UNA TRADING FZE v. HONG KONG NUMISMATIC PROMOTION CO LTD AND OTHERS

HCA 1048/2018

[2022] HKCFI 2406

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1048 OF 2018

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BETWEEN

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REASONS FOR DECISION

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1.  On 24 June 2022 following a trial, which ended on 20 June 2022, I handed down my decision in HCA 1048/2018 dismissing the Plaintiff’s action against the 1^st to 3^rd Defendants. I do not need to repeat the details of the claims. In short the Plaintiff was subject to a fraud. Some of the monies obtained as a result of the fraud were paid to the 4^th Defendant in HCA 966/2018 (Mega Wealth, against whom I entered judgment) and the Plaintiff alleged that Mega Wealth paid a substantial amount of the sums it received to 1^st Defendant. The Plaintiff sought to recover those sums in this action HCA 1048/2018.

2.  The Defendants in HCA 1048/2018 did not dispute that the Plaintiff had been defrauded or that the money received by the 1^st Defendant originated from the monies improperly obtained by Mega Wealth from the Plaintiff. The Defendants defended the claim on the basis that the 3^rd Defendant was a bona fide purchaser for value. The Defendants contended that the 3^rd Defendant had sold a number of valuable watches to Mega Wealth, the watches had been delivered to Mega Wealth and that the sale was bona fide. I accepted the Defendants’ case having heard three witnesses involved in the transaction called on its behalf. The Plaintiff did not call any witness with knowledge of the transaction.

3.  The Plaintiff has issued a notice of appeal. It applies for a stay of the judgment pending appeal, because the monies which it alleges the Defendants are liable to pay to it have been paid into court and, it suggests, if the monies are released there is are a real risk that if the appeal is successful the Defendants will have disposed of it and the appeal will be rendered nugatory.

4.  The principles guiding the court in determining an application for a stay pending appeal are not controversial. Lam VP (as he then was) explains them in Ng Yuk Pui Kelly v Estate of Dung Wai Man[1] at [8]:

“The principles governing an application for stay pending appeal are well settled. They were discussed in Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84. Recently, in Bright Gold Ltd v Mega Well Development Ltd[2019] HKCA 1440, [2019] HKEC 4143, the applicable legal principles were summarised at [13] as follows:

(a) The applicant must show an arguable ground of appeal (viz one with reasonable prospect of success) before the discretion to grant stay is engaged, see Star Play, [9(6)]; Sy Chin Mong Stephen v Lo Shing Kin (CACV 45/2013, [2013] HKEC 383, 13 March 2013);

(b) Even if arguable grounds exist, there must be other circumstances justifying the deprivation of the successful party the fruit of the judgment. Sometimes, the applicant may do so by showing the existence of strong ground of appeal. Sometimes, the applicant may do so by showing that the appeal would be rendered nugatory if no stay is granted. In either case, the court must also have regard to the prejudice that could be suffered by the successful party if a stay is granted. In all cases where the discretion is engaged, ultimately it is a balancing process with common sense; and

(c) In assessing the strength of the appeal for the purpose of a stay application, it is impracticable and undesirable to go deeply into the merits: see Star Play, [9(5)]. A broad brush approach is called for. Thus, counsel should not attempt to deploy full arguments on law and facts quoting in extenso all the relevant evidence and transcript as if the application for stay is a platform for a rehearsal of the appeal proper. Generally, with the benefit of written skeleton submissions, the court is able to assess whether an appeal has a high prospect of success without lengthy oral submissions from counsel, MKKWH v RKSH (CACV 197/2012, [2013] HKEC 281, 27 February 2013), [3]. Application for stay of execution should not be a dry run of the appeal, see Ming Hsieh v Xu Zhe[2018] HKCA 390, [2018] HKEC 2041, [9].”

