularly as a diagnostics tool for clinical applications, was that the components of the SPR instrument were expensive and did not lend themselves well to the high throughput required of a screening technology. More cost-effective technologies such as PCR meet the requirements for most clinical diagnostic tests.

(2)  In 2008, the SPR image system and related consumables had not received medical device approval either in China or anywhere else. Consequently, the SPR system and related products could not be used as medical devices, or for clinical diagnostic purposes.

(3)  By 2008, multiple technologies have been validated, approved and available in China for cervical screening and diagnosis including VIA/VILI, conventional PAP test, LBC (SurePath and ThinPrep), and HPV (HC-II).

(4)  In 2008, the total SPR global market size was likely around US$121 million and that China occupied around 1 to 3% of that market. Consequently, the China market size for SPR would likely have been around US$1 and US$4 million in 2008.

303.  As none of the Defendants sought to adduce any expert evidence on FISH and SPR Technologies, Mr Yang’s evidence was largely unchallenged.

304.  On the whole, I accept Mr Yang’s opinions in relation to the market size of FISH and SPR in China at the relevant times.

F8b.  Expert evidence on valuation

305.  Mr Coleman prepared his report to deal with the following 4 questions:

(1)  As at 1 March 2007, what was the fair value of (a) the FISH Technology as a business; and (b) the tangible and intangible assets comprising the FISH Technology?

(2)  In answering the above questions, please consider the “FISH Technology” to comprise the assets/business combination (as applicable) acquired by the Plaintiffs, as set out in Annexure A to Ng J’s Order dated 11 May 2023.

(3)  As at 4 December 2008, what was the fair value of the tangible and intangible assets comprising the SPR Technology?

(4)  In answering the above question, please consider the “SPR Technology” to comprise the assets acquired by the Plaintiffs, as set out in Annexure B to Ng J’s Order dated 11 May 2023.

306.  Mr Coleman is an external consultant at Grant Thornton UK LLP. He was formerly a Partner at PricewaterhouseCoopers UK LLP and its predecessor firms for over 20 years, including for seven years as Global Leader of the firm’s Valuation and Strategy practice and subsequently a Global Relationship Partner for some of the firm’s largest clients. He has over 35 years’ business valuation experience spanning private equity and professional practice.

307.  Mr Coleman’s opinions can be summarised as follows:

(1)  Assessing the fair values of the FISH and SPR Technologies involves more than the preparation of mechanical calculations. A valuer must assess business opportunities and risks, use several valuation methods and benchmark where possible, and step back to ensure conclusions make sense.

(2)  Several income valuation methods were used to value the FISH and SPR Technologies, namely Discounted Cashflow (DCF), Multi-period Excess Earnings (MEEM) and Relief from Royalty (RfR) methods. The financial projections of CMED management were used as the starting point for the income valuations, but adjusted where appropriate including to benchmark assumptions against independent research and Mr Yang’s opinions.

(3)  The cost-to-reproduce approach was also used for each of FISH and SPR to estimate the value of their respective assets as a group, based on the economic principle that a buyer will pay no more for an asset than the cost to obtain an asset of equal utility, whether by purchase or construction; it is a common-sense check to ensure one is not significantly overvaluing (or undervaluing) a business or asset.

(4)  Key market transactions were also considered to inform his valuation conclusions, where possible, including the CytoTrend HK acquisition.

(5)  Two alternative conclusions were presented: (a) assuming the FISH and SPR Businesses would have marketed their products for their intended uses (contrary to Mr Yang’s views); and (b) assuming the business plans were unviable (on the basis of Mr Yang’s views).

Subject	Scenario 1 (CMED’s businesses were marketed as intended)	Scenario 2 (CMED’s business plans were unviable)
FISH Business	US$10 million	US$3 million
FISH Assets	US$7.5 million	US$3 million
SPR Business	US$15 million	US$5 million
SPR Assets	US$13.5 million	US$5 million

308.  Again, Mr Coleman’s evidence was unchallenged in the trial. I find Mr Coleman’s reasoning and analyses cogent and persuasive. I accept his fair value conclusions. His oral explanations to Dr Chen’s questions in cross-examination gave me the additional confidence to accept his opinions.

F8c.  Valuations carried out by CMED

309.  Mr Coleman also provided his opinions on the various valuations prepared by AT Kearney, Credit Suisse, PwC and BMI for the FISH business and assets in 2006 and 2007, and by Credit Suisse and Deloitte for the SPR business and assets in 2008 and 2009 (collectively “2006-2009 Valuations”). His views can be summarised as follows:

(1)  The 2006-2009 Valuations were all for different purposes and from different perspectives. In particular, (a) AT Kearney produced a “potential value” of where the nascent businesses might end up in the future; (b) Credit Suisse valued the economic value of the FISH and SPR investment opportunities to CMED alone, on the explicit assumption that management’s business plans/projections were reasonable; (c) PwC, BMI and Deloitte evaluated fair value so the purchase price could be allocated to identifiable assets for purchase price allocation accounting, again assuming the projections were reasonable.

(2)  The 2006-2009 Valuations were mostly used the same or similar cashflow projections influenced by management without verification. PwC and BMI adopted the Credit Suisse projections for 2007 to 2016 for the FISH Transaction. Credit Suisse and Deloitte used similar financial projections for 2008 to 2018 for the SPR Transaction. The use of similar projections was the main reason for the contemporaneous valuers all having high valuations. They each based their calculations on the same Credit Suisse projections reflecting CMED’s and the seller’s views and plans, and all exempted responsibility for verification, uncritically adopting them in a chain of interdependence.

(3)  The 2006-2009 Valuations had key limitations/caveats and, in particular, the key risks were exempted from, and not “priced into”, their valuations. All the valuations inherently assumed (a) the FISH and SPR Technologies were effective; (b) commercial viability; and (c) cashflows would arrive “on time” with no delay or uncertainty for approval from the State Food and Drug Administration in the PRC. Further, none of the valuers factored in risks of rapidly ramping-up production despite the businesses having no commercial experience. Moreover, none of the valuers adequately cross‑checked with deal benchmarking to ensure their answers were reasonable. Such key risks and uncertainties would have a significantly reductive effective on the fair value.

310.  Again, Mr Coleman’s opinions on the 2006-2009 Valuations were unchallenged at the trial, and I find them convincing. I accept his opinions on the limitations of the 2006-2009 Valuations. In particular, I am of the view that none of the 2006-2009 Valuations can be relied upon in determining the true fair value of the FISH and SPR Technologies at the material times.

F8d.  Whether CMED overpaid FISH and SPR Technologies

311.  Given my acceptance of the opinions of Mr Yang and Mr Coleman, I find that:

(1)  the fair value of the tangible and intangible assets comprising the FISH Technology as at 1 March 2007 was US$3 million; and

(2)  the fair value of the tangible and intangible assets comprising the SPR Technology as at 4 December 2008 was US$5 million.

312.  On 1 March 2007, CMED paid US$176.8 million for the FISH Technology when the fair value of the assets acquired at the time was US$3 million.

313.  On 4 December 2008, CMED paid US$345 million for the SPR Technology when the fair value of the assets acquired at the time was US$5 million.

314.  Accordingly, I find that CMED grossly overpaid for the assets comprising the FISH and SPR Technologies at the material times.

F9.  Purported Post-Acquisition Sales

315.  In the first year in which sales of the FISH Technology were recorded (the financial year ended 31 March 2008), Beijing GP recorded net income of about RMB24 million attributable to the FISH Technology.

316.  In Mr Borrelli’s evidence, he referred to the following matters which were observed by the Liquidators as recorded in the audit papers stored in Mainland China:

(1)  CMED’s auditor (KPMG) identified during an audit in 2008 that a number of the customer confirmations provided to the auditor in the prior year (which were required to be filled out by customers to confirm the existence of the sales of CMED Group) had been filled out by a single person, with the same handwriting.

(2)  KPMG contacted Mr Wu who confirmed that an employee of the CMED Group, Mr Wang Zhengchu, had completed the documents personally.

(3)  The auditor then raised a fraud concern and conducted investigations into some of the entities and individuals recorded as customers in the books and records of the CMED Group.

(4)  The auditor was unable to confirm the existence of the recorded sales in respect of a number of the CMED Groups customers, and was informed by a number of purported FISH customers that they had “only received the product introduction”.

317.  In addition, Mr Borrelli referred to the following matters in his evidence:

(1)  The Liquidators have located among the CMED Group’s documents a series of undated draft agreements between CMED’s subsidiary, Beijing GP, and various entities recorded as customers of the CMED Group. The terms of each of the agreements are similar and provide that Beijing GP would supply FISH Probes for the purposes of a clinical trial at no charge, and would cover all expenses for the clinical trial (“Draft Clinical Trial Agreements”).

(2)  Payment for the purported sales was recorded in the accounts of the CMED Group as having been received by Beijing GP. However, the records of Beijing GP were prepared by or at the instruction of Mr Wu who controlled that company. Mr Wu was the General Manager of GP until January 2008, following which Mr Zhu became the General Manager. There was no independent documentary evidence available to the Liquidators, such as bank account statements, that confirmed the payments ever took place.

(3)  The Liquidators have attempted to confirm the veracity of the purported sales by contacting all of the 177 recorded customers of Beijing GP. Some of the purported customers (including Peking University People’s Hospital and the People’s Liberation Army General Hospital (also known as the 301 Hospital)) informed the Liquidators that they had not heard of Beijing GP, or had heard of Beijing GP and not purchased any FISH Technology products from them. Some of these purported customers informed the Liquidators that they were involved in a clinical trial using FISH, but that no money was paid to the CMED Group for the trial. This is consistent with the terms of the Draft Clinical Trial Agreements, which provided for a free clinical trial rather than payment. The remaining purported customers did not respond, or could not confirm whether they had dealings with the CMED Group on the basis of commercial privilege or the information sought by the Liquidators was too old (more than 10 years ago). The Liquidators have been unable to locate any individual out of all of the purported customers who can confirm that any recorded sales took place.

318.  The above evidence from Mr Borrelli was not in any way challenged during the trial.

319.  On the basis of the above evidence, I think it is reasonable to infer that most, if not all, of the 177 recorded customers of Beijing GP did not make any payment to Beijing BP. I further infer that insofar as Beijing BP did supply FISH probes and any service to its customers for clinical trials, it did so for no charge as reflected by the terms in the Draft Clinical Trial Agreements.

320.  As far as the SPR Technology is concerned, Dr Crum said in his cross-examination that he did not think at the time that the SPR Technology acquired by CMED was “ready for sales”. He was proved correct. As recorded in CMED’s Annual Report for the year ended 31 March 2011, CMED “only started to deliver [their] SPR analyzers to [their] customers free of charge in January 2010 and generate revenue for the sale of HPV-DNA chips following the approval by the PRC State Food and Drug Administration (“SFDA”) which was granted in June 2010”. Prior to the winding up of CMED in July 2012, the sales of HPV-DNA chips were recorded in the Annual Report as RMB 24.9 million (US$3.8 million) for the year ended 31 March 2011. Even assuming that the figure was correct, this only amounted to a very small fraction of the purchase price that was paid (US$345 million).

F10.  Whether Mr Wu was in Breach of Duties

321.  Essentially, the Plaintiffs’ case of fraud is that Mr Wu and Mr Tsang, as the main orchestrators and perpetrators, caused CMED and CMED Tech to enter into the FISH and SPR Transactions at a gross undervalue and thereby enabling the funds of CMED and CMED Tech to be subsequently misappropriated.

322.  In terms of breach of fiduciary duties, the Plaintiffs contended that Mr Wu and Mr Tsang breached their duties fraudulently.[8] A breach of fiduciary duty of course is not necessarily fraudulent. However, if a fiduciary breaches his duty, either knowing that it is contrary to the interests of his principal or being recklessly indifferent whether it is contrary to his interests or not, he is acting dishonestly and in fraudulent breach of his fiduciary duty: Armitage v Nurse [1998] Ch 241 at 251D-F (Millett LJ); First Subsea Ltd v Balltec Ltd [2018] Ch 25 at [64] (Patten LJ).

323.  I have already found that Mr Wu caused CMED and CMED Tech to enter into the FISH and SPR Transactions at a gross overvalue by:

(1)  signing the documents and forging the signature of the counter party knowing that there was no genuine counter party in the transaction;

(2)  failing to disclose to CMED Board his dishonest involvement in the execution of the FISH and SPR Letters of Intent;

(3)  failing to disclose to CMED Board that the FISH and SPR Transactions were not arm’s length transactions and deliberately concealing from the Board that the FISH and SPR Transactions were related party transactions;

(4)  making representations to CMED Board regarding the SPR Technology, knowing that they were false and against the interests of CMED;

(5)  causing funds to be misappropriated from CMED Group to himself and those associated with him.

324.  In these circumstances, Mr Wu had fraudulently breached his duties to CMED and CMED Tech (1) to act bona fide in the best interest of the company, (2) to exercise his powers for proper purposes, (3) to act as trustee of the company’s property, (4) not to make an unauthorised profit, (5) to avoid conflicts of interest, and (6) to exercise reasonable care, skill and diligence.

F11.  Whether Mr Tsang was in Breach of Duties

325.  I have already found that Mr Tsang caused CMED and CMED Tech to enter into the FISH and SPR Transactions at a gross overvalue by:

(1)  failing to disclose to CMED Board that the FISH and SPR Transactions were not arm’s length transactions and deliberately concealing from the Board that the FISH and SPR Transactions were related party transactions;

(2)  failing to disclose his assistance to Dr Chen in the acquisition of CytoTrend HK;

(3)  failing to disclose, and deliberately concealing, that he was already the sole authorised signatory for Supreme Well’s bank accounts at the time when CMED Board considered entering into the FISH and SPR Transactions;

(4)  causing funds to be misappropriated from CMED Group to himself and those associated with him.

326.  In these circumstances, Mr Tsang (like Mr Wu) had fraudulently breached his duties to CMED and CMED Tech (1) to act bona fide in the best interest of the company, (2) to exercise his powers for proper purposes, (3) to act as trustee of the company’s property, (4) not to make an unauthorised profit, (5) to avoid conflicts of interest, and (6) to exercise reasonable care, skill and diligence.

F12.  Whether Dr Chen was in Breach of Duties

327.  In Section E8c above, I concluded that Dr Chen would only owe to CMED (from 16 November 2007) and CMED Tech (from 1 May 2007) contractual duties to act faithfully and diligently as the CTO in relation to the research and development of FISH and other molecular cytogenetic platforms, and to avoid conflicts of interest.

328.  In their closing submissions, the Plaintiffs submitted that Dr Chen had failed:

(1)  to disclose that (a) the FISH Transaction was an undisclosed related party transaction, (b) the FISH Technology did not have value remotely close to what CMED had agreed to pay, and (c) Mr Tsang was in control of the funds paid to Supreme Well, on any occasions between 30 May 2007 and 17 March 2008 when CMED paid out a total of US$60 million, or during the Investor Conference Call on 7 October 2008;

(2)  to disclose to the Board during the Board meeting on 6 June 2008 what he knew about the proposed SPR transaction, including that CytoTrend HK had purchased the SPR Technology for around RMB 12 million.

329.  In the light of my view reached in Section E8c above that Dr Chen did not owe any fiduciary duty to CMED and CMED Tech, it is clear that both of the Plaintiffs’ complaints can only be premised on Dr Chen having a contractual duty to make certain disclosures as an employee.

330.  The only obligation to disclose under Dr Chen’s employment contract appears in the Code to “fully disclose any situations that reasonably could be expected to give rise to a conflict of interest” (see Section E8b above). There was no other obligation under Dr Chen’s Employment Agreement (including the Code) to require the disclosure of information on the part of the employee. I am also unable to see that the Plaintiffs have specifically pleaded that Dr Chen owed a contractual duty to disclose.[9]

331.  In any event, given it was not established during the trial that Dr Chen knew that (1) the FISH Transaction was an undisclosed related party transaction and at a gross overvalue,[10] or (2) CytoTrend HK had purchased the SPR Technology for around RMB 12 million,[11] I do not believe that Dr Chen had any obligation to disclose either of these matters at the material times. A person can hardly be expected to make any disclosure if he had no knowledge of the matter at the time. Again, it does not appear that the Plaintiffs have specifically pleaded that Dr Chen has breached his duties by failing to disclose (or by deliberately concealing) what the Plaintiffs now say he should have disclosed.

332.  In these circumstances, I do not think Dr Chen has breached his contractual duties.

F13.  Whether Mr Zhu was in Breach of Duties

333.  I have already found that Mr Zhu caused CMED to enter into the FISH and SPR Transactions at a gross overvalue by:

(1)  making representations to Credit Suisse and CMED’s independent non-executive directors, knowing that they were false and against the interests of CMED;

(2)  failing to disclose to CMED Board that the FISH and SPR Transactions were not arm’s length transactions and deliberately concealing from the Board that the FISH and SPR Transactions were related party transactions;

(3)  causing funds to be misappropriated from CMED Group to himself and those associated with him.

334.  In these circumstances, Mr Zhu had fraudulently breached his duties to CMED (1) to act bona fide in the best interest of the company, (2) to exercise his powers for proper purposes, (3) not to make an unauthorised profit, (4) to avoid conflicts of interest, and (5) to exercise reasonable care, skill and diligence.

G.  ISSUE 3: CONSPIRACY

335.  The Plaintiffs’ conspiracy claims were made only against Mr Wu, Mr Tsang, Dr Chen, Mr Zhu and Mr Chong.

336.  Given my earlier findings in Sections F3 that Dr Chen was not involved in any fraud in the course of the acquisition of CytoTrend HK, the formation of the Supreme Well Group and the FISH and SPR Transactions, I reject the Plaintiffs’ claim for conspiracy against Dr Chen.

337.  The remaining sub-sections deal with the Plaintiffs’ conspiracy claim against Mr Wu, Mr Tsang, Mr Zhu and Mr Chong.

G1.  The Legal Principles on Unlawful Means Conspiracy

338.  The elements of a claim of unlawful means conspiracy are as follows:

(1)  an arrangement or agreement between two or more people;

(2)  an intention to injure the plaintiff, although there is no need for that intention to be the predominant one;

(3)  carrying out of unlawful acts pursuant to the arrangement or agreement and the intention to injure; and

(4)  resulting in loss or damage caused to the plaintiff.

See Revenue and Customs Commissioners v Total Network SL [2008] 1 AC 1174 at [213] (Lord Neuberger); Pido v Compass Technology Co Ltd [2010] 2 HKLRD 537 at [17] (Ma CJHC).

339.  As to the arrangement or agreement between two or more people:

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

(2)  inference as to the extent of the arrangement or agreement may be drawn from the surrounding circumstances and subsequent events; and

(3)  “… it is not necessary for the conspirators all 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…”.

See Kuwait Oil Tanker Co SAK v Al Bader [2000] 2 All ER (Comm) 271 at [111], [112] & [132] (Nourse LJ)).

340.  As to the intention to injure, if an act is done deliberately and with knowledge of the consequences, the person doing the act cannot sensibly say that they did not intend those consequences or that the act was not aimed at the person who will suffer them: Kuwait Oil Tanker (above) at [121] (Nourse LJ).

341.  As to the nature of the unlawfulness, unlawful means would include crimes and torts (provided they are indeed the means by which harm is intentionally inflicted on the plaintiff): Total Network (above) at [93] & [95] (Lord Walker). They would also include acts to “deceive or defraud” the plaintiff: Crofter Hand Woven Harris Tweed Co Ltd v Veitch [1942] AC 435 at 462 (Lord Wright). In JSC BTA Bank v Ablyazov (No 14) [2020] AC 727, Lord Sumption and Lord Lloyd-Jones JJSC at [15] left open the question of whether “breaches of civil statutory duties, or torts actionable at the suit of third parties, or breaches of contract or fiduciary duty” would constitute unlawful means for the tort of conspiracy. Nonetheless, the learned editors of Clerk & Lindsell on Torts(24^th ed, 2025) §23-120 observe that “[r]ecent cases have proceeded on the basis, however, that a breach of fiduciary duty can amount to ‘unlawful means’ for the purposes of the conspiracy tort”.

G2.  Arrangement or Agreement

342.  In Section F above, I found that Mr Wu and Mr Tsang combined with a common intention to deliberately achieve a common end, namely to cause CMED and CMED Tech to enter into the FISH and SPR Transactions and thereby enabling the funds of CMED and CMED Tech to be subsequently misappropriated. Further, I also found above that Mr Zhu by 27 December 2006 at the least had become a party to the fraud perpetrated by Mr Wu and Mr Tsang. These findings are sufficient to constitute an arrangement or agreement for the purpose of satisfying the first element of unlawful means conspiracy.

343.  As to Mr Chong, he was the named contact person on behalf of Supreme Well in the FISH and SPR Acquisition Agreements. Further, I found above that the forged signatures in the corporate documents for the incorporation of the 5 BVI Entities were procured by Mr Tsang and Mr Chong, and that both of them actually knew that the 5 BVI Entities were incorporated without the knowledge and consent of the 5 Individuals. From these surrounding circumstances, I infer that Mr Chong was also party to the arrangement or agreement involving Mr Wu, Mr Tsang and Mr Zhu to cause CMED and CMED Tech to enter into the FISH and SPR Transactions.

G3.  Intention to Injure

344.  Given that the arrangement amongst Mr Wu, Mr Tsang, Mr Zhu and Mr Chong was to cause CMED and CMED Tech to enter into the FISH and SPR Transactions for the purpose of misappropriating the funds of CMED and CMED Tech, it seems clear that each of them must have shared the intention to deliberately injure CMED and CMED Tech.

G4.  Carrying out of Unlawful Acts

345.  In my view, the acts which were carried out pursuant to the common arrangement and common intention of Mr Wu, Mr Tsang, Mr Zhu and Mr Chong were the subsequent misappropriation of the money of CMED and CMED Tech paid to Supreme Well (see Section F7 above). I find that the unlawful acts for the purpose of the conspiracy tort include acts to deceive or defraud CMED and CMED Tech.

G5.  Resulting Loss or Damage

346.  The loss and damage resulting from the unlawful means conspiracy is the loss suffered by CMED and CMED Tech as a result of their entry into the FISH and SPR Transactions, which the Plaintiffs have identified to be US$521.8 million (see Section F7 above).

347.  For the above reasons, I find that subject to the limitation defence, the Plaintiffs have established their claims in unlawful means conspiracy against Mr Wu, Mr Tsang, Mr Zhu and Mr Chong.

H.  ISSUE 4: FRAUDULENT TRADING

348.  The Liquidators (the 3^rd Plaintiffs) have brought a claim against Mr Wu, Mr Tsang, Dr Chen, Mr Zhu and Supreme Well for fraudulent trading.

H1.  The Legal Principles on Fraudulent Trading

349.  Fraudulent trading is a statutory cause of action. It is governed by s.275(1) of CWUMPO, which provides

“If in the course of the winding up of a company it appears that any business of the company has been carried on with intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose, the court, on the application of the Official Receiver, or the liquidator or any creditor or contributory of the company, may, if it thinks proper so to do, declare that any persons who were knowingly parties to the carrying on of the business in manner aforesaid shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company as the court may direct.”

350.  For liability to be established under s.275, three elements must be shown:

(1)  the business of the company in liquidation has been carried on with intent to defraud the creditors of the company or for any other fraudulent purpose;

(2)  the defendant sought to be made liable participated in the carrying on of the business of the company in that manner; and

(3)  the defendant did so knowingly, i.e. with knowledge that the transactions he was participating in were intended to defraud the creditors of the company or were in some other way fraudulent.

See Re Bank of Credit and Commerce International SA (in liquidation) (No 14) [2004] 2 BCLC 236 at [11] (Patten J).

351.  As to whether the business has been carried on to defraud the creditors or for any other fraudulent purpose, (1) the required intent to defraud is subjective, and not objective, and (2) it is necessary to show that there was either an intent to defraud or a reckless indifference whether or not the creditors were defrauded: ADS v Wheelock Marden & Co Ltd [1998] 3 HKC 153 at 168E-F (Godfrey and Liu JJA).

352.  As to the defendant’s knowledge,

(1)  it would include actual knowledge and “deliberately shutting one’s eyes to the obvious, provided that the fraudulent nature of the transactions did in fact appear obvious to those who dealt with these matters … at the relevant time”: Re BCCI (No 14) above at [11] (Patten J);

(2)  the defendant “did not have to know every detail of the fraud or the precise mechanics of how it would be carried out”, but did have to know that the company was intent on a fraud: Re Bank of Credit and Commerce International SA (in liquidation) (No 15) [2004] 2 BCLC 279 at [13] (Patten J).

H2.  Application of the Principles to the Findings of Fact

353.  On the basis of the findings made above, (1) the business operations of CMED were carried on by Mr Wu, Mr Tsang, Mr Zhu for the fraudulent purpose of causing CMED to grossly overpay its funds in the FISH and SPR Transactions so that they could subsequently be misappropriated, and (2) each of Mr Wu, Mr Tsang and Mr Zhu was a party to the carrying on of CMED’s business for such a fraudulent purpose and knew that CMED business would be carried on in such a fraudulent manner by virtue of their participation in the FISH and SPR Transactions.

354.  Further, Supreme Well was also a party to the carrying on of CMED’s business for a fraudulent purpose because it participated as the counterparty in the FISH and SPR Transactions, and acted as the vehicle through which CMED’s funds could be subsequently misappropriated. I further find that Mr Wu and Mr Tsang were the directing mind and will of Supreme Well at the material times, and their knowledge as to the fraudulent nature of the FISH and SPR Transactions was attributable to Supreme Well, making it a knowing party to the carrying on of CMED’s business for a fraudulent purpose.

355.  Dr Chen, however, was not a party to the carrying on of CMED’s business for a fraudulent purpose and did not know that CMED’s business was at the time being carried on for a fraudulent purpose.

356.  Accordingly, I find that the 3^rd Plaintiffs have established their claim under s.275 of CWUMPO against Mr Wu, Mr Tsang, Mr Zhu and Supreme Well, but that their claim against Dr Chen is rejected.

I.  ISSUE 5: DISHONEST ASSISTANCE

357.  The Plaintiffs’ dishonest assistance claims were made against all the Defendants except Mr Wu, Mr Tsang, Dr Chen and Mr Zhu.

I1.  The Legal Principles on Dishonest Assistance

358.  Dishonest assistance in a breach of trust or fiduciary duty is a form of accessory (and secondary) liability. It is dependent upon the defendant having dishonestly participated in a primary breach by a trustee or fiduciary. The primary breach of trust or fiduciary duty, however, need not be a dishonest one.

359.  It is necessary to establish the following elements to make a defendant personally liable for dishonest assistance:

(1)  a breach of trust or fiduciary duty by someone other than the defendant;

(2)  the defendant’s assistance;

(3)  dishonesty; and

(4)  resulting loss.

See Grupo Torras SA v Al-Sabah [1999] CLC 1469 at 1664A–B (Mance J).

360.  As to the defendant’s assistance, it is essentially a question of fact. However, the assistance must be more than minimal. A plaintiff must at least show that the defendant’s actions have made the breach of duty easier than it would otherwise have been. See Group Seven Ltd v Nasir [2020] Ch 129 at [110(1)] (Henderson, Peter Jackson, Asplin LJJ).

361.  As to dishonesty:

(1)  Dishonesty is an objective standard. The courts apply the normally acceptable standards of honest conduct in determining whether the accessory is dishonest. There is no requirement of conscious dishonesty; the test for dishonesty does not require that the accessory considers that he is acting dishonestly. See Royal Brunei Airlines v Tan [1995] 2 AC 378 at389C-F (Lord Nicholls); Barlow Clowes International Ltd (in liq) v Eurotrust International Ltd [2006] 1 WLR 1476 at §§10, 12-16 (Lord Hoffmann).

(2)  However, when deciding whether the accessory is dishonest, the court also takes into account the circumstances known to him at the time he acted, personal attributes such as his experience and intelligence, and the reason why he acted as he did: Royal Brunei v Tan (above) at 389D, 391B-C (Lord Nicholls).

(3)  In ascertaining whether there is dishonesty, the fact-finding tribunal should adopt a two-stage approach (Ivey v Genting Casinos (UK) Ltd [2018] AC 391 at §74 (Lord Hughes JSC).

(a)  First, it must be ascertained (subjectively) the actual state of the individual’s knowledge or belief as to the facts.

(b)  Once his actual state of mind as to knowledge or belief as to facts is established, the question whether his conduct was honest or dishonest is to be determined by the fact-finder by applying the (objective) standards of ordinary decent people.

(4)  When ascertaining the individual’s knowledge or belief as to the facts (i.e. stage 1 in Ivey), the standard of knowledge would include actual knowledge of the facts and imputed knowledge. Knowledge may be imputed when a defendant has “blind-eye knowledge”, that is where (a) there exists a suspicion that certain facts may exists and (b) there is a conscious decision to refrain from taking any steps to confirm their existence: Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd [2003] 1 AC 469 at §112 (Lord Scott); Group Seven (above) at [59].

(5)  Further, for the courts to find that someone has “blind-eye knowledge”, (a) the suspicion must be firmly grounded and targeted on specific facts and (b) the deliberate decision must be a decision to avoid obtaining confirmation of the facts the existence of which the individual has good reason to believe: Manifest Shipping (above) at [116].

(6)  Ultimately, the court asks what is essentially a jury question, namely whether the defendant’s conduct was honest or dishonest according to the standards of ordinary decent people: Group Seven (above) at [58].

362.  None of the parties present at the trial appeared to have any dispute over the above principles. There was, however, one issue of law on which the parties had disagreement.

(1)  Mr Hao submitted that for the purpose of dishonest assistance, it must be established that a defendant has knowledge of the breach of trust or duty before he/she can be found to be dishonest.[12]

(2)  The Plaintiffs submitted that there is no minimum content of knowledge required before a defendant can be held to be dishonest in a claim for dishonest assistance.

363.  To support his submission, Mr Hao principally relied what Barma JA said in Clark Quantum Kent v Hai Tin Limited[2021] HKCA 1846. For the following reasons, I do not think this authority assists Mr Hao.

(1)  In this case, the plaintiff sought to serve out of the jurisdiction, amongst others, a claim for dishonest assistance. Leave to serve out was set aside by the first instance judge on the basis that the plaintiff did not demonstrate a good arguable case on dishonest assistance. The plaintiff sought leave to appeal and a rolled-up hearing was convened before the Court of Appeal comprising Barma and Au JJA. The Court of Appeal considered the plaintiff’s pleading and concluded that he failed to put forward a properly formulated case against the relevant defendants: [15]-[18].

(2)  During the oral hearing, the plaintiff’s counsel advanced for the first time the argument that “it would be sufficient for there to be generalised dishonesty in relation to the inherent nature of the scheme” and “it was not necessary for the defendants to actually appreciate that there had been a breach of trust in relation to the trust in question” for the claim in dishonest assistance: [22]-[23]. Barma JA observed that this contention was not raised in the court below and that the claim for dishonest assistance was not pleaded in this way: [24]-[25].

(3)  The plaintiff’s new case was rejected by Barma JA at [26].

“It seems to us that, for the purpose of accessory liability in the form of dishonest assistance in a breach of trust, it is essential for the dishonesty to relate to the breach of trust in question. To put it in another way, the liability is for assisting in a breach of trust in a manner that is dishonest. In order for such dishonesty to be capable of arising, it seems to us that there must exist an appreciation of the existence of the trust and the fact that what is being done is a breach of it. If there is no such appreciation, it is hard to see how the alleged assister can be said to be dishonest.”

(4)  In the above passage, Barma JA referred to the concepts of breach of trust, assistance and dishonesty. In my view, all his Lordship observed was that the dishonesty must relate to the assistance of the breach of trust, so that the concept of generalised dishonesty, independent of the assistance or the breach of trust, would not suffice. Neither party made the point that for a claim of dishonest assistance to succeed, the plaintiff must establish that the defendant has knowledge of the breach of trust. The above passage therefore cannot be taken as authority to support such a proposition. It is right to point out that neither party cited any authorities on dishonest assistance to the Court of Appeal for the purpose of the plaintiff’s application.

364.  Mr Hao further referred to some English decisions for the proposition that the defendant must know in broad terms what the breach involved in order to be liable for dishonest assistance.[13] Nonetheless, there are high authorities to suggest that the defendant does not need to have full knowledge of the details of the trust or the primary wrongdoer’s involvement, or that the disposals were of monies held in trust, before he can be found to be dishonest for the purpose of dishonest assistance: Twinsectra Ltd v Yardley [2002] 2 AC 164 at [24] (Lord Hoffmann) & [135] (Lord Millett); Barlow Clowes (above) at [28] (Lord Hoffmann); Menno Leendert Vos v Global Fair Industrial Ltd (unreported, CACV 281/2009, 6 October 2014) [78] (Kwan JA). Further, as Lord Hoffmann said in Barlow Clowes (above) at [28], a clear suspicion of the breach of trust would also be sufficient.

365.  Accordingly, I am unable to agree with Mr Hao’s submission that a defendant must be shown to have knowledge of the breach of trust or duty before he/she can be found to be dishonest in a dishonest assistance claim. Having come to this view, it is unnecessary for me to express any view on whether or not there is a minimum content of knowledge required before a defendant can be held to be dishonest in a claim for dishonest assistance. It is right to record that the English Court of Appeal in Group Seven (above) at [104] has indicated a provisional view that “the simplicity of the two-stage test for dishonesty which now emerges from the authorities should not be complicated by the introduction, as a matter of law, of a minimum content of knowledge which must be satisfied”. There is much force in the view that “the facts of possible cases are so infinitely various that it would … be wrong to lay down, as a matter of law, any minimum threshold or content for the defendant’s knowledge before the test can be satisfied”. However, the present case does not turn on this question of law and I would prefer to leave the question to be decided on a future occasion when it arises.

I2.  Mr Hao

I2a.  Plaintiffs’ case of dishonest assistance

366.  The Plaintiffs’ dishonest assistance case against Mr Hao is that:

(1)  Mr Hao participated in (a) the sale to CMED of Beijing Bio‑Ekon Biotechnology Co Ltd (“BBE”) and (b) the establishment of a group of companies involving BJ Co, which involved him making significant payments of CMED’s funds;

(2)  in doing so, Mr Hao dishonestly assisted in Mr Wu’s and Mr Tsang’s breaches of fiduciary duties.

367.  The Plaintiffs contend Mr Hao and the companies of which he was a shareholder and director received US$28.84 million from the funds of CMED and CMED Tech. Of that amount, the Plaintiffs claim US$17.76 million to avoid double recovery. One of the funds flow diagrams in Annexure E relates to the funds received by Mr Hao. The 3 highlighted amounts in the funds flow diagram are those which the Plaintiffs seek to recover from Mr Hao in these proceedings, totalling US$17.76 million.

I2b.  Mr Hao’s defence

368.  Essentially, Mr Hao’s defence is that the two transactions involving BBE and BJ Co were legitimate business transactions and that Mr Hao at the material times was not acting dishonestly.

369.  As mentioned above, Mr Hao unfortunately passed away shortly before the trial commenced. The evidence to support his defence was primarily limited to his witness statement filed in the proceedings as hearsay evidence.

I2c.  Relevant factual context of Mr Hao’s involvement

370.  I start by making findings on the relevant facts on how Mr Hao became involved in the transactions which involved him making onward payments of CMED’s funds. Some of the above events mentioned in this section concerning Mr Hao are taken from Mr Hao’s witness statement which the Plaintiffs do not dispute.

371.  Mr Hao had a bachelor’s degree in accounting and finance from Renmin University in Beijing in 1982. He was employed in the administration department of the China Stock Exchange Council, and was sent to Sino Foundations Holdings Co Ltd, then a Hong Kong listed company, as an observer. He subsequently joined a subsidiary of Sino Foundations as a general manager, until mid-2003.

372.  In 2006, Mr Hao wished to explore business opportunities in the medical equipment industry in Mainland China and came to know Mr Wu, whom he understood to be the founder, chairman and CEO of CMED. Thereafter, Mr Wu told Mr Hao that CMED Group was going to acquire shares in BBE from Beijing Yimin Weikang Technologies Co Ltd (“Beijing Yimin”), and asked if he could assist in the sale of BBE (“BBE Sale”). Mr Hao told Mr Wu that he was prepared to assist.

373.  Mr Wu then introduced Mr Hao to Mr Chen (Shujun). It is unclear when this introduction took place. In Mr Hao’s Witness Statement, there is an internal inconsistency as to the date.[14] In all likelihood, Mr Wu’s introduction of Mr Chen to Mr Hao probably took place a few months after Mr Hao met Mr Wu. Mr Hao understood Mr Chen to be a director, legal representative and a shareholder of Beijing Yimin. Following the introduction, Mr Hao had a meeting with Mr Chen, during which Mr Hao understood that Beijing Yimin and CMED Group had already negotiated the key commercial terms of the BBE Sale and that the BBE Sale would involve the sale of shares in BBE from Beijing Yimin to an intermediate company, and subsequently from the immediate company to the CMED Group.

374.  Subsequent to the meeting, Mr Hao was, according to this witness statement, provided with additional details of the BBE Sale, which would involve (1) a sale of the 99.98% of the BBE shares in Beijing Yimin and another shareholder of BBE holding, Shang Shaohong (“Mr Shang”), holding the remaining 0.12%, to an intermediate holding company, and (2) the intermediate holding company would sell such shares to the CMED Group.

375.  I observe that Mr Hao was vague in describing how these additional details were provided to him. In his witness statement, Mr Hao said it was “Mr Chen and/or an employee of Beijing Yimin” who provided such information to him. Indeed, the formulation “Mr Chen and/or an employee of Beijing Yimin” was extensively and repeatedly used throughout his witness statement. I further note that Mr Hao has not exhibited any contemporaneous materials to support certain events mentioned in his witness statement. An example would be the information he was provided with by, and the “instructions” received from, “Mr Chen and/or an employee of Beijing Yimin”. Although Mr Hao did say in his witness statement that most of the “instructions” were “oral over the phone”, there was no explanation from Mr Hao as to how he could recollect the details of the relevant events, which happened in 2006 to 2008, solely from memory and without the assistance of some contemporaneous records many years later at the time when his Defence was prepared in 2018, or when his witness statement was prepared in 2021. I highlight these features because they are relevant for me to decide how much weight I should ultimately put on the contents of Mr Hao’s witness statement.

376.  According to Mr Hao, he was asked to provide his assistance in establishing a Hong Kong intermediate holding company to facilitate the transactions. Mr Hao said in his witness statement that he “understood from, inter alia, Mr Chen” and honestly believed that “it was common for foreign listed companies to acquire domestic PRC companies through one or more intermediate holding companies, at least one of which would be based and incorporated in Hong Kong”, and did not find it unusual for the CMED Group to acquire the shares in BBE in this way. I am unable to take this part of Mr Hao’s statement as representing his true belief at the time.

(1)  At the material times, Mr Hao was a complete stranger to the CMED Group and Beijing Yimin. Mr Hao did not explain why he thought it would be beneficial to him to set up a Hong Kong company to be interposed between Beijing Yimin and the CMED Group. Indeed, there was no clear explanation in Mr Hao’s witness statement on what it was in it for him to agree to assist Mr Wu in the BBE Sale. Mr Hao only made a passing reference in his witness statement about “doing Mr Wu and Mr Chen a favour” to facilitate and assist in the BBE Sale. There was no explanation in Mr Hao’s witness statement as to how he considered this “favour” in the overall context of his involvement in the transaction and what he expected this “favour” would entail. I am not prepared to find that Mr Hao agreed to assist in the BBE Sale simply because he wanted to do Mr Wu and Mr Chen a favour.

(2)  Further, on Mr Hao’s evidence, it was Mr Wu who introduced Mr Chen to Mr Hao. In other words, Mr Hao knew that Mr Wu of the CMED Group (for the buyer) was already acquainted with Mr Chen (for the seller). Mr Hao at the time has worked in Beijing and Hong Kong, and would have acquired a reasonable degree of commercial experience. I believe that he would have understood that commercial entities would not interpose an unfamiliar third party in a substantial commercial transaction, such as the BBE Sale. Mr Hao would surely have queried Mr Wu (on the buyer’s side) as to why Mr Hao (as opposed to others) was being asked to set up a Hong Kong company to assist the seller for the purpose of the BBE Sale. This is particularly so when Mr Hao was neither given anything in return for assisting in the transaction nor promised some benefit in the future.

(3)  For these reasons, I reject Mr Hao’s assertion that he did not find it unusual for the CMED Group to acquire the BBE shares through an interposed company set up by himself.

377.  From his witness statement, Mr Hao explained that in or around July 2006, he was instructed by “Mr Chen and/or an employee of Beijing Yimin” to set up “companies in Hong Kong”. With the assistance of lawyers, Mr Hao acquired East Crest (a Hong Kong company) and Clear Castle (a BVI company) in July and August 2006 respectively. East Crest was then used as the intended immediate holding company of BBE.

378.  Subsequently, Mr Hao explained that “Mr Chen and/or an employee of Beijing Yimin” informed him that he had to execute the following documents on behalf of East Crest that were necessary to facilitate the BBE Sale:

(1)  A share transfer agreement dated 30 May 2007 (“East Crest Transfer Agreement”), whereby East Crest agreed to purchase, and Beijing Yimin and Mr Shang agreed to sell their respective 99.88% and 0.12% shareholding in BBE for a consideration of RMB 53,636,513.55 (about US$7 million);

(2)  A service agreement dated 5 June 2007 (“the Worldpro Service Agreement”), whereby East Crest agreed to pay Worldpro a sum of US$10 million in respect of the acquisition of BBE by East Crest.

379.  East Crest was a party to both the East Crest Transfer Agreement and the Worldpro Service Agreement, and Mr Hao signed both agreements for and on behalf of East Crest.

380.  In his witness statement, Mr Hao said that because the commercial negotiations had already been completed between the parties, he was unable and in any event not required to comment on the substantive terms of the East Crest Transfer Agreement and the Worldpro Service Agreement. However, there was nothing in his witness statement to suggest that Mr Hao did not read or understand the two agreements. I find that he did so.

381.  Having read the Worldpro Service Agreement, Mr Hao must have realised that (1) a “contractor’s fee” of US$10 million would need to be paid to Worldpro purportedly for introducing East Crest to the investment opportunity in BBE, and (2) Recital (A) was inaccurate in describing East Crest as being “interested in investing in the diagnostic business … and in particular, those being currently carrying on by [BBE]”. In particular, Mr Hao must have considered these aspects non-sensical because the agreement provided for the payment of a fee to Mr Chen’s company higher than the consideration of the underlying deal, whilst Mr Hao knew that East Crest was only set up to hold the BBE shares temporarily as an intermediary. Accordingly, I am unable to accept the part in Mr Hao’s witness statement where he said “I did not consider the reasonableness of the substantive terms, and the purpose, of the Service Agreement or the need to execute the said agreement at the time”. I find that Mr Hao did at the time consider the terms of the Worldpro Service Agreement as not making sense, but that he did nothing about it.

382.  On 1 June 2007, East Crest received from East Hope a sum of US$7.06 million by CHATS remittance, which was credited to East Crest’s bank account at HSBC (“East Crest HSBC Account”).

(1)  Mr Hao explained in his witness statement that prior to the transfer, he did not know which entity would be remitting US$7.06 million. He said he only discovered the identity of the sender (i.e. East Hope) after the remittance.[15] He further said that at the time, he did not know and had no reason to ascertain who owned or controlled East Hope, or any details of East Hope.

(2)  Effectively, Mr Hao confirmed that after US$7.06 million was received by East Crest, he knew that the money came from a company called East Hope, but he saw no reason to make enquiries.

(3)  I find Mr Hao’s witness statement lacking in important explanations. First, it is clear that Mr Hao did not mention anything about how he came to know that his company (East Crest) had received a sum of US$7.06 million in the East Crest HSBC Account. Further, Mr Hao’s witness statement contains no details on what he did and with whom he contacted after the receipt of US$7.06 million. However, it seems to me that some activities must have been carried out by Mr Hao after East Crest’s receipt of US$7.06 million on 1 June 2007.

(4)  Importantly, Mr Hao did not explain why he made no enquiries about the identity of East Hope after he learned that his company had received US$7.06 million. Under the East Crest Transfer Agreement, East Crest was to provide the purchase consideration to Beijing Yimin and Mr Shang for the BBE shares. In his witness statement, Mr Hao only said (at paragraph 26) that he carried out the steps in the BBE Sale “[upon] being instructed by Mr Chen and/or the employees of Beijing Yimin, and with the honest belief that the instructions were for the purposes of performing the East Crest Transfer Agreement and [Worldpro] Service Agreement so as to facilitate the BBE Sale”. This evidence was not sufficiently cogent to identify the party who was supposed to provide the funds to East Crest to complete the East Crest Transfer Agreement. Mr Hao in fact said nothing in his witness statement about who he believed would be providing the US$7.06 million to East Crest. In particular, I reject the submission made by Mr Hao’s counsel that the transfer of BBE shares pursuant to the East Crest Transfer Agreement was a matter of corporate restructuring requested by Chen, and that it was all along believed by Mr Hao that the consideration would be funded by Mr Chen and/or his companies. I note that this submission was partly based on counsel’s submission and partly based on what was pleaded in Mr Hao’s Amended Defence (at paragraph 12). In his witness statement, Mr Hao did not say that he understood the East Crest Transfer Agreement to be part of an internal restructuring involving Mr Chen or his companies.[16] Moreover, it would not have made sense to Mr Hao for the consideration under the East Crest Transfer Agreement to have come from parties associated with the vendor of the BBE shares. It is significant that despite this point having been pleaded by the Plaintiffs in their Amended Reply (at paragraph 11.1), Mr Hao decided to say nothing about it in his witness statement. In these circumstances, I decline to find that Mr Hao at the relevant time believed that the US$7.06 million came from Mr Chen or his companies.

(5)  At the time, Mr Hao must have expected East Crest to be provided with the necessary funds so that it could comply with the East Crest Transfer Agreement. Based on his overall understanding of the BBE Sale (and in particular what he said in paragraphs 13 and 14 of his witness statement), it is more likely than not that Mr Hao had the expectation that the consideration was provided by the CMED Group, being the substantive counterparty of the BBE Sale.

(6)  I find that Mr Hao did not wish “to ascertain who owned or controlled East Hope, or any details of East Hope” (as explained in his witness statement). In my view, the reason is likely to be that he already suspected that the money received in the East Crest HSBC Account was not properly authorised money from the CMED Group, and that he would rather not ask questions lest his suspicions would be confirmed. It is likely that his suspicions were formed and crystallised as a result of his knowledge of the terms of the Worldpro Service Agreement and the activities he must have carried out after East Crest’s receipt of US$7.06 million.

383.  Over 3 weeks later on 26 June 2007, as the sole authorised signatory of East Crest HSBC Account, Mr Hao arranged US$7.06 million to be remitted to Beijing Yimin pursuant to the East Crest Transfer Agreement.

384.  In around late July or early August 2007, Mr Hao acquired Finnea as an “off-the-shelf” BVI company through his lawyers, which was the intended immediate holding company of Clear Castle. No explanation was given by Mr Hao said in his witness statement as to why this was considered necessary to be done, other than a reference to the phrase “on the instructions of Mr Chen and/or the employees of Beijing Yimin”.

385.  On or around 4 September 2007, Mr Chen requested an amount of US$10 million to be deposited into the bank account of a company of Mr Hao. Mr Hao then decided to use the bank account of Time Region at HSBC (“Time Region HSBC Account”) to receive the US$10 million by 2 cashier orders.

386.  On 5 September 2007, as the sole authorised signatory of the Time Region HSBC Account, Mr Hao arranged the US$10 million to be remitted from the Time Region HSBC Account to the East Crest HSBC Account. He then arranged East Crest to issue a cashier order in favour of Worldpro for US$10 million pursuant to the Worldpro Service Agreement.

387.  Mr Hao did not explain in his witness statement why the “contractor’s fee” of US$10 million had to be paid first into Time Region (a BVI company), and then paid on the same day to East Crest, and then on to Worldpro by cashier order. Mr Hao must have found it very odd for the US$10 million to be paid in this way. I disbelieve Mr Hao when he said in his witness statement that he “did not know or have any reason to suspect why the US$10m Sum had to be deposited in the Time Region HSBC Account”. Following on from the earlier suspicions about the source of the US$7.06 million, I find that Mr Hao also suspected about the source of the US$10 million but decided not to ask questions about it because he did not want his suspicions confirmed.

388.  According to his witness statement, in mid to late 2007, “on the instructions of Mr Chen and/or the employees of Beijing Yimin”, Mr Hao on behalf of Finnea instructed BVI lawyers to advise on the sale of shares in Clear Castle to the CMED Group (ECLIA Diagnostic Technology Ltd (“CMED ECLIA”)). Mr Hao considered and executed the following documents in relation to the sale to CMED ECLIA:

(1)  A share purchase agreement dated 26 November 2007 (“CMED ECLIA SPA”) pursuant to which Finnea agreed to sell and CMED ECLIA agreed to purchase the entire share capital in Clear Castle for US$28.8 million.

(2)  A deed of indemnity dated 7 January 2008.

(3)  Non-competition and indemnification agreements dated 7 January 2008.

389.  Mr Hao accepted in his witness statement these transactions involved CMED buying BBE for US$28.8 million which “quadrupled the consideration that East Crest paid for the shares in BBE to Beijing Yimin”.[17] It was also provided in the CMED ECLIA SPA that Finnea had made a US$17 million loan to East Crest. In his witness statement, he stated that he was not in a position to consider whether these commercial terms were reasonable because he was not involved in the commercial negotiations and solely acted on the “instructions of Mr Chen and/or the employees of Beijing Yimin”. I accept that Mr Hao might not feel able to query the commercial wisdom of the CMED ECLIA Sale. However, Mr Hao must have thought that the significant increase in price within a short span of a few months was at least eyebrow-raising. He also must have known that there was no loan made by Finnea to East Crest. Coupled with the suspicions that he had earlier, I find that Mr Hao also had suspicions about the legitimacy of CMED ECLIA Sale. I further find that he did not ask questions about the increase in sale price and the wrong description in the agreement partly because he did not feel appropriate to ask, but also partly because he did not wish his suspicions confirmed. I reject Mr Hao’s evidence when he said in his witness statement that he “had no reason to question” the terms in the CMED ECLIA SPA.

390.  On 27 November 2007, Finnea received from CMED US$6.8 million in its HSBC account as the first instalment. Mr Hao then caused Finnea to transfer US$6.8 million to Innovative on 29 November 2007. According to him, he did so “on the instructions of Mr Chen and/or the employees of Beijing Yimin”.

391.  On 21 December 2007, 14 January 2008 and 9 April 2008, Mr Hao caused Finnea to transfer to Beijing Shenglongkang Technology Trading Co Ltd (“Beijing Shenglongkang”) RMB 88.38 million, RMB 58.178 million and RMB 14.044 million as the second, third and fourth instalments respectively. The total of the three RMB sums came to around US$22 million. Beijing Shenglongkang was a Mainland entity, of which Mr Hao was the legal representative, manager and director. Beijing Shenglongkang was 100% owned by Trump Fame Limited (“Trump Fame”), a Hong Kong company of which Mr Hao was the director. Trump Fame was 100% owned by Finnea. Mr Hao said nothing in his witness statement about the reasons for setting up Trump Fame and Beijing Shenglongkang and why these entities came to be involved in the CMED ECLIA Sale. If Mr Hao genuinely considered that East Crest was needed to hold the BBE shares temporarily, he must have thought that the interposition of further companies (Finnea, Trump Fame and Beijing Shenglongkang) created more suspicions of the legitimacy of the transaction.

392.  On 7 January 2008, CMED and CMED Tech acquired, through their subsidiary CEMD ECLIA, the entire share capital in Clear Castle. Clear Castle in turn held the entire share capital in East Crest, which in turn held the entire equity interest in BBE. A chart showing CEMD’s acquisition of BBE is annexed as Annexure F.

393.  According to Mr Hao, in late 2007 or early 2008, he was told by Mr Chen to establish another Hong Kong company which would wholly own a company incorporated in Mainland China (which turned out to be BJ Co) that would be engaged in Chinese medicine (“BJ Co Arrangement”). Mr Hao said that he understood that his assistance was required because he was a Hong Kong resident and it was more convenient for him to establish the Hong Kong company as a holding company in order to take advantage of “any tax and/or policy privileges for wholly foreign‑owned enterprises in the PRC, and to carry out the steps identified to facilitate the establishment of the intended venture”.

394.  Mr Hao acquired Bondfair (a BVI “off-the-shelf” company) in April 2007. He caused Bondfair to acquire Max Proper (a Hong Kong “off-the-shelf” company) on 23 April 2007 to in turn hold the entire equity interest in BJ Co, which was subsequently incorporated on 22 August 2007. He was appointed as the sole director of Max Proper on 18 April 2007.

395.  Mr Hao acquired Nedelva (a BVI “off-the-shelf” company) on 10 January 2008. He was appointed as the sole director of Nedelva. The entire shareholding in Bondfair was transferred to Nedelva shortly thereafter.

396.  On 25 February 2008, a sum of US$700,000 was paid into Mr Hao’s personal HSBC account. In this witness statement, Mr Hao said he “did not ascertain who had transferred the US$700k Sum and believed that it was remitted from or on the instructions of Mr Chen and/or the employees of Beijing Yimin”. In fact, the US$700,000 came from Supreme Well.

397.  On 27 February 2008, the US$700,000 was transferred from Mr Hao’s HSBC account to Max Proper’s HSBC account. On the same day, Mr Hao arranged Max Proper to remit US$700,000 to BJ Co’s BOC account in Beijing.

398.  Mr Hao said that it was Mr Chen who deposited a cashier order of US$700,000 into his personal account. However, there was no explanation in his witness statement as to why the payment was made into Mr Hao’s personal account (as opposed to a Hong Kong company set up by Mr Hao pursuant to the BJ Co Arrangement). In particular, Mr Hao’s witness statement contains no narratives as to his dealings with Mr Chen and others regarding the BJ Co Arrangement, other than the assertions that everything was done “on the instructions and request of Mr Chen and/or the employees of Beijing Yimin”. As I found above, Mr Hao already had suspicions in the BBE Sale in June 2007 that the money received in the East Crest HSBC Account was not properly authorised money from the CMED Group, and deliberately refrained from asking questions because he did not want to confirm his suspicions. I think it is more likely than not that Mr Hao continued to harbour suspicions about the propriety of the flow of funds in the BJ Co Arrangement, and continued to refrain from asking questions about his suspicions to avoid his suspicions being confirmed. It seems to me that this is the likely reason why Mr Hao’s witness statement contains no narratives on the dealings amongst the relevant people in that transaction. I reject Mr Hao’s evidence when he said he believed the BJ Co Arrangement was “undertaken for the legitimate commercial purpose of establishing Max Proper, and BJ Co on Mr Chen’s behalf, properly and legally”.

399.  Mr Hao resigned as director of Max Property on 3 November 2008. On the same day, he caused Nedelva to transfer its entire shareholding in Bondfair to entities nominated by Mr Chen, which to Mr Hao’s understanding included WB, Dynamic Sense and New Era Maxtek (International) Ltd.

400.  Mr Hao was the sole director, general manager and legal representative of BJ Co until December 2008 when he resigned from all the offices.

401.  A chart showing the BJ Co Arrangement as at 3 November 2008 is annexed as Annexure G.

I2d.  Mr Hao’s beliefs in relation to the BBE Sale and BJ Co Arrangement

402.  On the basis of the above findings, my findings on Mr Hao’s beliefs can be summarised as follows:

(1)  I reject Mr Hao’s evidence that he did not at the time find it unusual for the CMED Group to acquire the BBE shares through an interposed company set up by himself.

(2)  Mr Hao did at the time consider the terms of the Worldpro Service Agreement as not making sense, but that he did nothing about it.

(3)  When East Crest received US$7.06 million in June 2007, Mr Hao already had suspicions that the money received was not properly authorised money from the CMED Group, and that he would rather not ask questions lest his suspicions would be confirmed.

(4)  Mr Hao also suspected about the source of the US$10 million in September 2007 but decided not to ask questions about it because he did not want his suspicions confirmed. I disbelieve Mr Hao when he said in his witness statement that he “did not know or have any reason to suspect why the US$10m Sum had to be deposited in the Time Region HSBC Account”.

(5)  Mr Hao also had suspicions about the legitimacy of CMED ECLIA Sale. He did not ask questions about the increase in sale price and the wrong description in the agreement partly because he did not feel appropriate to ask, but also partly because he did not wish his suspicions confirmed. I reject Mr Hao’s evidence when he said in his witness statement that he “had no reason to question” the terms in the CMED ECLIA SPA.

(6)  Mr Hao must have thought that the interposition of further companies (Finnea, Trump Fame and Beijing Shenglongkang) created more suspicions of the legitimacy of the transaction.

(7)  Mr Hao continued to harbour suspicions about the propriety of the flow of funds in the BJ Co Arrangement in February 2008, and continued to refrain from asking questions about his suspicions to avoid his suspicions being confirmed. I reject Mr Hao’s evidence that he believed the BJ Co Arrangement was “undertaken for the legitimate commercial purpose of establishing Max Proper, and BJ Co on Mr Chen’s behalf, properly and legally”.

I2e.  Whether Mr Hao is liable for dishonest assistance

403.  The first element for dishonest assistance is satisfied. As held in Section F10 above, Mr Wu was plainly in breach of his fiduciary duties to CMED and CMED Tech by enabling their funds to be subsequently misappropriated.

404.  As to assistance:

(1)  The funds flow diagram in Annexure E concerning Mr Hao shows that Mr Hao received the traceable proceeds from CMED and CMED Tech received by Mr Hao personally and his companies, East Crest and Time Region.

(2)  I accept that the payments received by Mr Hao’s companies should be treated as having been received by his agent or nominee: Lewin on Trusts (20^th ed, 2020) §42-056; T Grant QC & D Mumford QC, Civil Fraud (1^st ed, 2018) §12-022. For the purpose of the dishonest assistance claim, I am satisfied that Mr Hao’s receipts should be taken as those received in his own name and those received by the agent/nominee companies which he controlled and beneficially owned. I reject Mr Hao’s submission that the point has not been sufficiently pleaded in paragraph 307.5 of the RASOC.

(2)  The learned editors of Lewin on Trusts (20^th ed, 2020) §43‑034 had this to say about assistance in money laundering cases:

“In those cases where the breach of trust consists of misappropriation of assets, the breach will not end when the assets have initially been removed from the trust fund, but when they have been hidden away, beyond the reach of the beneficiaries who might seek their recovery. Accordingly those who assist in money laundering after the breach of trust has first occurred may be made liable for dishonest assistance. And so a person may be liable where he renders assistance after a transfer by a trustee in breach of trust by making false representations intended to disguise the destination of the funds and prevent their recovery.”

(3)  I am satisfied that Mr Hao assisted in Mr Wu’s breaches of fiduciary duties by receiving the relevant payments and causing the same to be further disbursed by transfers to other accounts or cash withdrawals.

405.  The two-stage analysis in Ivey is carried out to ascertain whether Mr Hao was dishonest in assisting Mr Wu in his breaches of fiduciary duties.

(1)  In Section I2d, I have made findings on the actual state of Mr Hao’s knowledge or belief as to the facts at the relevant times when he received the 3 relevant payments in June and September 2007 and February 2008. Essentially, I find that Mr Hao had suspicions about the US$7.06 million received in June 2007 was not properly authorised money from the CMED Group, and continued to have suspicions about the source of the payments received in September 2007 and February 2008. He took the deliberate decision to refrain from asking questions because he did not wish to confirm his suspicions.

(2)  Applying the objective standards of ordinary decent people, I find Mr Hao’s conduct dishonest. An honest and reasonable person in Mr Hao’s position with his knowledge would not continue to receive payments from questionable sources. In particular, this honest and reasonable person would not have done so without taking steps to enquire as to the source and legitimacy of the payments, and to confirm whether or not his/her suspicions were true.

(3)  Mr Hao took a pleading point and complained that the Plaintiffs failed to plead dishonesty unequivocally and properly by including rolled-up pleas to suggest that the primary facts are consistent with honesty. Having considered paragraphs 307 to 311 of the RASOC, I do not think there is merit in Mr Hao’s pleading objection. I believe that the Plaintiffs’ pleading has fairly informed Mr Hao to know what case he had to meet and that it is open to the court to make the above findings of dishonesty on the basis of the existing pleading.

(4)  Further, in the written submissions filed on behalf of Mr Hao, it was submitted that all the facts pleaded by the Plaintiffs to support dishonesty are circumstantial matters. In particular, Mr Hao invited the court to look at each of the pleaded facts one by one, and ask if that is an act equally consistent with innocence. I have reminded myself of what Lord Millett said in Three Rivers DC v Bank of England (No 3) [2003] 2 AC 1 at [186] that:

“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 honesty. There must be some fact which tilts the balance and justifies an inference of dishonesty, and this fact must be both pleaded and proved.”

I do not think this approach involves the court looking at each of the pleaded facts individually and ask if each of them is consistent with honesty or innocence. In my view, it is necessary for the court to examine all the matters pleaded by the Plaintiffs holistically and apply the two-stage test in Ivey to the evidence to ascertain whether the inference of dishonesty is justified. Ultimately, the relevant question for the court to ask is whether or not an inference of dishonesty is more likely than one of innocence or negligence on the basis of the pleaded matters and the evidence: JSC Bank of Moscow v Kekhman [2015] EWHC 3073 (Comm) at [20] (Flaux J). I consider the approach advocated by Mr Hao to be incorrect. On the basis of the analyses set out above, I am fully satisfied that an inference of dishonesty against Mr Hau is justified.

406. I am of the view that substantial loss had been caused to CMED and CMED Tech as a result of the Mr Hao’s dishonest assistance.

407.  I conclude that subject to any defences raised by him, Mr Hao is liable to CMED and CMED Tech for dishonest assistance.

I3.  Ms Bi

I3a.  Plaintiffs’ case of dishonest assistance

408.  The Plaintiffs’ dishonest assistance case against Ms Bi is that:

(1)  between 30 March 2007 and 27 December 2012, Ms Bi personally and through her companies received a total of US$28.96 million from misappropriated funds representing a breach of the fiduciary duties owed by Mr Wu, Mr Tsang, Dr Chen and Mr Zhu to CMED;

(2)  by acting as a recipient of the misappropriated funds, and assisting to conceal and disbursing the misappropriated funds, Ms Bi assisted the breaches of fiduciary duties;

(3)  Ms Bi had the relevant knowledge and belief to render her assistance to the breaches of fiduciary duties dishonest.

409.  One of the funds flow diagrams in Annexure E relates to the funds received by Ms Bi personally. The highlighted amounts in the funds flow diagram are those which the Plaintiffs seek to recover from Ms Bi in these proceedings, totalling US$21.36 million.

I3b.  Ms Bi’s defence

410.  Ms Bi’s case is that since her separation with Mr Wu in 2001, she moved to the United States, and subsequently Singapore, with her daughter Alisa Wu. Ms Bi contends that despite the separation, Mr Wu continued to support the living of Ms Bi and Alisa Wu. According to her, Mr Wu also sent Ms Bi proceeds of sale from their joint investments in a number of companies/business which were unrelated to Mr Wu and Mr Tsang, the FISH Transaction or the SPR Transaction.

411.  Further, Ms Bi denies that there was no legitimate reason for her to have received or disbursed the funds and that she had the alleged state of mind in relation to such funds.

I3c.  Relevant factual context of the payments to Ms Bi

412.  In order to assess the respective merits of the Plaintiffs’ dishonest assistance claim and Ms Bi’s defence, it is necessary for the court to first ascertain the proper factual context in which the various sums were paid to Ms Bi at the material times. This involves making findings on Ms Bi’s relationship and connection with the various parties in these proceedings, as well as the objective facts concerning the various sales of the joint investments between Mr Wu and Ms Bi. These findings are set out in this Section.

413.  Ms Bi was born in Jianxi Province in Mainland China. She used to be a professionally trained nurse. Since 1989, she had been running business and has accumulated some wealth through real estate, restaurant and retail business and investments.

414.  Ms Bi met Mr Wu in 1991 and they were married in 1995. Ms Bi has a daughter from her previous marriage, Ms JY Bi.

415.  After they became married, Mr Wu and Ms Bi established and operated several medical-related companies. One of them was Beijing Yuande, which was incorporated in Mainland China in June 1999. At the time of its incorporation, Ms Bi was the legal representative and an indirect shareholder (through Beijing Chengxuan) holding 70% shares.

416.  In her witness statement, Ms Bi claimed that she and Mr Wu were separated in 2001 due to estrangement.

417.  The evidence before the court suggested that Ms Bi and Mr Wu were not separated from 2001 due to estrangement as suggested by Ms Bi.

(1)  Dr Crum’s evidence was that he met Mr Wu and Ms Bi, on several occasions, including at their house in Beijing. Some of these meetings were all after 2001, and therefore during the time that Ms Bi asserted that she and Mr Wu were separated.

(2)  A trust known as the Xio Qiong Bi Irrevocable Trust was set up by Ms Bi in 2003 with Ms Bi as the controller. The beneficiaries of the trust were Ms Bi’s family members, including Mr Wu.

(3)  Mr Capener’s evidence was that Mr Wu and Ms Bi owned together, in June 2006, a house in Irvine, California, and that a meeting of the Board was held in Irvine for that reason.

(4)  The house in Irvine was a reference to Ms Bi’s property at 5 Hibiscus in Irvine, California. While this was purchased solely in the name of Ms Bi, it was identified as being Mr Wu’s address in an IRA Retirement Account Application dated March 2005 that was signed both by Mr Wu and Ms Bi. When this was shown to Ms Bi in cross-examination, she accepted that Mr Wu did reside there during his visit. Ms Bi was also unable to explain in cross-examination why she selected Mr Wu to be the beneficiary of her retirement account four years after the supposed separation.

(5)  In 2005, Mr Wu and Ms Bi purchased a home as joint tenants in Clark County, Nevada. Ms Bi claimed in oral evidence that only people aged 50 or more would be eligible to live in that community, and that Mr Wu’s name was included because he was almost 50 years old at the time. This differs from her explanation in the examination by the Liquidators in January 2015 in Singapore (“Singapore Examination”), namely that she was advised by real estate agents that, because she and Mr Wu were still married, in order to purchase the apartment, they had to use both of their names. Ms Bi accepted in cross‑examination that both she and Mr Wu remained joint owners of this property until 2016, when he executed a transfer of his interest in the property to her. Her explanation that the form was handled by her daughter does not explain why her daughter would list Mr Wu and Ms Bi as having the same address.

(6)  In February 2006, Ms Bi acted according to Mr Wu’s instruction to remit US$15,000 to Dr Chen (see Section F3 above).

(7)  In an email dated 14 December 2006 for the purpose of arranging accommodation for a stay in Macau, it was recorded that Mr Wu would be “sharing room with Mrs. Wu”. Ms Bi said in cross-examination that she could not recall whether she did share a room with Mr Wu.

(8)  As mentioned in Section A6 above, WB was incorporated in Singapore on 31 July 2008. Mr Wu and Ms Bi were the initial directors and shareholders of WB holding 49% shareholding and 51% shareholding respectively. Mr Wu resigned as a director on 31 March 2012.

(9)  In October 2008, Mr Wu and Ms Bi were travelling together, as evidenced by an American Airlines ticket confirmation dated 11 October 2008.

(10)  In December 2009, Mr Wu and Ms Bi purchased a property at 17 Coral Island in Singapore as joint tenants, though Ms Bi claimed orally to have made “the payments” for the property. In the forms for the purchase, they both listed the same residential address in Singapore. Mr Wu and Ms Bi had applied together to become Singapore permanent residents. There was evidence that Ms Bi was issued a Singapore residency identity card on 18 February 2008. Ms Bi also confirmed that she and Mr Wu remained joint tenants of the property until it was auctioned away by the court in 2019.

(11)  In a BEAHK application form signed by Mr Wu dated June 2011 for telegraphic transfer of US$4 million in favour of Ms Bi, Ms Bi was described as the “wife of Mr. Wu” and the transfer was stated to be for the purpose of “purchasing a property in Singapore”.

(12)  In another BEAHK application form signed by Mr Wu dated March 2012 for telegraphic transfer of US$700,000 in favour of Ms Bi, Ms Bi was described as the “wife of director Mr. Wu Xiaodong” and the transfer was stated to be for “shopping in HK”.

418.  Accordingly, I find that Mr Wu and Ms Bi were not separated due to estrangement from 2001.

419.  According to the divorce certificate issued by the Ministry of Civil Affairs of Beijing Municipality, Mr Wu and Ms Bi were divorced on 21 June 2012. This was 6 days after the presentation of the petition to wind up CMED in Cayman Islands. Ms Bi was asked about the timing of her divorce in cross-examination. She described it as a coincidence, and that she was very busy in 2011 and 2012. However, she could not explain why she and Mr Wu would only divorce in 2012, if they were truly separated due to estrangement in 2001.

420.  Ms Bi also produced a divorce agreement dated 21 June 2012. It was provided, amongst other things, that a sum of SG$1.2 million was to be paid per year by Mr Wu to Ms Bi. Ms Bi was asked in cross‑examination whether Mr Wu had paid this amount, to which she answered “never”. However, upon being shown that this was inconsistent with her answer in the Singapore Examination, she changed her answer. In the course of answering questions in cross-examination, Ms Bi gave further inconsistent answers as to whether she had been in contact with Mr Wu since 2013.

421.  It was also provided in the divorce agreement that all landed properties belonging to both Mr Wu and Ms Bi outside of China would be given to Ms Bi. There was no evidence to explain why the property at 17 Coral Island in Singapore was only auctioned away by the court in 2019 and was not transferred to Ms Bi in her sole name pursuant to the divorce agreement.

422.  The divorce agreement also referred to the listing out of Mr Wu’s and Ms Bi’s matrimonial assets having been clearly made. However, nowhere in the agreement can that list be found.

423.  The Plaintiffs suggested that the divorce agreement was a sham. For a document to be a sham in law, all the parties thereto must have a common intention that the document is not to create the legal rights and obligations which it gives the appearance of creating. On the basis of the available evidence, I am unable to infer that both Mr Wu and Ms Bi that the divorce agreement was intended by both parties to create such an impression. Nonetheless, I acknowledge that there are questionable features in the divorce agreement which Ms Bi was not able to satisfactorily explain during the trial.

424.  The court next examines Ms Bi’s relationship and connection with other key individuals implicated in the fraud (other than Mr Wu) in the present case.

425.  Ms Bi confirmed to the Liquidators in the Singapore Examination that she would meet Mr Tsang “once a year or once every two years” after having met him in 2005 or 2006, without “any business reasons behind [their] meetings”, and confirmed that they were “friends”. Mr Tsang also set up a number of companies for Ms Bi, including Long Chart and Innovative which are also the defendants in these proceedings.

426.  Ms Bi also told the Liquidators in the Singapore Examination that Mr Zhu was a friend of hers. Ms Bi was unclear as to precisely when she met Mr Zhu. Mr Zhu also joined as an investor in Ms Bi’s Singapore healthcare business, and the two of them remain in contact today.

427.  Ms Bi also had a long and close relationship with Mr Chong. Mr Chong was an employee of Ms Bi’s father in Mainland China, and emigrated to Hong Kong with his assistance. Ms Bi was introduced to Mr Chong by her father. Mr Wu came to know Mr Chong through Ms Bi. Mr Chong would drive Mr Wu or Ms Bi to and from the airport in Hong Kong whenever they visited Hong Kong, which Ms Bi described as “dealings like friends”. Mr Chong also flew to Las Vegas to attend the wedding of Ms Bi’s daughter.

428.  As far as other entities are concerned, Ms Bi was one of the founders of Beijing Yuande. It was Ms Bi who in fact persuaded Mr Wu to leave his government post and join her in her business. Ms Bi was the Chairman of Beijing Yuande from July 1999 until around April 2004, a director until 12 May 2004, and the legal representative until March 2004.

429.  As shown in Beijing Yuande’s telephone lists of 23 December 2005 and 1 March 2008, Ms Bi, together with Mr Wu, was the general manager of Beijing Yuande. These documents were confirmed by Mr Borrelli in cross-examination as amongst the limited books and records available to him in the CMED Group’s files shortly after his appointment. It is clear from a comparison of the two versions that the contents did change between the two documents. Other than saying in cross‑examination that the documents might not have been amended, Ms Bi was unable to provide further explanation as to why she was described as the general manager of Beijing Yuande in 2005 and 2008. On a balance of probabilities, I find that Ms Bi did occupy the position of general manager at Beijing Yuande from 2005 to 2008.

430.  Further, Ms Bi was a director, together with Mr Tsang, of CMT Diagnostics, a subsidiary of CMED, for around two years from June 2010. There was evidence to suggest that Ms Bi had signed board meeting minutes and received correspondence in that capacity. Ms Bi’s evidence was that she was only a nominal director solely to meet the requirements that a company incorporated in Singapore must have at least one director who is a resident of Singapore. Mr Tsang had been a close business associate with Mr Wu, who was also a Singapore resident at the time. When Ms Bi was asked in cross-examination why Mr Wu could not have been a director of CMT Singapore, Ms Bi said that he was not a Singapore citizen. I find the answer somewhat incredible. Further, by the time when CMT Singapore was set up, Ms Bi had been in the business for many years. Her explanation that she just signed CMT Singapore’s board minutes (to guarantee certain notes to be issued by CMED) without reading them is, in my view, unbelievable.

431.  In an application form of United Overseas Bank in Singapore that Ms Bi signed to open an account in her own name in November 2009, she was described as being employed as a director of “China Medical Technology”. In cross-examination, she claimed that she did not know why the form was filled in that way. There was no evidence that anyone opened the account for Ms Bi. On a balance of probabilities, I find that the information in the form was provided to the bank by Ms Bi.

432.  There was also some evidence that Ms Bi was involved in CMED’s business. In March 2009, Ms Bi was provided with a slide deck presentation which described in some detail the business of CMED, including in relation to FISH and SPR. In her oral evidence, Ms Bi said that “the Singapore government would like to know something about our emigration and would like to know what our company was doing”. The possessive adjective “our” in that answer was a reference to Mr Wu and Ms Bi. On the basis of Ms Bi’s oral evidence, I find that the Singapore Government did ask Mr Wu and Ms Bi to provide information about their company and that the slide deck presentation was provided because both Mr Wu and Ms Bi were involved in CMED’s business at the time.

I3d.  Objective facts of the sales of the joint investments

433.  Ms Bi claimed that all the proceeds transferred directly by Mr Wu or through his companies to her personal bank account or the trust account controlled by her were attributable to Mr Wu’s sales of their joint investments or to her and her daughter’s living expenses.

434.  Ms Bi contended that the receipts received by her and her trust came from her entitlement of the share of the sale proceeds from the following 3 sales:

(1)  Sale by Weixiao Medical Technology Limited (“Weixiao Medical”) and its subsidiary (Beijing Weixiao Biological Technology Development Limited (“Beijing Weixiao”)) of 95% of their shares in China Stem Cells Holdings Limited (“CSCH”) and CSCH’s subsidiary (Beijing Jiachenhong Biological Technologies Co (“Jiachenhong”)) for US$40.2 million between July 2003 and April 2006, and later the remaining 5% for US$6.8 million after 2009.

(2)  Sale by Beijing Weixiao to Beijing Yuande of a building for US$7.8 million in February 2004 and of some ECLIA technology for US$30.2 million in January 2005.

(3)  Sale by Beijing Chengxuan of its shareholding in Beijing Yuande, to Chengxuan, for US$8.5 million in June 2004.

435.  I note that Ms Bi has never pleaded or put forward a total figure in her witness statement which she claimed to be entitled to receive from Mr Wu from the above sales.

436.  As to the sale of CSCH shares and Jiachenhong shares:

(1)  According to Weixiao Medical’s Register of Members and Share Ledger, Mr Wu was Weixiao Medical’s sole shareholder. The First Written Resolution of the Director of Weixiao Medical shows that Mr Wu became the sole shareholder upon the company’s incorporation on 17 November 2004. Ms Bi was clearly wrong when she said in cross-examination that she was the founder of Weixiao Medical and that Mr Wu only became a shareholder afterwards when she transferred her share to him. There was no evidence to support Ms Bi’s assertion in her witness statement that both Mr Wu and she were shareholders of Weixiao. I find that Ms Bi was not a shareholder of Weixiao Medical at the material times.

(2)  According to Beijing Weixiao’s Register of Shareholders, Mr Wu was a 51% shareholder and Ms Bi was a 49% shareholder.

(3)  According to the equity acquisition agreement dated 4 July 2003, 51% of the shares held by Beijing Weixiao in Jiachenhong was sold for a consideration comprising HK$50 million and an allotment of 40 million shares in a company called Golden Meditech Co Ltd (“Golden Meditech”) equivalent to HK$80 million, which consideration was stipulated to be paid in full within 90 days after the completion of certain registrations under the agreement.

(4)  As to the 40 million shares in Golden Meditech, Mr Benjamin Lam on behalf of Ms Bi accepted that there was no evidence of how much the shares were sold for. However, he submitted that they were in fact sold. Mr Manzoni pointed out, and I agree, that there was in fact no evidence that the sale took place. Accordingly, as far as cash is concerned, the evidence suggested that the sale of 51% of the shares held by Beijing Weixiao in Jiachenhong only yielded HK$50 million.