5.  Also relevant are the principles, which demonstrate the reluctance of the Court of Appeal to interfere with factual findings made by a judge after trial. Lord Hoffmann in Biogen Inc v Medeva Plc[2], which was cited by Bokhary PJ in Ting Kwok Keung v Tam Dick Yuen[3], explains:

“41. … I would reinforce that by respectfully adopting what Lord Hoffmann said in Biogen Inc v. Medeva PIc [1997] RPC 1 at p.45 and repeated in Piglowska v. Piglowski at p.1372 D-F:

‘The need for appellate caution in reversing the trial judge’s evaluation of the facts is based upon much more solid grounds than professional courtesy. It is because specific findings of fact, even by the most meticulous judge, are inherently an incomplete statement of the impression which was made upon him by the primary evidence. His expressed findings are always surrounded by a penumbra of imprecision as to emphasis, relative weight, minor qualification and nuance ... of which time and language do not permit exact expression, but which may play an important part in the judge’s overall evaluation.’”

6.  Godfrey JA in Tang Kwok Ming v Daxprofit Scaffolding Ltd[4]. At pages 663G-664B, referred to the unhelpful practice of “picking holes in the judgment” in the following passage:

“It is important for counsel and solicitors (and for the legal aid authorities) to remember the very limited extent to which this court will interfere in a case in which the appellant seeks to dispute the judge’s findings of fact. If it is necessary to disturb an adverse finding of primary fact, the appellant has to demonstrate either (1) that there is no evidence to support it; or (2) that it is contrary to documentary or other incontrovertible evidence which the judge overlooked. It is not enough to show there is little evidence to support the judge’s finding, or that it was ‘contrary to the weight of the evidence’. The weight of the evidence is a matter for the trial judge. It does not matter how many witnesses say one thing, and how few say the contrary. The judge is perfectly entitled to prefer the evidence of the few to that of the many.

The important consideration for an appellant who seeks to challenge the judge’s findings of fact is the judgment itself. It is for the appellant to show why he says the judge was wrong. The present case is another example of a practice, all too common in Hong Kong, of trying to pick holes in the judgment, and treating these as grounds of appeal. There is simply no point in setting out in 20 numbered paragraphs (as here) every conceivable error of which the appellant accuses the judge.”

7.  The Plaintiff argues that it has strong grounds of appeal, alternatively that it has shown an arguable ground of appeal. The grounds of appeal, as I understand them, centre on the suggestion that I misunderstood the burden of proof and misapplied it and that if I had properly analysed the evidence I would have rejected the Defendants’ witnesses evidence and found for the Plaintiff. The Defendants unsurprisingly oppose the application.

8.  It seems to me that the Plaintiff’s appeal will involve asking the Court of Appeal to undertake its own independent assessment of the evidence and reach a different conclusion to the one that I did having heard the three witnesses called by the Defendants. The appeal will fall squarely into the kind of case, in which, as Lord Hoffmann and Godfrey JA explain, the Court of Appeal will rarely intervene. In my view the case was ultimately straightforward: did I accept the Defendants’ evidence. I did. I do not, therefore, think that the Plaintiff has satisfied the principles I have explained. I will dismiss the application with costs to the Defendants. If I had been minded to grant a stay I would have required, an undertaking that the Plaintiff will pay any loss of interest incurred by the Defendants by virtue of being kept out of the money presently in court. The Defendants agree to a temporary stay, which I will order, to allow the Plaintiff to issue an application for a stay before the Court of Appeal within 14 days supported by an undertaking to the Court that the Plaintiff will compensate the Defendants for any loss of interest caused by them being held out of the money in court pending the determination of the application for a stay before the Court of Appeal.

9.  There is one last matter I will mention. In [16] of Ms Leung’s skeleton argument she makes the complaint that I cited in [12] of my decision authorities dealing with the drawing of inferences that were not cited to me. This is misleading. I expressly referred Ms Leung to the authorities during her closing submissions. The transcript records the following exchange:

“COURT: And you accept that that’s basically an inference? That must be an inference, mustn’t it?

MS LEUNG: That must be an inference that this court is entitled to draw from, for example, the video. For example, the WhatsApp chat record that has been produced between Mr Hung and Mr Sin. Your Lordship will recall that at the very beginning of this transaction, Mr Hung himself had some doubt that – so much so that he had to give Mr Sin, ‘Wait, don’t use Happy Wise account, use Numismatic account instead’. Your Lordship will recall this part of the evidence.