(5)  Pursuant to the equity acquisition agreement dated 18 December 2004, Beijing Weixiao transferred 44% shareholding in Jiachenhong to Weixiao Medical. During the trial, Ms Bi gave evidence in re-examination that she had gifted her interest in Jiachenhong to Mr Wu:

“MR LAM: It is stated here on the document that there is a transfer of 44 per cent of Beijing Weixiao shareholding in Jiachenhong to Weixiao Medical. Can you see that?

A. I can see that.

Q. Were you gifting your interest in Jiachenhong to Mr Wu?

A. Yes.

Q. Can you tell me what is going on here, if you can remember?

A. I had given my interest, all my interest, to Mr Wu. That means in all these I am giving all my shareholdings in those companies that we set up together, all given to him.”

(6)  In closing submission, Mr Lam submitted that Ms Bi might not have really understood the significance of the point and that she was not “giving things out for free”. In view of Ms Bi’s oral testimony, I reject Mr Lam’s submission. I find that Ms Bi did not acquire any interest in Weixiao Medical or 44% shareholding in Jiachenhong in 2004.

(7)  There were other documents produced in the trial involving dealings between Weixiao Medical and other third parties regarding the disposal of 44% shares in CSCH (or 44% of Jiachenhong) from April 2005 to April 2006. However, given my findings that Ms Bi at the material times was neither a shareholder of, nor held any interest in, Weixiao Medical, it is unnecessary for the court to consider such documents and the effect of them.

(8)  As to the last 5% shareholding in CSCH held by Weixiao Medical, no documents were produced by Ms Bi to show what happened to it. Ms Bi said that it was “publicly offered on the market at a price of approximately US$6.8 million”, but was unable to explain in cross-examination what happened to the remaining 5% shareholding in CSCH. In any event, in the light of my finding that Ms Bi did not hold any interest in Weixiao Medical, she would not have been entitled to any part of the proceeds from the remaining 5% shareholding in CSCH.

(9)  In these circumstances, I find that Ms Bi at most only had a 49% entitlement to the 51% shareholding that was sold by Beijing Weixiao pursuant to the equity acquisition agreement dated 4 July 2003. As far as her entitlement to the monetary consideration under that agreement is concerned, she would have been entitled to HK$24.9 million (i.e. 49% of HK$50 million), or about US$3.2 million.

(10)  I reject Ms Bi’s case that she was entitled to about US$40.2 million from the sale of CSCH shares and Jiachenhong shares from 2003 to 2009.

437.  As to the sales of the building and ECLIA technology:

(1)  According to the property sale and purchase contract dated 27 February 2004, Beijing Weixiao sold to Beijing Yuande a building for RMB64.8 million (or about US$7.8 million). The contract was signed by Mr Wu on behalf of Beijing Weixiao and Ms Bi on behalf of Beijing Yuande. The contract provided that (a) RMB60 million had already been paid and (b) the remaining RMB4.8 million would need to be made within 1 year from the date of the contract, i.e. by 27 February 2005.

(2)  From CMED IPO prospectus, it was recorded that the RMB60 million was paid in March 2003 and the remaining RMB4.8 million was paid in April 2004.

(3)  According to the asset transfer agreement dated 18 January 2005, Beijing Weixiao sold to Beijing Yuande the ECLIA technology for RMB250 million (or about US$30.2 million) to be paid by 30 September 2005.

(4)  From CMED IPO prospectus, it was recorded that a total of RMB150 million was paid in 4 tranches from September 2004 to March 2005. It was further recorded in CMED’s Annual Report that the remaining RMB100 million was paid to Beijing Weixiao during the fiscal year ended 31 March 2006.

(5)  Being a 49% owner of Beijing Weixiao, Ms Bi would at most be entitled to a total of US$18.62 million (i.e. 49% x (US$7.8 million + US$30.2 million)) under these sales.

438.  As to the sale of the Beijing Yuande shares:

(1)  According to CMED’s IPO prospectus for ADS, Chengxuan acquired all of Beijing Chengxuan’s ownership interest in Beijing Yuande for US$8.5 million in June 2004.

(2)  The share transfer contract was dated 28 June 2004 between Beijing Chengxuan as transferor and Chengxuan as transferee. The contract was signed by Ms Bi on behalf of Beijing Chengxuan and Mr Wu on behalf of Chengxuan. Under the contract, the US$8.5 million was required to be paid within 180 days from the date of the contract.

(3)  It appeared that Beijing Chengxuan was owned 40% by Mr Wu and 60% by Ms Bi at the material times.

(4)  Being a 60% owner of Beijing Chengxuan, Ms Bi would at most be entitled to US$5.1 million under this sale.

I3e.  Ms Bi’s beliefs on the purpose of the receipts from 2007 to 2012

439.  I think there are several factors which severely undermine Ms Bi’s case that she regarded all payments received by her from 2007 to 2012 as representing a portion of the proceeds from the sale of her joint assets with Mr Wu.

440.  First, Ms Bi’s has never made it clear, whether in her pleading or witness statement, what her supposed arrangement with Mr Wu was for remitting her entitlement of the sale proceeds from the joint investments. Indeed, in her oral testimony in this trial, she has given completely inconsistent accounts of the purported arrangements between Mr Wu and her on the transfers of money.

(1)  Initially, Ms Bi said that she did not ask Mr Wu for the money and she just knew the money she received represented her share of the sale proceeds.

“Q. Let me do it again. I suggest to you that you made no enquiries as to the source of the funds. Do you agree or disagree that you made no enquiries?

A. I did not ask and I only know that it’s what I deserved to get and it’s the share I deserved to get.

Q. And there is no evidence of you either telling Mr Wu that what he had given you was insufficient or asking for more to represent your entitlement under these alleged sales?

A. Actually, it was already discussed before I transferred my shares to him and it discussed back then that whatever would the sales proceed be, then that would be how we split it. Before that, actually we would share a 50/50 basis.”

[Day 12, 10:8-21]

(2)  However, later on the same day, Ms Bi said, for the first time, that every time Mr Wu made a remittance, he would call and tell her the amount of the transfer. When it was pointed out that she had never said this before, Ms Bi said she would have done so if she had been asked.

“Q. Ms Bi, we’ve just looked at the credit advice. It tells you exactly who it’s come from, Sinowell International Investment Ltd. How did you know that that was a company connected to your husband?

A. I would not look at this. Because before each and every remittance, he would call me and inform me of the amount he would remit to me on that occasion. For example, for this period of time I would be told that $3 million or $5 million would be remitted to me. Then I would look at those amounts during that period of time, but I would not pay attention as to from which account that remittance was made.

Q. Ms Bi, that is the first time you’ve ever given that suggestion. It’s not in your Singapore transcript, it’s not in your defence, it’s not in your witness statement. You’re making it up, aren’t you?

A. Disagree.

Q. So can you show me where you have given that suggestion elsewhere, namely that you were telephoned before every remittance?

A. If someone asked me the question, then I would say it. Has someone ever asked me that question? Because previously what I have been saying all along is that what I received was actually my entitlement. Because I knew that I have this amount of money with him and I have to receive that sum of money. That is what I have emphasised all along.”

[Day 12: 63:16-64:17]

(3)  However, she had indeed been asked precisely the same question in the Singapore Examination and confirmed that Mr Wu would not call.

“Q. So Madam Bi, when you saw $5 million arrive into your account, you knew that was from Mr Wu because he would call you and tell you it was coming? How would you know that money was from him?

A. It would not – it was not through phone call. It’s just that during that period of time, he would give me money on and off up till today he would – he still owed me money. I was in the United States and I would remember using all my money. There would be times whereby he would need to borrow my money, too. It’s built on mutual trust.”

(4)  When Ms Bi was asked to confirm which of the two versions was true, she said they were all true, and then proceeded to give yet another account which involved the bank calling her.

“ … So, Ms Bi, it’s clear that under oath you have given two completely different stories. Which one is true?

A. What I said was all true. Because it was not just on one occasion, it was on multiple occasions. But for the 5 million here, it’s not by phone. Sometimes I would be informed by his bank staff. Actually, I would sometimes receive phone notification and I would be notified by the bank staff or sometimes it’s Mr Wu who called me up, or it’s Mr Wu who would send fax to the bank and then I would be notified the amount will be transferred to me. But it’s not the case that I would be notified by phone on each and every occasion. There were other means, but on most occasion I would be informed by phone call. If you are asking me about each and every occasion, I cannot really recall.

Q. Let’s just come back --

A. What I wanted to express is that on each and every occasion that I was going to receive the money, then I would be informed that such amount of money would be remitted or transferred to me.”

[Day 13, 4:12-5:6]

(5)  In the course of her oral testimony, Ms Bi also mentioned a few times that she would urge Mr Wu to give her more money and that in 2010 and 2011, she had to ask Mr Wu to pay after a long period had elapsed since he last paid. Such evidence was inconsistent with Ms Bi’s evidence that Mr Wu would just make the transfers without prior requests.

(6)  Even taking into account the fact that Ms Bi was being asked about events which happened over 15 years ago, I find her evidence extremely unsatisfactory. If the money which Mr Wu arranged to remit to Ms Bi did truly represent Ms Bi’s entitlement from her share of the sale proceeds of the joint investments, the inherent likelihood is that there would have been some arrangement or understanding reached between Mr Wu and Ms Bi, however informal it might have been. The fact that Ms Bi was unable to give a consistent account of that arrangement or understanding suggests to me that the money received by Ms Bi was not what she claimed to be.

441.  Second, the timing of Ms Bi’s receipts suggests that they were not her share of the sale proceeds from the joint investments. As shown in the previous section, Mr Wu would have received all the sale proceeds by September 2005.[18] Yet, the first receipt by Ms Bi that came from Supreme Well was the payment by East Hope of US$5 million on 30 March 2007. There was nothing on the face of that payment to connect the receipt to the sale proceeds from the joint investments which would have been received by Mr Wu at least one and a half years prior to the date of receipt.

442.  Third, Ms Bi failed to produce any evidence showing how she would know what amounts were owing to her by Mr Wu at any particular point in time and whether and to what extent such amounts had been paid. Further, there was no evidence from Ms Bi showing how she would distinguish whether a receipt from Mr Wu should be treated as her share of sale proceeds, or as living expenses for her and her daughter. Ms Bi is an experienced businesswoman with corporate interests in different places in the world. It is inherently likely that she would have kept a running account of some sort. In answer to the court’s question, Ms Bi initially said that she did “take a record” but then clarified that it was not an official record. In any event, no such records have ever been disclosed by Ms Bi. Insofar as Ms Bi claimed that she did keep a record of what Mr Wu paid her against what he owed her, I disbelieve her evidence. The absence of any accounts or records by Ms Bi suggests to me that the money received by her was not her share from the sale proceeds from the joint investments.

443.  Fourth, Ms Bi’s case is inconsistent with contemporaneous documents. As mentioned above, there were BEAHK application forms signed by Mr Wu dated June 2011 and March 2012 showing that transfers of money were made in favour of Ms Bi for “purchasing a property in Singapore” and “shopping in HK”.

444.  Fifth, Ms Bi’s case is inconsistent with her own action at the material times. Throughout the period of her receipts, Ms Bi was also paying significant sums back to Mr Wu.

(1)  Ms Bi received a sum of US$5 million from East Hope on 30 March 2007. She placed that sum on time deposit for six months, and then paid it back to Mr Wu in three different transactions on 6 September 2007, 25 October 2007 and 21 January 2008. Ms Bi explained in her oral evidence, for the very first time, that Mr Wu wanted to borrow the money from her because he had a friend whose company would be listed in the UK. If Mr Wu was still owing her substantial sums from the sale of the joint investments, it is inherently unlikely that Ms Bi would lend him a substantial sum of US$5 million.

(2)  On the same day that she paid the first US$1 million to Mr Wu (namely 6 September 2007), Mr Wu paid US$1 million into the Xiao Qiong Bi Trust Cathay Bank account. If Mr Wu was truly in need of money, he would not have paid US$1 million into Ms Bi’s trust account at the same time.

(3)  In February 2006, on the instructions of Mr Wu, Ms Bi remitted US$15,000 to Dr Chen.

445.  Having considered all the evidence, I find that when Ms Bi received the various payments from Mr Wu or through Mr Wu’s instructions from the various companies, Ms Bi did not have the belief that the money was her share of the sale proceeds from the joint investments she previously held with Mr Wu. In making this finding, I have not lost sight of Mr Lam’s submission that the relationship between Mr Wu and Ms Bi was not a commercial one. Indeed, this is reason why I have felt the need to make findings in Section I3c to determine the relevant factual context in which Ms Bi received the money.

446.  What then was Ms Bi’s belief when she received the various payments from Mr Wu or the other companies? On a balance of probabilities, I find that she must have had suspicions about the source and legitimacy of the relevant payments and did not want to confirm her suspicions. My finding is based on the following matters.

(1)  Ms Bi felt the need to put forward a set of circumstances to justify her receipts of the payments, which I have now disbelieved. If she genuinely believed that what she received were ordinary and legitimate payments, there would not have been any need for her to lie about them.

(2)  At the trial, Mr Borrelli produced a table showing how much Ms Bi was paid each year from 2005 to 2014 from Mr Wu and other companies. The table shows that Ms Bi was paid about US$3 million in each of 2005 and 2006. However, in 2007, Ms Bi was paid about US$11.4 million, which was almost four times the amounts received in each of 2005 and 2006. In 2009, she was paid about US$14.3 million. Ms Bi was asked to about the 400% increase in 2007 in cross-examination and she insisted that the money was her share of the sale proceeds, which I have rejected. In my view, she must have noticed the substantial increase and must have wondered why there was such a significant increase and about the source of the funds. I disbelieve her when she said in cross-examination that she “had no reason to query”.

(3)  There was a payment of US$5 million made by East Hope to Ms Bi in March 2007 which she placed on time deposit for 6 months and paid it back to Mr Wu in 3 tranches from September 2007 to January 2008: see Section I3e above. For the reasons given above, I disbelieve Ms Bi when she said that the various payments to Mr Wu were by way of loan. As far as her receipt of US$5 million from East Hope and her subsequent payments totalling US$5 million to Mr Wu are concerned, she must have had some prior arrangement with Mr Wu about keeping the money on a temporary basis and subsequently returning it to Mr Wu. The fact that she felt it necessary to hide such an arrangement from the court clearly suggests to me that she must have had suspicions about the source and legitimacy of the US$5 million.

(4)  Ms Bi also knew that she was being paid not by Mr Wu alone, but by other companies and Mr Chong as well. She must have asked herself why others were making substantial payments to her.

(5)  According to my findings above, Ms Bi was the general manager of Beijing Yuande from 2005 to 2008, together with Mr Wu. She was also a co-director of one of CMED’s subsidiaries (CMT Diagnostics) together with Mr Tsang (whom Ms Bi knew was a director of CMED) from 2010 to 2012. Moreover, she was involved in CMED’s business in 2009 with Mr Wu. The magnitude of payments to Ms Bi increased substantially after the FISH Transaction in 2007, and after the SPR Transaction in 2009. 2007 was also the year when she had the arrangement with Mr Wu to receive US$5 million from East Hope and to subsequent return it to Mr Wu. At the material times, Mr Wu was the CEO and a director of CMED and there was no evidence to suggest that he had resources outside the CMED Group. In these circumstances, it is more likely than not that she made a connection between the significant increase in payments in 2007 and 2009 on the one hand and CMED’s business in FISH and SPR on the other, and suspected that the payments might have come from the CMED Group.

(6)  It is common ground that Ms Bi did not ask any questions about the relevant payments. I infer that she made a conscious decision to refrain from asking questions about them because she did not want to confirm her suspicions about the legitimacy and source of the payments.

I3f.  Whether Ms Bi is liable for dishonest assistance

447.  The first element of dishonest assistance is satisfied. I repeat what I said in Section I2e in relation to Mr Hao on the first element.

448.  As to assistance:

(1)  The funds flow diagram in Annexure E concerning Ms Bi shows that Ms Bi received the traceable proceeds from CMED and CMED Tech received by Ms Bi.

(2)  For the reasons given in Section I2e, I am satisfied that Mr Bi’s receipts should be taken as those received in her own name and those received by the agent/nominee companies which she controlled and beneficially owned. The passage from Lewin on Trusts §43-034 quoted in Section I2e is repeated. The total receipts received by Ms Bi personally and her companies, Long Chart and WB, came to US$28.96 million.

(3)  I am satisfied that Ms Bi assisted in Mr Wu’s breaches of fiduciary duties by receiving such payments and causing the same to be further disbursed by transfers to other accounts or cash withdrawals. In particular, Ms Bi has put forward justifications for the receipts in these proceedings which I have now rejected above. In that connection, she has acted in a way to prevent the recovery of the misappropriated funds.

449.  To ascertain whether Ms Bi was dishonest in assisting Mr Wu in his breaches of fiduciary duties, it is necessary to carry out the two-stage analysis in Ivey.

(1)  In Section I3e, I have made findings on the actual state of Ms Bi’s knowledge or belief as to the facts at the relevant times when she received the payments from Mr Wu and the other companies from 2007 to 2012. Essentially, I find that Ms Bi must have had suspicions about the legitimacy and source of the relevant payments at the material times, and took the deliberate decision to refrain from asking questions because she did not wish to confirm her suspicions.

(2)  Applying the objective standards of ordinary decent people, I think Ms Bi’s conduct was dishonest. An honest and reasonable person in Ms Bi’s position with her knowledge would not have retained and continued to receive the payments. In particular, this honest and reasonable person would not have done so without taking steps to enquire as to the source and legitimacy of the payments, and to confirm whether or not his/her suspicions were true.

(3)  I reject Ms Bi’s pleading objection made in her written opening that the Plaintiffs did not plead against Ms Bi a case of money laundering or active funds diversion. Such a case can be found in paragraphs 318.1 and 318.2 of the RASOC.

(4)  Ms Bi adopted the approach taken by Mr Hao which involved looking at each of facts pleaded by the Plaintiff in isolation and asking whether each of them is equally consistent with innocence. For the reasons given in Section I2e above, I reject the approach. I am fully satisfied that an inference of dishonesty against Ms Bi is justified.

450.  It is clear that substantial loss had been caused to CMED and CMED Tech as a result of the Ms Bi’s dishonest assistance.

451.  To conclude, I conclude that subject to any defences raised by her, Ms Bi is liable to CMED and CMED Tech for dishonest assistance.

I4.  Mr Chong

452.  The funds flow diagram in Annexure E concerning Mr Chong shows that Mr Chong received the traceable proceeds from CMED and CMED Tech received by Mr Chong personally and in the name of Kam Hing Trading (a name used by Mr Chong to trade as a sole trader) (US$143.94 million). The total receipts received by Mr Chong personally and his companies, Innovative and Chavis, came to US$173.38 million.

453.  The first and second elements of dishonest assistance are satisfied. I repeat what I said in Section I2e in relation to Mr Hao on these elements. I am satisfied that Mr Chong’s receipts should be taken as those received in his own name and those received by the agent/nominee companies (Innovative and Chavis) which he controlled and beneficially owned.

454.  On dishonesty:

(1)  In Section F above, I have found that Mr Chong procured forged signatures in the corporate documents for the incorporation of the 5 BVI Entities and that he actually knew that the 5 entities were incorporated without the knowledge and consent of the relevant individuals. In Section G above, I have found that Mr Chong was an active participant in the conspiracy to use unlawful means to misappropriate the funds from CMED, and took steps in furtherance of that conspiracy. Accordingly, Mr Chong clearly knew and believed that the payments received from 2006 to 2011 were misappropriated funds from CMED and CMED Tech. There was no legitimate reason for Mr Chong to receive the relevant payments.

(2)  Applying the objective standards of ordinary decent people, I Mr Chong was clearly dishonest. Insofar as it is necessary to do so, I also draw the necessary adverse inferences against Mr Chong to support my finding that he was dishonest.

455.  As a result of Mr Chong’s dishonest assistance, it is clear that substantial loss had been caused to CMED and CMED Tech.

456.  I conclude that subject to any defences raised by him, Mr Chong is liable to CMED and CMED Tech for dishonest assistance.

I5.  Ms JY Bi

457.  Between 2007 and November 2008, Ms JY Bi received US$2.5 million from CMED’s and CMED Tech’s funds, as shown in the funds flow chart at Appendix E.

458.  The first and second elements of dishonest assistance are satisfied. I repeat what I said in Section I2e in relation to Mr Hao on these elements.

459.  As to dishonesty:

(1)  On the evidence before the court, I am not satisfied that Ms JY Bi knew that the payments she received were illegitimate, given that they came from the bank accounts of her stepfather (Mr Wu). The fact that she is the daughter of Ms Bi and the stepdaughter of Mr Wu does not necessarily mean that Mr Wu and/or Ms Bi had shared with Ms JY Bi their knowledge of the source of the funds. Further, the fact that Ms JY Bi was acquainted with Mr Tsang, Mr Zhu and Mr Chong at the material times is insufficient for the court to infer that she knew that the relevant payments were illegitimate.

(2)  I do not think the Plaintiffs have adduced sufficient evidence to show that Ms JY Bi had actual knowledge or suspicions that the payments she received were illegitimate funds.

(3)  In these circumstances, I am not prepared to find that Ms JY Bi was dishonest in receiving the relevant payments.

460.  Given that Ms JY Bi was not dishonest, I conclude that she is not liable to CMED and CMED Tech for dishonest assistance.

I6.  Corporate Defendants

461.  The corporate defendants are all entities which were controlled and beneficially owned by Mr Wu, Mr Tsang, Dr Chen, Mr Hao and Ms Bi. The Plaintiffs’ claims against the corporate defendants are in the alternative, in the sense that such claims are only pursued if the Plaintiffs fail to recover against the individual recipients for the amounts received by their agent companies.

462.  Further, two other corporate defendants can be disposed of quickly.

(1)  Dynamic Sense (D11) is a BVI entity and its sole director and sole shareholder at the material times was Dr Chen. Given my findings above that Dr Chen was neither involved in, nor had any knowledge of, the fraud, no relevant knowledge can be attributed to Dynamic Sense to make it liable for dishonest assistance. The dishonest assistance against Dynamic Sense therefore cannot be made out.

(2)  Max Proper (D21) was dissolved and struck off the Hong Kong companies register on 7 December 2018. The Plaintiffs accept that they cannot pursue judgment against Max Proper.

463.  As to the remaining corporate defendants:

(1)  The Plaintiffs submitted, and I accept, that Mr Wu at the material times controlled and beneficially owned East Hope (D8), Innovative (D10), Chavis (D16), Sinowell (D17), Chengxuan (D18), Weixiao (D19) and WB (D20). These were referred to collectively as the “Wu Entities”.

(2)  Further, the Plaintiffs submitted, and I accept, that Mr Tsang at the material times controlled and beneficially owned Supreme Well (D7), East Hope (D8), Cheer Link (D9), Innovative (D10), Worldpro (D14), Long Chart (D15), Global Flash (D23). These were referred to collectively as the “Tsang Entities”.

(3)  The Plaintiffs have not made a claim against Mr Wu and Mr Tsang for dishonest assistance. I will consider the Plaintiffs’ dishonest assistance claims against the Wu Entities and the Tsang Entities under knowing receipt in Section J below.

(4)  I will also consider the Plaintiffs’ dishonest assistance claims against Time Region (D12), Long Chart (D15) and WB (D20) under knowing receipt in Section J below.

J.  ISSUE 6: KNOWING RECEIPT

464.  The Plaintiffs’ knowing receipt claims were made against all the 23 Defendants. Nonetheless, the Plaintiffs made it clear that their claims against the primary wrongdoers (namely Mr Wu, Mr Tsang, Dr Chen and Mr Zhu) for knowing receipt are in the alternative.[19]

J1.  The Legal Principles on Knowing Receipt

465.  Liability for knowing receipt is receipt-based. It gives rise to a personal liability to account to the plaintiff for the value received by the defendant.

466.  Three requirements need to be established for a claim in knowing receipt to succeed:

(1)  a disposal of the plaintiff’s assets in breach of trust or fiduciary duty;

(2)  the beneficial receipt by the defendant of assets which are traceable as representing the assets of the plaintiff; and

(3)  knowledge on the part of the defendant that the assets he received are traceable to a breach of trust or fiduciary duty.

See El Ajou v Dollar Land Holdings Plc [1994] 2 All ER 685 at 700 (Hoffmann LJ), followed in BCCI v Akindele [2001] Ch 437 at 448B-D (Nourse LJ).

467.  As to the defendant’s knowledge, it must be such as to make it unconscionable for him to retain the benefit of the receipt: Akindele at 455E-G (Nourse LJ). This “unconscionability” test was described by Lord Burrows as “unhelpfully obfuscat[ing] the answer to the important question of whether the required knowledge for knowing receipt extends beyond actual knowledge to include constructive knowledge”: Byers v Saudi National Bank [2024] AC 1191 at [101]. However, the Akindele formulation was assumed to be correct law by Lord Neuberger NPJ in Thanakharn Kasikorn Thai Chamkat (Mahachon) v Akai Holdings Ltd (in liq) (2010) 13 HKCFAR 479 at [128].

J2.  Mr Wu, Mr Tsang and Mr Zhu

468.  When a defendant is liable as a primary wrongdoer for breach of trust or fiduciary duty, it would be practically superfluous for the plaintiff to seek to hold him liable for knowing receipt in respect of the same breach on the same facts. It is difficult to imagine why the plaintiff would wish to assume the burden of establishing the additional requirements for knowing receipt if he can already satisfy the court that the defendant has committed a breach of fiduciary duty which led to a misappropriation of assets. The Plaintiffs therefore were correct to pursue their claims for secondary liability against the primary wrongdoers in the alternative.

469.  Given that I have concluded that Mr Wu, Mr Tsang and Mr Zhu breached their respective fiduciary duties to CMED, it is unnecessary to consider their liability in knowing receipt.

J3.  Dr Chen

470.  In Section F above, I concluded that Dr Chen did not breach any fiduciary duty to CMED or CMED Tech. It is therefore necessary to consider whether Dr Chen is liable for knowing receipt.

471.  The first element of knowing receipt is to show a disposal of the plaintiff’s assets in breach of trust or fiduciary duty. From my findings above, the Plaintiffs have established that there was a disposal of the assets of CMED and CMED Tech in breach of fiduciary duties on the part of Mr Wu, Mr Tsang and Mr Zhu.

472.  The second element of knowing receipt is the beneficial receipt by the defendant of assets which are traceable as representing the assets of the plaintiff. As shown in Appendix E, Dr Chen did receive US$4.07 million which was traceable to the funds of CMED and CMED Tech.

473.  The third element of knowing receipt is to establish knowledge on the part of the defendant that the assets he received are traceable to a breach of trust or fiduciary duty. On the basis of the facts found in Section F above, I do not believe the Plaintiffs can establish this element. I do not think Dr Chen had any knowledge that the money he received was traceable to the breach of fiduciary duties so as to make it unconscionable for him to retain the benefit of the receipts.

474.  Accordingly, I find that Dr Chen is not liable in knowing receipt.

J4.  Mr Chong, Mr Hao and Ms Bi

475.  The first and second elements of knowing receipt are satisfied. I repeat what I said in Section J3 on these two elements. As shown in Appendix E, Mr Chong, Mr Hao and Ms Bi did respectively receive US$143.94 million, US$17.76 million and US$21.36 million which was traceable to the funds of CMED and CMED Tech.

476.  In Akai (above), Lord Neuberger NPJ at [135] to [137] said that in order to establish liability in knowing receipt, the recipient must have actual knowledge (or the equivalent), and that the recipient would have the relevant actual knowledge (or the equivalent) if he was dishonest.

477.  In Sections I4, I2e and I3f above, I respectively found Mr Chong, Mr Hao and Ms Bi to be dishonest. Accordingly, the third element of knowing receipt is also satisfied with respect to Mr Chong, Mr Hao and Ms Bi. The money that each of them received was traceable to the breach of fiduciary duties so as to make it unconscionable for him/her to retain the benefit of the receipts.

478.  I have considered the various points in the closing submissions on knowing receipt made on behalf of Mr Hao but do not think that any of them has merit.

(1)  Mr Hao argued because the FISH and SPR Transactions have not been set aside, they remain binding on the Plaintiffs, who therefore trace into the relevant payments. Insofar as Mr Hao relied on what Lord Nicholls said in Criterion Properties plc v Stratford UK Properties LLC [2004] 1 WLR 1846 at [4], I am not persuaded that the passage assists Mr Hao. As Lord Neuberger NPJ explained in [147] of Akai (above), the Criterion case “involved an executory contract, so a claim for knowing receipt could not arise as the contract had not been completed, and no property had changed hands”. See also Criterion at [27] (Lord Scott) and China Metal Recycling (Holdings) Ltd (in liq) v UBS AG [2021] 4 HKLRD 594 at [23] (G Lam JA). The payments received by Mr Hao were not paid pursuant to the FISH and SPR Transactions. There is no need for the Plaintiffs to set aside those transactions before they can bring a claim in knowing receipt against Mr Hao.

(2)  Mr Hao’s reliance on what Lord Goff said in Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669 at 684 also does not assist. On that page, Lord Goff referred to the question of whether an equitable proprietary claim in the form of a trust should be made available to a plaintiff bank where the transaction has been held to be void. I fail to see how the passage provides any support for Mr Hao’s submission that the relevant transaction needs to be first set aside before the Plaintiffs can trace their assets.

(3)  Mr Hao further submitted that he was merely acting as Mr Chen’s agent to implement the BBE Sale and the BJ Co Arrangement and the Plaintiffs could not prove beneficial receipt of the relevant payments by Mr Hao. I also reject this submission. As mentioned above, whenever Mr Hao in his witness statement referred to the “instructions” he received, he would refer to “Mr Chen and/or the employees at Beijing Yimin”. On such ambiguous evidence, I decline to find that Mr Hao was merely acting as Mr Chen’s agent at the material times.

479.  I conclude that subject to any defences raised by them, each of Mr Chong, Mr Hao and Ms Bi is liable in knowing receipt.

J5.  Ms JY Bi

480.  The first and second elements of knowing receipt are satisfied. I repeat what I said in Section J3 on these two elements.

481.  However, the third element is not satisfied. I repeat what I said in Section I5. There was insufficient evidence to suggest that she had knowledge that the US$2.5 million she received between 2007 and November 2008 were traceable to a breach of fiduciary duty so as to make it unconscionable for her to retain the benefit of the receipts. Ms JY Bi is not in my view liable for knowing receipt.

J6.  Corporate Defendants

482.  The first and second elements of knowing receipt are satisfied. I repeat what I said in Section J3 on these two elements. As shown in Appendix E, the following sums were received by each of the corporate defendants which was traceable to the funds of CMED and CMED Tech:

(1)  Supreme Well (D7): US$521.8 million;

(2)  East Hope (D8): US$231.5 million;

(3)  Cheer Link (D9): US$60 million;

(4)  Innovative (D10): US$66.04 million;

(5)  Time Region (D12): US$10 million;

(6)  Worldpro (D14): US$26.55 million;

(7)  Long Chart (D15): US$8.1 million;

(8)  Chavis (D16): US$1.4 million;

(9)  Sinowell (D17): US$70.02 million;

(10)  Chengxuan (D18): US$64.07 million;

(11)  Weixiao (D19): US$0.05 million;

(12)  WB (D20): US$0.5 million;

(13)  Global Flash (D23): US$2.82 million.

483.  As mentioned in Section I6, these corporate defendants were at the material times controlled and beneficially owned by different individuals (Mr Wu, Mr Tsang, Mr Hao and Ms Bi). I accept the Plaintiffs’ submissions that each of these individual’s knowledge and suspicions should be attributed to his or her companies for the purpose of the Plaintiffs’ claims in dishonest assistance and knowing receipt. As to Mr Wu and Mr Tsang, each of them clearly knew and believed that the payments received by them personally and by their companies were misappropriated funds from CMED and CMED Tech. There was no legitimate reason for Mr Wu and Mr Tsang to receive the relevant payments.

484.  I repeat what I found in Sections I2 and I3 above in relation to Mr Hao and Ms Bi’s relevant state of mind. I find that each of their respective companies (Time Region, Long Chart and WB) also had a dishonest state of mind and received the relevant payments with such a state of mind. The money that each of the companies received was traceable to the breach of fiduciary duties so as to make it unconscionable for it to retain the benefit of the receipts.

485.  Given that Dr Chen did not have the sufficient knowledge to be attributed to Dynamic Sense, the Plaintiffs’ knowing receipt claim cannot succeed as against Dynamic Sense.

486.  I conclude that (1) each of the Wu Entities is liable for knowing receipt and dishonest assistance, (2) each of the Tsang Entities is liable for knowing receipt and dishonest assistance, (3) each of Time Region, Long Chart and WB is liable for knowing receipt and dishonest assistance, and (4) Dynamic Sense is not liable for knowing receipt.

K.  ISSUE 7: UNJUST ENRICHMENT

487.  The Plaintiffs’ unjust enrichment claims were made against all the 23 Defendants. As I understand it, the Plaintiffs’ unjust enrichment claims were only confined to the receipts received by each of the individuals personally, and would not extend to the receipts of their companies.

488.  Money had and received is a common law claim derived from the old form of action called indebitatus assumpsit, and is applicable where the plaintiff wishes to recover money which has been paid to the defendant. It is now regarded as a common law restitutionary claim based on unjust enrichment: Westdeutsche Bank v Islington LBC [1996] AC 669 at 683B (Lord Goff) & 710E-G (Lord Browne-Wilkinson); Cheong Shing Ltd v Yu Kwan (2008) 11 HKCFAR 594 at §54 (Litton PJ).

489.  An unjust enrichment claim and a knowing receipt claim are conceptually different. A common law liability in restitution depends on the defendant having been unjustly enriched by the receipt. On the other hand, the liability based on knowing receipt is essentially a custodial liability imposed on the defendant because he has sufficient knowledge to affect his conscience. Therefore, knowledge of the facts giving rise to a right of restitution is generally irrelevant in a claim for unjust enrichment. See DD Growth Premium 2X Fund v RMF Market Neutral Strategies [2018] Bus LR 1595 at [58] (Lord Sumption and Lord Briggs).

K1.  The Legal Principles on Unjust Enrichment

490.  It is well-established that the following framework is adopted in determining the validity of a claim in unjust enrichment:

(1)  Was the defendant enriched?

(2)  Was the enrichment at the plaintiff’s expense?

(3)  Was the enrichment unjust?

(4)  Are any of the defences applicable?

See Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79 at [67] (Ribeiro PJ).

491.  If the first three matters are established by the plaintiff, it is then for the defendant to prove that there is a defence: Samsoondar v Capital Insurance Co Ltd [2021] 2 All ER 1105 at [18] (Lord Burrows).

492.  The relevant legal principles on the question of whether a defendant’s enrichment is at the expense of the plaintiff are set out in the judgment of Lord Reed JSC (with whom Lord Neuberger PSC, Lord Mance, Lord Carnwath and Lord Hodge JJSC agreed) in Investment Trust Companies v Revenue & Customs Commissioners [2018] AC 275 (“ITC”). They may be summarised as follows:

(1)  The reversal of unjust enrichment is premised on the defendant having received a benefit from the plaintiff such that the plaintiff has incurred a loss as a result of the provision of the benefit (ITC at [43]).

(2)  As a general rule, the plaintiff must have directly provided a benefit to the defendant in order for the defendant’s enrichment to be at the expense of the plaintiff (ITC at [46] & [50]).

(3)  There are a number of situations in which the plaintiff has not directly provided a benefit to the defendant, but the law treats the defendant’s enrichment as being equivalent to a direct transfer of the benefit from the plaintiff to the defendant. Such situations include (a) where an agent is interposed between the plaintiff and the defendant; (b) where the right to restitution is assigned; (c) where an intervening transaction itself is a sham; (d) where a series of co-ordinated transactions are treated in substance as a single transaction; (e) where the defendant receives property from a third party into which the plaintiff can trace an interest (ITC at [47], [48] & 50]).

(4)  There is an exception to the general rule mentioned above. Where the plaintiff discharges a debt owed by the defendant to a third party, the remedy of subrogation may apply to reverse or prevent unjust enrichment (ITC at [49]).

(5)  On the other hand, where the defendant has not received a benefit directly from the plaintiff and none of the above situations is applicable, it is generally difficult to maintain that the defendant has been enriched at the plaintiff’s expense (ITC at [51]).

K2.  Mr Wu, Mr Tsang and Mr Zhu

493.  Similar to their position in relation to the claims for knowing receipt, the Plaintiffs’ claims against the primary wrongdoers in unjust enrichment are in the alternative. Given that I have concluded that Mr Wu, Mr Tsang and Mr Zhu breached their respective fiduciary duties to CMED, it is unnecessary to consider their liability in unjust enrichment.

K3.  Dr Chen

494.  Enrichment requires the obtaining of a benefit. The questions of whether the defendant was enriched, and if so, to what extent, are tested at the date of receipt: Benedetti v Sawiris [2014] AC 938 at §14 (Lord Clarke JSC).

495.  Money is the universal medium of exchange and by its receipt, the recipient is inevitably benefited: BP Exploration Co (Libya) Ltd v Hunt (No 2) [1979] 1 WLR 783 at 799F (Robert Goff J). For the purpose of determining whether a benefit would constitute enrichment, the credit of one’s bank account is treated as an incontrovertible benefit because it is similar to a receipt of money: A Burrows, A Restatement of the English Law of Unjust Enrichment (2012) pp 41-42.

496.  As demonstrated by Annexure E, Dr Chen was enriched by his receipt of US$4.07 million.

497.  Although CMED and CMED Tech did not pay money directly to Dr Chen, upon the tracing exercise carried out by the Plaintiffs which I have found to be proper, I am satisfied that US$4.07 million which Dr Chen received was the traceable proceeds of CMED and CMED Tech’s money. It seems to me that the US$4.07 million received by Dr Chen was at the expense of CMED and CMED Tech.

498.  In a claim for unjust enrichment against an indirect recipient for the value of the plaintiff’s asset or its traceable proceeds, the defendant’s enrichment may be unjust on the ground of want of authority: Relfo Ltd (in liquidation) v Varsani [2012] EWHC 2168 (Ch) at [88] (Sales J) (affirmed by the English Court of Appeal [2015] 1 BCLC 14); Torbay Holdings Ltd v Napier [2015] NZHC 2477 at [167]-[168] (Woolford J); Great Investments Ltd v Warner (2016) 243 FCR 516 at [60], [67] & [68] (Jagot, Edelman and Moshinsky JJ); High Commissioner for Pakistan in the United Kingdom v Prince Muffakham Jah [2020] Ch 421 at [271] (M Smith J); Goff & Jones: The Law of Unjust Enrichment (10^th ed 2022) at §§8-01, 8-02; Lipkin Gorman v Karpnale Ltd [1991] AC 548 at 572B-F (Lord Goff). See also BCPE Diamond Holdco SRL v Sunwe Plastic HK Ltd [2024] HKCFI 3370 at [22]-[29] where these authorities were discussed.

499.  In my view, given that the funds received by Dr Chen were the traceable proceeds of CMED and CMED Tech’s money which were misappropriated without proper authority, Dr Chen’s enrichment of US$4.06 million was unjust.

500.  Dr Chen did not put forward any restitutionary defence to the Plaintiffs’ claim in unjust enrichment.

501.  I conclude that subject to any defence of limitation, Dr Chen is liable for unjust enrichment for US$4.07 million.

K4.  Mr Chong, Mr Hao and Ms Bi

502.  The analyses in Section K3 are equally applicable to the respective unjust enrichment claim against Mr Chong for US$143.94 million, Mr Hao for US$700,000 and Ms Bi for US$21.36 million.

503.  Mr Chong has pleaded the defence of change of position by asserting that he had transferred away all of the payments and had “changed in position in good faith”. No evidence was given by Mr Chong and I am not satisfied that he was in good faith when transferring away all the payments. I reject his change of position defence.

504.  Mr Hao has pleaded the defences of ministerial receipt and change of position. For ministerial receipt, Mr Hao pleaded that he paid US$700,000 “acting on the instructions of Mr Chen Shujun and pursuant to the BJ Co Arrangement”. In addition, he pleaded that he would not have paid over US$700,000 but for his receipt of the same and therefore changed his position in good faith. For the reasons below, I reject both of these defences.

(1)  It has been said to be very difficult to state what the present law is on agency as a defence (or the defence of “ministerial receipt”). There are two versions of the defence. The first version is that a defendant has a defence simply by reason of obtaining the benefit as an agent. The second version is that the agent has a defence provided (a) he has transferred the benefit to the principal by payment over or something equivalent and (b) it has done so without notice of the plaintiff’s right to restitution. See A Burrows, A Restatement of the English Law of Unjust Enrichment (2012) at pp 124‑125. The second version has been said to represent the “predominant view”from the authorities: A Burrows, The Law of Restitution (3^rd ed, 2011) p 561.

(2)  In Zhang Kan v SPH (Hong Kong) International Trading Co Ltd [2023] 4 HKLRD 544, G Lam JA at [24] did not think it was necessary in that case to express any view on which version of the defence should be preferred. Be that as it may, on either version of the defence, it is uncontroversial that there has to be a principal and agent relationship.

(3)  I am not satisfied that when Mr Hao made the payment of US$700,000 on 27 February 2008, he was acting as the agent for Mr Chen. As mentioned in Section J4 above, the evidence in Mr Hao’s witness statement on the alleged agency relationship between Mr Hao and Mr Chen was couched in ambiguous terms. I decline to find that Mr Hao was acting as Mr Chen’s agent at the material times.

(4)  To establish the change of position defence, the defendant must prove (a) that there was a causative link between the receipt of the benefit and his/her change of position, so that but for the receipt of the benefit, his/her position would not have changed, (b) its position has changed in circumstances which make it inequitable for him/her to be required to make restitution to the plaintiff and (c) he changed his position in good faith: Zhang Kan v SPH (Hong Kong) International Trading Co Ltd [2023] 4 HKLRD 544 at [28] (Godfrey Lam JA).

(5)  Given that I have found Mr Hao to have “blind-eye knowledge” and dishonest in both the BBE Sale and the BJ Co Arrangement, Mr Hao could not be acting in good faith when paying over the US$700,000 to Max Proper.

505.  Ms Bi has not pleaded any restitutionary defence to the Plaintiffs’ claim in unjust enrichment.

506.  I conclude that subject to any defence of limitation, each of Mr Chong, Mr Hao and Ms Bi is liable for unjust enrichment.

K5.  Ms JY Bi

507.  The analyses in Section K3 are equally applicable to the unjust enrichment claim against Ms JY Bi for US$2.5 million. I conclude that Ms JY Bi is liable for unjust enrichment for US$2.5 million.

K6.  Corporate Defendants

508.  The analyses in Section K3 are equally applicable to the unjust enrichment claims against each of the corporate defendants. I conclude that each of Supreme Well, East Hope, Cheer Link, Innovative, Dynamic Sense, Time Region, Worldpro, Long Chart, Chavis, Sinowell, Chengxuan, Weixiao, WB, and Global Flash is liable for unjust enrichment.

L.  ISSUE 8: TIME BAR

509.  The only Defendants who have referred to a time-bar defence are (1) Mr Tsang and Mr Chong, who were absent at the trial, and (2) Dr Chen, Mr Hao and Ms Bi, who were present at the trial. It is therefore only necessary to consider if the Plaintiffs’ claims against each of Mr Tsang, Dr Chen, Mr Chong, Mr Hao and Ms Bi are time-barred.

L1.  Claims against Mr Tsang

510.  As found above, the Plaintiffs have established their causes of action against Mr Tsang in breach of fiduciary duties, unlawful means conspiracy and fraudulent trading.

511.  In his Amended Defence, Mr Tsang did not in fact put forward any positive limitation defence against the Plaintiffs’ causes of action. The pleas in the section headed “Limitation of Actions” merely sought to not admit the Plaintiffs’ plea that s.26(1) of the Limitation Ordinance (Cap 347) would operate so as to postpone the limitation period in respect of their claims.[20]

512.  In these circumstances, it is only necessary for me to mention why I do not think the Plaintiffs’ claim for breach of fiduciary duties against Mr Tsang is subject to a 6-year limitation period.

513.  Directors owe fiduciary duties to the company and a breach of fiduciary duty involving a misappropriation of the company’s assets is treated as a breach of trust: Burnden Holdings (UK) Ltd v Fielding [2018] AC 857 at [11] (Lord Briggs JSC). For the purposes of limitation periods, a 6-year limitation period under s.20(2) of the Limitation Ordinance generally applies to a claim for breach of fiduciary duties directly or by analogy: Gwembe Valley Development Co Ltd v Koshy (No 3) [2004] 1 BCLC 131 at [111] (Mummery LJ). However, the 6-year limitation period may not apply or may be postponed if the plaintiff can bring himself within one of the other provisions in the Limitation Ordinance.

514.  S.20(1)(a) of the Limitation Ordinance disapplies the normal 6-year limitation period and applies where there is “fraud or fraudulent breach of trust to which the trustee was party or privy” in an “action by a beneficiary under a trust”.[21]

515.  S.20 of the Limitation Ordinance relevantly provides:

“(1) No period of limitation prescribed by this Ordinance shall apply to action by a beneficiary under a trust, being an action -

(a) in respect of any fraud or fraudulent breach of trust to which the trustee was party or privy;

(b) to recover from the trustee trust property or the proceeds thereof in the possession of the trustee, or previously received by the trustee and converted to his use.

(2) Subject as aforesaid, an action by a beneficiary to recover trust property or in respect of any breach of trust, not being an action for which a period of limitation is prescribed by any other provision of this Ordinance, shall not be brought after the expiration of 6 years from the date on which the right of action accrued …”

516.  For the purpose of s.20 of the Limitation Ordinance,[22]

(1)  persons[23] who, without any express trust, have assumed fiduciary obligations in relation to the trust property (e.g. purchaser on behalf of another, trustee de son tort, company director or agent holding the property for a trustee) are treated, for the purpose of s.20(1), in the same way as express trustees, and no limitation period applies to their fraudulent breaches of trust or to the recovery of trust property from them: Peconic Industrial Development Ltd v Lau Kwok Fai (2009) 12 HKCFAR 139 at [19] (Lord Hoffmann NPJ); Hui Chun Ping v Hui Kau Mo (2024) 27 HKCFAR 634 at [20] & [21] (Lord Hoffmann NPJ);

(2)  the 6-year limitation period in s.20(2) is intended “apart from those specified in section 20(1)”: Hui v Hui (above) at [37] (Lord Hoffmann NPJ).

517.  Accordingly, in an action brought by the company against its director for fraudulently breaching his fiduciary duties, the ordinary 6-year limitation period is disapplied pursuant to s.20(1)(a) of the Limitation Ordinance.

518.  As found in Section F11 above, Mr Tsang had fraudulently breached his fiduciary duties owed to CMED and CMED Tech. Accordingly, the normal 6-year limitation period is not applicable to the claims of breaches of fiduciary duties brought by CMED and CMED Tech.

L2.  Claims against Mr Chong

519.  As found above, the Plaintiffs have established their causes of action against Mr Chong in conspiracy, fraudulent trading, dishonest assistance, knowing receipt and unjust enrichment.

520.  In his Amended Defence, Mr Chong only pleaded a defence on limitation to contend that the Plaintiffs’ claims in conspiracy, dishonest assistance, knowing receipt and unjust enrichment are time-barred under ss.4(1) and 4(2) of the Limitation Ordinance. He did not plead that the fraudulent trading claim is time-barred.

521.  S.26 of the Limitation Ordinance relevantly provides:

“(1) Subject to subsection (4), where in the case of any action for which a period of limitation is prescribed by this Ordinance, either—

(a) the action is based upon the fraud of the defendant;

(b) any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant; or

(c) the action is for relief from the consequences of a mistake,

 the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.

(2) References in subsection (1) to the defendant include references to the defendant’s agent and to any person through whom the defendant claims and his agent.”

522.  I first consider whether s.26(1)(a) of the Limitation Ordinance applies to postpone the limitation period of the Plaintiffs’ claims.

523.  For the purpose of s.26(1)(a), an action is considered to be based upon the fraud of the defendant if fraud is a “necessary allegation in order to constitute the cause of action”: Beaman v ARTS Ltd [1949] 1 KB 550 at 558 (Lord Greene MR).

524.  To determine whether fraud is a necessary allegation to constitute the cause of action, it is necessary to examine how the fraud allegation is pleaded and proved by the plaintiff on the particular facts of his case. Therefore, for a claim in unlawful means conspiracy, whether a plaintiff can successfully postpone the limitation period under s.26(1)(a) may depend on how he pleads and proves the particular facts to support the conspiracy claim: China Everbright – IHD Pacific Limited v Ch’ng Poh (unreported, HCA 12837/1995, 20 January 2000) p.7 (Yuen J) (where fraud was not one of the unlawful means constituting the conspiracy cause of action); Galsworthy v Liu Por[2019] HKCFI 2397 at [399]-[400] (M Ng J) (where fraud was a major aspect of the unlawful means constituting the cause of action of conspiracy); Sunni International Limited (in liq) v Kao Wai Ho Francis [2025] HKCFI 3398 at [371]-[374] (P Ng J) (where s.26(1)(a) was held to be applicable to postpone the limitation period for the unlawful means conspiracy claim).

525.  Similarly, for a claim in knowing receipt, depending on how the plaintiff pleads and proves the defendant’s state of mind or knowledge in the particular context of the case which may ultimately affect the question of whether it would be unconscionable for him to retain the benefit of the receipt, the limitation period may be postponed under s.26(1)(a): China Metal Recycling (Holdings) Ltd (in liq) v UBS AG [2021] 4 HKLRD 594 at [38]-[40] (G Lam JA); Sunni (above) at [375]-[382] (P Ng J). In my view, this is consistent with Lord Neuberger PSC’s observation made in Williams v Central Bank of Nigeria [2014] AC 1189 at [119] in relation to the postponement of a knowing receipt limitation period under the UK counterpart of s.26(1)(a) of the Limitation Ordinance. The learned editors of Snell’s Equity (35^th ed, 2025) at §30-089 are also of the view that “[in] some cases of knowing receipt … the claimant may be able to invoke this exception [in LA 1980 s.32(1)(a)][24] to postpone the commencement of the six years”.

526.  Ultimately, it is a matter of seeing whether the particular facts of the case fall within the wording and intendment of s.26(1)(a) of the Limitation Ordinance.

527.  I now examine whether each of the 4 causes of action made by the Plaintiffs against Mr Chong is based on his fraud on the particular facts of this case as found above.

528.  Unlawful means conspiracy:

(1)  Unlawful means conspiracy is a tort. Therefore, the limitation period for a claim for conspiracy is ordinarily 6 years pursuant to s.4(1)(a) of the Limitation Ordinance.

(2)  As found above, the unlawful acts for the purpose of the Plaintiffs’ unlawful means conspiracy claim include acts to deceive or defraud CMED and CMED Tech. Mr Chong’s involvement in the conspiracy also involved him forging signatures in various corporate documents. The Plaintiffs’ claim for unlawful means conspiracy against Mr Chong is in my view based upon the fraud of Mr Chong.

529.  Dishonest assistance:

(1)  As explained by Lord Hoffmann N PJ in Hui v Hui (above) at [37], s.20(2) of the Limitation Ordinance creates a 6-year limitation period for all claims for breach of trust, express or constructive, apart from those specified in s.20(1). Persons liable for dishonest assistance are someone who have “exposed themselves to equitable remedies by virtue of their participation in the unlawful misapplication of trust assets”, and have been referred to as “constructive trustees” as a shorthand for persons “required by equity to account as if they were trustees or fiduciaries”: Williams v Central Bank of Nigeria (above) at [9] (Lord Sumption JSC). Therefore, a 6‑year limitation period is prima facie applicable to a claim for dishonest assistance.

(2)  It should not be controversial that fraud is a necessary allegation in order to constitute the cause of action in dishonest assistance for the purpose of s.26(1)(a): see e.g. Sunni (above) at [370] (P Ng J). In any event, on the basis of the findings made above in Section I4, Mr Chong was clearly dishonest when he assisted in the breaches of fiduciary duties of Mr Wu and Mr Tsang in misappropriating funds from CMED and CMED Tech. The Plaintiffs’ claim for dishonest assistance against Mr Chong is plainly based upon his fraud.

530.  Knowing receipt:

(1)  Similarly, persons liable for knowing receipt are required by equity to account as if they were trustees or fiduciaries: Williams v Central Bank of Nigeria (above) at [9]. Accordingly, a 6-year limitation period is prima facie applicable to a claim for knowing receipt.

(2)  On the particular facts of this case, the Plaintiffs’ claim against Mr Chong in knowing receipt is based on Mr Chong’s dishonest receipts of the relevant funds (see Section J4 above). Therefore, I am satisfied that the Plaintiffs’ claim for knowing receipt against Mr Chong is based upon the fraud of Mr Chong as found by the court in this trial.

531.  Unjust enrichment

(1)  It has been held that the words “action founded on simple contract” in s.5 of the Limitation Act 1980 (equivalent to s.4(1)(a) of the Limitation Ordinance) “are sufficiently broad to cover an action for money had and received”: Kleinwort Benson Ltd v Sandwell LBC [1994] 4 All ER 890 at 942-943 (Hobhouse J). Therefore, a common law claim in unjust enrichment is generally barred after 6 years.

(2)  The Plaintiffs’ claim for unjust enrichment against Mr Chong is made on the basis that Mr Chong has received traceable proceeds of CMED and CMED Tech’s money and Mr Chong’s enrichment is unjust on the ground of want of authority of CMED and CMED Tech. Even though I have found Mr Chong to be dishonest in receiving the relevant payments, his dishonesty has no material relevance to any elements of the Plaintiffs’ unjust enrichment claim against him. In these circumstances, I do not see how the Plaintiffs’ claim for unjust enrichment is based upon the fraud of Mr Chong.

532.  Having concluded that the Plaintiffs’ claims for unlawful means conspiracy, dishonest assistance and knowing receipt against Mr Chong are based on his fraud on the particular facts of this case, I proceed to consider if the Plaintiffs have established that they could not have discovered the fraud with reasonable diligence under s.26(1)(a).

533.  The burden is on the plaintiff to establish that he could not have discovered the fraud without exceptional measure which he could not reasonably be expected to take: Paragon Finance plc v DB Thakerar & Co [1999] 1 All ER 400 at 418b-c (Millett LJ).

534.  On 29 November 2012, Mr Borrelli and Ms Yuen were appointed jointly and severally as the provisional liquidators of CMED (“Provisional Liquidators”). Upon their appointment, the Provisional Liquidators encountered substantial obstacles in obtaining information from the former management of CMED and its former service providers regarding the affairs of the CMED Group.

535.  On 27 February 2013, the Provisional Liquidators issued a summons to seek documents from Mr Tsang and examine him on matters relating to CMED pursuant to s.221 of Cap 32. Mr Tsang obstructed the investigations by vigorously opposing the s.221 application.

536.  On 23 or 24 December 2013, the Provisional Liquidators obtained (under subpoena in the US) the banking documents of an account held by Supreme Well with BEAHK. These documents disclosed to the Provisional Liquidators for the first time that Mr Tsang was the sole authorised signatory of the Supreme Well BEAHK Account, in which a number of payments for the FISH and SPR Transactions were paid. It was only at that stage that the Provisional Liquidators discovered that Mr Tsang was on both sides of the FISH and SPR Transactions representing both the CMED Group and Supreme Well.

537.  It was not until the Provisional Liquidators discovered that Mr Tsang was on both sides of the FISH and SPR Transactions that they could have learned that each of the Defendants (including Mr Chong, Mr Hao and Ms Bi) had engaged in the conduct which forms the basis of the Plaintiffs’ actions in fraud against them.

538.  In these circumstances, I find that the Plaintiffs could not with reasonable diligence have discovered the fraud of Mr Chong before 23 December 2013. The 1^st and 2^nd Plaintiffs are CMED and CMED Tech in liquidation. For the purposes of limitation, they should not be taken as the same as CMED and CMED Tech while they were in active business under their respective former management. As Males LJ said in OT Computers Ltd (in liq) v Infineon Technologies AG [2021] QB 1183 at [59], “a claimant in administration or liquidation which is no longer carrying on business is not in a similar position to claimants which do continue actively in business and it is unrealistic to suggest otherwise”.[25]

539.  Accordingly, I hold that the limitation period for Plaintiffs’ claims in unlawful means conspiracy, dishonest assistance and knowing receipt against Mr Chong would not begin to run until 23 December 2013 at the earliest pursuant to s.26(1)(a). Given that the Plaintiffs’ claims against Mr Chong in these 3 causes of action were commenced on 23 December 2016 when the writ in HCA 3391/2016 was issued, the 3 claims are not time-barred. However, the limitation period for the Plaintiffs’ claim against Mr Chong for unjust enrichment cannot be postponed under s.26(1)(a) of the Limitation Ordinance.

540.  The Plaintiffs also relied on s.26(1)(b) to seek to postpone the limitation period by contending that Mr Chong had deliberately concealed facts relevant to the Plaintiffs’ right of action.

541.  In relation to s.26(1)(b), it is sufficient for present purposes to refer to the following:

(1)  The verb “to conceal” means “to keep something secret, either by taking active steps to hide it, or by failing to disclose it”. The word “concealed” encompasses “both active concealment and concealment by non-disclosure”. See Potter v Canada Square Operations Ltd [2024] AC 679 at [65] & [69] (Lord Reed PSC).

(2)  In order for a fact to be “deliberately concealed”, the concealment must be intentional, whether effected by positive steps to conceal or the withholding of information: Potter (above) at [70] (Lord Reed PSC).

(3)  “[The] requisite proof of intention might be quite difficult to provide. The standard of proof would be the usual balance of probabilities standard and inferences could of course be drawn from suitable primary facts but, none the less, proof of intention, particularly where an omission rather than a positive act is relied on, is often very difficult”: Cave v Robison Jarvis & Rolf [2003] 1 AC 384 at [60] (Lord Scott) (applied by Lord Reed PSC in Potter (above) at [77]).

542.  Given my findings on Mr Chong’s involvement in the fraud relating to the FISH and SPR Transactions and his active involvement in the conspiracy to defraud CMED and CMED Tech, I am prepared to infer from those facts that Mr Chong intentionally took steps to keep the true ownership of Supreme Well secret from CMED and CMED Tech at the material times, which was plainly a fact relevant to the Plaintiffs’ right of action against Mr Chong.

543.  I repeat what I said about how the Plaintiffs could not with reasonable diligence have discovered the fraud of Mr Chong before 23 December 2013. For the same reasons, I find that the Plaintiffs could not with reasonable diligence have discovered the concealment of Mr Chong before 23 December 2013. Accordingly, I hold that the limitation period for the Plaintiffs’ claims against Mr Chong for unlawful means conspiracy, dishonest assistance, knowing receipt and unjust enrichment would not begin to run under s.26(1)(b) of the Limitation Ordinance until 23 December 2013 at the earliest.

544.  To conclude, I reject Mr Chong’s limitation defence.

L3.  Claims against Dr Chen

545.  As found above, the Plaintiffs have established their unjust enrichment claim against Dr Chen.

546.  Dr Chen relied on ss.4(1) and 20(2) of the Limitation Ordinance as a defence.

547.  I repeat the analyses in Section L2 above in relation to the Plaintiffs’ claim in unjust enrichment against Mr Chong. The Plaintiffs cannot rely on s.26(1)(a) of the Limitation Ordinance to postpone the limitation period of their unjust enrichment claim against Dr Chen.

548.  The Plaintiffs also relied on s.26(1)(b) to contend that Dr Chen had deliberately concealed facts relevant to the Plaintiffs’ right of action. However, as set out in Sections F5b and F6b above, I found that Dr Chen did not conceal from MoFo the relevant information in the due diligence exercise. All of my findings on deliberate concealment made above were in relation to those made by Mr Wu, Mr Tsang and Mr Zhu. On the materials before the court, I am not satisfied that Dr Chen had deliberately concealed from the Plaintiffs any facts for the purpose of s.26(1)(b) of the Limitation Ordinance. Accordingly, there is no basis to postpone the limitation period of the Plaintiffs’ claim in unjust enrichment against Dr Chen under s.26(1)(b).

549.  For the above reasons, Dr Chen’s limitation defence succeeds as against the Plaintiffs’ claim in unjust enrichment against him in HCA 3391/2016 insofar as that claim involves receipts of payments made before 23 December 2010 (given that the writ in HCA 3391/2016 was filed on 23 December 2016).

550.  According to section B.3 of Annexure 58 to Mr Borrelli’s supplemental witness statement, out of the total of US$4.07 million, there was only one payment that was received by Dr Chen after 23 December 2010. That was the payment of US$1.93 million received in Dr Chen’s BOCHK Account on 13 December 2011.

551.  In other words, in the context of HCA 3391/2016, the Plaintiffs can only seek to recover from Dr Chen the sum of US$1.93 million and their claims for the rest are time-barred.

552.  However, that is not the end of the matter. Apart from HCA 3391/2016, there is also an earlier writ (in HCA 1417/2013) in these consolidated proceedings. That writ was filed on 1 August 2013 against Mr Wu, Mr Tsang, Dr Chen, Mr Zhu and Supreme Well. Further, in the HCA 1417/2013 writ, the Plaintiffs referred to four specific payments, namely the US$22 million paid on 2 August 2007, the US$20 million paid on 11 February 2008, the US$47 million paid on 17 October 2008 and US$100.5 million paid on 4 December 2008.

553.  The Plaintiffs submitted that the amounts paid to Dr Chen which were derived from these 4 payments would not be time-barred if they were received within 6 years prior to 1 August 2013. As section B.3 of Annexure 58 to Mr Borrelli’s supplemental statement demonstrates, all the payments totalling US$4.07 million were received by Dr Chen within 6 years prior to 1 August 2013.

554.  For these reasons, I conclude that the Plaintiffs’ claim for US$4.07 million in unjust enrichment against Dr Chen is not time-barred.

L4.  Claims against Mr Hao

555.  As found above, the Plaintiffs have established their causes of action against Mr Hao in dishonest assistance, knowing receipt and unjust enrichment.

556.  Mr Hao relied on ss.4(1) and 20(2) of the Limitation Ordinance as a defence.

557.  I repeat Section L2 above in relation to the principles relating to ss.26(1)(a) and 26(1)(b), the analyses of the Plaintiffs’ claims in dishonest assistance, knowing receipt and unjust enrichment against Mr Chong, and the Plaintiffs’ case on their discovery of the fraud. For the same reasons, I find that the Plaintiffs could not with reasonable diligence have discovered the fraud of Mr Hao before 23 December 2013.

558.  Accordingly, the Plaintiffs can successfully rely on s.26(1)(a) to postpone the limitation period of their claims in dishonest assistance and knowing receipt against Mr Hao. However, they cannot rely on s.26(1)(a) to postpone the limitation period of their unjust enrichment claim against Mr Hao.

559.  In particular, I reject the submissions made on behalf of Mr Hao that the Plaintiffs failed to discharge their burden to prove that they could not with reasonable diligence have discovered the fraud by 23 December 2013.

(1)  It is necessary to mention the context of those submissions. As recorded in my decision made on the third day of the trial ([2025] HKCFI 4997), I ruled against Mr Hao when an unpleaded case was advanced in Mr Hao’s opening submissions to contend that the Plaintiffs could with reasonable diligence have discovered the fraud of Mr Hao earlier than 23 December 2013.

(2)  In closing, submissions were advanced on behalf of Mr Hao to argue that there were evidential gaps between the FISH and SPR Transactions and the date of 23 December 2013, and that there were aspects in the evidence of Mr Capener and Dr Crum which would suggest that they did not review certain documents with reasonable diligence. In my view, these arguments went beyond merely testing the Plaintiffs’ case and constituted advancing a positive case in substance to contend that the Plaintiffs could have discovered the fraud before 23 December 2013. These arguments should not have been made in the light of my earlier ruling.

(3)  In any event, having considered Mr Hao’s points, they are not sufficient to affect my conclusion that the Plaintiffs could not with reasonable diligence have discovered the fraud of Mr Hao before 23 December 2013.

560.  The Plaintiffs also relied on s.26(1)(b) to contend that Mr Hao had deliberately concealed facts relevant to the Plaintiffs’ right of action. In particular, the Plaintiffs referred to Mr Hao’s incorporation of various companies, his use of the companies to open and control bank accounts, and his use of the bank accounts to receive and transfer funds originated from CMED. In my view, these acts on their own are not sufficient for me to infer that Mr Hao at the time intended to keep anything secret from CMED and CMED Tech. I do not consider there are sufficient primary facts to enable me to infer that Mr Hao deliberately concealed any facts from the Plaintiffs at the material times.

561.  I conclude that the limitation period of the Plaintiffs’ claims in dishonest assistance and knowing receipt has been extended under s.26(1)(a) of the Limitation Ordinance so that the claims are not time‑barred. Mr Hao’s limitation defence only succeeds in relation to the Plaintiffs’ unjust enrichment claim.

L5.  Claims against Ms Bi

562.  As found above, the Plaintiffs have established their causes of action against Ms Bi in dishonest assistance, knowing receipt and unjust enrichment.

563.  Ms Bi relied on s.20(2) of the Limitation Ordinance and denied the effect of s.26(1) in her defence. In closing, Ms Bi only submitted that the Plaintiffs are put to strict proof on ss.26(1)(a) and 26(1)(b). No other submission was made on her limitation defence.

564.  I repeat Section L2 above in relation to the principles relating to ss.26(1)(a) and 26(1)(b), the analyses of the Plaintiffs’ claims in dishonest assistance, knowing receipt and unjust enrichment against Mr Chong, and the Plaintiffs’ case on their discovery of the fraud. For the same reasons, I find that the Plaintiffs could not with reasonable diligence have discovered the fraud of Ms Bi before 23 December 2013.

565.  Accordingly, the Plaintiffs can successfully rely on s.26(1)(a) to postpone the limitation period of their claims in dishonest assistance and knowing receipt against Ms Bi. However, they cannot rely on s.26(1)(a) to postpone the limitation period of their unjust enrichment claim against Ms Bi.

566.  The Plaintiffs also relied on s.26(1)(b) to contend that Ms Bi had deliberately concealed facts relevant to the Plaintiffs’ right of action. They specifically referred to Ms Bi’s evidence to explain the purpose of the substantial payments received by her from Mr Wu and other companies, downplay her relationship with Mr Wu (including in particular the evidence of their alleged separation in 2001), downplay the extent of her sharing of joint assets with Mr Wu, and downplay her involvement with the business of the CMED Group, all of which I have disbelieved. On a balance of probabilities, I infer from the primary facts, and the fact that she gave several untruthful accounts on various events material to the Plaintiffs’ claims, that she had intentionally kept the reasons for her receipts of the relevant payments secret from the Plaintiffs. I find that she had deliberately concealed facts relevant to the Plaintiffs’ right of action.

567.  I repeat what I said about how the Plaintiffs could not with reasonable diligence have discovered the fraud of Mr Chong before 23 December 2013. For the same reasons, I find that the Plaintiffs could not with reasonable diligence have discovered the concealment of Ms Bi before 23 December 2013. Accordingly, I hold that the limitation period for the Plaintiffs’ claims against Ms Bi for dishonest assistance, knowing receipt and unjust enrichment would not begin to run under s.26(1)(b) of the Limitation Ordinance until 23 December 2013 at the earliest.

568.  Ms Bi’s limitation defence is rejected.

M.  ISSUE 9: REMEDIES

569.  In their closing submissions, the Plaintiffs only sought monetary remedies against the Defendants. A table of quantum was produced showing how much each of the Defendants would need to pay if they were to be found liable. I take it that this was the result of the Plaintiffs’ election between remedies.

570.  The Plaintiffs have been found to be successful in various causes of action and are entitled to the following remedies:

(1)  Equitable compensation for breach of fiduciary duties as against each of Mr Wu, Mr Tsang and Mr Zhu for US$521.8 million.

(2)  Damages for unlawful means conspiracy as against each of Mr Wu, Mr Tsang, Mr Zhu and Mr Chong for US$521.8 million.

(3)  Damages for fraudulent trading as against each of Mr Wu, Mr Tsang, Mr Zhu and Supreme Well for US$521.8 million.

(4)  Payment to account for liability in dishonest assistance as against Mr Chong (for US$173.38 million), Mr Hao (for US$17.76 million), Supreme Well (for US$521.8 million), East Hope (for US$231.5 million), Cheer Link (for US$60 million), Innovative (for US$66.04 million), Time Region (for US$10 million), Ms Bi (for US$28.96 million), Worldpro (for US$26.55 million), Long Chart (for US$8.1 million), Chavis (for US$1.4 million), Sinowell (for US$70.02 million), Chengxuan (for US$64.07 million), Weixiao (for US$0.05 million), WB (for US$0.5 million) and Global Flash (for US$2.82 million).

(5)  Payment to account for liability in knowing receipt as against Mr Chong (for US$173.38 million), Mr Hao (for US$17.76 million), Supreme Well (for US$521.8 million), East Hope (for US$231.5 million), Cheer Link (for US$60 million), Innovative (for US$66.04 million), Time Region (for US$10 million), Ms Bi (for US$28.96 million), Worldpro (for US$26.55 million), Long Chart (for US$8.1 million), Chavis (for US$1.4 million), Sinowell (for US$70.02 million), Chengxuan (for US$64.07 million), Weixiao (for US$0.05 million), WB (for US$0.5 million) and Global Flash (for US$2.82 million).

(6)  Restitution for liability in unjust enrichment as against Dr Chen (for US$4.07 million), Mr Chong (for US$143.94 million), Supreme Well (for US$521.8 million), East Hope (for US$231.5 million), Cheer Link (for US$60 million), Innovative (for US$66.04 million), Dynamic Sense (for US$4.5 million), Time Region (for US$10 million), Ms Bi (for US$21.36 million), Worldpro (for US$26.55 million), Long Chart (for US$8.1 million), Chavis (for US$1.4 million), Sinowell (for US$70.02 million), Chengxuan (for US$64.07 million), Weixiao (for US$0.05 million), WB (for US$0.5 million), Ms JY Bi (for US$2.5 million), and Global Flash (for US$2.82 million).

571.  Although a declaration for fraudulent trading was sought in their RASOC, the Plaintiffs said nothing about it in their closing submissions. In any event, given that the Plaintiffs are entitled to full damages as against Mr Wu, Mr Tsang, Mr Zhu and Supreme Well as sought by them, it is unnecessary for any declaration to be made.

572.  Further, the Plaintiffs sought claims in knowing receipt and unjust enrichment against each of Mr Wu, Mr Tsang, Dr Chen and Mr Zhu for the salaries and other remuneration received from CMED and CMED Tech whilst they were performing their duties as directors, officers and employees. No submissions were made by the Plaintiffs to explain why such salaries and remuneration ought to be paid back to CMED and CMED Tech in full. I am not satisfied that there is in any event justification for Mr Wu, Mr Tsang and Mr Zhu to repay the entirety of their remuneration even though the court has found them to be acting dishonestly in the course of their performance of duties at the material times. I reject the Plaintiffs’ claims for salaries and remuneration against each of Mr Wu, Mr Tsang, Dr Chen and Mr Zhu.

O.  DISPOSITION

573.  I give judgment in favour of the Plaintiffs against each of the Defendants as set out in Section M above.

574.  Further, I dismiss (1) the Plaintiffs’ claims against each of Mr Wu, Mr Tsang, Dr Chen and Mr Zhu for recovery of salaries and remuneration, (2) the Plaintiffs’ claims against Dr Chen for breach of duty, unlawful means conspiracy, fraudulent trading and knowing receipt, (3) the Plaintiffs’ unjust enrichment claim against Mr Hao, (4) the Plaintiffs’ dishonest assistance and knowing receipt claims against each of Dynamic Sense and Ms JY Bi, and (5) all of the Plaintiffs’ claims against Max Proper.

575.  To compensate a successful plaintiff for being kept out of his money, the general practice in Hong Kong has, at least since 1984, been to award interest reflecting the theoretical cost to the plaintiff of borrowing the sums withheld. This is a rate taken to be prime plus 1% unless the evidence in a particular case makes adoption of another rate appropriate. See Komala Deccof & Co SA v Perusahaan Pertambangan Minyak Dan Gas Bumi Negara (Pertamina) [1984] HKLR 219 at 221‑223 (Cons JA); Polyset Ltd v Panhandat Ltd (unreported, FACV 28/2000, 25 April 2002) [13] (Ribeiro PJ). The Plaintiffs sought pre-judgment interest on this basis and I agree that this is an appropriate rate. The date on which pre-judgment interest should start to run should be the time when the relevant plaintiff was deprived of the use of the relevant sum of money. I so order.

576.  I make an order nisi that the costs of these proceedings (including all reserved costs) are to be paid by the Defendants to the Plaintiffs, with a certificate for two counsel, to be taxed if not agreed.

Mr Charles Manzoni SC and Ms Cherry Xu, instructed by Karas So LLP, for the 1^st to 3^rd Plaintiffs

The 3^rd Defendant appeared in person

Mr Kerby Lau and Mr Paul Law, instructed by Li & Partners, for the 6^th Defendant

Mr Benjamin Lam, instructed by Guantao & Chow Solicitors and Notaries, for the 13^th Defendant

The 1^st, 2^nd, 4^th, 5^th, 7^th to 12^th, 14^th to 23^rd Defendants were not represented and did not appear

HCA 3391/2016 & HCA 1417/2013

[2025] HKCFI 4997

HCA 3391/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3391 OF 2016

_______________

BETWEEN

_______________

AND

HCA 1417/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1417 OF 2013

_______________

BETWEEN

_______________

(Consolidated by Order of Master Chow dated the 23^rd day of July 2018)

__________________

D E C I S I O N

__________________

1.  On the third day of the trial, an issue arose during counsel’s oral opening submissions as to whether the 6^th Defendant can raise a factual point during the trial and whether such a point needs to be pleaded. The issue arose in this way.

2.  In this trial, one of the issues to be determined is whether the Plaintiffs’ claims are time-barred. In order to overcome the time bar defence raised by the 6^th Defendant, the Plaintiffs rely on section 26 of the Limitation Ordinance (Cap 347) to postpone the commencement of the limitation period. Specifically, the Plaintiffs have pleaded that they could not, with reasonable diligence, discovered the fraud of the 6^th Defendant before 23 or 24 December 2013. According to the Plaintiffs, that was the date when the Plaintiffs obtained the relevant banking documents and discovered that the 2^nd Defendant was on both sides of the relevant transactions.

3.  In their written opening dated 15 September 2025, Mr Kerby Lau and Mr Paul Law on behalf of the 6^th Defendant submitted that “the Alleged Theft and/or the relevant facts of the case against D6 clearly could have been discovered by Ps much earlier by 2009 at the latest, even before liquidators were appointed”. Subsequent to the receipt of the document, I understand that the Plaintiffs’ solicitors wrote to the 6^th Defendant’s solicitors and complained that this was an unpleaded case.

4.  At the end of his oral submission on the third day of the trial, Mr Charles Manzoni SC on behalf of the Plaintiffs submitted that the 6^th Defendant should not be allowed to raise the unpleaded case now because significant prejudice will be caused to the Plaintiffs. He also lay down the marker that the Plaintiffs will object if their factual witnesses are cross-examined during the trial for the purpose of advancing the 6^th Defendant’s unpleaded case.

5.  In his oral opening submission and when dealing with the Plaintiffs’ pleading objection, Mr Lau confirmed that the 6^th Defendant does intend to argue that the Plaintiffs could have discovered the fraud on a date much earlier, and that he will cross-examine the Plaintiffs’ factual witnesses on this point. But he disagreed that this point needs to be pleaded.

(1) First, he submitted that the burden falls on the Plaintiffs to show that they could not with reasonable diligence have discovered the fraud. He said the 6^th Defendant has put them to strict proof, and the 6^th Defendant does not need to prove anything.

(2) Further, Mr Lau argued that the Plaintiffs have included in the trial bundles some documents for the purpose of showing that they could not have discovered the fraud with reasonable diligence, and the 6^th Defendant must be allowed to test the Plaintiffs’ case by suggesting some earlier dates or events.

(3) Moreover, Mr Lau suggested that the Plaintiffs must have known that this point would be taken against them because the very same point appeared in a striking out decision in a different action by the Plaintiffs against the Bank of China.

(4) Finally, Mr Lau urged the court not to make a hasty decision to rule on the pleading point now and should instead hear all the evidence on a de bene esse basis before coming to a final view.

6.  For the reasons that I am about to give, I am unable to agree with the 6^th Defendant’s submissions that the new point does not need to be pleaded.

7.  First, it is clear that the 6^th Defendant’s current pleading simply contains a bare denial on the application of s.26(1)(a) of the Limitation Ordinance, and puts the Plaintiffs to strict proof that they could not with reasonable diligence have discovered the 6^th Defendant’s alleged fraudulent, dishonest or unconscionable conduct sooner than they did. This appears in paragraph 59 of the 6^th Defendant’s Amended Defence. Under RHC O.18 r.13(5), where an allegation made in a statement of claim is traversed by a denial, the party who denies the allegation shall in his defence (a) state his reasons for doing so and (b) if he intends to put forward a different version of events from that given by the plaintiff, state his own version. Accordingly, if the 6^th Defendant wishes to suggest that the Plaintiffs could have discovered the fraud on a date much earlier than their pleaded date of 23 December 2013, the 6^th Defendant must state his own version of when he says the Plaintiffs could have discovered the fraud. As noted in Hong Kong Civil Procedure 2025 vol 1 at Note 18/13/12, if a party fails to plead his own version, he will be taken not to have put forward any positive case in defence and will not be entitled to call any evidence of fact contrary to or inconsistent with the plaintiff’s pleaded contention.