COURT: Right. But you know the authorities I’m referring to, although you haven’t cited them.

MS LEUNG: Yes.

COURT: So I need to make findings of fact which are sufficiently compelling to justify….

MS LEUNG: Such adverse inference to be drawn.

COURT: Yes, all right.

MS LEUNG: My Lord, we haven’t cited that particular case because we felt this is quite trite, and I don’t want to bore the court with unnecessary authorities here.”

10.  In my view the authorities cited in [12] of my decision should have been cited to me by Ms Leung, but were not. Given the exchange that the transcript records the suggestion, or at least implication, that there was something improper in my referring to them is disingenuous. Their relevance is, I would have thought obvious, namely, that the court was effectively being asked to infer that the Defendants in their dealing with Mega Wealth were not acting bona fide, which is a serious allegation and one which required the disciplined approach to inferences explained by the Court of Final Appeal.

Ms Joyce Leung and Mr Justin Ismail, instructed by Haldanes, for the plaintiff

Mr Bache Sit, instructed by Ivan Tang & Co, for the 1^st to 3^rd defendants

HCA 966/2018 and HCA 1048/2018
(HEARD TOGETHER)
[2022] HKCFI 1920

HCA 966/2018

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 966 OF 2018

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AND

HCA 1048/2018

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1048 OF 2018

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(HEARD TOGETHER)

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J U D G M E N T

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1.  The Plaintiff, UNA Trading FZE (“UNA”) is a member of a group of companies that deals in Caterpillar construction machinery and their maintenance in various countries. UNA itself is based in Dubai. In April 2018 UNA fell subject to computer fraud. It appears that access was obtained to details including the password of UNA’s chief financial officer and as a consequence a number of transfers were made to the Defendants in HCA 966/2018 (“HCA 966”):

(1)  US$3,133,831.83 to the 1^st Defendant;

(2)  US$2,046,320 to the 2^nd Defendant;

(3)  US$2,975,100 to the 3^rd Defendant;

(4)  US$2,330,596.55 to the 4^th Defendant, Mega Wealth Chance Limited (“Mega”).

2.  In HCA 966 UNA claims a declaration that the Defendants hold the monies they received on constructive trust, alternatively they are liable for knowing receipt, alternatively money had and received and the normal orders for an account.  Only Mega acknowledged service of the writ. Default judgments have been entered against the first three Defendants. Mega filed a defence.  The pleaded defence is as follows:

(1)  It alleged that Luk Kit San (“Luk”) of Mega had been approached in March 2018 by a man calling himself Lin Dayou (“Lin”), who held himself out as representing UNA.  Lin told Luk that UNA wished to purchase exclusive watches for resale.  Luk contacted Sam Hung Hing Sum (“Hung”), who operates a watch company at the Holiday Inn Golden Mile in Nathan Road, Happywise Watch & Jewellery Company (“Happy Wise”), to discuss Hung supplying Mega with watches for sale to UNA.

(2)  On 20 April 2018 UNA transferred US$2,330,541.68 to Mega.

(3)  At Hung’s request Mega remitted US$2,214,014.50 to Hong Kong Numismatic Promotion Company Limited (“Numismatic”), which is a company owned by Hung. Luk collected watches from Happy Wise and passed them to Lin.

(4)  Mega had no knowledge of the fraud.

3.  From December 2019 to January 2020 Mega filed three witness statements.  A year ago Mega’s solicitors came off the record. Mega did not appear at the trial of HCA 966.