8.  Second, by suggesting that the Plaintiffs could have discovered the fraud on a date much earlier than their pleaded date of 23 December 2013, the 6^th Defendant would have gone beyond merely testing the Plaintiffs’ case. In my view, testing the Plaintiffs’ case on s.26 may involve the 6^th Defendant showing, for example, that the Plaintiffs did not obtain the relevant banking documents on 23 December 2013, or that such documents did not reveal the 2^nd Defendant’s role in the relevant transactions. But the advancement of suggestions that the Plaintiffs could have discovered the fraud earlier than 23 December 2013 would constitute a positive case on the part of the 6^th Defendant, and would need to be pleaded.

9.  As far as the documents in the trial bundles identified by the 6^th Defendant are concerned, they are minutes and notes of meetings and were included in Annexure 2 to Dr Crum’s witness statement. It is important to see what Dr Crum said in his witness statement as to why the various minutes and notes of meetings were referred to. Annexure 2 is referred to at paragraph 19.7 of Dr Crum’s witness statement. It appears from paragraph 19 that the purpose of referring to such meeting minutes and notes is to illustrate the general practice of the Board and Committee meetings of the 1^st Plaintiff. Contrary to Mr Lau’s suggestion, it does not appear that the purpose of including the documents in Annexure 2 is to show that the Plaintiffs could not have discovered the fraud with reasonable diligence.

10.  Third, the fact that a similar point was taken by the Bank of China against the Plaintiffs in a different action does not mean that the Plaintiffs must have known or anticipated that one of the Defendants in this action will take the same point in this trial. As pointed out by Mr Manzoni, the Bank of China expressly pleaded the point in its defence. If the point is not pleaded by any of the Defendants in these proceedings, there is no reason for the Plaintiffs to expect that the point would be taken against them at the trial.

11.  Fourth, as Ma CJ said in Kwok Chin Wing v 21 Holdings Ltd (2013) 16 HKCFAR 663 at [21], “[i]t is the pleadings that will define the issues in a trial and dictate the course of proceedings both before and at trial. Where witnesses are involved, it will be the pleaded issues that define the scope of the evidence, and not the other way round. In other words, it will not be acceptable for unpleaded issues to be raised out of the evidence which is to be or has been adduced.” It is therefore wholly inappropriate for the trial judge to allow evidence to be adduced on an unpleaded issue first, even on a de bene esse basis, and then to decide on whether the unpleaded issue can be advanced at the end of the trial.

12.  Finally, I accept Mr Manzoni’s submission that allowing the 6^th Defendant to advance the point would cause significant prejudice to the Plaintiffs. It was pointed out that pursuant to the discovery protocol ordered by Ng J on 10 May 2019, the Plaintiffs have not disclosed any documents in these proceedings in relation to the engagement of the different professional advisers of the 1^st Plaintiff, or the advice they gave. And the Plaintiffs have also been deprived of the opportunity to investigate the extent to which the various advisers might or might not have made the alleged fraud of the 6^th Defendant discoverable, and adduce any form of evidence in these proceedings to rebut the unpleaded point.

13.  For these reasons, I rule that the 6^th Defendant is not permitted to contend in this trial that the Plaintiffs could have discovered the alleged fraud of the 6^th Defendant earlier than 23 December 2013.

14.  It is right to record that the 6^th Defendant’s Amended Defence was not settled by either Mr Lau or Mr Law. Both of them were only instructed shortly before the trial commenced. They have tried to take the point as far as they possibly can, but the point is simply not open to the 6^th Defendant to take on the existing pleading.

Mr Charles Manzoni SC and Ms Cherry Xu, instructed by Karas So LLP, for the 1^st to 3^rd Plaintiffs

The 3^rd Defendant appeared in person

Mr Kerby Lau and Mr Paul Law, instructed by Li & Partners, for the 6^th Defendant

Mr Benjamin Lam, instructed by Guantao & Chow Solicitors and Notaries, for the 13^th Defendant

The 1^st, 2^nd, 4^th, 5^th, 7^th to 12^th, 14^th to 23^rd Defendants were not represented and did not appear

HCA 3391/2016 & HCA 1417/2013

[2025] HKCFI 4419

HCA 3391/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3391 OF 2016

_______________

BETWEEN

_______________

AND

HCA 1417/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1417 OF 2013

_______________

BETWEEN

_______________

(Consolidated by Order of Master Chow dated the 23^rd day of July 2018)

__________________

D E C I S I O N

__________________

1.  In this application, the 6^th Defendant applies to set aside the leave to re-amend the Amended Statement of Claim (“ASOC”) in relation to items 6.1B and 6.1C of Appendix 2 thereof, or alternatively to disallow, strike out and/or expunge the pleas in those two items of Appendix 2.

2.  The 6^th Defendant’s principal submission is that items 6.1B and 6.1C of Appendix 2 of the RASOC introduce 2 new causes of action against D6, namely dishonest assistance and knowing receipt.

3.  I do not agree with this submission.

4.  In my view, the pleas in relation to items 6.1B and 6.1C of Appendix 2 of the Re-Amended Statement of Claim (“RASOC”) merely identify two further payments traceable from the alleged misappropriated funds. In other words, they are particulars showing how D6 received the relevant sums. As far as the 6^th Defendant’s total receipt of money is concerned, the Plaintiff has not changed the plea that the total amount received by D6 was US$17.76 million. This can be seen from paragraphs 307.5, 311 and Appendix 2 of the RASOC. In particular, as shown in Appendix 2 of the RASOC, the net amount received by the 6^th Defendant remains unchanged at US$17.76 million even after the amendment was made to the ASOC.

5.  I do not think that the particulars in items 6.1B and 6.1C of Appendix 2 are material to be proved to entitle the Plaintiff to succeed in its claim. They are not in my view part of the Plaintiff’s causes of action in dishonest assistance or knowing receipt.

6.  In any event, the Plaintiff has pleaded in Appendix 2 that items 6.1B and 6.1C have been excluded from the total sum of US$17.76 million to avoid double counting in the quantum of receipts by D6. This plea reinforces my view that the two items do not form part of the Plaintiff’s causes of action in dishonest assistance or knowing receipt.

7.  In the light of my view that items 6.1B and 6.1C do not introduce two new causes of actions against the 6^th Defendant, the 6^th Defendant’s other submissions fall away.

8.  I should also mention that I disagree with the suggestion that the Plaintiff’s application to amend the ASOC was made ex parte. Whilst it is regrettable that the 6^th Defendant failed to attend the PTR in June because of his illness, his absence from the hearing does not, in my view, make the amendment application ex parte.

9.  For these reasons, I dismiss the 6^th Defendant’s summons dated 11 September 2025.

10.  I will now hear the parties on costs.

(Submissions on costs)

11.  The costs of and occasioned by the 6^th Defendant’s summons are to be paid by the 6^th Defendant to the Plaintiff to be summarily assessed.

12.  Taking a broad brush approach, I make a reduction for items in Sections C and D of the Statement of Costs. Having made the reductions, the Plaintiff’s costs are summarily assessed at HK$90,000.

Ms Cherry Xu, instructed by Karas So LLP, for the 1^st to 3^rd Plaintiffs

P.C. Woo & Co., for the 2^nd Defendant, attendance excused

The 3^rd to 5^th Defendants were not represented and did not appear

Mr Kerby Lau and Mr Paul Law, instructed by Li & Partners, for the 6^th Defendant

Guantao & Chow Solicitors and Notaries, for the 13^th Defendant, attendance excused

HCA 3391/2016 & HCA 1417 /2013

[2023] HKCFI 2735

HCA 3391/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3391 OF 2016

_______________________

_______________________

HCA 1417 /2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1417 OF 2013

_______________________

_______________________

(Consolidated by Order of Master Chow dated the 23^rd day of July 2018)

________________

J U D G M E N T

________________

Introduction

1.  By summons dated 13 October 2022 (“JoinderSummons”), the 2^nd Defendant viz Mr Samson Tsang applied:

a.  to join the Bank of China (Hong Kong) Ltd (“BOC”) and the Bank of East Asia Ltd (“BEA”) (collectively “Banks”) as interested parties in the present consolidated Action “in respect of the adjudication on the nature of the FISH and SPR Transactions by the Court”; or

b.  for “other appropriate case management direction be made by the Court so as to avoid inconsistent findings on the nature of the FISH and SPR Transactions to be made by other Courts”.[1]

2.  The Joinder Summons was opposed by the Plaintiffs, BOC and BEA. Further, none of the other active Defendants in the present Action supported the Joinder Summons - the 3^rd, 5^th, 6^th and 13^th Defendants had indicated that they would adopt a neutral stance.

3.  Specifically, regarding para 1b. above, no other appropriate case management directions had been suggested by the 2^nd Defendant.

4.  After hearing the parties on 19 June 2023, this court handed down a Judgment dated 15 September 2023 (“Judgment”). By the Judgment, this Court dismissed the Joinder Summons.

5.  As far as Costs are concerned, the parties had made submissions on costs in their skeletons and/or orally at the hearing. The 2^nd Defendant’s position was that whether the Joinder Summons was allowed or not, this court should make a neutral costs Order ie costs in the cause or no order as to costs. The Plaintiffs, BOC and BEA all asked for costs on an indemnity basis should the Joinder Summons be dismissed. In the end, this court was persuaded to order costs of and occasioned by the Joinder Summons be to the Plaintiffs, BOC and BEA on an indemnity basis to be summarily assessed and paid by the 2^nd Defendant forthwith (“Costs Order”).

6.  This is the hearing of the 2^nd Defendant’s summons dated 29 September 2023 (“Summons”) whereby he applies for leave to appeal against the Costs Order. There is no application for leave to appeal against the dismissal of the Joinder Summons as such, which is important since there could be no argument on the merits of the joinder application.

7.  The initial grounds of appeal were set out in the draft Notice of Appeal annexed to the Summons. In his skeleton, Mr Lung seeks to rely on the revised draft Notice of Appeal annexed to it. In the revised draft Notice of Appeal, the 2^nd Defendant seeks an Order that “[t]here be no order as to costs of the Joinder Summons or alternatively, the 2^nd Defendant shall only pay 2 sets of hypothetical proper or necessary costs for resisting the Joinder Summons (being that of (i) the Plaintiffs and (ii) BOC / BEA) on a party and party basis to be summarily assessed”.

Deliberation

8.  The applicable legal principles are not seriously in dispute.

9.  First, leave to appeal should only be granted if the Court is satisfied that the intended appeal has a reasonable prospect of success or there is some other reason in the interests of justice why it should be heard.

10.  Second, with respect to an appeal on costs only, the Court of Appeal will not interfere unless the Court below had erred in principle or its decision was plainly wrong: LLC v LMWA [2019] 2 HKLRD 529 at [7]. In particular, the Court of Appeal must be very careful not to interfere with the judge’s exercise of the discretion which has been entrusted to him and not substitute its discretion for that of the judge, unless satisfied he was plainly wrong: Re Up Energy Development Group Ltd (in liquidation)[2023] HKCA 536 at [8].

11.  Third, the Court has a general and unfettered discretion to award indemnity costs in “appropriate” circumstances: Re Guy Kwok Hung Lam, ex p Tor Asia Credit Master Fund LP[2023] HKCA 1099 at [22].

12.  Fourth, costs may be awarded on a more generous than the usual basis of taxation, specifically indemnity basis, so as to achieve a fairer result: Commissioner of Inland Revenue v Poon Cho Ming John (No 2) (2020) 23 HKCFAR 74 at [4]:

a.  It is for the receiving party to show that the case has some special or unusual feature.

b.  Such features are not confined to an ulterior motive, an improper purpose, deception or underhand conduct on the part of the paying party.

c.  Neither the attributes of the parties nor the character of the proceedings are irrelevant to the question of whether a more generous than usual basis of taxation should be ordered.

d.  The discretion to order a more generous than usual basis of taxation is not to be fettered or circumscribed beyond the requirement that such taxation be ordered only when it is “appropriate” to do so.

e.  The grounds on which a more generous than usual basis of taxation is to be ordered must be “connected with the case” ie any matter relating to the litigation and the parties’ conduct in it, and also to the circumstances leading to the litigation.

13.  Fifth, the Court’s discretion to order indemnity costs may be exercised where the application is entirely devoid of merits and should never have been launched or persisted, but the party has nevertheless unreasonably and unjustifiably persisted: Huge Dragon Corp Ltd v Lung Mun Oasis (IO) [2014] 3 HKLRD 286 at [13]- [15].

14.  As set out in Mr Lung’s skeleton, there are 2 broad grounds of appeal:

a.  Ground 1 – the Court should have made no order as to costs of the Joinder Summons; alternatively, the 2^nd Defendant should only pay 2 sets of costs, being that of (i) the Plaintiffs and (ii) BOC/BEA. As explained by Mr Lung at the hearing, the Banks should have been represented by 1 set of lawyers; alternatively, BOC should have adopted BEA’s submissions on the Joinder Summons, or vice versa.

b.  Ground 2 – there is no or no sufficient basis for costs to be ordered on an indemnity basis.

Ground 1

15.  According to Mr Lung’s skeleton, the gist of Ground 1 is that:

a.  As regards case management matters, a neutral costs order is generally more appropriate unless a party acts in a culpable way: Lau Muk Fat (Manager of Lau Shau Wo Tso) v Wong Kwok Wa [2023] 1 HKLRD 1067 (Recorder Rachel Lam SC).

b.  It was eminently reasonable for the 2^nd Defendant to take out the Joinder Summons invoking the Court’s active case management powers conferred by RHC Order 1B rule 1(2) when no other parties in the various proceedings brought by the Plaintiffs have done so. This is more so in view of the common factual issues regarding the nature of the FISH and SPR Transactions and common causes of action, including a s.275 claim, dishonest assistance and knowing receipt.

c.  The Joinder Summons was taken out by the 2^nd Defendant precisely to offer a case management proposal to the Court which sought to avoid the need for repeated presentation of the same materials, including expert evidence, on the nature of the FISH and SPR Transactions[2] in the future trials of the present Action as well as the actions against BOC, BEA and Paul Weiss.

d.  The fact that the Court does not prefer a joinder does not per se render the taking out of the Joinder Summons unreasonable or useless. Instead of finding the 2^nd Defendant culpable, the Court should not criticise him for attempting to provide a solution to an obvious case management issue. Hence, a neutral costs order is appropriate.

e.  Alternatively, the 2^nd Defendant should only pay 2 sets of costs for resisting the Joinder Summons because the Banks essentially adopted a “united front” ie they insisted the issue(s) on the nature of the FISH and SPR Transactions be tried in their respective actions and there is plainly no conflict of interest between them.

16.  In this court’s view, Ground 1 has no reasonable prospect of success.

17.  To start with, this court does not see Recorder Rachel Lam SC as intending to lay down in Lau Muk Fat a principle that in all case management matters, a neutral costs order is generally more appropriate unless there is some culpable act by the “unsuccessful” party. It is just that a neutral costs order ie costs in the cause was considered to be appropriate on the facts of that application which was for the consolidation of various proceedings and was described by the learned Recorder as “often a complex and difficult case management issue”: see [5]. In other words, the decision in Lau Muk Fat is facts-sensitive, as in all decisions on costs.

18.  In this court’s view, case management applications, as in any other applications, the incidence of costs depends on numerous factors including inter alia the merits of the case management proposal put forward by an applicant. The 2^nd Defendant had proposed the joinder of the Banks in the present Action. For reasons explained in the Judgment, that proposal was wholly without merits and was rejected. There is no appeal against that part of the Judgment.

19.  Second, this court does not agree it was eminently reasonable for the 2^nd Defendant to take out the Joinder Summons in order to invoke the Court’s active case management powers. The Court’s active case management powers can be proposed by a party to an Action, with or without the agreement of the other parties. In the present case, case management proposals can be raised by the 2^nd Defendant in a Case Management Conference, the latest one being scheduled on 30 October 2023. If the 2^nd Defendant chooses to do that, the incidence of costs of the Case Management Conference may well be different from that of the Joinder Summons. But the 2^nd Defendant has chosen not to do that.

20.  Third, this court did not just “not prefer” a joinder of the Banks in the present Action. This court found the Joinder Summons to be unmeritorious.

21.  Fourth, regarding the proposal that there should be 1 set of costs for BOC/BEA, the fact of the matter is that BOC and BEA have been separately represented from the very beginning of the proceedings against them. The 2^nd Defendant issued the Joinder Summons with his eyes open. Whether or not there is conflict of interest between BOC and BEA vis-à-vis the Joinder Summons is irrelevant. Each of the Banks was entitled to separate legal representation and came to its own view as to the merits of the Joinder Summons. The Banks objected to the Joinder Summons for reasons of their own. If conflict of interest were the test, the Plaintiffs, BOC and BEA should only get 1 set of costs since they all opposed the Joinder Summons on the ground that it had no merits. The 2^nd Defendant’s proposition that there should be 1 set of costs for BOC/BEA need only be stated to be rejected.

22.  Ultimately and importantly, this court found the Joinder application is just another attempt to delay the present Action by the 2^nd Defendant. This is what this court said in the Judgment at [31] – [34].

“31. And this court asks: what is the benefit to the 2^nd Defendant if the Banks are joined? The answer is none. In the 5^th affidavit of Mr Tang Shu Pui Simon (“Tang” and “Tang 5” respectively) for the 2^nd Defendant, Tang does not claim the joinder application is for the 2^nd Defendant’s own benefit. Rather, it is for the benefit of the Banks. This is what Tang says in Tang 5 at paras 33 - 34:

‘33. Further, BOCHK, BEAHK and Paul Weiss, being independent third party to the 1^st and 2^nd Plaintiffs, obviously lack the requisite and complete knowledge of the subject transactions and that may cause serious disadvantage to them when conducting its defence in their respective actions when disputing the true nature of the FISH and SPR Transactions alleged by the Plaintiffs (the Theft Claim or the Conflict of Interest Claim) during the Plaintiffs’ proof of case to the Court. In other words, BOCHK, BEAHK and Paul Weiss do not have the necessary knowledge to plead the Ordinary Transaction Defence as pleaded by Mr. Tsang in the Consolidated Action.

34. However, if BOCHK, BEAHK and Paul Weiss are involved in the Consolidated Action, they will benefit from the respective defence of Mr. Tsang and Dr. Chen (the 3^rd Defendant in the Consolidated Action) who have direct knowledge of the FISH and SPR Transactions. If Mr. Tsang proves his Ordinary Transaction Defence to the Court, the Plaintiffs’ claims against BOCHK, BEAHK and Paul Weiss will fall away and Paul Weiss will not be required to prove that they had properly discharged their professional duties of care in the said internal investigation.’

32. This is wholly unconvincing. The Banks, being independently advised by reputable solicitors and counsel, do not want the purported benefit conferred on them by the 2^nd Defendant. The 2^nd Defendant should have withdrawn the Joinder Summons.

33. In these circumstances, it is difficult to escape the conclusion, submitted by Mr Manzoni SC in his skeleton, that the application is just another attempt to delay the present Action by the 2^nd Defendant.

34. In conclusion, this court is of the view that the Joinder Summons is without merits and should be dismissed.”

23.  Hence, this court has made it clear in the Judgment that the Joinder Summons is an attempt to delay the present Action by the 2^nd Defendant, unsuccessful though it turned out to be. Whether or not one uses the term “culpable” to describe the Joinder Summons, the end result is that the 2^nd Defendant’s application had received no support from anyone but he nonetheless persisted and had failed. A costs Order should reflect that.

Ground 2

24.  As for costs on an indemnity basis, this was what Mr Manzoni SC said in his skeleton[3] for the hearing of the Joinder Summons which this court found persuasive.

“45. In exercise of its discretion as to costs, the Court may consider the conduct of all parties inter alia ‘whether it was reasonable for a party to raise, pursue or context a particular allegation or issue’ and ‘conduct before, as well as during, the proceedings’ (O.62, r.5(2)(a) and (d)).

…

47. This Court in the decision of the Plaintiffs’ expert evidence summons noted that ‘if any party has taken out or takes out unnecessary and unmeritorious interlocutory applications for no useful purpose other than delay, such applications will no doubt be met with the appropriate costs sanctions, including indemnity costs” (at [49]).

48. The Joinder Summons received no support from any parties, and Mr Tsang has demonstrated no good reasons in support of the Joinder Summons.

49. On 25 October 2022, the Plaintiffs wrote to Mr Tsang setting out their opposition to the Joinder Summons and inviting him to withdraw it on the basis that there be no order as to costs. Given that Mr Tsang continues to pursue the Joinder Application, the Plaintiffs seek a costs order against Mr Tsang on an indemnity basis, to be paid forthwith.” (emphasis added)

25.  It is clear from the Judgment at [31] to [34] that (i) the Joinder Summons was of no benefit to the 2^nd Defendant and was brought by him as another attempt to delay the present Action - in other words, it was brought with an improper purpose; (ii) the Joinder Summons was devoid of merits and should not have been brought; (iii) once the Banks made known that they did not want the “benefit” of joinder, the 2^nd Defendant should have withdrawn the Joinder Summons ie he should not have persisted.

26.  Mr Lung submits that in order for indemnity costs to be awarded, the successful party should show that the case has some “special or unusual features”: Town Planning Board v Society for Protection of the Harbour Ltd (No. 2) (2004) 7 HKCFAR 114 at 123I-J.

27.  It seems to this court that the matters stated in para 25 above are “connected with the case” in the sense used in Commissioner of Inland Revenue v Poon Cho Ming John (No 2) and are sufficiently “special or unusual” to warrant indemnity costs. Ultimately, as shown in all prior and subsequent authorities to Town Planning Board v Society for Protection of the Harbour Ltd (No. 2), all that needs to be shown is that indemnity costs are “appropriate”, which this court has found to be the case.

28.  In this court’s view, Ground 2 also has no reasonable prospect of success.

Disposition and costs order

29.  To conclude, the proposed appeal against the Costs Order has no reasonable prospect of success. Nor can this court find any reason in the interests of justice why the proposed appeal should be heard.

30.  The application for leave to appeal against the Costs Order is hereby dismissed with costs to the Plaintiffs, BOC and BEA. Costs will be summarily assessed on a party and party basis, certificate for counsel, and paid forthwith by the 2^nd Defendant. While Mr Keith Lam argues at the hearing that this application is a continuation of the Joinder application, so that costs should also be taxed on an indemnity basis, this court does not agree. The present application is against the Costs Order only and cannot be regarded as a continuation of the joinder application as such.

31.  The parties have, at the invitation of this court, made submissions on costs at the hearing - this costs Order is not on a nisi basis.

32.  This court’s summary assessment on costs will be notified to the parties in due course after considering all parties’ statements of costs and the 2^nd Defendant’s lists of objection.

Ms Cherry Xu, instructed by Karas LLP, for the Plaintiffs

Mr Vincent Lung, instructed by P. C. Woo & Co, for the 2^nd Defendant

Mr Julian Lam, instructed by Allen & Overy, for Bank of China (Hong Kong) Limited

Mr Keith Lam, instructed by Linklaters, for Bank of East Asia Limited

HCA 3391/2016 & HCA 1417 /2013

[2023] HKCFI 2350

HCA 3391/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3391 OF 2016

_______________________

_______________________

HCA 1417 /2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1417 OF 2013

_______________________

_______________________

(Consolidated by Order of Master Chow dated the 23^rd day of July 2018)

________________

J U D G M E N T

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Introduction

1.  By summons dated 13 October 2022 (“JoinderSummons”), the 2^nd Defendant viz Mr Samson Tsang applies:

a.  to join the Bank of China (Hong Kong) Ltd (“BOC”) and the Bank of East Asia Ltd (“BEA”) as interested parties in the present consolidated Action “in respect of the adjudication on the nature of the FISH and SPR Transactions by the Court”; or

b.  “other appropriate case management direction be made by the Court so as to avoid inconsistent findings on the nature of the FISH and SPR Transactions to be made by other Courts”.[1]

2.  The Joinder Summons is opposed by the Plaintiffs, BOC and BEA. Further, none of the other active Defendants in the present Action support the Joinder Summons - the 3^rd, 5^th, 6^th and 13^th Defendants had indicated that they would adopt a neutral stance. Specifically, regarding para 1b, no other appropriate case management directions have been provided in Mr Lung’s skeleton.

3.  BOC is the defendant in HCA1742 of 2018 (“BOC Action”) brought by the Plaintiffs. The nature of the Plaintiffs’ claims against BOC can be seen in a Judgment of this court dated 15 October 2021 in relation to BOC’s application to strike out the entirety of the Plaintiffs’ claims (“BOC Judgment”). BEA is the defendant in HCA1741 of 2018 (“BEA Action”) also brought by the Plaintiffs. The nature of the Plaintiffs’ claims against BEA can be seen in a Judgment of this court dated 8 September 2023 in relation to BEA’s application to strike out the entirety of the Plaintiffs’ claims (“BEA Judgment”). Suffice it to say that both striking out applications have only been partly successful which means both actions are still very much alive.

4.  The present Action is at a relatively advanced stage. Pleadings have closed, discovery has been given and witness statements have been exchanged. The Plaintiffs’ Expert Evidence Summons, the 2^nd Defendant’s Security for Costs Summons and Specific Discovery Summons have all been disposed of. There will be a 2^nd CMC scheduled at the end of October this year.

5.  As far as the BOC Action is concerned, pleadings have closed but discovery was still underway at the time of the hearing.

6.  As far as the BEA Action is concerned, pleadings have not even been closed - by the BEA Judgment, BEA has been directed by this court to file its Defence within 14 days.

Deliberation

7.  The gist of the 2^nd Defendant’s case on joinder is summarised in Mr Lung’s skeleton as follows:

a.  In the present Action, the BOC Action and the BEA Action, the Plaintiffs’ claims all hinge on the nature of the FISH and SPR Transactions being a theft, alternatively undisclosed related party transactions.

b.  This in turn gives rise to various common factual issues e.g. whether the FISH and SPR technologies were worthless and whether the 2^nd Defendant controlled Supreme Well through his de facto or shadow directorship.

c.  It is plainly desirable to have the common issues resolved in one go to avoid inconsistent findings and multiplicity of proceedings.

d.  The present Action is best positioned to deal with the common issues. The 2^nd Defendant proposes BOC and BEA to be joined as “interested parties” rather than “defendants”, as no relief is sought against them in the present Action. The joinder will have the effect of rendering the Court’s findings on the common issues binding on the Plaintiffs and BOC as well as BEA. There is no need to re-litigate them in separate trials.

8.  It can be seen from the above summary that identification of the “Common Issues” is the linchpin of the 2^nd Defendant’s application.

9.  RHC O 15 r 6(2)(b) provides the court may order the joinder of the following person as a party:

“(i) any person who ought to have been joined as a party or whose presence before the Court is necessary to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon, or

(ii) any person between whom and any party to the cause or matter there may exist a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter which in the opinion of the Court it would be just and convenient to determine as between him and that party as well as between the parties to the cause or matter.” (emphasis added)

10.  Mr Lung has indicated in his skeleton that he is only relying on the just and convenient limb of RHC O 15 r 6(2)(b).

11.  In Wing Mou Construction Co Ltd v Cosmic Insurance Corporation Ltd unrep, HCCT 40 of 2001, 20 June 2002, at [15], Ma J (as he then was) had set out the principles applicable under RHC O 15 r 6 (2)(b)[2]. They are helpfully summarised in Mr Keith Lam’s skeleton for BEA as follows:

a.  The object of RHC O 15 r 6(2)(b) is to ensure that all relevant matters in dispute in the action can be effectively adjudicated upon by the court and that all relevant parties are before it.

b.  All persons who have a legitimate legal or financial interest in the outcome of the matter in dispute are relevant parties.

c.  However, the existence of a legitimate interest in the outcome of proceedings is only the minimum requirement that has to be shown before a court can be required to make an order. It is a fallacy to suppose that once a legitimate interest is demonstrated, then it follows that an order under one of these provisions will be made. The court still retains a residual discretion to decide whether or not the order sought should be made.

d.  The exercise of the court's discretion in any given case depends on a number of factors. The court must first identify exactly the ambit of the order sought before considering what are the relevant factors going towards the exercise of discretion. No exhaustive list of factors can be enumerated but the following will regularly feature: (1) the individual prejudice to the parties in the event an order is or is not made, (2) the stage that the action has reached when the application is made, (3) any delay in making the application and any delay that may be caused should an order be made. What weight the court will give to any particular factor will depend on the precise form of the order or orders sought.

e.  Ultimately, the discretion is exercised bearing in mind the object of RHC O 15 r 6(2)(b) (as mentioned above) and orders should only be made where necessary, just and convenient.

12.  In Lin Man Yuan v Kin Ming Holdings International Ltd [2012] 3 HKLRD 550, DHCJ Mimmie Chan (as she then was) expressed the view at [15] that the joinder of parties envisaged and permitted by RHC O 15 r 6 should be given a liberal application, particularly in the aftermath of the CJR; and at [24] that in considering whether to grant an application for joinder, the Court should give effect to the underlying objectives of the RHC including inter alia to increase the cost-effectiveness of any practice and procedure to be followed and to promote a sense of reasonable proportion and procedural economy in the conduct of proceedings.

13.  On the other hand, in support of his application, Mr Lung has cited Advanced Connection Ltd v Able Technology (Hong Kong) Ltd & Ors[2019] HKCA 1092 which was the 2^nd defendant’s renewed application for leave to appeal against the Judgment of this court dismissing her appeal against the decision of Master KW Wong joining her and the 3^rd defendant to the action upon the application of the plaintiff.

14.  Advanced Connection Ltd case was a case concerning a plaintiff’s prima facie entitlement to choose the person against whom it wishes to proceed. The relevant test and approach set out in this court’s Judgment and quoted by Chu JA at [14] should be looked at in that light. It is difficult to see how that authority assists Mr Lung at all. Instead, the opposite is true. The Plaintiffs have no wish to proceed against BOC or BEA in the present Action and that is their prima facie entitlement - they even oppose the joinder of BOC or BEA as interested parties.

15.  The next case cited by Mr Lung is Man Whi Chung v Man Ping Nam [2003] 1 HKC 549. That case was concerned with the applicant who applied to be joined as a 2^nd defendant to the action, against the wishes of the plaintiff, on the ground that he had sufficient interest in the subject matter of the litigation to be joined. The guidance by DHCJ Andrew Cheung (as he then was) set out in [21] on RHC O 15 r 6(2)(b)(ii), including the requirement that the would-be intervener has to possess some interest which is in some way directly related to the subject matter of the action, has no relevance to the present case. Neither BOC nor BEA have applied to be joined in the present Action and they do not claim to have an interest relating to the subject matter of the present Action. Not only does the case not assist Mr Lung, it is against him.

16.  The other authorities cited by Mr Lung viz Convoy Collateral Ltd v Cho Kwai Chee & Ors[2022] HKCFI 3406 and Yau Pak Kin v Sound Plan International Ltd & Anor unrep, HCA 541 of 2012, 19 March 2013, are not cases on joinder of parties. They are cases under RHC O 4 r 9. This is not to say that the existence of common issues, factual or legal, in 2 different actions or more is only relevant to applications under RHC O 4 r 9. Clearly it can be taken into account as a factor in considering joinder applications, as accepted by the Plaintiffs at least.

17.  In Mr Lung’s skeleton, the so-called “Common Issues” to the present Action, the BOC Action and the BEA Action are defined as follows:

“D. The common issues

14. In the Principal Actions, Ps claim against P1’s former management and their alleged associates for breach of duties (Section E of the ASOC[3]), conspiracy (Section F), fraudulent trading (the same s.275 claim also feature in the BOCHK and BEAHK Actions) and misfeasance (Section G), and accessorial liability including dishonest assistance and knowing receipt (Section H).

15. These claims are all premised on 2 “base claims” (the “Common Issues”):

(1) An alleged theft (the “Theft”) orchestrated and perpetrated to steal US$521.8 million from P1 and/or P2 through purportedly legitimate and arm’s length transactions to acquire the FISH and SPR Technologies from Supreme Well, when in fact, the FISH and SPR Technologies were worthless or substantially worthless: ASOC §68; and/or

(2) The acquisition of the 2 technologies were undisclosed related-party transactions with Supreme Well which was allegedly controlled by D2 through his de facto/shadow directorship: ASOC §§69.1-69.3, 74.3.”

18.  At para 25 of Mr Lung’s skeleton, he submits that Sections D (The Theft) and G (Fraudulent Trading and Misfeasance) of the Amended Statement of Claim in the present Action provide a comprehensive outline of the Common Issues which BOC and BEA may wish to respond to. It should be noted that Sections D and G cover over 60 pages of pleaded facts in the Amended Statement of Claim. Mr Lung has not even attempted to identify which pleaded facts are supposed to be Common Issues. Mr Lung also submits in the same para 25 that once joined as interested parties in the present Action, BOC and BEA will need to indicate their respective stance to the Common Issues. If any of them decides to contest, this Court may give appropriate directions such as directing a Defence or Points of Opposition to be filed.

19.  This court does not agree that identifying the 2 “base claims” alone is sufficient to identify the “Common Issues” or to justify the joinder application.

20.  As Mr Manzoni SC submits, within the 2 “base claims”, there are multiple issues that the Court needs to consider and determine in the present Action. In this court’s present estimation, a majority of these issues will be contested by the active Defendants, in particular the 2^nd Defendant, and will occupy a large part of the trial of the present Action. The same cannot be said of the BOC Action or the BEA Action, at least at this stage. This is because their involvement only began after the FISH and SPR Transactions had been entered into and they may well be advised to take a passive position by just putting the Plaintiffs to prove. This is of course entirely up to BOC and BEA and their legal advisers.

21.  The suggestion by Mr Lung that this court may give directions to them to file a Defence or Points of Opposition highlights the problem of delay as a prejudice to the Plaintiffs in the present Action and the additional costs occasioned to BOC and BEA (since they have filed or will have to file a Defence in their own actions) in their respective actions.

22.  A joinder application need to identify the issues which are said to be common and need to be resolved within the 2 “base claims”. The 2^nd Defendant has failed to do so.

23.  The failure to identify precisely the so-called Common Issues is not the only problem with the 2^nd Defendant’s application. The 2^nd Defendant need to show it is just and convenient to grant the joinder application.

24.  In this respect, the 2^nd Defendant’s case is set out in Section E of Mr Lung’s skeleton. Basically, it boils down to (i) the present Action is the natural one to deal with what this court considers to be imprecise Common Issues; (ii) the joinder will not delay the BOC or BEA Action or the present Action; and (iii) the joinder will not result in escalation in costs in the present Action. This court has considered them but does not find them convincing at all.

25.  As submitted by Mr Manzoni SC for the Plaintiffs, delay to the present Action is inevitable since first there would have to be an identification of the common issues so that the Plaintiffs and the Banks can work out what is going to be being determined as between them. That would require the Banks to conduct a detailed consideration of the claims in the present Action, and then most likely to file pleadings in order to crystalize what issues there are among them. Since BOC’s position is different from BEA’s position (BOC was the banker of the 1^st Plaintiff while BEA was not the banker of any of the Plaintiffs), the Plaintiffs will have to deal with each bank separately.

26.  Further, the case management of the present Action with 2 additional parties will become far more complicated. BOC and BEA will have to speedily advance their cases to a stage that is ready for trial. That may require discovery and exchange of evidence, depending on the degree of challenge they wish to make to the Plaintiffs’ case. Every interlocutory application will involve 2 additional parties. Each of them will have an opportunity for appeals.

27.  Just from considering the above, the increased costs and delay to the Plaintiffs in the present Action would be significant.

28.  From the Banks’ point of view, as submitted by Mr Keith Lam for BEA, the proposed joinder would essentially require BEA to participate in the present Action while at the same time the BEA Action will continue. This means that BEA will have to deal with 2 separate sets of active proceedings. This would inevitably mean incurring additional time and costs, given that BEA would have to go through the pleadings and discovery stages of both actions. In particular, it cannot be suggested that BEA need not incur costs on those matters in the present Action that do not concern it. By being a party, BEA will have to incur costs to understand the whole set of pleadings, discovery and witness statements of the original parties in order to identify what are relevant to the yet unclear Common Issues and what are not. Further, while the nature of the FISH and SPR Transactions is a main issue in the present Action, it is unlikely that the other issues eg the extent of the involvement of each original Defendant are sufficiently distinct so that BEA can safely leave the court room during the trial. This means that in practice BEA will have to sit through the entire trial in the present Action.

29.  Importantly, which party is responsible for the costs of the Banks in participating in the present Action? Since the Banks are not Defendants as such, the general rule that costs should follow the event cannot apply. Instead, costs of each of the “Common Issues” will have to be examined and apportioned among the Plaintiffs, the original Defendants and the Banks. This will significantly increase the burden on judicial resources.

30.  These points apply mutandis mutatis to BOC.

31.  And this court asks: what is the benefit to the 2^nd Defendant if the Banks are joined? The answer is none. In the 5^th affidavit of Mr Tang Shu Pui Simon (“Tang” and “Tang 5” respectively) for the 2^nd Defendant, Tang does not claim the joinder application is for the 2^nd Defendant’s own benefit. Rather, it is for the benefit of the Banks. This is what Tang says in Tang 5 at paras 33 - 34:

“33. Further, BOCHK, BEAHK and Paul Weiss, being independent third party to the 1^st and 2^nd Plaintiffs, obviously lack the requisite and complete knowledge of the subject transactions and that may cause serious disadvantage to them when conducting its defence in their respective actions when disputing the true nature of the FISH and SPR Transactions alleged by the Plaintiffs (the Theft Claim or the Conflict of Interest Claim) during the Plaintiffs’ proof of case to the Court. In other words, BOCHK, BEAHK and Paul Weiss do not have the necessary knowledge to plead the Ordinary Transaction Defence as pleaded by Mr. Tsang in the Consolidated Action.

34. However, if BOCHK, BEAHK and Paul Weiss are involved in the Consolidated Action, they will benefit from the respective defence of Mr. Tsang and Dr. Chen (the 3^rd Defendant in the Consolidated Action) who have direct knowledge of the FISH and SPR Transactions. If Mr. Tsang proves his Ordinary Transaction Defence to the Court, the Plaintiffs’ claims against BOCHK, BEAHK and Paul Weiss will fall away and Paul Weiss will not be required to prove that they had properly discharged their professional duties of care in the said internal investigation.”

32.  This is wholly unconvincing. The Banks, being independently advised by reputable solicitors and counsel, do not want the purported benefit conferred on them by the 2^nd Defendant. The 2^nd Defendant should have withdrawn the Joinder Summons.

33.  In these circumstances, it is difficult to escape the conclusion, submitted by Mr Manzoni SC in his skeleton, that the application is just another attempt to delay the present Action by the 2^nd Defendant.

34.  In conclusion, this court is of the view that the Joinder Summons is without merits and should be dismissed.

Disposition and costs order

35.  The Joinder Summons is hereby dismissed.

36.  Costs of and occasioned by the Joinder Summons be to the Plaintiffs, BOC and BEA on an indemnity basis to be summarily assessed and paid by the 2^nd Defendant forthwith. Since the parties have already made submissions on costs at the hearing, this court’s costs Order is not on a nisi basis.

37.  The Plaintiffs, BOC and BEA are directed to file and serve their statements of costs within 7 days. The 2^nd Defendant is directed to file and serve his list of objections within 7 days thereafter, including in conclusion a figure of the costs that he considers reasonable to be paid to the Plaintiffs, BOC and BEA. Costs will be assessed on paper unless otherwise directed by this court.

Postscript

38.  While this court has dismissed the Joinder Summons for reasons explained, the numerous proceedings instituted by the Plaintiffs against various parties do impose an enormous burden on judicial resources and call for active case management so as to achieve the underlying objectives of the RHC to (i) ensure the resources of the Court are distributed fairly and (ii) promote a sense of reasonable proportion and procedural economy in the conduct of proceedings. This court will examine the available options and may make management decisions to streamline the various proceedings in consultation with other Judges in charge of the other proceedings. The parties will be heard. As a start, the Plaintiffs are directed to lodge with the clerk of this court with proposals to achieve those objectives at the latest 7 days prior to the next CMC of the present Action.

Mr Charles Manzoni, S.C., instructed by Mr Jason Karas, Solicitor Advocate of M/s Karas LLP, for the Plaintiffs

Mr Vincent Lung and Mr Newton Mak, instructed by M/s P. C. Woo & Co., for the 2^nd Defendant

Mr Julian Lam, instructed by M/s Allen & Overy, for Bank of China (Hong Kong) Limited

Mr Keith Lam, instructed by M/s Linklaters, for Bank of East Asia Limited

M/s Charles Yeung Clement Lam Liu & Yip, for the 3^rd Defendant: excused from attendance

M/s Tony Kan & Co., for the 5^th Defendant: excused from attendance

M/s Sidley Austin, for the 6^th Defendant: excused from attendance

M/s Eversheds Sutherland, for the 13^th Defendant: excused from attendance

HCA 3391/2016 & HCA 1417/2013

[2023] HKCFI 1892

HCA 3391/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3391 OF 2016

_______________________

BETWEEN

_______________________

HCA 1417 /2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1417 OF 2013

_______________________

BETWEEN

_______________________

(Consolidated by Order of Master Chow dated the 23^rd day of July 2018)

________________

J U D G M E N T

________________

Introduction

1.  This is another episode of the interlocutory battles between the Plaintiffs and Mr Samson Tsang (“2nd Defendant”).

2.  By summons dated 24 September 2021 (“Summons”), the 2nd Defendant applies for discovery against the Plaintiffs pursuant to RHC O 24 rr 3 and 7 of all documents or correspondence between, or notes of meetings or conversations between the 3rd Plaintiffs (“3rd Plaintiffs/Liquidators”) (including employees of Borrelli Walsh Limited under the directions of the 3rd Plaintiffs) and any of the respective 6 experts referred to in paragraph 72.2 of the 3rdAffidavit of Mr Cosimo Borrelli sworn on 29 March 2018 (“Borrelli 3”) in HCA 3391 of 2016 (“HCA3391”) relating to the FISH and/or SPR Technologies (“Subject Materials”). In addition, the 2nd Defendant seeks inspection under RHC O 24 r 11.

3.  The Summons is resisted by the Plaintiffs on the ground that the Subject Materials are privileged and the documents sought are unnecessary for disposing fairly of the cause or matter or for saving costs.

Background

4.  The factual background has been repeated again and again in various Judgments of this court as well as the Court of Appeal. It can most recently be found in this court’s Judgment dated 11 May 2023 (“11 May 2023 Judgment”) in connection with the Plaintiffs’ application, opposed by the 2nd Defendant, for leave to adduce expert evidence (“Expert Summons”) at the trial on 3 issues viz:

(a) The nature of the fluorescent in situ hybridization technology (“FISH”) acquired by the 1st Plaintiff and the 2nd Plaintiff in 2007, to address the questions more particularly specified in Appendix 1 thereof including inter alia the size of the market for this technology and the likely future growth of the technology in the Mainland China (“FISH Issue”).

(b) The nature of the surface plasma resonance technology (“SPR”) acquired by the 1st Plaintiff and the 2nd Plaintiff in 2008, to address the questions more particularly specified in Appendix 2 thereof, which are similar to the questions in Appendix 1 (“SPR Issue”).

(c) The valuation of FISH as at 1 March 2007 and that of SPR as at 4 December 2008 (“Valuation Issue”).

5.  The Plaintiffs’ application was granted by this court. The 2nd Defendant’s application for leave to appeal against the 11 May 2023 Judgment was withdrawn on 21 June 2023.

6.  For ease of understanding the background, this court will quote from the 11 May 2023 Judgment at [4] - [13] as follows:

“4. The 1st Plaintiff was incorporated in the Cayman Islands in July 2004. Its shares were listed on NASDAQ in August 2005 and were delisted in February 2012. It was the holding company of a group whose principal business was said to be developing, manufacturing and marketing advanced surgical and medical equipment in the PRC. The 1st Plaintiff was grossly insolvent with provable claims of over US$400 million. In July 2012, it was wound up by the Grand Court of the Cayman Islands. On 1 September 2014, Harris J made an ancillary winding up Order against it in HCCW 435 of 2012.

5. The 2nd Plaintiff is the 1st Plaintiff’s wholly owned subsidiary.

6. The 3rd Plaintiffs were appointed as the provisional liquidators of the 1st Plaintiff by Order of Harris J in November 2012. On 5 February 2015, they became the Liquidators of the 1st Plaintiff (“Liquidators”).

7. The 1st Defendant (“Mr Wu”) was at all material times the founder, Chairman, CEO, director and the largest shareholder of the 1st Plaintiff. From January 2006 to July 2012, he was a director of the 2nd Plaintiff.

8. The 2nd Defendant (“Mr Tsang”) was the 1st Plaintiff’s director from June 2007 to December 2011 as well as its CFO from January 2005 to January 2012. He was also a director of the 2nd Plaintiff from January 2006 to December 2011. He was the second most senior executive of the 1st Plaintiff after Mr Wu. Mr Tsang is in contempt of a High Court Order that he should attend Court in person for examination, has absconded from Hong Kong and is subject to an outstanding warrant for his arrest. Mr Tsang is also said to be a fugitive from the United States criminal justice system.

9. The Plaintiffs claim that the former senior management of the 1st and 2nd Plaintiffs, assisted by their associates, perpetrated, participated in and/or benefited from the fraudulent misappropriation of US$521.8 million in cash (“Fraud”) through purported acquisitions (“Acquisitions”) from the 7th Defendant, Supreme Well Investments Limited (“Supreme Well”), and its subsidiaries, of the following alleged medical technologies:

a. FISH, acquired pursuant to a contract dated 6 February 2007 for US$176.8 million; and

b. SPR, acquired pursuant to a contract dated on or around 5 October 2008 for US$345 million.

10. It is the Plaintiffs’ case that:

a. FISH and SPR were worthless (or of no significant value) in that they were not new technologies;

b. Supreme Well, the counter party to the Acquisitions, was in fact controlled by Mr Tsang, who was the sole authorised signatory of its bank accounts with Bank of China (Hong Kong) Limited (“BOC”) and The Bank of East Asia, Limited (“BEA”) into which US$355.5 million of the consideration paid by the 1st and 2nd Plaintiffs were deposited. The balance was paid to Supreme Well by other means;

c. Mr Tsang authorised the transfer of funds from Supreme Well to the bank accounts of other persons and entities (“Supreme Well Payees”) all of whom were associated with or controlled by Mr Wu, Mr Tsang and/or their associates; and

d. the Supreme Well Payees subsequently transferred all or some of the funds to the bank accounts of other persons and entities (“Further Supreme Well Payees”), some of whom were associated with or controlled by Mr Wu, Mr Tsang and/or their associates, and thereafter to further recipients.

11. The 1st Defendant orchestrated, participated and conspired in the Fraud.

12. Mr Tsang acted on both sides of the Acquisitions and directed payment of the consideration received by Supreme Well to the Supreme Well Payees. He received US$7.47 million directly and over US$379 million through entities controlled by him. The Plaintiffs claim US$524.7 million against Mr Tsang:

a. US$521.8 million misappropriated from the 1st and 2nd Plaintiffs by reason of, inter alia, his breaches of duty and trust and unlawful conspiracy; and

b. US$2.9 million, being salary and bonuses paid to him from January 2006.

13. Further background information can be found in this court’s Judgment in the present Action dated 21 October 2022 in relation to Mr Tsang’s security for costs application.”

Deliberation

7.  As per Mr Lung’s skeleton at para 6 as an overview, the basis of the 2nd Defendant’s application is this:

(a) First, the Subject Materials: (i) exist; (ii) are relevant to a key issue as to whether the FISH and SPR Technologies are worthless; (iii) are in the possession, custody or power of the 3rd Plaintiffs; and (iv) are necessary for disposing fairly of the cause or matter or for saving costs. Necessity is disputed by the Plaintiffs. (“Necessity Issue”)

(b) Second, the 3rd Plaintiffs are unable to show that the Subject Materials are protected by litigation privilege, since they are unable to provide any, let alone sufficient, objective and/or contemporaneous evidence to prove that such materials were created for the “dominant purpose” of specific litigation. (“Privilege Issue”)

(c) Third, even if the Subject Materials are protected by privilege, the 3rd Plaintiffs have waived such privilege when their contents were extensively deployed by them in a number of ex parte applications in persuading the Court to take a favourable view on the merits of the Plaintiffs’ case. (“Waiver Issue”)

8.  At the hearing, Mr Manzoni SC invites this court to deal with the Privilege and Waiver Issues first. It seems to this court that is a more logical approach than what is suggested in Mr Lung’s skeleton since the Necessity Issue would naturally fall away if this court were to decide the first two issues in favour of the Plaintiffs. It also makes sense in light of the underlying objectives of the CJR to promote a sense of reasonable proportion and procedural economy in the conduct of proceedings.

Privilege Issue

9.  The law on litigation privilege is well-established and can be simply stated.

10.  When litigation is in prospect or pending, any communications between the client and his solicitor or agent, or between one of them and a third party, will be privileged if they come into existence for the sole or dominant purpose of either giving or getting legal advice with regard to the litigation or collecting evidence for use in the litigation. This is the basis for claiming privilege for correspondence with witnesses of fact or experts, and proofs, reports or documents generated by them. The principle is that a party or potential party should be free to seek evidence without being obliged to disclose the result of his researches to the other side^[1]: Hollander Documentary Evidence in Hong Kong 2nd Ed. (2020) para 16-001.

11.  In Three Rivers District Council v Governor and Company of the Bank of England (No 6) [2005] 1 AC 610, 675 at [102], Lord Carswell said:

“102 The conclusion to be drawn from the trilogy of 19th century cases to which I have referred and the qualifications expressed in the modern case-law is that communications between parties or their solicitors and third parties for the purpose of obtaining information or advice in connection with existing or contemplated litigation are privileged, but only when the following conditions are satisfied: (a) litigation must be in progress or in contemplation; (b) the communications must have been made for the sole or dominant purpose of conducting that litigation; (c) the litigation must be adversarial, not investigative or inquisitorial.”

12.  Specifically, in the context of materials obtained in the course of investigations undertaken by liquidators of a failed company, in Akai Holdings Limited (in liq) v Ernst & Young (2009) 12 HKCFAR 649, the Court of Final Appeal upheld claims to privilege by the liquidators over the transcripts and notes of private examinations and interviews conducted pursuant to s.221 of the predecessor Companies Ordinance, Cap. 32 in opposition to the defendant’s request for specific discovery.

13.  At [112] - [114], Lord Hoffmann NPJ set out the context under which litigation privilege was claimed in relation to the transcripts and notes in question:

“112. When Akai Holdings Ltd (“the Company”) was compulsorily wound up in 2000, the liquidators found little left to satisfy claims by creditors in excess of US$1 billion. The only significant source of assets appeared likely to be claims against the former management, who had made away with the company’s money, and the former auditors, who had not prevented them from doing so. But in practical terms such claims were not likely to be enforceable except through litigation. That required the liquidators to investigate what had happened and consider (with legal advice) whether the company had causes of action.

113. In making these investigations, the liquidators were handicapped by the sparseness of the written records which came into their hands and the unwillingness of both the former management and the auditors to assist them. The lack of progress during the first two or three years of the liquidation created a risk that any claims might become statute barred before the liquidators were in a position to decide whether the company was entitled to sue. The liquidators therefore caused a protective writ to be issued, naming as plaintiffs both the company and a number of its subsidiaries and as defendants a large number of people, including the auditors, Messrs Ernst & Young (Hong Kong) (“EYHK”).

114. The liquidators then invoked their powers under s.221 of the Companies Ordinance, Cap.32, to apply for a private examination of a number of people whom they thought might be able to give them useful information…”

14.  At [117], Lord Hoffmann NPJ suggested the test depended on the answers to 2 simple questions:

“117. The case in my opinion depends upon the answers to two simple questions. First, did the liquidators conduct the examinations for the sole or dominant purpose of obtaining advice from their solicitors as to bringing or conducting legal proceedings? Secondly, were such proceedings reasonably anticipated at the time? These questions are an application to the facts of this case of the general principles of legal professional privilege stated by the House of Lords in Waugh v British Railways Board [1980] AC 521.”

15.  The learned NPJ answered both questions in the affirmative.

“122. …The liquidators made it perfectly clear that the purpose for which the information was sought was to see whether the company had a viable cause of action against any of its former management or auditors. It is true that they did not say that the company would definitely bring or continue proceedings. As responsible liquidators, they would presumably have abandoned the proceedings if advised that they had no case. But that does not mean that the information was not obtained for the dominant purpose of advice as to anticipated litigation.

123. … All but two of the interviews took place after the writ had already been issued. Litigation had actually been commenced. The liquidators had spent money instructing their lawyers to commence the action. Even the two earlier interviews had been held within the previous month, when the writ was no doubt in preparation….”

16.  In the present case, the 1st Plaintiff was wound up by the Grand Court of the Cayman Islands on 27 July 2012 on the ground of insolvency. Mr Borrelli was appointed as one of the joint official liquidators.

17.  On 29 November 2012, the Hong Kong Court appointed Mr Borrelli and Ms Yuen Lai Yee as joint and several provisional liquidators until the determination of a petition to wind up the 1st Plaintiff in Hong Kong.[2]

18.  On 1 August 2013, the protective writ was filed in HCA 1417 of 2013 (“HCA1417”) against inter alia the senior management of the 1st Plaintiff including the 2nd Defendant.

19.  As stated in paragraph 19 of the 21st affidavit of Mr Borrelli dated 5 December 2022 (“Borrelli 21”) in opposition to the Summons, the date range of the communications between the Liquidators (either by themselves, their team or their lawyers) with each of the 6 experts and the scopes of engagements of the experts are as follows:

Expert	Date Range of Communications	Scope of Engagements
A	30 Sep 2013 to 23 Sep 2019	Advise on true nature and value of FISH Technology
B	1 Dec 2014 to 22 Apr 2016	Advise on true nature and value of FISH Technology
C	22 Jan 2015 to 13 Sep 2019	Advise on true nature and value of SPR Technology
D	21 Sep 2016 to 10 Apr 2017	Advise on true nature and value of SPR Technology
E	13 Feb 2017 to 29 Mar 2020	Advise on true nature and value of SPR Technology
F	6 Mar 2015 to 6 Oct 2019	Advise on true nature and value of SPR Technology

20.  It can be seen that all communications with these 6 experts took place on or after 30 September 2013 ie after the protective writ in HCA1417 had been filed. If so, legal proceedings must be reasonably anticipated when the Subject Materials came into existence. Further, Mr Borrelli has stated in no uncertain terms in paragraph 20 of Borrelli 21 that the engagements of these experts were to understand the true nature and value of FISH and SPR technologies. All the Subject Materials were produced and brought into the existence for the sole purpose of obtaining or providing legal advice as to bringing or conducting these proceedings and other actions that had been commenced by the Plaintiffs or were in contemplation. Against the relevant background of this case, there is no reason for this court to doubt what Mr Borrelli has said in that paragraph.

21.  Mr Tang Shu Pui Simon (“Mr Tang”) in his 6th affidavit dated 13 January 2023 in reply (“Tang 6”) for the 2nd Defendant, actually accepted in paragraph 20 that:

“The FISH and SPR Technologies are specialised medical technologies. It is reasonable that the Liquidators and their lawyers who do not possess medical technology knowledge require education and assistance from the relevant experts to understand the FISH and SPR Technologies in order to perform their investigation works.”

22.  However, Mr Tang then went on to cast doubt on whether any piece of information from the 6 experts is privileged because inter alia the Liquidators have not disclosed the terms of their engagement, their identity, qualification, specialisation and experience and so on. There is also a complaint that the Liquidators had not openly asserted privilege earlier.

23.  This is incomprehensible. If Mr Tang accepts the Liquidators reasonably required assistance from the 6 experts to understand FISH and SPR in order to conduct their investigation, what more is there for the Liquidators to disclose? Liquidators do not normally investigate for the sake of investigating (or their fees would be at risk of challenge) - in all reasonable probabilities, the Liquidators’ investigation in the present case would have been for a purpose relating to their duties as disclosed in Borrelli 21. This court cannot see any alternative suggested in Tang 6.

24.  In the present case, the 1st Plaintiff is hopelessly insolvent and its creditors have provable claims in excess of US$400 million. Its tangible assets have only a nominal value and its potential legal claims appear to be its only valuable assets: 4th affidavit of Mr Borrelli dated 20 July 2017 filed in HCA1417 (“Borrelli 4”). With few assets to be realised aside from legal claims, a key focus of the Liquidators’ work at the time must be to investigate available claims so as to recover some money for distribution to the creditors.

25.  This court asks rhetorically, once lawyers had been engaged, and the protective writ had been issued in HCA1417, what else could be the purpose of the Liquidators’ investigation and communications with the 6 experts if it were not for the purpose of obtaining or providing legal advice in relation to bringing or conducting legal proceedings? There is no answer in Tang 6.

26.  In the circumstances of this case, this court can confidently answer the 2 simple questions posed by Lord Hoffmann NPJ in Akai Holdings Limited in the affirmative without the need to know any of the matters said not to have been disclosed by the Liquidators.

27.  Mr Lung submits at paras 45 to 52 of his skeleton that the Subject Materials are not subject to litigation privilege, complaining that what is stated in Borrelli 21 is just a bare assertion. Mr Lung also submits that, in the context of liquidation, there is no presumption that everything the 3rd Plaintiffs did as liquidators was in contemplation of litigation so as to satisfy the “dominant purpose” requirement, especially in view of the multi-faceted duties of liquidators, referring to a passage of Eder J in Rawlinson & Hunter Trustees SA v Akers [2013] EWHC 2297 (QB) at [53]:

“…the mere fact that a document is produced for the purpose of obtaining information or advice in connection with pending or contemplated litigation, or of conducting or aiding in the conduct of such litigation, is not sufficient to found a claim for litigation privilege. It is only if such purpose is one which can properly be characterised as the “dominant purpose” that such claim for litigation privilege can properly be sustained…Further, I recognise that such difficulties are or may be particularly acute where documents come into existence, as in the present case, on the instructions of liquidators who are under statutory duties with regard (so far as possible) to the orderly collection of assets and settlement of liabilities. In the first instance at least, the proper performance of such duties may require the liquidators to obtain information simply to identify what (if any) assets or liabilities exist or perhaps what legal proceedings might possibly be brought against any third parties. Ultimately, once obtained, such information may well be important to enable liquidators to decide what if any legal proceedings might possibly be pursued; and, further down the line, such information may in fact be used for or in connection with pending or contemplated litigation or of conducting or aiding in the conduct of such litigation. However, unless such documents were originally produced for the “dominant purpose” as stated above, they cannot, in my view, be the subject of a proper claim for litigation privilege.”

28.  This court does not see how that passage assists the 2nd Defendant. As statements of principle, it does not add anything to what has already been cited above. As illustrations of the application of the principles to the facts of that case, it is self-evident that every case in which a claim for privilege is allowed or rejected is fact-sensitive. The facts of Rawlinson are very different from the present one. As pointed out in Mr Manzoni SC’s skeleton, there were “no relevant extant proceedings at that stage[3]” and the liquidators could not specify who the potential defendants in the contemplated litigation might be: Rawlinson at [59]. That is clearly not the case here since the Liquidators’ communications with the 6 experts took place after the protective writ had been filed with inter alia the 2nd Defendant named as one of the defendants in both HCA1417 and HCA3391.

29.  Further, just like Tang 6, Mr Lung has no answer to this court’s earlier question: once lawyers had been engaged, and the protective writ had been issued, what else could be the purpose of the Liquidators’ investigation and communications with the 6 experts if it were not for the purpose of obtaining or providing legal advice in relation to bringing or conducting legal proceedings?

30.  All in all, this court is in no doubt that the Subject Materials are subject to litigation privilege.

Waiver Issue

31.  At para 53 of Mr Lung’s skeleton, he submits that this is a clear case that any privilege attached to the Subject Materials has been waived by way of “deployment” in the course of the ex parte applications taken out by the Plaintiffs since 2017.

32.  The classic statement on collateral waiver appears in the judgment of Mustill J (as he then was) in Nea Karteria Maritime Co Ltd v Atlantic & Great Lakes Steamship Corp. [1981] Com LR 138, at 139, in the following terms:

“…where a party is deploying in court material which would otherwise be privileged, the opposite party and the court must have an opportunity of satisfying themselves what the party has chosen to release from privilege represents the whole of the material relevant to the issue in question. To allow an individual item to be plucked out of context would be to risk injustice through its real weight or meaning being misunderstood.”

33.  As for the proper test to be applied for considering whether there is waiver, the following passage in paragraph 10-17 of Matthews and Malek Disclosure 2nd Ed.[4] was cited with approval by the Court of Appeal in Goldlion Properties Ltd v Regent National Enterprises Ltd [2006] 1 HKLRD 793 at [36]:

“The key word here is ‘deploying’. A mere reference to a privileged document in an affidavit does not of itself amount to a waiver of privilege, and this is so even if the document referred to is being relied on for some purpose, for reliance in itself is said not to be the test. Instead, the test is whether the contents of thedocument are being relied on, rather than its effect. The problem is acute in cases where the maker of an affidavit or witness statement has to give details of the source of his information and belief, in order to comply with the rules of admissibility of such affidavit or witness statement. Provided that the maker does not quote the contents, or summarise them, but simply refers to the document’s effect, there is apparently no waiver of privilege.” (my emphasis)

34.  In Government Trading Corporation v Tate & Lyle International Ltd unrep, 19 October 1984, 1984 WL283024 (English Court of Appeal) Lord Justice Robert Goff made some very cogent and practical observation on this issue as follows:

“…Time and time again it must happen in interlocutory applications that it is necessary to refer to certain facts or certain advice, and it may be that it is necessary, at the same time, to refer to the origin of those facts or the origin of that advice. It does not follow that, simply because a person does so, he is waiving privilege in respect of the relevant conversation or documents from which the facts are derived. Of course, if a party were, in such a case, to hand over a complete document, I have little doubt that, unless there were some special conditions attaching to the disclosure, there would be a waiver of privilege in respect of that document; but I would have thought that, in the majority of cases, when a matter to this kind arises, there simply is no waiver of privilege at all, there being no more than a reference to a document or a reference to a communication, and that is all.”[5] (emphasis added)

35.  In paras 73 to 76 of Mr Lung’s skeleton, he submits that the Plaintiffs have deployed the Subject Materials by referred to the “gist" of their contents, rather than merely their “effect”, in the affidavits supporting their ex parte applications since 2017. Three examples are given in support.

36.  First, Mr Lung refers to Borrelli 4 which was filed for the purpose of an extension of the validity of the writs in HCA1417 and HCA3391 and for the consolidation of the 2 actions. He refers to paras 103.3 and 103.4 for the purpose of his submission but in order to understand the context, it is necessary to quote from the beginning of Section F of that affidavit.

“F. EXTENSION OF VALIDITY OF WRITS

F.1 Developments Since Last Extension

102. Borrelli 3 outlines the further work required to be undertaken before the Liquidators would be in a position to determine whether the Company would proceed with any of the claims identified in the First Hong Kong Protective Writ.

103. Since Borrelli 3, the Liquidators have undertaken further worldwide investigations into the affairs of the Plaintiff which have led to developments enabling them to determine that the claims should be pursued. By way of overview, in the last 12 months the Liquidators’ investigations have led to the following developments relevant to the claims against the Defendants:

…

103.3 the Liquidators’ further work with experts regarding the FISH and SPR Technologies enabled them to develop a greater understanding of the true nature of the FISH and SPR Acquisitions and the value of those technologies. As a result, proceedings may now be pursued against a valuation firm, for which a writ was issued in November 2016;

103.4 the Liquidators’ further investigations have also enabled them to ascertain that the FISH and SPR Technologies in fact had no, or no significant, commercial value. This conclusion is important because the Liquidators would not be able to determine against whom proceedings should be brought unless they have ascertained the true value of the FISH and SPR Technologies. The conclusion reached by the Liquidators in this regard is consistent with that of prosecutors in the United States, who in March 2017 issued an indictment in the United States District Court for the Eastern District of New York (Tab 8), charging Messrs Wu and Tsang, the former Chairman and Chief Financial Officer of the Plaintiff, with criminal offences in connection with conduct comprising part of the fraudulent breaches of fiduciary duty that will be alleged by the Liquidators in this action….” (emphasis added)

37.  The parts underlined are those relied upon by Mr Lung as deployment of the contents of the Subject Materials.

38.  This court disagrees that there was any deployment of the contents of the experts in any sense. It seems plain that Mr Borrelli was simply stating the Liquidators’ conclusion that the FISH and SPR technologies in fact had no, or no significant, commercial value. That conclusion had been enabled by the Liquidators’ further investigations including their communications with the experts which enhanced their understanding of the FISH and SPR technologies.

39.  Second, Mr Lung refers to the 5th Affidavit of Mr Borrelli dated 30 August 2017 filed in HCA1417 (“Borrelli 5”). That affidavit was filed for the purpose of seeking leave to service the writ outside jurisdiction on certain defendants. Mr Lung relies on paras 37 and 38 therein for the purpose of his submission but again in order to understand the context, it is necessary to quote from the beginning of Section D.2 of that affidavit.

“D.2 Factual and Evidentiary Basis of Claims

34. The Liquidators have identified strong evidence that, in the period from at least January 2006 until February 2012, Mr Wu, Mr Tsang, Dr Chen and/or Mr Zhu, together with Mr Chong Wing Hip, an associate of Mr Wu and Mr Tsang, orchestrated and/or perpetrated the Theft by which they stole at least US$521.8 million of the funds of the Company and/or CMED Technologies through:

34.1 the FISH Acquisition, which Mr Wu, Mr Tsang and Mr Zhu presented to the Company’s board and the public as a legitimate arm’s length acquisition of the FISH Technology by the Company and its subsidiaries from supposedly independent third parties, Supreme Well and its subsidiaries, for purchase consideration of US$176.8 million (Statement of Claim, Section D.5.1); and

34.2 the SPR Acquisition, which Mr Wu, Mr Tsang, Dr Chen and Mr Zhu presented to the Company’s board and the public as a legitimate arm’s length acquisition of the SPR Technology by the Company and its subsidiaries from supposedly independent third parties, Supreme Well and its subsidiaries, for purchase consideration of US$345 million (Statement of Claim, Section D.5.2).

…

37. The Liquidators have been unable to identify any valuable technology that was received by the Company or any of its subsidiaries pursuant to the FISH and SPR Acquisitions (Statement of Claim at [68]).The Liquidators’ work with FISH Technology experts in the United States indicates that the FISH Technology had been in existence for almost 30 years and it is unlikely that the technology could have been patented or of any significant value at the time that it was acquired by the Company or its subsidiaries. Further, the Liquidators’ work with SPR experts in the United States and Sweden indicates that in 2008, SPR Technology did not have any clinical application, and that SPR Technology is inherently unsuited to use in clinical diagnosis. Accordingly, it is highly unlikely that the SPR Technology could have been of any significant value.

38. The Liquidators, assisted by appropriately qualified experts, have ascertained that the assets acquired or purportedly acquired by the Company or its subsidiaries pursuant to the FISH and SPR Acquisitions had no, or no significant, value.”(emphasis added)

40.  The parts underlined are those relied upon by Mr Lung as deployment of the contents of the Subject Materials.

41.  Again Mr Borrelli was merely stating the Liquidators’ conclusion as a result of having received advice from the experts. This court cannot see any deployment of the contents of the advice, merely the effect of it which enabled the Liquidators to come to their conclusion for the purpose of that particular application.

42.  Third, Mr Lung refers to Borrelli 3 filed in HCA3391. That affidavit was filed as a reply to inter alia an allegation of delay raised by the 2nd Defendant in connection with the Plaintiffs’ Summonses to continue the Injunction Order as amended by the Order of the Honourable Mr Justice Louis Chan dated 8 January 2018 against inter alia the 2nd Defendant. To put the matter in context, this court will set out paragraph 71 and parts of paragraph 72 of Borrelli 3 below.

“C.2 Liquidators’ Investigations

71. The claims against the 23 Defendants are closely interrelated, in terms of evidence, and factual and legal issues. It has been critical for the Liquidators to investigate and pursue the claims against the Defendants in tandem and, at the same time, avoid leaking information pertaining to the investigations, which would have alerted the Defendants to the pursuit of claims against them and risked dissipation of their assets. Until shortly before service commenced in November 2017, the Liquidators were not in a position to determine whether it was in the best interests of the Company’s creditors to serve proceedings on any or all of the Defendants.

72. Further, the investigations were complex, costly and time consuming. In conducting their worldwide investigations, the Liquidators have inter alia:

…

72.2 worked with 6 medical technology experts, as a result of which the Liquidators were able to ascertain that the FISH and SPR Technologies had no, or no significant, commercial value…”. (emphasis added)

43.  The position cannot be clearer. The Liquidators were simply restating their conclusion as a result of their liaison with the 6 experts up to the date of that affidavit ie 29 March 2018. It is just impossible to see any deployment of the contents of the Subject Materials.

44.  In paras 77 to 80 of Mr Lung’s skeleton, he submits that as regards “deployment”, the Plaintiffs relied heavily on the Subject Materials in advancing their case in the applications for: (i) extension of the validity of the Writs filed in HCA1417 and HCA3391, (ii) leave to serve the extended Writs out of jurisdiction; and (iii) a worldwide Mareva injunction against the 2nd Defendant, and with regard to (ii) and (iii), in order to demonstrate the merits of their case as a whole.

45.  That is a curious submission since the authorities are clear that reliance in itself is not the test. Instead, the test is whether the contents of privileged materials are being deployed, rather than its effect: AXA China Region Insurance Co Ltd & Anor v Pacific Century Insurance Co Ltd & Ors unrep, HCA 9093 of 2000, 18 May 2005, Chu J (as she then was) at [29] - [31]; Goldlion Properties Ltd supra at [36]. If and in so far as Mr Lung relies on Derby v Weldon (No.10) [1991] 1 WLR 660 as an example that where a Mareva injunction was sought, deployment of privileged materials “for merits purposes” necessarily means a waiver of the privileged materials, this court disagrees. The key concept is “deployment”, whether or not the purpose is to show “merits” or otherwise.

46.  This court has considered the other submissions of Mr Lung on this subject. Suffice it to say they are of no assistance whatsoever.

47.  To conclude, this court is of the view that there was no waiver of the privilege attached to the Subject Materials.

Necessity Issue

48.  Since the Privilege and Waiver Issues are decided in favour of the Plaintiffs, that would be dispositive of this application. No useful purpose can be served by dwelling on the Necessity Issue. That is all this court wishes to say on this issue.

Disposition and costs order nisi

49.  The Summons is hereby dismissed.

50.  Costs should follow the event. There shall be an order nisi that costs be to the Plaintiffs, to be summarily assessed and paid by the 2nd Defendant forthwith, certificate for Senior Counsel.

51.  The Plaintiffs are directed to submit a statement of costs within 3 days and leave is granted to the 2nd Defendant to submit its list of objections within 3 days thereafter. Unless otherwise directed by the court, costs shall be assessed on paper.

Mr Charles Manzoni SC, instructed by M/s Karas So LLP, for the Plaintiffs

Mr Vincent Lung and Mr Newton Mak, instructed by M/s P. C. Woo & Co, for the 2nd Defendant

HCA 3391/2016 & HCA 1417/2013

[2023] HKCFI 1181

HCA 3391/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3391 OF 2016

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HCA 1417/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1417 OF 2013

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(Consolidated by Order of Master Chow dated the 23^rd day of July 2018)

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J U D G M E N T

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Introduction

1.  By summons dated 20 August 2021, as amended at the hearing (“Amended Summons”), the Plaintiffs apply for leave to adduce expert evidence at the trial on 3 subjects viz:

a.  The nature of the fluorescent in situ hybridization technology (“FISH”) acquired by the 1^st Plaintiff and the 2^nd Plaintiff in 2007, to address the questions more particularly specified in Appendix 1 thereof including inter alia the size of the market for this technology and the likely future growth of the technology in the Mainland China (“FISH Issue”).

b.  The nature of the surface plasma resonance technology (“SPR”) acquired by the 1^st Plaintiff and the 2^nd Plaintiff in 2008, to address the questions more particularly specified in Appendix 2 thereof, which are similar to the questions in Appendix 1 (“SPR Issue”).

c.  The valuation of FISH as at 1 March 2007 and that of SPR as at 4 December 2008 (“Valuation Issue”).

2.  The application is opposed only by the 2^nd Defendant. The affidavit in opposition (“Tang 3”) is not made by him but by his solicitor Tang Shu Pui Simon (“Tang”). All the other active Defendants viz the 3^rd Defendant, the 5^th Defendant, the 6^th Defendant and the 13^th Defendant did not oppose the application and their attendance was excused[1].

3.  Originally, the 2^nd Defendant did not seek to adduce expert evidence in this case - he is in effect opposing the Plaintiffs’ application to adduce evidence which they consider necessary to prove their case. Mr Lung, in reply to a question from the bench, indicated that if this court were to grant the application, the 2^nd Defendant intends to adduce expert evidence on the Valuation Issue.

Background

4.  The 1^st Plaintiff was incorporated in the Cayman Islands in July 2004. Its shares were listed on NASDAQ in August 2005 and were delisted in February 2012. It was the holding company of a group whose principal business was said to be developing, manufacturing and marketing advanced surgical and medical equipment in the PRC. The 1^st Plaintiff was grossly insolvent with provable claims of over US$400 million. In July 2012, it was wound up by the Grand Court of the Cayman Islands. On 1 September 2014, Harris J made an ancillary winding up Order against it in HCCW 435 of 2012.

5.  The 2^nd Plaintiff is the 1^st Plaintiff’s wholly‑owned subsidiary.

6.  The 3^rd Plaintiffs were appointed as the provisional liquidators of the 1^st Plaintiff by Order of Harris J in November 2012. On 5 February 2015, they became the Liquidators of the 1^st Plaintiff (“Liquidators”).

7.  The 1^st Defendant (“Mr Wu”) was at all material times the founder, Chairman, CEO, director and the largest shareholder of the 1^st Plaintiff. From January 2006 to July 2012, he was a director of the 2^nd Plaintiff.

8.  The 2^nd Defendant (“Mr Tsang”) was the 1^st Plaintiff’s director from June 2007 to December 2011 as well as its CFO from January 2005 to January 2012. He was also a director of the 2^nd Plaintiff from January 2006 to December 2011. He was the second most senior executive of the 1^st Plaintiff after Mr Wu. Mr Tsang is in contempt of a High Court Order that he should attend Court in person for examination, has absconded from Hong Kong and is subject to an outstanding warrant for his arrest. Mr Tsang is also said to be a fugitive from the United States criminal justice system.

9.  The Plaintiffs claim that the former senior management of the 1^st and 2^nd Plaintiffs, assisted by their associates, perpetrated, participated in and/or benefited from the fraudulent misappropriation of US$521.8 million in cash (“Fraud”) through purported acquisitions (“Acquisitions”) from the 7^th Defendant, Supreme Well Investments Limited (“Supreme Well”), and its subsidiaries, of the following alleged medical technologies:

a.  FISH, acquired pursuant to a contract dated 6 February 2007 for US$176.8 million; and

b.  SPR, acquired pursuant to a contract dated on or around 5 October 2008 for US$345 million.

10.  It is the Plaintiffs’ case that:

a.  FISH and SPR were worthless (or of no significant value) in that they were not new technologies;

b.  Supreme Well, the counter‑party to the Acquisitions, was in fact controlled by Mr Tsang, who was the sole authorised signatory of its bank accounts with Bank of China (Hong Kong) Limited (“BOC”) and The Bank of East Asia, Limited (“BEA”) into which US$355.5 million of the consideration paid by the 1^st and 2^nd Plaintiffs were deposited. The balance was paid to Supreme Well by other means;

c.  Mr Tsang authorised the transfer of funds from Supreme Well to the bank accounts of other persons and entities (“Supreme Well Payees”) all of whom were associated with or controlled by Mr Wu, Mr Tsang and/or their associates; and

d.  the Supreme Well Payees subsequently transferred all or some of the funds to the bank accounts of other persons and entities (“Further Supreme Well Payees”), some of whom were associated with or controlled by Mr Wu, Mr Tsang and/or their associates, and thereafter to further recipients.

11.  The 1^st Defendant orchestrated, participated and conspired in the Fraud.

12.  Mr Tsang acted on both sides of the Acquisitions and directed payment of the consideration received by Supreme Well to the Supreme Well Payees. He received US$7.47 million directly and over US$379 million through entities controlled by him. The Plaintiffs claim US$524.7 million against Mr Tsang:

a.  US$521.8 million misappropriated from the 1^st and 2^nd Plaintiffs by reason of, inter alia, his breaches of duty and trust and unlawful conspiracy; and

b.  US$2.9 million, being salary and bonuses paid to him from January 2006.

13.  Further background information can be found in this court’s Judgment in the present Action dated 21 October 2022 in relation to Mr Tsang’s security for costs application.

Deliberation

14.  It is trite that the giving of expert directions is very much a matter of case management: Shenzhen Futaihong Precision Industry Co Ltd v BYD Co Ltd [2019] 2 HKC 175 at [9] and [13].