4.  HCA 1048/2018 (“HCA 1048”) was commenced against Happy Wise, Hung and Numismatic (together the “HCA 1048 Defendants”).  Hung owns Happy Wise and Numismatic.  Happy Wise has operated since 2007 a shop in the Holiday Inn Golden Mile, which sells high value watches.  The watches are either parallel imports, Happy Wise not being an authorised dealer for any brand, or second hand watches.  This is not in dispute.  It is the HCA 1048 Defendants’ case that Hung was approached in about the end of March 2018 by Sin Kam Fu (“Sin”), who he had known for about 20 years.  Sin was a retired policeman, who Hung understood worked for a trading company called Mega.  Sin told Hung that Mega wished to buy in excess of US$2 million watches for a Dubai client, who wanted them as an investment.  Hung agreed to source them.  This he did.  Hung agreed with Sin that payment needed to be made before the watches were handed over.  Hung decided to use Numismatic to receive the monies.  It was his evidence that this was because there had been a spate of cases in Tsim Sha Tsui in which watch shops had received forged cashier’s orders.  He thought it prudent not to use Happy Wise to receive the funds in case he encountered a similar problem as it would jeopardise Happy Wise’s credit rating.  HK$17,353,441.34 was paid into Numismatic’s account on 20 April 2018 without any problem.  Watches produced by Patek Philippe, Rolex and Jaeger LeCoultre were passed to Sin in two batches.  The first took place on 24 April 2018.  There is a video of Sin collecting watches from the shop under the supervision of Hung’s Brother Danny Hung Shui Wang (“Danny”).  Hung was in Japan at the time.  The second batch were handed over to Sin on 30 April 2018.

5.  The HCA 1048 Defendants at trial did not dispute that UNA had been the subject of a fraud.  They assert that the Happy Wise was a bona fide purchaser for value of the monies transferred by Mega to Numismatic on 20 April 2018.  UNA disputes this.  It contends first that in order for Happy Wise to establish its defence it has to demonstrate that it entered into a legally binding agreement with Mega to supply watches.  Secondly, that no such agreement was concluded.  Thirdly, Happy Wise were not acting bona fide.

6.  I accept that UNA has demonstrated that it was defrauded of the sums paid into the HCA 966 Defendants’ bank accounts.  Ribeiro PJ explains in Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd[1], the criteria that must be satisfied for a plaintiff to succeed with an unjust enrichment claim to restitutionary relief.  The criteria involving consideration of the following matters:  was the Defendant enriched, was the enrichment at the Plaintiff’s expense, was the enrichment unjust and are any of the defences to such a claim applicable.  I am satisfied that Mega was enriched, it was at UNA’s expense and Mega’s enrichment was unjust.  Mega has not, of course, made out a defence.  Accordingly, I will give judgment in the following terms in HCA 966:

(1)  A declaration that the 4^th Defendant holds the sum of US$2,330,596.55 received by it on or about 20 April 2018 from the Plaintiff on trust for the Plaintiff as constructive trustee and is liable to return the said sum to the Plaintiff.

(2)  An order that the 4^th Defendant returns the said sum or such part of it as it retains to the Plaintiff forthwith.

(3)  The 4^th Defendant pay the Plaintiff interest on the said sum from 20 April 2018 to 20 June 2022 inclusive at 1% over Hong Kong prime rate and thereafter at the judgment rate until payment.

(4)  The 4^th Defendant pay the Plaintiff’s costs of the action such costs to be taxed if not agreed.

7.  The claim in HCA 1048 is in my view unsustainable.  There is no dispute that Mega paid Happy Wise (through Numismatic) HK$17,353,441.34.  Happy Wise has produced invoices identifying the watches it sold to Mega and their unit price.  Mega received copies of the invoices and chopped them.  Although UNA does not concede that Happy Wise ever transferred watches to Mega in exchange for the significant payment it received, as I will explain later there is no credible reason for rejecting the HCA 1048 Defendants’ evidence that Happy Wise did so.  Indeed Mega has in documents I refer to below acknowledged this.