15.  As a preliminary observation, it can be seen from the background of this case summarised above that the nature and value of FISH and SPR is at the very heart of this action. The Plaintiffs claim FISH and SPR were worthless. Yet the senior management of the 1^st Plaintiff and the 2^nd Plaintiff, in particular Mr Wu and Mr Tsang, fraudulently spent hundreds of millions of dollars in acquiring them. Hence, the objective and fair value of FISH and SPR at the time of their acquisition is central to the Plaintiffs’ claim against the Defendants.

16.  Any valuation must start with a proper understanding of the nature of the technology being valued, its application, and the market for it. Purely from a case management point of view, it is difficult, if not impossible, for the trial judge to properly adjudicate on the Plaintiffs’ claim or the Defendants’ defence, without the assistance of some expert evidence.

17.  As a matter of law, the relevant principles which guide the Court in determining if expert evidence should be admitted have been laid down out by the Court of Appeal in Shenzhen Futaihong Precision Industry Co Ltd v BYD Co Ltd at [4] and more recently re-stated by Keith Yeung J in Lei Shing Hong Credit Limited v Accufast Limited & Ors[2021] HKCFI 853 at [22]. The 3 substantive conditions for admissibility of expert evidence are:

a.  The subject matter of the opinion must fall within an area in which expert evidence may properly be given (“Subject Matter Condition”).

b.  The witness must be qualified as an expert to give the evidence of the type in question (“Expertise Condition”).

c.  The evidence must be relevant to the issues being litigated (“Relevance Condition”).

18.  On condition (c), the Court of Appeal in Shenzhen Futaihong Precision Industry Co Ltd at [6] further cited with approval the following observations of Evans-Lombe J in Barings plc v Coopers & Lybrand [2001] PNLR 22 at [45]:

“… Evidence meeting [condition (a)] can still be excluded by the Court if the Court takes the view that calling it will not be helpful to the Court in resolving any issue in the case justly. Such evidence will not be helpful where the issue to be decided is … one on which the Court is able to come to a fully informed decision without hearing such evidence.”

19.  On the Subject Matter Condition, Mr Karas submits and this court agrees that FISH and SPR are medical technologies involving specialised medical knowledge as well as medical-related technical knowhow. Further, valuation is well-recognised as a field of expertise and in the present case is clearly required to enable the Court to reach an informed judgment on the fair value of FISH and SPR. It should be self-evident that the trial judge, with or without some basic medical knowledge, will not be able to form a sound judgment on these issues without the assistance of the appropriate experts.

20.  On the Expertise Condition, this is really a matter which can and should only be determined once expert directions are given and the expert reports, including no doubt the experts’ CV, are disclosed. As a matter of practice, very often, the experts’ expertise is challenged, if at all, at trial (or at least closer to trial eg at the PTR), when admissibility of evidence, factual or expert, is normally dealt with.

21.  Of course, if at the expert directions stage, a party proposes to call as an expert witness someone who obviously has no or no relevant expertise, that is a different matter. But in the present case, the Plaintiffs intend to call Mr Yang Yi Ming (an expert in the Mainland life science and medical tech industry) as to the nature and market for FISH and SPR and Mr Ian Coleman (an expert valuer) on the value of FISH and SPR[2]. According to Mr Karas, both of them have given expert evidence at the trial of a related action in China Medical Technologies Inc (In Liquidation) v KPMG in HCCL 7 of 2020 before Mimmie Chan J[3]. There is no evidence from the 2^nd Defendant to challenge their expertise. In these circumstances, and to his credit, Mr Lung has not suggested the Expertise Condition is not satisfied.

22.  On the relevance Condition, as this court observed earlier, the nature and value of FISH and SPR is at the very heart of this action and the objective and fair value of FISH and SPR at the time of their acquisition is central to the Plaintiffs’ claim against the Defendants. It is difficult to see how the trial judge would be able to come to a fully informed decision without hearing such expert evidence.

23.  In his skeleton submissions, Mr Lung raises a number of “substantive” points as to why the application is unmeritorious. In this court’s view, none of the objections are valid.

24.  First, there are numerous documents from various sources shedding light on each of the FISH Issue, the SPR Issue and the Valuation Issue. By way of example, Mr Lung submits that information about FISH and SPR and related businesses was disclosed in the 1^st Plaintiff’s annual report for the fiscal year ended 31 March 2011. Other relevant documents include the 2010 convertible note Offering Memorandum and certain Morgan Stanley research reports.

25.  In paras 14 and 15 of Tang 3, Tang said this:

“14. There are over 77,000 documents disclosed in the discovery process and over 95% of the documents were disclosed by the Plaintiffs in their 11 Lists of Documents. Among these documents, some of them contain useful and material information about the FISH and SPR Technologies acquired and their related businesses operated by the China Medical Group. Such information can assist this Court in understanding the nature of the FISH and SPR Technologies and the valuation thereof. The Plaintiffs have not explained to this Court why the available documents still cannot fully explain the nature of the FISH and SPR Technologies and valuation thereof and the reasons of necessity to adduce further expert evidence on these matters.

15. Among the disclosed documents, there are 4 different categories of documents containing information on the FISH and SPR Technologies, namely, (a) company external documents, (b) company internal documents, (c) other independent third party documents and (d) the Liquidators’ own documents.”

26.  In addition, Tang also referred to, at para 35 of Tang 3, the existence of certain contemporaneous valuations on FISH and/or SPR conducted by A.T. Kearney, Credit Suisse, PwC, BMI and Deloitte.

27.  Mr Karas’s reply is that none of these existing documents are appropriate to assist the Court in determining whether the FISH and SPR Transactions were at a gross overvalue. In particular, the corporate documents were prepared by, or on the instructions of, the 1^st Plaintiff’s former management, including Mr Tsang. The contemporaneous valuation reports were prepared for different purposes and were based on assumptions provided by the former management. As for the Liquidators’ own documents, they have not yet been disclosed as privilege is being claimed. In any event, Mr Karas has indicated to this court the Plaintiffs do not intend to call the experts from the US and Sweden whom the Liquidators have previously worked with but to call Mr Yang instead who is experienced in the Mainland China market.

28.  This court does not find it necessary to examine the minute details of Mr Karas’s reply.

29.  What is clear to this court is that it is absurd to suggest this is the occasion to examine the alleged 77,000 documents disclosed by the parties in order to determine whether expert evidence is still necessary in light of those documents. What is also reasonably clear is that those documents were not prepared by their authors as expert reports under the Rules of the High Court for the purpose of the trial of this Action. Expert evidence is there to assist the Court in understanding and adjudicating on specialised issues ie the 3 issues suggested by the Plaintiffs in a disciplined manner. The whole point of the requirement of expert directions is to subject the adducing of expert evidence to the control of the Court under the mechanism set down in section IV Expert Evidence of RHC O 38. Assuming some of the 77,000 documents do contain information about FISH and SPR or their valuation, the trial judge will still require the assistance of experts to digest those documents and to understand the validity of their contents, if and in so far as they are relied upon by any parties.

30.  Second, none of the FISH Issue, the SPR Issue and the Valuation Issue is relevant to the matters to be resolved at trial.

31.  For reasons already explained above, this argument is hopeless.

32.  Third, specifically in relation to the Valuation Issue, it is not at all clear that there are indeed experts who are capable of providing a fair valuation of the 2 technologies at a specific moment in time which is more than 15 years ago.

33.  As explained above, this is really a matter which can and should only be determined after expert directions are given and the expert reports are disclosed. The occasion for this is the trial, or closer to the trial.

34.  Fourth, it would appear that expert evidence is sought to be adduced on the FISH Issue and the SPR Issue, not to assist the Court in understanding the technologies but to assist the proposed valuation expert to come to a proper valuation of them. On any view, if the valuation expert requires assistance from another expert to inform him of the nature and details of FISH and SPR, it fundamentally begs the question of the expertise of the valuation expert in the first place.

35.  The answer to this objection is two-fold. First, the trial judge would need to properly understand the nature of the technologies, irrespective of whether the valuation expert also need to. Second, questions on the expertise of the valuation expert is not something that can or should be determined at this stage. Indeed, this is accepted by Mr Lung at the hearing in relation to the valuation expert Mr Coleman.

36.  Apart from the “substantive” objections, Mr Lung has also raised a number of “procedural” objections.

37.  First, for both the FISH Issue and the SPR Issue, the Plaintiffs have wholly failed to identify the field of expertise to which the intended expert evidence relates, in total disregard of Practice Direction 5.2 at para 20(1). The formulation of the proposed expert issues in Appendices 1 and 2 to the Amended Summons is too vague and general to be meaningful.

38.  This court does not agree. Appendices 1 and 2 are perfectly comprehensible and would not lead to confusion. In any event, Mr Lung does not propose to adduce expert evidence in relation to the FISH or SPR Issue on behalf of the 2^nd Defendant so the the formulation of the proposed expert issues in Appendices 1 and 2 should not unduly concern his client.

39.  Second, there was no reference to specific geographical market concerning regulatory approval (para 1.3 of Appendices 1 and 2) or the market size and/or future growth (para 1.4 of Appendices 1 and 2). This is true but by way of the amendment to the Summons, the geographical aspect in Appendices 1 and 2 in relation to the FISH and SPR Issues has now been confined to the Mainland China. So the issue is resolved.

40.  Third, the Plaintiffs have not identified the experts they propose to call, contrary to Practice Direction 5.2 at para 20(1). This has been rectified. In the Reply Note, it is clearly stated that they intend to adduce expert evidence from Mr Yang Yi Ming (an expert in the Mainland life science and medical tech industry) as to the nature and market for FISH and SPR and Mr Ian Coleman (an expert valuer) as the value of FISH and SPR, with their CVs attached.

41.  To conclude, for all these reasons, this court is in principle prepared to give leave to the Plaintiffs to adduce expert evidence at the trial on the 3 issues in question.

42.  Presently, the consequential directions proposed in the Amended Summons are premised on the basis that only the Plaintiffs will adduce expert evidence at trial. This is understandable since none of the active Defendants have indicated any interest in adducing expert evidence on any the 3 issues. However, in view of Mr Lung’s indication at the hearing, the consequential directions have to factor in the 2^nd Defendant’s intention to adduce expert evidence on valuation of FISH and SPR.

43.  As far as the appointment of a single joint expert by the Plaintiffs and the 2^nd Defendant on valuation is concerned, Mr Karas submits that, given the nature of the allegations against Mr Tsang and the history of these proceedings as a whole, appointing a single joint expert on valuation is going to be fraught with difficulties and is unlikely to save time and costs. This court agrees.

44.  In the circumstances, many of the usual consequential directions e.g. the timetable for the filing and exchange of expert reports on valuation, the holding of without prejudice experts meeting, the subsequent filing of a joint expert report and so on will have to be re-considered by the parties and submitted to this court for approval.

45.  As far as the length of the expert report on the FISH and SPR issues are concerned, Mr Karas has fairly informed this court that Mimmie Chan J has imposed a 50-page limit in China Medical Technologies Inc (In Liquidation) v KPMG and he is prepared to consent to the same. This is obviously sensible in view of the objectives of the CJR in promoting a sense of reasonable proportion and procedural economy in the conduct of proceedings and given that Mr Yang is effectively the only expert on the 2 issues. This page limit should therefore be included in the consequential directions in this case.

46.  To conclude, as for consequential directions as a whole, the Plaintiffs and the 2^nd Defendant are hereby directed to lodge a set of agreed, failing agreement their own, draft consequential directions for the court’s consideration within 14 days. In this respect, the parties should give serious thoughts to the appropriateness of the consequential directions given by Mimmie Chan J in China Medical Technologies Inc (In Liquidation) v KPMG. The matter will then be disposed of on paper unless a hearing is directed.

47.  Lastly, the Plaintiffs seek at para 7 of the Amended Summons, as clarified by para 12 of the Reply Note, an Order that no further interlocutory applications shall be made by Mr Tsang hereafter without leave of the Court. The basis of seeking para 7 is that, in his more recent attempts to delay and obfuscate, the 2^nd Defendant has taken out a number of further interlocutory applications which were clearly part of his tactics to delay the proceedings and any judgment against him.

48.  In this court’s view, an application of this nature by way of an amendment to an expert directions summons 5 days before the hearing and without a supporting affidavit setting out Mr Tsang’s alleged delaying tactics is wholly inappropriate. For this reason, this court is not minded to make an Order in terms of para 7 of the Amended Summons.

49.  If any party has taken out or takes out unnecessary and unmeritorious interlocutory applications for no useful purpose other than delay, such applications will no doubt be met with the appropriate costs sanctions, including indemnity costs. But each application has to be decided in light of its own circumstances. If, after fully considering the history of these proceedings, the Plaintiffs consider such an application is justified, they are at liberty to apply, if so advised, again and the court will decide on the application on the available evidence.

Disposition and costs order nisi

50.  There shall be an Order in terms of paras 1, 2 and 3 of the Amended Summons. In relation to para 1.3 of the Amended Summons, leave is also granted to the 2^nd Defendant to adduce expert evidence at trial on the same.

51.  As for other consequential directions, they shall be adjourned until after the Plaintiffs and the 2^nd Defendant have lodged a set of agreed, failing agreement their own, draft consequential directions as directed above.

52.  Para 7 of the Amended Summons is dismissed.

53.  On a nisi basis, costs of the Amended Summons be to the Plaintiffs, to be taxed if not agreed and paid by the 2^nd Defendant forthwith, certificate for counsel.

54.  For the avoidance of doubt, this court certifies that the assistance of Mr Karas, solicitor advocate, to be the equivalent to that of counsel.

Mr Jason Karas, instructed by M/s Karas So LLP, for the Plaintiffs

Mr Vincent Lung, instructed by M/s P. C. Woo & Co, for the 2^nd Defendant

M/s Charles Yeung Clement Lam Liu & Yip, for the 3^rd Defendant: excused from attendance

Ms Tse of M/s Tony Kan & Co, for the 5^th Defendant

M/s Sidley Austin, for the 6^th Defendant: excused from attendance

M/s Eversheds Sutherland, for the 13^th Defendant: excused from attendance

HCA 3391/2016
& HCA 1417/2013

[2022] HKCFI 3237

HCA 3391/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3391 OF 2016

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HCA 1417/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1417 OF 2013

_________________

(Consolidated by Order of Master Chow dated the 23^rd day of July 2018)

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JUDGMENT

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Introduction

1.  There is before this court an application by summons filed on 24 September 2021 by the 2^nd Defendant (“Mr Tsang”) for security for costs against the 1^st and 2^nd Plaintiffs under RHC O 23 r 1 and section 905 Companies Ordinance, Cap 622 (“CO”).

2.  Mr Tsang himself did not file any evidence in support of his application. Instead, the application is supported by his solicitor Mr Tang Shu Pui Simon (“Tang”) in his 2^nd and 4^th affidavits (“Tang 2” and “Tang 4” respectively). This is unusual since one of the main issues of the application is about the merits of the Plaintiffs’ claim and Mr Tsang’s defence and there is no suggestion that Mr Tsang is unable to make affirmation(s) or swear affidavit(s) to confirm his version of the facts, especially those which purportedly in reply to the summary of the Plaintiffs’ evidence against him in the 18^th affidavit of Cosimo Borrelli (“Borrelli 18”).[1]

3.  In Mr Tsang’s witness statement dated 16 June 2021, which is referred to in Tang 4, again curiously, Mr Tsang did not state his address when it is such a basic requirement. The only logical deduction from the above is that Mr Tsang does not wish to disclose his whereabouts and his unwillingness to state on oath the facts in support of his defence. All these will have a bearing when this court examines the merits of the case.

4.  The 1^st and 2^nd Plaintiffs have filed Borrelli 18 in opposition.

5.  There is no dispute that the 1^st and 2^nd Plaintiffs were incorporated in the Cayman Islands and the BVI and therefore come within RHC O 23 r 1(a). Further, the 1^st and 2^nd Plaintiffs, being insolvent companies, are likely to be unable to pay Mr Tsang’s costs from their own pockets and thus come within s 905(1). The only issue is whether that discretion should be exercised in favour of Mr Tsang, and if so, in what amount.

Background

6.  The 1^st Plaintiff, China Medical Technologies, Inc, was incorporated in the Cayman Islands in July 2004. Its shares were listed on NASDAQ in August 2005 and were delisted in February 2012. It was the holding company of a group whose principal business was said to be developing, manufacturing and marketing advanced surgical and medical equipment in the PRC. The 1^st Plaintiff was grossly insolvent with provable claims of over US$400 million. In July 2012, it was wound up by the Grand Court of the Cayman Islands. On 1 September 2014, Harris J made an ancillary winding up Order against it in HCCW 435 of 2012.

7.  The 2^nd Plaintiff, CMED Technologies Ltd, is the 1^st Plaintiff’s wholly‑owned subsidiary.

8.  The 3^rd Plaintiffs were appointed as the provisional liquidators of the 1^st Plaintiff by Order of Harris J in November 2012. On 5 February 2015, they became the Liquidators of the 1^st Plaintiff (“Liquidators”).

9.  The 1^st Defendant Mr Wu was at all material times the founder, Chairman, CEO, director and the largest shareholder of the 1^st Plaintiff. From January 2006 to July 2012, he was a director of the 2^nd Plaintiff.

10.  Mr Tsang was the 1^st Plaintiff’s director from June 2007 to December 2011 as well as its CFO from January 2005 to January 2012. He was also a director of the 2^nd Plaintiff from January 2006 to December 2011. He was the second most senior executive of the 1^st Plaintiff after Mr Wu. Mr Tsang is in contempt of a High Court Order that he should attend Court in person for examination, has absconded from Hong Kong and is subject to an outstanding warrant for his arrest. Mr Tsang is also said to be a fugitive from the United States criminal justice system.

11.  The Plaintiffs claim that the former senior management of the 1^st and 2^nd Plaintiffs, assisted by their associates, perpetrated, participated in and/or benefited from the fraudulent misappropriation of US$521.8 million in cash (“Fraud”) through purported acquisitions (“Acquisitions”) from the 7^th Defendant, Supreme Well Investments Limited (“Supreme Well”), and its subsidiaries, of the following alleged medical technologies:

(1)  FISH, acquired pursuant to a contract dated 6 February 2007 for US$176.8 million; and

(2)  surface plasma resonance technology (“SPR”) acquired pursuant to a contract dated on or around 5 October 2008 for US$345 million.

12.  It is the Plaintiffs’ case that:

(1)  the FISH and SPR technologies were worthless in that they were not new technologies;

(2)  Supreme Well, the counter‑party to the Acquisitions, was in fact controlled by Mr Tsang, who was the sole authorised signatory of its bank accounts with Bank of China (Hong Kong) Limited (“BOC”) and The Bank of East Asia, Limited (“BEA”) into which US$355.5 million of the consideration paid by the 1^st and 2^nd Plaintiffs were deposited. The balance was paid to Supreme Well by other means;

(3)  Mr Tsang authorised the transfer of funds from Supreme Well to the bank accounts of other persons and entities (“Supreme Well Payees”) all of whom were associated with or controlled by Mr Wu, Mr Tsang and/or their associates; and

(4)  the Supreme Well Payees subsequently transferred all or some of the funds to the bank accounts of other persons and entities (“Further Supreme Well Payees”), some of whom were associated with or controlled by Mr Wu, Mr Tsang and/or their associates, and thereafter to further recipients.

13.  Mr Wu orchestrated, participated and conspired in the Fraud. The Plaintiffs claim US$524.6 million against Mr Wu:

(1)  US$521.8 million misappropriated from the 1^st and 2^nd Plaintiffs by reason of, inter alia, his breaches of duty and trust and unlawful conspiracy; and

(2)  US$2.8 million, being salary and bonuses paid to him from January 2006.

14.  Mr Tsang acted on both sides of the Acquisitions and directed payment of the consideration received by Supreme Well to the Supreme Well Payees. He received US$7.47 million directly and over US$379 million through entities controlled by him. The Plaintiffs claim US$524.7 million against Mr Tsang:

(1)  US$521.8 million misappropriated from the 1^st and 2^nd Plaintiffs by reason of, inter alia, his breaches of duty and trust and unlawful conspiracy; and

(2)  US$2.9 million, being salary and bonuses paid to him from January 2006.

15.  In this court’s Judgment in these proceedings dated 22 May 2019 where this court set aside a worldwide Mareva injunction granted against inter alia Mr Tsang, this court said at para 76:

“76. Mr Tsang is, in addition to Mr Wu, said to be the main perpetrator of the Fraud. The pleaded causes of action against him include fraudulent breach of fiduciary duty/trust, want of authority, conspiracy to defraud and knowing receipt. In his skeleton argument, there is no serious attempt to contest the good arguable case against him. Instead, Mr Tsang ‘is content to leave the matter in the Court’s hands’ for the limited purpose of this application. On the materials available, this court is satisfied that a good arguable case based on fraud/dishonesty has been made out.”

16.  In CACV 505 of 2019, an appeal from this court’s said Judgment dated 22 May 2019, the Court of Appeal (Hon Au and Chow JJA) had the following observations to make in relation to Mr Tsang at paras 40, 44 and 48:

“40. In so far as Mr Tsang is concerned, he was, on the Plaintiffs’ case, a prime mover behind the Fraud:

(1) He acted on both sides of the Acquisitions.

(2) Supreme Well was his agent, nominee, trustee, façade or alter ego, and was used by him for the purpose of perpetrating the Fraud.

(3) He directly received at least US$7.47 million of funds allegedly stolen from the Company/CMED.

(4) He controlled Supreme Well (the 7^th Defendant), East Hope International Limited (the 8^th Defendant), Cheer Link Technology Investment Limited (the 9^th Defendant), Innovative (the 10^th Defendant), Worldpro Investments Limited (the 14^th Defendant), Long Chart (the 15^th Defendant), and Global Flash Limited (the 23^rd Defendant) (collectively ‘the Tsang Entitles’), which received over US$379.32m of funds allegedly stolen from the Company/CMED.

(5) He directed payment of the consideration received by Supreme Well to the Supreme Well Payees.

(6) In Re China Medical Technologies, Inc (HCCW 435/2012, unreported, 28 August 2014), in the context of an application to re-open the trial of a petition to wind up the Company in Hong Kong based on new evidence, Harris J had the following to say about Mr Tsang:

‘[6] … in the light of the new evidence it was quite clear that Mr. Tsang’s evidence was self‑serving, could not be relied on and that Mr. Tsang, as opposed to his lawyers, was intent not on assisting the Court determine the jurisdiction issue properly, but [on] avoiding his conduct being investigated.

[10] The transaction between the Company and Supreme Well and Molecular was, according to public announcements made by the Company at the time, an arm’s length transaction. However, the new documents obtained by the liquidators show that the 2 accounts into which US$355,000,000 was deposited with Bank of China Hong Kong and the Bank of East Asia respectively, had as their sole authorised signatory Mr. Tsang. The shareholder of the account opening documents is a Mr. Chen Zhong, who was allegedly the developer of the technology sold to the Company. However, through a series of transfers made initially out of the Supreme Well accounts to various other accounts the large majority of the proceeds, US$294,500,000, ended up in accounts controlled by Mr. Tsang and the Company’s former Chairman and Chief Executive Officer Mr. Wu…

[14] There is now reason to think that a very large part of the Company’s assets has been misappropriated through a scheme operated in Hong Kong involving various persons who themselves are normally resident here (Mr. Tsang, Mr. Kwan and Mr. Chong Wing Hip) and using bank accounts in Hong Kong which were operated personally by Mr. Tsang in Hong Kong.

[16] In the present case the evidence that has come to light since July of last year makes it clear there are strong prima facie grounds for suspecting that a very significant part of the Company’s assets have been misappropriated in Hong Kong using a number of Hong Kong bank accounts operated by persons in Hong Kong …’

44. The Judge was satisfied that the Plaintiffs had established a ‘good arguable case’ of fraud against the Opposing Defendants (see §§76-88 of the Main Judgment). Given this finding, as well as the nature of the Fraud itself, we consider that there was clearly a solid basis for concluding a risk of dissipation of assets by the Opposing Defendants,…

48. In the present case, the Fraud is in substance a massive scheme of wrongful misappropriation and dissipation of the Company/CMED’s assets through the extraction of very substantial funds (in the region of US$524.6m) belonging to the Company/CMED purportedly as purchase monies for worthless assets sold by Supreme Well, and the siphoning off of the funds to a large number of persons (ie Supreme Well, the Supreme Well Payees and the Further Supreme Well Payees) using more than 50 bank accounts across at least 5 jurisdictions. Viewed in this light, it seems to us that the nature of the Fraud itself ought to be regarded as being highly relevant to a proper assessment of the risk of dissipation…” (emphasis added)

Deliberation

17.  The applicable principles governing security for costs applications are well-established.

18.  As far as RHC O 23 r 1 is concerned, the principles are summarized in Hong Kong Civil Procedure 2022 at para 23/3/3.

19.  RHC O 23 r 1(1) provides that the court may order security for costs “if, having regard to all the circumstances of the case, the court thinks it just to do so”. These words have the effect of conferring upon the court a real discretion, and indeed the court is bound, by virtue thereof, to consider the circumstances of each case, and in the light thereof to determine whether and to what extent or for what amount a plaintiff may be ordered to provide security for costs. It is not an inflexible or rigid rule that a plaintiff resident abroad should provide security for costs. The court has to strike a balance between what would be too oppressive to the plaintiff and what would give the defendant a measure of security.

20.  A major matter for consideration is the likelihood of the plaintiff succeeding. In exercising its discretion, the court may take into account the merits of the plaintiff ’s claim. If the case of the plaintiff is genuine and strong, 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.

21.  This is not to say that every application for security for costs should be made the occasion for a detailed examination of the merits of the case. It is not the function of the court, when faced with an application for security for costs, to make a “preliminary run” at deciding the ultimate success or failure of the claim.

22.  As for s 905, the court’s jurisdiction is engaged once it is established that a plaintiff company will be unable to meet an adverse costs order. The court then has a discretion under s 905, just as under RHC O 23 r 1, whether to order security for costs having regard to all the circumstances. Among the circumstances which the court might take into account include inter alia whether the plaintiff has a reasonably good prospect of success, whether the application for security is being used oppressively eg so as to stifle a genuine claim and whether the plaintiff’s lack of means has been brought about by any conduct of the defendant: Hong Kong Civil Procedure 2022 para 23/3/14 at p 661.

23.  Mr Manzoni SC’s primary submission in opposing security for costs is that the justice of this case demands that no order of security should be made because to do so would be to require the victims of a theft to pay security in order to protect the interests of the thief. This submission must be looked at in light of Mr Manzoni SC’s next submission that the 1^st and 2^nd Plaintiffs’ evidence that Mr Tsang breached his fiduciary duties in respect of the FISH and SPR transactions and his involvement in the theft of over US$521.8 million is overwhelming.

24.  A brief summary of the evidence against Mr Tsang is set out at para 14 of Borrelli 18 as follows:

“14.1. The Liquidators have obtained the banking documents for Supreme Well’s bank accounts at Bank of China and Bank of East Asia, which show that Mr Tsang was the sole authorised signatory of these accounts (Borrelli WS at [30.1]). There was no legitimate reason for Mr Tsang to be the authorised signatory on Supreme Well’s bank accounts. Indeed, Mr Tsang does not dispute that he was the account signatory.

14.2. The individuals who were recorded in company documents as the ultimate shareholders of Supreme Well have all confirmed that they knew nothing of the Supreme Well Group, that their signatures on company documents were forged, and that their ID documents were used without their knowledge (Borrelli WS at [50]). Accordingly, the Supreme Well Group had been set up fraudulently and in a manner that obscured the true ownership and control of Supreme Well. A witness statement has been provided by Kwan Po Ming, who was the accountant who filed the documents to set up and maintain companies involved in the Theft (‘Kwan WS’). He confirms that it was Mr Tsang who gave him the ID documents and who obtained the signatures of these individuals (Kwan WS at [20]-[22]).

14.3. Mr Tsang attended all Board meetings at which the FISH and SPR transactions were discussed and was one of the individuals who proposed the FISH and SPR transactions to the Board (Borrelli WS at Annexure 12 at [13]). Witness statements have been provided by non-executive directors (‘Crum WS’ and ‘Capener WS’) which confirm that Mr Tsang never disclosed his involvement in Supreme Well to the Board.

14.4. All of the payments to Supreme Well for the FISH and SPR transactions in Hong Kong were made by Mr Tsang by way of cashier’s order (55 in total), often splitting a single payment into smaller cashier’s orders. There was no legitimate commercial reason for effecting transfers in this unusual manner. The only possible purpose for Mr Tsang to make payments in this manner was an attempt to conceal the nature and purpose of the payments, including in an attempt to avoid red flags for money laundering regulations (Borrelli WS at [31.2]).

14.5. The bank account transaction documents disclose that Mr Tsang was also the primary individual who laundered the Stolen Funds, having executed over 140 of the transactions by which the Stolen Funds were laundered through numerous companies involved in the Theft (Borrelli WS at [66]).

14.6. Mr Kwan also confirms that Mr Tsang provided all instructions and paid all invoices in respect of a number of the companies used in the laundering of the Stolen Funds, including East Hope International Ltd (‘East Hope’) and Cheer Link International Ltd (‘Cheer Link’) (Kwan WS at [37]-[39]). The banking documents of these companies confirm that Mr Tsang was an account signatory on these accounts (Borrelli WS at Annexure 18 at [5.3] and Annexure 19 at [5.3]).

14.7. In addition to having laundered hundreds of millions of US dollars through shell corporations beyond the reach of the Plaintiffs, the banking documents reveal that Mr Tsang received in his own name at least US$7.61 million in cash or as funds paid directly into his own personal bank accounts (see Borrelli WS at Annexure 12 and funds flow chart at Tab 1).

14.8. On 20 March 2017, following investigations by the Federal Bureau of Investigation and the United States District Attorney’s office for the Eastern District of New York, Mr Tsang, along with Mr Wu, was indicted on three counts of criminal charges in the criminal division of the United States District Court, Eastern District of New York. The charges relate to the same conduct as is alleged in this case. A copy of the indictment is at Tab 2. Mr Tsang tries to undermine the importance of the US indictment on the basis that the charges are only allegations (Tang 2 at [24]), however this ignores the fact that the indictment was issued following a hearing before a Grand Jury (Indictment at page 1). Accordingly, there has been a finding that there is sufficient evidence obtained by US authorities for Mr Tsang to stand trial if he can be extradited to the US.” (emphasis added)

25.  Mr Borrelli went on to say at para 15 that the above summary demonstrates that the Plaintiffs have substantial documentary and witness evidence that establishes Mr Tsang’s primary role in the Theft. There is no credible alternative explanation for this evidence except that the Theft was conducted by Mr Tsang. In this regard, it is important to note that Mr Alder, very properly, does not dispute the fund flow Diagrams concerning funds received by Mr Tsang and East Hope which have been annexed to Mr Borrelli’s witness statement. The 2 annexures show that the net amount received by Mr Tsang and East Hope International Ltd (“East Hope”) was US$7.61 million and US$231.5 million respectively which originated from the 1^st Plaintiff’s bank accounts. In respect of East Hope’s bank accounts, Mr Tsang and Mr Wu were authorised signatories. Mr Alder, also very properly, does not dispute that Mr Tsang did not disclose to the 1^st and 2^nd Plaintiffs his receipt of the US$7.61 million.

26.  This is not the occasion for a detailed examination of the merits of the case and this court is not going to conduct a mini-trial or to make a “preliminary run” at deciding the ultimate success or failure of the claim. Indeed, it is quite impossible to conduct a mini-trial or to make a “preliminary run” given the voluminous evidence (from multiple independent sources) relied upon by the Plaintiffs in support of their case against Mr Tsang. But this does not mean that the court will simply ignore the merits of the case altogether when the terms of RHC O 23 r (1) and s 905 CO mandate the Court to have regard to all the circumstances of the case and decide whether it is just to order security for costs. Hence, this court is entitled, in the exercise of its discretion, to take into account the merits of the Plaintiffs’ claim. In so doing, this court will concentrate on the evidence filed by the parties in relation to this application.

27.  Now that this court has set out a summary from Borrelli 18 of the evidence against Mr Tsang, this court will next consider Tang 4 in reply. At paras 6 - 10 of Tang 4, Tang says this:

“ Plaintiffs’ primary ground based on merits of their case to refuse to provide security

6. The Plaintiffs assert in Borrelli 18 at §7 that they have a strong claim against Mr. Tsang with a high probability of success and overwhelming evidence which are simply based on their selected evidence and allegations at §§14.1-14.8 of Borrelli 18 and their disputes and criticisms on selected facts from Mr. Tsang’s Amended Defence and Witness Statement at §§16-20 of Borrelli 18.

7. The Plaintiffs’ assertion of strong claim against Mr. Tsang is misconceived when proper consideration has been taken on facts from Mr. Tsang’s Amended Defence at §§3-76 and my 2^nd Affidavit at §§9-20.

8. The Plaintiffs’ assertion is further undermined when they have to rely on selected statements of Mr. Borrelli’s witness statement [Borrelli 18 at §§12, 14.1-14.7], Mr. Crum’s witness statement [Borrelli 18 at §14.3], Mr. Capener’s witness statement [Borrelli 18 at §14.3] and Mr. Kwan’s witness statement [Borrelli 18 at §§14.2 and 14.6] to support their alleged strong claim with a high probability of success and overwhelming evidence.

9. Pursuant to rules 1 and 2A(6) of Order 38 of the Rules of the High Court (Cap. 4A), the Plaintiffs must call their witnesses at trial to be examined orally to prove the facts contained in their witness statements. It is uncertain whether all the Plaintiffs’ witnesses will be available to attend before this Court to give oral evidence at trial. If any of the Plaintiffs’ witnesses will not be available to give oral evidence at trial, the witness statement of such unavailable witness will be disregarded by this Court and no other party may put such witness statement in evidence at trial. As such, it is premature for the Plaintiffs to rely on these witness statements to assert their alleged ‘strong’ claim or to demonstrate their alleged ‘overwhelming’ evidence when these witness statements have not been admitted by this Court as evidence. It is also premature for the Plaintiffs to reject Mr. Tsang’s witness statement before his cross-examination.

10. Based on the above and my 2^nd Affidavit, the Plaintiffs’ claims against Mr. Tsang is far from their asserted strong claims. Despite using tactical characterization of ‘Theft’ and ‘Stolen Funds’ repeatedly in Borrelli 18, the Plaintiffs’ claims are obviously complicated with substantial disputes of facts by Mr. Tsang in these consolidated proceedings [My 2^nd Affidavit at §§9-20]. As stated at §§12 and 20 of my 2^nd Affidavit, these disputes of facts should only be resolved at trial by the cross-examination of witnesses in these consolidated proceedings.”

28.  It would appear from paras 6 and 8 of Tang 4 that Mr Tsang, through Tang, is complaining that the Plaintiffs are simply relying their “selected” paragraphs of Borrelli 18 and the statements of 3 independent witnesses for the Plaintiffs, as well as his criticism on the Plaintiffs’ choice of “selected facts” from Mr Tsang’s Amended Defence and witness statement. But Mr Tsang fails to explain how the “unselected” parts of the Amended Defence or evidence might answer or “neutralize” the Plaintiffs’ overwhelming and compelling evidence supporting their claims. In this court’s view, if the “unselected” part of the pleadings or evidence can answer or “neutralize” the Plaintiffs’ evidence supporting their claims, Mr Tsang would have instructed Tang to say so, together with a proper explanation as to why that is so.

29.  At para 7 of Tang 4, Tang simply made a bare assertion that the Plaintiffs’ assertion of strong claim against Mr Tsang is misconceived when proper consideration has been taken on the facts from Mr Tsang’s Amended Defence at paras 3-76 and Tang 2 at 9-20. Tang did not even bother to identify which paras of Mr Tsang’s Amended Defence and Tang 2 are able to render the Plaintiffs’ claim misconceived. This is highly unsatisfactory as it amounts to telling the Court either to take Mr Tsang’s words at face value alternatively to look at everything and decide for itself which paras of Mr Tsang’s Amended Defence and Tang 2 can explain why the Plaintiffs’ claims are misconceived.

30.  At para 9 of Tang 4, Tang makes the point that a finding of a high probability of success would be premature because some of the Plaintiffs’ witnesses may not turn up at trial, and Mr Tsang has not yet been cross examined and his witness statement should not be rejected. This argument is a red herring since in every application for security for costs, the trial has yet to come up so it cannot be absolutely certain whether the Plaintiffs’ witnesses would or would not turn up at trial and at that point, Mr Tsang obviously has not been cross-examined, if he does turn up at trial. If Mr Tsang’s argument is sound, then the court will never be able form a view on the merits and all resistance to an application based on the Plaintiffs’ high probabilities of success must fail. The court’s task, as I see it, is to examine the merits of the case based on the evidence filed in support/opposition of the application.

31.  At paras 16 - 20 of Borrelli 18, Mr Borrelli says Mr Tsang’s purported explanations in his witness statement are internally inconsistent, inconsistent with the contemporaneous documents, inconsistent with the accounts of the other defendants and witnesses, and/or are inherently implausible. In particular, Mr Borrelli points out inter alia that, on Mr Tsang’s case, these FISH and SPR transactions were at arm’s length. If that were so, there was no legitimate commercial reason why the 1^st Plaintiff’s money should have gone to him or Mr Wu. However, Mr Tsang accepts that he and Mr Wu received such money: see Mr Tsang’s witness statement at [107].

32.  Mr Tsang’s explanation for receiving the Stolen Funds is that the payments to him related to monetary rewards for respective services to East Hope and Mr Wu: see Mr Tsang’s witness statement at [107]. Mr Manzoni SC submits and this court agrees that this is obviously an insufficient and incredible explanation, particularly given the serious allegations against him and his role as CFO and director of a publicly listed company at the material time. Mr Borrelli then makes the point that the absence of any legitimate reason for Mr Tsang and Mr Wu to be the recipients of millions of US dollars from a purportedly arm’s length transaction demonstrates that Mr Tsang has no credible defence to this claim.

33.  Tang has simply failed to respond substantively to paras 16-20 of Borrelli 18 in his Tang 4.

34.  In Mr Alder’s Skeleton and Reply Skeleton, he has made some efforts in responding to Borrelli 18 in Annex A of his Skeleton. Having considered those points in “rebuttal” of the Plaintiffs’ claims, this court does not find them sufficient to undermine the Plaintiffs’ claims in any substantial sense.

35.  For instance, in response to para 14.1 of Borrelli 18, Mr Alder’s rebuttal was that fund transfers from Supreme Well to the bank accounts of other companies such as East Hope[2] were commercial transactions between them instead of alleged money laundering. But that still does not answer the point that there was no legitimate commercial reason for Mr Tsang to act as the sole bank signatory of Supreme Well’s accounts with BOC and BEA.