8.  UNA disputes Happy Wise’s bona fide purchaser defence on two grounds.  First, that in HCA 966 Mega’s defence pleads that it was a director of Mega, Luk, not Sin, who negotiated the purchase with Hung and it was Luk, who collected all the watches on 27 April 2018 from Happy Wise’s shop.  Witness statements were filed by Mega in HCA 966 supporting this case.  The statements are not, of course, evidence as the witnesses were never called.  UNA argues that it is entitled to rely on the Defence at least as evidence that calls into question Happy Wise’s case.  If Happy Wise’s version of events is true one would not expect Happy Wise to be able to explain why Mega would have alleged that Luk rather than Sin dealt with Hung and collected the watches.  I would note that it was not suggested to any of Happy Wise three witnesses at trial, Hung, Danny and a shop assistant Tang Chun Man (“Tang”), that their evidence about watches being collected by Sin was false.  UNA’s attack on what the video evidence of a handover of watches on 24 April 2018 is, as I will explain later, different and more nuanced.  If, as I do, one proceeds on the basis that the money was paid to Mega pursuant to a fraud perpetrated on UNA and Mega has not defended the claim, Mega’s case, such as it is, must sensibly be viewed with caution.  The suggestion that Mega’s version of how Mega came to purchase watches from Happy Wise justifies concluding that Happy Wise did not enter into a legally binding contract with Mega seems to me without substance or merit.  It turns on reading Mega’s defence as alleging that it entered into an agreement with Happy Wise as UNA’s agent, which is not true.  From this foundation Ms Leung argued that it followed that an agreement between Mega and Happy Wise on the terms alleged by Happy Wise, namely, an agreement by Mega, as principal, to buy the agreed watches from Happy Wise cannot have been concluded and, therefore, Happy Wise has not established the necessary agreement to succeed on its bona fide purchase for value defence.  Central to this argument is the submission that in order to succeed Happy Wise must demonstrate that the agreement it alleges was concluded and this it cannot do so because what it alleges differs from Mega’s case as pleaded by it in its Defence in HCA 966.  UNA does not suggest either that the agreement between Mega and Happy Wise (and clearly there was one) was bogus (a matter I return to later) or that if the HCA 1048 Defendants’ case is factually correct Mega must be assumed to have entered into the agreement with Happy Wise as part of conspiracy and, whatever Happy Wise understood the position to be, this in some way prevents an agreement as alleged by Happy Wise having been concluded.  If, as I do, I accept Happy Wise’s explanation of what took place between it and Mega as set out in its Defence and its witness statements it seems to me that what Mega pleaded in HCA 966 is not of sufficient probative value, if it constitutes evidence at all, to justify the court concluding that there was no contract of sale between Mega and Happy Wise.

9.  UNA relies on the following matters in its written closing as demonstrating that Happy Wise was not a bona fide purchaser:

“(1) Each of the 1048 Defendants’ witnesses gave evidence that it was not Happy Wise’s business practice to take a photographic record of its inventory. In particular, Sam Hung explained that to do so would mean a lot of work for his staff. This however stands in stark contrast to what is actually shown on Happy Wise’s official website: see Affirmation of Lo Sze Man Xenia dated 31 July 2018.

(2) Each of the witnesses confirmed that they were unable to tell from the video of the handover of the watches at Happy Wise’s shop on 24 April 2018 that the watches which Happy Wise claimed they were selling were the ones that were actually sold, despite the value of the transaction (over HK$17 million).

(3) Tellingly, in light of the incident concerning Happy Wise/ Yau On Pawn Shop and Graff, Hung Shui Wang Danny agreed that he ought to have taken better care or precaution in handling the sale of watches in these proceedings.

(4) Importantly, there was and is no record to distinguish between an unworn and a worn watch prior to their sale to Mr Sin (or that Mr Sin was told of such fact), and no evidence to show that the watches had been taken out of their packaging for the purposes of inspection and verification with the 2 invoices (which, on the face of them, do not identify the condition of the watches). It was however acknowledged that watches of different conditions could fetch very different prices. And although the defence witnesses did not agree or were evasive as to whether a watch that was accompanied with the original presentation box (as opposed to just a shipping box), certificate of origin and warranty (packaged in a leather pouch so far as Patek Philippe watches are concerned) could fetch a very different price from just the watch itself, it is very likely that they would have made a difference to the ultimate selling price.

(5) All the 1048 Defendants’ witnesses tried to downplay UNA’s point about how unusual it was for the handover to proceed without inspection of the watches. This is contrary to common sense, let alone a transaction that was worth over millions of dollars. The alleged confidence of Mr Sin in Sam Hung is not a reasonable explanation at all.

(6) Further, given that the boss was not present at handover and they took the extra steps to videotape the handover, what was actually recorded only shows the indifference between buyer and seller. It is submitted that the video is of no probative value at all.