36.  According to Mr Tsang’s witness statement at para 28, the so-called reason was that Mr Tsang agreed to act as the sole bank signatory for Supreme Well at the request of Mr Wu which in turn was at the request of the 3^rd Defendant in this case viz Dr Chen Zheng. Dr Chen was said to consider Mr Tsang an appropriate, trustworthy and helpful person as he was unconnected to Dr Chen and could be entrusted with substantial amounts of money in order for Dr Chen to minimize US tax. Mr Tsang also says apart from acting as bank signatory under the instructions of a Mr Li Hongzeng, apparently Supreme Well’s general manager, to operate the accounts, he did not take part in any business/management decisions of Supreme Well Group. In fact, according to Mr Alder’s Annex A, Mr Tsang had no other involvement in the Supreme Well Group. In this court’s view, it is curious to say the least why Dr Chen would entrust substantial amounts of money to someone who was unconnected to him but did not give him a role, such as a full-time or part-time employee or a consultant, in the Supreme Well Group when Mr Tsang was such a trustworthy and helpful person.

37.  Take another example. In response to para 14.4 of Borrelli 18, Mr Alder’s rebuttal is that cashier orders were legitimate and all were payable to Supreme Well. That really does not answer the question why Mr Tsang did not use some more conventional and convenient method of payment to Supreme Well such as bank transfers since both the 1^st Plaintiff and Supreme Well had accounts with BOC.

38.  Importantly, the Plaintiffs’ claims are in fact quite simple ie Mr Tsang breached his fiduciary duties by causing the 1^st and 2^nd Plaintiffs to enter into the FISH and SPR Transactions[3]. The claims are supported by evidence from multiple independent sources and documents obtained from inter alia the banks in question. On the other hand, Mr Tsang’s “defence” depends on the Court’s acceptance of the explanation provided by himself, not on oath, as justification for the transfer of funds summarised in the fund flow diagrams which Mr Alder does not dispute.

39.  Further, the Plaintiffs’ claims have been examined over the years by Harris J in HCCW 435/2012 and this court in the present proceedings concerning the Mareva application. In the Mareva application before this court, Mr Tsang did not even bother to go on oath to challenge the Plaintiffs’ claim on the merits. Indeed, he did not go on oath at all to oppose the continuation of the Mareva injunction - his main affirmation in opposition was made by a partner of Messrs PC Woo & Co viz George Sit. Instead he simply conceded there was a good arguable case for the purpose of the Mareva application.

40.  In the hearing before Hon Au and Chow JJA in the present proceedings, while the good arguable case requirement was not an issue in the appeal, it is obvious from the Judgment that the learned Justices had examined and accepted the nature of the Fraud relied upon by the Plaintiffs which led to their decision that there was a real risk of dissipation of assets.

41.  The Judgment of Harris J in HCCW 435/2012 quoted above, especially [6] and [14] are extremely damning on Mr Tsang’s integrity and credibility.

42.  To conclude, looking at the matter in the round, on the available evidence filed in this application, this court is of the view that the case of the Plaintiffs is genuine and strong. If so, there is nothing untoward with Mr Manzoni SC’s submission that the 1^st and 2^nd Plaintiffs’ impecuniosity is a direct cause of Mr Tsang’s wrongdoing and the justice of this case demands that no order of security should be made because to do so would be to require the victims of a theft to pay security in order to protect the interests of the thief.

43.  Lastly, Mr Tsang remains in contempt of an order of the High Court of Hong Kong dated 15 September 2014 that he should attend before a Master in person for a section 221 examination, has absconded from Hong Kong, and a warrant for his arrest remains outstanding. He is also a fugitive from the United States criminal justice system, having been indicted for offences related to the subject matter of these proceedings, by the criminal division of the United States District Court for the Eastern District of New York on 20 March 2017: see Amended Statement of Claim at para 41.6. In Mr Tsang’s Amended Defence at para 95, his response is that he did not return to Hong Kong with justifiable reasons including his concerns of potential extradition to US from Hong Kong and had offered an alternative solution to the Liquidators to conduct the examination via video link which was unreasonably rejected by the Liquidators. In fact, examination by video link was rejected by Harris J, hence the warrant of his arrest.

44.  Mr Manzoni SC strongly relies on the fact that Mr Tsang is currently in contempt of an order of the Court, and there is an extant warrant for his arrest to appear before the Court and answer questions about his conduct in respect of the Theft. Mr Tsang is also wanted in the US pursuant to a Grand Jury Indictment in respect of the Theft. Mr Tsang’s behavior is another factor which this court has taken into account as militating against an Order for security for costs. Importantly, Mr Tsang has failed to come back to Hong Kong to purge his contempt. It is therefore not unreasonable to think that he might not come back to Hong Kong at all to testify at the trial, in which case any defence he has put up in his Amended Defence would not be supported by his witness statement.

Disposition and costs order nisi

45.  Mr Tsang’s summons for security for costs is hereby dismissed.

46.  There shall be an order nisi that costs of and occasioned by the summons be to the Plaintiffs, to be taxed if not agreed, and paid by Mr Tsang forthwith, certificate for senior counsel.

Mr Charles Manzoni, SC, instructed by and Mr Harley Schumann (solicitor advocate), of Karas LLP, for the Plaintiffs

Mr Edward Alder, instructed by P C Woo & Co, for the 2^nd Defendant

HCA 3391/2016

[2019] HKCFI 2957

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3391 OF 2016

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BETWEEN

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HCA 1417/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1417 OF 2013

_________________

BETWEEN

_________________

(Consolidated by Order of Master Chow dated 23 July 2018)

_________________

________________

J U D G M E N T

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Introduction

1.  There are before this court:

(1) The 2^nd Defendant’s Summons dated 1 June 2018, as amended on 24 January 2019, to strike out certain paragraphs of the Statement of Claim filed herein on 12 December 2017 (“SOC”) relating to claims made pursuant to ss 275 and 276 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32 (“Ordinance”) on the ground that they disclose no reasonable cause of action and constitute an abuse of process (“Strike-Out Summons”);

(2) The Plaintiffs’ Summons dated 8 June 2018 under RHC O 2 r 1 to cure any irregularity in the manner of commencement of the claims made pursuant to ss 275 and 276 of the Ordinance and they be continued by way of the Amended Writ of Summons in this Action (“O2 r1 Summons”). 

2.  In the limited time available, this court only heard submissions on s 276 of the Ordinance.  This is the court’s judgment in relation to that section.

Background

3.  This Action has a chequered history.  In its judgment dated 22 May 2019, this court summarised the salient background facts and the Plaintiffs’ case against the Defendants, including the 2^nd Defendant (“Mr Tsang”).  For ease of comprehension of this judgment, this court will repeat some of those facts in so far as concerned Mr Tsang.

“The Parties

5. The 1^st Plaintiff, China Medical Technologies, Inc., was incorporated in the Cayman Islands in July 2004. Its shares were listed on NASDAQ in August 2005 and were delisted in February 2012. It was the holding company of a group whose principal business was said to be developing, manufacturing and marketing advanced surgical and medical equipment in the PRC. The 1^st Plaintiff was grossly insolvent with provable claims of over US$400m. In July 2012, it was wound up by the Grand Court of the Cayman Islands. On 1 September 2014, Harris J made an ancillary winding up Order against it in HCCW 435 of 2012.

6. The 2^nd Plaintiff, CMED Technologies Ltd, is the 1^st Plaintiff’s wholly owned subsidiary.

7. The 3^rd Plaintiffs were appointed as the provisional liquidators of the 1^st Plaintiff by Order of Harris J in November 2012. On 5 February 2015, they became the Liquidators of the 1^st Plaintiff (‘Liquidators’).

8. Mr Wu was at all material times the founder, Chairman, CEO, director and the largest shareholder of the 1^st Plaintiff. From January 2006 to July 2012, he was a director of the 2^nd Plaintiff.

9. Mr Tsang was the 1^st Plaintiff’s director from June 2007 to December 2011 as well as its CFO from January 2005 to January 2012. He was also a director of the 2^nd Plaintiff from January 2006 to December 2011. He was the second most senior executive of the 1^st Plaintiff after Mr Wu …

…

Plaintiffs’ substantive case

27. As succinctly summarized in Ms Chan SC’s skeleton argument and executive summary, the Plaintiffs claim that the former senior management of the 1^st and 2^nd Plaintiffs, assisted by their associates, perpetrated, participated in and/or benefited from the fraudulent misappropriation of US$521.8m in cash (‘Fraud’) through purported acquisitions (‘Acquisitions’) from the 7^th Defendant, Supreme Well Investments Limited (‘Supreme Well’), and its subsidiaries, of the following alleged medical technologies:

(1) FISH, acquired pursuant to a contract dated 6 February 2007 for US$176.8m; and

(2) surface plasma resonance technology (‘SPR’) acquired pursuant to a contract dated on or around 5 October 2008 for US$345m.

28. It is the Plaintiffs’ case that:

(1) the FISH and SPR technologies were worthless in that they were not new technologies;

(2) Supreme Well, the counter-party to the Acquisitions, was in fact controlled by Mr Tsang, who was the sole authorised signatory of its bank accounts with Bank of China (Hong Kong) Limited (‘BOC’) and The Bank of East Asia, Limited (‘BEA’) into which US$355.5m of the consideration paid by the 1^st and 2^nd Plaintiff was deposited. The balance was paid to Supreme Well by other means;

(3) Mr Tsang authorised the transfer of funds from Supreme Well to the bank accounts of other persons and entities (‘Supreme Well Payees’) all of whom were associated with or controlled by Mr Wu, Mr Tsang and/or their associates; and

(4) the Supreme Well Payees subsequently transferred all or some of the funds to the bank accounts of other persons and entities (‘Further Supreme Well Payees’), some of whom were associated with or controlled by Mr Wu, Mr Tsang and/or their associates, and thereafter to further recipients.

29. Mr Wu orchestrated, participated and conspired in the Fraud. The Plaintiffs claim US$524.6m against Mr Wu:

(1) US$521.8m misappropriated from the 1^st and 2^nd Plaintiffs by reason of, inter alia, his breaches of duty and trust and unlawful conspiracy; and

(2) US$2.8m, being salary and bonuses paid to him from January 2006.

30. Mr Tsang acted on both sides of the Acquisitions and directed payment of the consideration received by Supreme Well to the Supreme Well Payees. He received US$7.47m directly and US$379m through entities controlled by him. The Plaintiffs claim US$524.7m against Mr Tsang:

(1) US$521.8m misappropriated from the 1^st and 2^nd Plaintiffs by reason of, inter alia, his breaches of duty and trust and unlawful conspiracy; and

(2)   US$2.9m, being salary and bonuses paid to him from January 2006.”

4.  In so far as s 276 is concerned, the paragraphs in the SOC which Mr Tsang seeks to strike out are:

(1) Paragraph 11.1 in which it is pleaded that Mr Tsang and others acted in fraudulent breach of their fiduciary, equitable, tortious, statutory and contractual duties as directors and/or officers of the 1^st and/or 2^nd Plaintiffs and acted in breach of trust, misapplied or retained or has become liable or accountable for money or property of the 1^st Plaintiff or was guilty of misfeasance or breach of duty in relation to the 1^st Plaintiff for the purposes of s 276.

(2) Paragraph 295: The Plaintiffs pleaded that by reason of his participation in the Theft (or the fraudulent misappropriation of US$521.8m referred to above) and the matters pleaded in Section E of the SOC (breaches of duties), Mr Tsang and others have misapplied or retained or become liable or accountable for money or property of the 1^st Plaintiff or has been guilty of misfeasance or breach of duty in relation to the 1^st Plaintiff which is actionable at the suit of the 1^st Plaintiff.

(3) Paragraph 296: The Plaintiffs pleaded that in the premises, the 3^rd Plaintiffs seek remedies against inter alia Mr Tsang under s 276 to compel him to repay or restore the money or property of the 1^st Plaintiff in the amount of at least US$521.8m or any part thereof as the Court may direct, with interest at such rate as the Court thinks fit, or to contribute such sum to the assets of the 1^st Plaintiff by way of compensation as the Court thinks just.

(4) Paragraph 333.4 in which it is pleaded that the Plaintiffs are entitled to orders pursuant to s 276.

(5) Paragraph 5 of the Prayer for Relief which contains the Plaintiffs’ claim for orders pursuant to s 276. 

Deliberation

5.  S 276(1) of the Ordinance provides:

“(1) If in the course of winding up a company it appears that any of the persons specified in subsection (1A) has misapplied or retained or become liable or accountable for any money or property of the company, or been guilty of any misfeasance, breach of duty or breach of trust in relation to the company which is actionable at the suit of the company, the court may, on the application of the Official Receiver, or of the liquidator, or of any creditor or contributory, examine into the conduct of the person, and compel the person to repay or restore the money or property or any part thereof respectively with interest at such rate as the court thinks just, or to contribute such sum to the assets of the company by way of compensation in respect of the misapplication, retainer, misfeasance, breach of duty or breach of trust as the court thinks just.”

6.  Under s 276(1A), specified persons include inter alia a person who is or has been an officer of the company.

7.  On the Plaintiffs’ pleaded case, Mr Tsang is undoubtedly a person within s 276(1A).  Mr Alder’s objections to the s 276 “claim” pleaded in the SOC are that:

(1) The s 276 “claim” should have been commenced by Summons under Rule 58(1) of the Companies (Winding-up) Rules, Cap 32H (“Rule 58”) in the winding up proceedings in Hong Kong.

(2) The s 276 “claim” pleaded in a High Court Action is misconceived in principle.  The section provides a summary procedure whereby the rights of a company in liquidation may be enforced against past or present officers within existing winding up proceedings. 

(3) S 276 does not create any new duty on the part of, or any independent cause of action against, officers of a company.

(4) It is both improper and inappropriate for the Plaintiffs to advance a “claim” under s 276 by way of pleadings in an ordinary High Court Action.

8.  The relevant parts of Rule 58 provide:

“(1) An application under any of the following provisions—

(a) section 276 of the Ordinance;

…

shall be made by a summons returnable in the first instance in chambers, in which summons shall be stated the nature of the declaration or order for which application is made, and the grounds of the application, and which summons, unless otherwise ordered by the court, shall be served, in the manner in which an originating summons is required by the Rules of the High Court (Cap 4 sub leg A) to be served, on every person against whom an order is sought, …

(2) On the return of the summons, the court may give such directions as it shall think fit as to the taking of evidence wholly or in part by affidavit or orally, and the cross-examination either before a judge on the hearing in court or in chambers of any deponents to affidavits in support of or in opposition to the application and as to any report it may require the Official Receiver or liquidator to make and generally as to the procedure on the summons and for the hearing thereof.”

9.  S 276 is generally known as the “misfeasance” proceedings provision.  The section is a procedural section only and does not create new rights—it merely provides a summary method of enforcing existing duties arising before or as appropriate in the winding up of a company: Butterworths Hong KongCompany Law (Winding Up and Miscellaneous Provisions) Handbook 4^th Ed [276.02].

10.  Similarly, in Liquidator of Wing Fai Construction Co Ltd (in liq) v Yip Kwong Robert [2018] 1 HKC 472 at [96], G Lam J observed:

“96. It is common ground that s 276 merely provides a summary procedure whereby existing rights of a company in liquidation may be enforced against past or present officers of that company. The section does not create any new duty on the part of or any independent cause of action against officers of a company: see eg In re B Johnson & Co (Builders) Ltd [1955] Ch 634, 647–648; Revenue and Customs Commissioners v Holland [2010] 1 WLR 2793, §55 …” (emphasis added)

11.  It seems to this court the first 2 objections raised by Mr Alder really boil down to procedural irregularity: if the Plaintiffs intend to invoke s 276 and seek the remedies available to them under that section against Mr Tsang, they should comply with Rule 58 by issuing a misfeasance summons.  In this regard, it should be noted that the procedure laid down in Rule 58 is mandatory—an application under s 276 “shall be made by a summons …”. 

12.  Also in this regard, it should be noted that in his 5^th affidavit dated 25 June 2018 (“Borrelli 5”), Mr Borrelli acknowledged that an application under s 276 is to be made by summons returnable at the first instance in chambers.  If so, there is no justification for the Plaintiffs to knowingly flout Rule 58 and plead a “claim” under s 276 in the SOC as if it created a new duty on the part of or an independent cause of action against officers of a company giving rise to remedies, discretionary or otherwise, in a High Court Action. 

13.  The only justification put forward in Borrelli 5 at paragraphs 7 and 8 are that:

“7. The Liquidators were advised that the Companies Rules are silent as to the procedure where, as in the present action, the s.275 and s.276 claims are part of a larger overriding claim and combined with other causes of action, including against other defendants.

8. In the circumstances, on advice, the Liquidators made the decision to include the S.275 and S.276 Claims as part of their overall claim, by writ of summons. This decision was made on the basis that:

8.1 the Plaintiffs had multiple related causes of action against the Defendants in HCA 3391/2016 and each of these related causes of action, including the S.275 and S.276 Claims:

(a) stem from the same subject matter, referred to as the ‘Theft’ (as set out in the Statement of Claim at Section D);

(b) are brought by interrelated parties, being the First, Second and Third Plaintiffs;

(c) are brought against interrelated parties, being the 1^st to 23^rd Defendants; and

(d) require consideration by the parties and the Court of interrelated legal and factual issues, as set out in the Statement of Claim;

8.2 the pleading of the S.275 and S.276 Claims in the Statement of Claim is interconnected with and relies on matters pleaded in respect of the Theft at Section D of the Statement of Claim;

8.3 the pleading of the s.276 claim is also interconnected with and relies on the matters pleaded in respect of the breaches of duties by the directors and officers of the First and Second Plaintiffs at Section E of the Statement of Claim;

…”

14.  From the Plaintiffs’ point of view, it may be more convenient for them to lump everything in one single document, instead of (i) properly identifying the relevant facts they need to put forward before the court in support of a s 276 (or s 275) Summons and (ii) separately pleading in a statement of claim the material facts in support of their “multiple related causes of action against the Defendants in HCA 3391/2016”.  But convenience of the Plaintiffs is not a valid ground to ignore the mandatory terms of Rule 58.  It is pointless for the Plaintiffs to issue the O2 r1 Summons to cure the irregularity in the manner of commencement of the “claim” made pursuant to s 276 so that it can be continued by way of the Amended Writ of Summons in this Action.  The simplest and most cost-effective way to cure the irregularity is to issue a misfeasance Summons and seek appropriate directions from the court, if so advised, such that the Summons and this Action can be heard together in order to avoid the possibility of conflicting decisions.  Instead, the Plaintiffs chose to incur their time and costs to argue that s 276 can be pleaded in a High Court Action as though it gave rise to an independent cause of action.

15.  As for the 3^rd and 4^th objections, as this court points out earlier, s 276 is a procedural section only—legally speaking, there is no such thing as a s 276 “claim”, or “cause of action” for that matter.  If so, the application to strike out such parts of the SOC concerning s 276 as disclosing no reasonable cause of action must succeed. The s 276 “claim” is not a cause of action at all—let alone a reasonable cause of action.

16.  As Mr Alder vividly points out in his skeleton argument, it makes no more sense to plead s 276 as a “claim” in a statement of claim than it would to plead a RHC O 14 (which is also a procedural section) “claim” in a statement of claim in a High Court Action. 

17.  In his skeleton arguments, Mr Nip reiterates the reasons given in Borrelli 5 that in light of the particular circumstances of the present case where the Plaintiffs have multiple related causes of action stemming from the same subject matter against interrelated parties, the Liquidators made a conscious decision to include the s 276 “claim” in the present action. 

18.  Mr Nip submits that the Plaintiffs are unaware of any authority for the proposition that s 276 can only be pursued by summons in the winding up proceedings.  On the contrary, In re B Johnson & Co (Builders) Ltd [1955] Ch 634 at 647, Evershed MR held that s 333 of the Companies Act 1948 (the former English equivalent of s 276) provided a non-exclusive method of litigating particular claims.  That is true as far as it goes.  But in order to fully understand what the learned Master of the Rolls meant by non-exclusive method, one must quote a fuller passage of the judgment:

“… Section 333, it has been many times said, is a purely procedural section. I do not in the least seek, by so stating, to lessen its significance: I mean (to restate it) that it does not create any new cause of action; it only provides a method of litigating particular claims; and, in providing a method, it is not exclusive.Prima facie (though, as will be later seen, there are difficulties in the plaintiff’s way in this case), if the procedure of section 333 is not open against any person who is within the section, the claimant may proceed by ordinary action.” (emphasis added)

19.  Mr Nip further cites Phillips v McGregor-Paterson [2010] 1 BCLC 72 and Parkinson Engineering Services plc (in liquidation) v Swan [2010] Bus LR 857 as examples where misfeasance proceedings under s 212 of the Insolvency Act 1986 (the current English equivalent of s 276) were commenced by way of a standard claim form issued in the Chancery Division of the High Court.  Mr Nip’s diligence in his research and his efforts to cure the irregularity mentioned in the O2 r1 Summons are highly admirable.  The short answer is that these cases are not authorities which justify the Plaintiffs in ignoring the mandatory terms of Rule 58 or prohibit this court from holding that the proper way to cure the admitted irregularity is by issuing a misfeasance Summons under that Rule. 

20.  To conclude, this court agrees with Mr Alder that, in so far as s 276 is concerned, the Strike-Out Summons should succeed and the O2 r1 Summons should be dismissed. 

Disposition and costs order nisi

21.  In so far as s 276 of the Ordinance is concerned, there shall be an order in terms of paragraph 1 of the 2^nd Defendant’s Strike-Out Summons while the Plaintiffs’ O2 r1 Summons is hereby dismissed.

22.  There shall be an order nisi that costs of both Summonses be to the 2^nd Defendant, to be taxed if not agreed, and paid by the Plaintiffs forthwith, certificate for counsel. 

23.  Liberty to the parties to apply for directions in relation to s 276 of the Ordinance in terms similar or substantially similar to the consent summons dated 22 November 2019.

24.  Lastly, this court thanks counsel on both sides for their helpful assistance. 

Mr Norman Nip, instructed by Lipman Karas, for the Plaintiffs

Mr Edward Alder, instructed by P C Woo & Co, for the 2^nd Defendant

Lam, Lee & Lai, for the 3^rd Defendant, was excused from attendance

Tony Kan & Co, for the 5^th Defendant, was excused from attendance

Sidley Austin, for the 6^th Defendant, was excused from attendance

Eversheds Sutherland, for the 13^th Defendant, was excused from attendance

HCA 3391/2016

[2019] HKCFI 1809

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3391 OF 2016

________________________

________________________

HCA 1417/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1417 OF 2013

________________________

________________________

RULING ON COSTS

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1.  This is the 2^nd Defendant’s application by Summons dated 4 June 2019 (“Summons”) to vary the costs order nisi at para 91 of this court’s 22 May 2019 Judgment so that the costs of and occasioned by the Plaintiffs’ Continuation Summonses, including all costs reserved, be to the 2^nd Defendant to be taxed if not agreed on the indemnity (or common fund) basis up to and including 13 July 2018 and on indemnity basis thereafter and be paid forthwith, with certificate for 2 Counsel.

2.  As far as “costs reserved” are concerned, Mr Lee accepts that the 2^nd Defendant should have those costs.  But he does resist costs to be taxed on a higher basis than party and party.

3.  The starting point is that an order for costs made in favour of a successful party in litigation is on a party and party basis: Town Planning Board v Society for Protection of the Harbour Ltd (No 2) (2004) 7 HKCFAR 114 at [13].

4.  In Town Planning Board, the Court of Final Appeal observed at [17] that the discretion to award indemnity costs is not to be fettered or circumscribed beyond the requirement that taxation on an indemnity basis must be “appropriate”.  However, at [15], the Court of Final Appeal also held that in order to obtain an order for indemnity costs, the successful party should show that the case has some “special or unusual feature”, citing inter aliaOverseas Trust Bank Ltd v Coopers & Lybrand [1991] 1 HKLR 177.

5.  In Overseas Trust Bank Ltd v Coopers & Lybrand at 182J‑183A, Godfrey J held that in order to justify the award of costs on a common fund basis, the case had to have some special or unusual feature, whereas in order to justify the award of costs on an indemnity basis, the case must either be one of a type already recognized in the court’s practice as warranting a taxation on that basis (such as contempt cases) or the case had some feature even more special or unusual than that which would justify common fund costs.

6.  In the 22 May 2019 Judgment, this court held that the Plaintiffs had committed a procedural irregularity in applying for the Injunction ex parte in that they had failed to show any need for confidentiality or urgency and hence there was absolutely no valid basis for them to do so.  While committing a procedural irregularity by making an unjustified ex parte application in itself is sufficient ground for discharging the Injunction, it does not necessarily justify an award of indemnity costs.  In Luck Continent Ltd v Leonora Yung unrep, CACV 42 of 2010, 22 October 2010, for instance, the Court of Appeal set aside the Injunction unjustifiably obtained ex parte but took the view at [23] that it was sufficient penalty that the plaintiffs had to pay all the defendants’ costs and refused to award indemnity costs.

7.  This court respectfully adopts the same view in this case.

8.  In the 22 May 2019 Judgment, this court held that there was no solid or cogent evidence to justify an inference that the Opposing Defendants, including the 2^nd Defendant would, given the opportunity, dissipate their assets so as to evade the due process of the law and that the Plaintiffs had failed to show a real risk of dissipation of assets.  But this court also held that a good arguable case based on fraud/dishonesty against the 2^nd Defendant had been made out as his counsel was “content to leave the matter in the Court’s hand for the limited purpose of the application” — a good arguable case being a case which is more than barely capable of serious argument but not necessarily one which has a better than 50% chance of success.

9.  On real risk of dissipation, it is undisputed that the 2^nd Defendant had been given many years’ notice of the claim against him by the Plaintiffs.  Further, the Plaintiffs admittedly did not have any direct evidence against him and relied on no recent development concerning the 2^nd Defendant in justifying the ex parte application.  Nevertheless, the Plaintiffs’ Continuation Summonses cannot be said to be “entirely devoid of merit” as in Huge Dragon Corp Ltd v Lung Mun Oasis (IO) [2014] 3 HKLRD 286 (CA) at [14] or “hopeless from the outset” and “a total waste of the court’s time” as in David Golan v Janek Davitashvili & Anr unrep, HCCW 255 of 2016, 1 March 2017, DHCJ Le Pichon at [78].

10.  It was not wholly unreasonable for the Plaintiffs to pin their hope on the Honsaico Trading Ltd v Hong Yiah Seng Co Ltd [1990] 1 HKLR 235 and Standard Chartered Securities Ltd v Lai Arthur [1993] 1 HKC 375 line of authorities, as well asAkai Holdings Ltd & Ors v Ho Wing On, Christopher & Ors unrep, HCCL 37 & 40 of 2005, 9 February 2009, Stone J and Crete Maritime Corp v Emirates Shipping Line DMCEST [2017] 5 HKLRD 345 in trying to persuade this court to infer a real risk of dissipation by the 2^nd Defendant as an alleged fraudster, albeit eventually this court was not so persuaded after evaluating the totality of the evidence.

11.  The fact that the 2^nd Defendant had been given many years’ notice of the claim against him by the Plaintiffs cannot be disputed.  The Plaintiffs’ delay in making the ex parte application years after alerting the 2^nd Defendant to the claim against him, coupled with the lack of a proper explanation for it, was a relevant consideration when assessing whether there was a real risk of dissipation: Re Chau Cham Wong Patrick (a bankrupt) [2016] 2 HKLRD 278.  Mr Alder submits that at the ex parte application, the Plaintiffs had failed to point this out fairly to L Chan J and this constitutes a factor in support of indemnity costs.

12.  But as Mr Lee points out, the ex parte application was handled by reputable senior counsel and some attempts had been made to draw L Chan J’s attention to the various weaknesses of the Plaintiffs’ case, including delay, in their skeleton argument in the section “Full and frank disclosure”.  This court has considered the ex parte skeleton argument.  Although the Plaintiffs’ senior counsel could have put the weaknesses of their case on risk of dissipation, in terms of facts and the law, more fully, this court does not accept that was a deliberate attempt to withhold relevant materials from the ex parte Judge so as to justify indemnity costs: New Asia Energy Ltd v Concord Oil (Hong Kong) Ltd [2000] 2 HKC 681 at 690‑1.

13.  Lastly, regarding the warning letter dated 25 June 2018 from the 2^nd Defendant’s solicitors to the Plaintiffs’ solicitors pointing out the weaknesses of their case coupled with a threat of indemnity costs which was ignored by the Plaintiffs, this court does not regard this as possibly constituting a “special or unusual feature” of the case.  In this court’s experience at the Bar and as a Judge, that sort of correspondence is anything but unusual in litigation.  The Plaintiffs have ignored the warning at their own peril and will have to pay the usual price of bearing the 2^nd Defendant’s costs.  But that does not justify indemnity costs.

14.  To conclude, this court is not satisfied that there are any “special or unusual” features which make indemnity costs against the Plaintiffs appropriate.  

15.  Save that all costsof and occasioned by the Plaintiffs’ Continuation Summonses previously reserved, if any, should also be to the 2^nd Defendant to be taxed if not agreed and paid by the Plaintiffs forthwith, with certificate for 1 counsel or 2 counsel, as the case may be, the Summons is hereby dismissed.

16.  There shall be a costs order nisi that costs of and occasioned by the Summons be to the Plaintiffs, to be taxed if not agreed, and paid by the 2^nd Defendant forthwith, certificate for 1 counsel.

HCA 3391/2016

[2019] HKCFI 1266

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3391 OF 2016

________________________

________________________

HCA 1417/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1417 OF 2013

________________________

________________________

(Consolidated by Order of Master Chow dated 23 July 2018)

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J U D G M E N T

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Introduction

1.  This is the adjourned hearing of the Plaintiffs’ summonses dated 13 December 2017 and 9 January 2018 (“Continuation Summonses”) issued in HCA 3391/2016 (“HCA 3391”) seeking the continuation of the worldwide Mareva injunction granted ex parte without notice by L Chan J on 11 December 2017 and amended by the Learned Judge on 8 January 2018 (“Injunction”).  The Injunction was granted against the 1^st Defendant (“Mr Wu”), 2^nd Defendant (“Mr Tsang”), 3^rd Defendant (“Dr Chen”), 5^th Defendant (“Mr Chong”) and 13^th Defendant (“Ms Bi”).  The Injunction was continued by Chow J on 12 January 2018 pending the substantive hearing of the Continuation Summonses and the Discharge Summons as defined below.

2.  The principal evidence in support of the ex parte application on 11 December 2017 was the 1^st affidavit of Cosimo Borrelli dated 8 December 2017 (“Borrelli 1”). The body of the affidavit, together with inter alia exhibits CB1 to 3 alone, comprise about 2,000 pages.

3.  The Continuation Summonses are opposed by Mr Tsang, Mr Chong and Ms Bi (“Opposing Defendants”).  Solicitors for the 3^rd Defendant had written to this court indicating the 3^rd Defendant did not intend to oppose the Continuation Summonses and their attendance was accordingly excused. The 1^st Defendant had not filed evidence in opposition and did not attend the hearing.

4.  There are also before this court Mr Chong’s summons dated 9 January 2018 for a discharge of the Injunction (“Discharge Summons”) and the 2^nd Defendant’s summons dated 16 July 2018 for fortification of the Plaintiffs’ cross‑undertakings as to damages (“Fortification Summons”).  Judging from Mr Ho’s skeleton submissions, the same arguments are advanced in support of the Discharge Summons and to resist the Continuation Summonses. The Fortification Summons occupies a very minor part of this hearing.

The Parties

5.  The 1^st Plaintiff, China Medical Technologies, Inc., was incorporated in the Cayman Islands in July 2004.  Its shares were listed on NASDAQ in August 2005 and were delisted in February 2012.  It was the holding company of a group whose principal business was said to be developing, manufacturing and marketing advanced surgical and medical equipment in the PRC.  The 1^st Plaintiff was grossly insolvent with provable claims of over US$400m.  In July 2012, it was wound up by the Grand Court of the Cayman Islands.  On 1 September 2014, Harris J made an ancillary winding up Order against it in HCCW 435 of 2012. 

6.  The 2^nd Plaintiff, CMED Technologies Ltd, is the 1^st Plaintiff’s wholly‑owned subsidiary.

7.  The 3^rd Plaintiffs were appointed as the provisional liquidators of the 1^st Plaintiff by Order of Harris J in November 2012. On 5 February 2015, they became the Liquidators of the 1^st Plaintiff (“Liquidators”).

8.  Mr Wu was at all material times the founder, Chairman, CEO, director and the largest shareholder of the 1^st Plaintiff.  From January 2006 to July 2012, he was a director of the 2^nd Plaintiff.

9.  Mr Tsang was the 1^st Plaintiff’s director from June 2007 to December 2011 as well as its CFO from January 2005 to January 2012.  He was also a director of the 2^nd Plaintiff from January 2006 to December 2011.  He was the second most senior executive of the 1^st Plaintiff after Mr Wu.  Mr Tsang is said to be in contempt of a High Court Order that he should attend for examination, has absconded from Hong Kong and is subject to an outstanding warrant for his arrest.  Mr Tsang is also said to be a fugitive from the United States criminal justice system.  According to his 2^nd affirmation dated 27 March 2018, his present residence appears to be in the PRC.  His main affirmation in opposition to the Continuation Summonses was made by a partner of Messrs PC Woo & Co viz Mr George Sit.

10.  Dr Chen was from about February 2007 the Chief Technology Officer of the 2^nd and/or 1^st Plaintiff’s Fluorescent in situ hybridisation (“FISH”) technology business and from November 2007 the Chief Technology Officer of all of the 1^st Plaintiff’s businesses.

11.  Mr Chong and Ms Bi are said to be associates of the former management of the 1^st and 2^nd Plaintiffs, particularly Mr Wu and Mr Tsang.

12.  Ms Bi was at all material times the wife / former wife of Mr Wu.  On her own evidence, she and Mr Wu were married in 1995 and they ran several medical related companies in the PRC and Hong Kong.  Ms Bi and Mr Wu separated in 2001 and were divorced in June 2012.  She obtained Singapore citizenship in November 2010 and is currently living in Singapore.  From the date of its incorporation in June 2010 until August 2012, she was a director of CMT Diagnostics (Singapore) Pte Ltd (“CMT Singapore”), a wholly‑owned indirect subsidiary of the 1^st Plaintiff. From June 2010 to December 2011, she and Mr Tsang were common directors of CMT Singapore. CMT Singapore was wound up in April 2013. Ms Bi is said to be a friend of inter alia Mr Tsang and Mr Chong and had business and/or personal dealings with them.

13.  Mr Chong is, on his own evidence, a friend of Ms Bi and, through her, came to know Mr Wu in the late 1990s in Hong Kong and then, through Mr Wu, came to know Mr Tsang in around 2002.  Mr Chong is a Hong Kong resident.  Mr Chong is said to be an associate of Mr Wu and Mr Tsang and acted upon their instructions and directions.

Legal Principles

14.  While the applicable principles are largely uncontroversial, this court shall first remind itself of them and set them out for ease of comprehension of the subsequent discussion on the parties’ respective contentions.

15.  First, when a plaintiff applies for a worldwide Mareva injunction, it has to satisfy the Court that:

(1)  it has a good arguable case;

(2)  there are no or insufficient assets within the jurisdiction to satisfy its claim;

(3)  there are assets outside the jurisdiction; and

(4)  there is a real risk of dissipation or secretion of those assets so as to render nugatory any judgment which a plaintiff may eventually obtain.

Hong Kong Civil Procedure 2019 Vol 1 para 29/1/83

16.  Second, the threshold of “a good arguable case” is much higher than “a serious issue to be tried” under the American Cyanamid principles.  The applicant need not go so far as to persuade the Court that it is likely to win but it needs to show a case which is more than barely capable of serious argument, albeit not necessarily one that the judge believes to have a better than 50% chance of success. The existence of a good arguable defence does not necessarily negate a good arguable case: Hong Kong Civil Procedure 2019 Vol 1 para 29/1/66; Grupo Pacifica Incorporada v Worldwide Marine Product Ltd & Ors unrep, CACV 217 of 2015, 28 January 2016 at [5.1].

17.  Third, given the serious consequences of a Mareva injunction, the standard of proving a real risk of dissipation is “relatively high”.  The plaintiff must establish that risk by reference to “solid evidence” or “cogent evidence”: Laemthong v Artis [2005] 1 Lloyd’s Rep 100 at [60]‑[61]; Hsin Chong Construction (Asia) Ltd v Henble Ltd [2005] 3 HKC 27 at [20]; Re Chau Cham Wong Patrick (a bankrupt) [2016] 2 HKLRD 278 at [31].

18.  Evidence that a defendant has exhibited “an unacceptably low standard of commercial morality” in his dealings with the plaintiff or that he is of “questionable integrity” may entitle the Court to conclude that there is a sufficient risk of dissipation: Honsaico Trading Ltd v Hong Yiah Seng Co Ltd [1990] 1 HKLR 235 at 240H; Standard Chartered Securities Ltd v Lai Arthur [1993] 1 HKC 375 at 394B.

19.  In Crete Maritime Corp v Emirates Shipping Line DMCEST [2017] 5 HKLRD 345 at [17]‑[18], A Chan J observed:

“ 17. It has to be accepted that an applicant will often be unable to put forward direct evidence of a risk of dissipation, and that the burden is often discharged by inferential evidence: see Pacific Concepts (HK) Ltd v Michel Brennion (unrep, HCA 2672/2008, [2009] HKEC 444, 13 March 2009) at [24]‑[25], per Andrew Cheung J (as he then was). However, it is self‑evident that applying Honsaico too readily will result in grave injustice.

18. It was pointed out in Pacific Concepts that it is not a proposition of law that an unacceptably low standard of commercial morality would constitute a real risk of dissipation. Instead, it is a matter of common sense that there is a risk that a person of such morality may seek to render himself judgment proof. The task of the court is to assess that risk in light of all the evidence before it.” (emphasis added)

20.  Similar warning against applying Honsaico Trading Ltd too readily was issued by L Wong J in Nicholas VA Schebek-Fuerstenberg v Yip Wai Sang & Anr unrep, HCA 221 of 2017, 31 May 2017.  At [33], the learned Judge observed that the description of a person as being of an “unacceptably low standard of commercial morality” or “questionable integrity” is a very serious allegation for which the Court would expect nothing less than “cogent proof”.

21.  Where there is a good arguable case for fraud or dishonesty, the court may more readily infer a real risk of dissipation by the fraudster: Akai Holdings Ltd & Ors v Ho Wing On, Christopher & Ors unrep, HCCL 37 & 40 of 2005, 9 February 2009, Stone J at [53].  A fortiori, where there is a clear case of fraud, such as the now prevalent internet fraud, the real risk of dissipation by the fraudster may be said to be self‑evident: Crete Maritime Corp v Emirates Shipping Line DMCEST at [21].