(7) As to why Sam Hung would immediately associate Mr Sin (an ex-police officer whom he trusted and respected) with potential scam after the latter provided him with Mega Wealth’s BR and credit advice. In cross-examination, he came up with the new answer that it was the practice he has adopted for all new customers. However, no satisfactory explanation was given as to why he failed to mention this in his witness statements. Clearly, it was an afterthought as he tried to better his original explanation because it made no sense.

(8) Sam Hung’s oral testimony was that he had initially asked his suppliers, Mr Nader and Mr Justin, to give evidence in support of Happy Wise in these proceedings. He then said they refused on grounds of a belief that they would be forced to ‘disclose a lot of information’ which would ‘affect their business in the future’. This testimony is at odds with what was said in his supplemental witness statement, however, where he said that he had not asked them why they refused to attend court to give evidence at all. Either way it can be inferred that there is something about his business that Sam Hung is not being forthcoming about.

(9) Last but not least, the Court is invited to draw adverse inferences from the absence of evidence from Mr Sin, clearly the counterparty to this purported transaction would not even come forward to assist.”

10.  As I have mentioned Happy Wise called three witnesses. All in my view gave straightforward and credible evidence.  Nothing in their answers suggested evasiveness or shiftiness, which could justify the court concluding that their version of events should not be accepted.  The suggestion, for example, that the absence from the video of the collection of the first batch of watches on 24 April 2018 of an invitation by Danny or Tang for Sin to take the watches out of the boxes and inspect them, or Sin asking to inspect them, is so suspicious that it supports the inference advanced by Ms Leung along the lines that the HCA 1048 Defendants must have suspected the purchase was dubious, but said nothing because they did not want to jeopardise a lucrative deal, is purely speculative.

11.  There is nothing that in my view can fairly be described as direct evidence that the HCA 1048 Defendants had doubts about the propriety of the deal.  Ms Leung submitted that Hung’s evidence that he requested that the purchase price be paid into Numismatic’s bank account because of concerns he had because of other watch companies in Tsim Sha Tsui having had problems with dishonoured cashier orders demonstrates that Hung suspected the proposed sale was problematic.  This does not seem to me to justify any inferences about the propriety of Mega’s offer.  Hung’s decision is readily explained by prudence.

12.  I was not referred to any of the leading authorities on the drawing of inferences of serious misconduct.  I explain the principles in [22]–[23] of my decision in ChinaCulture.Com Limited v Lam Ting Ball, Paul & others[2]. I say this:

“22. … I am mindful of the observations of Ribeiro PJJ in Nina Kung v Wong Din Shin[3] on the need for a disciplined approach to the drawing of inferences, in particular inferences of serious misconduct.

‘187. In HKSAR v Lee Ming Tee & Securities and Futures Commission (2003) 6 HKCFAR 336, Sir Anthony Mason NPJ acknowledged the need for such a disciplined approach to the drawing of inferences and in particular for inferences of fraud or serious misconduct to be drawn only where such inferences are compelling. Dealing with an allegation that senior SFC officers had deliberately and improperly terminated an investigation in order to avoid compromising the standing of the subject of the investigation who was acting as an expert witness in a criminal trial in which the SFC was interested, his Lordship stated:

“… that conclusion was not to be reached by conjecture nor, as the respondent submitted, on a mere balance of probabilities. It was to be plainly established as a matter of inference from proved facts”. (at §72)

Reflecting the Re H & Others (Minors) (Sexual Abuse: Standard of Proof) [1996] AC 563 principle he added:

“In the particular circumstances, it was for the respondent to establish as a compelling inference that very senior officers of the SFC had deliberately and improperly terminated the investigation into Meocre Li’s conduct for the ulterior purpose alleged, sufficient to overcome the inherent improbability that they would have done so.” (Ibid.)

It will be convenient to refer to the principle adopted in these cases as “the HKSAR v Lee Ming Tee & Securities and Futures Commission principle”.’

23. An allegation of wilful misconduct by a director of a power for an improper purpose is a serious one.  As these passages make clear the necessary inference can only be drawn from proven facts, which make the inference compelling.  It is not sufficient to identify a series of wrongs and mistakes committed over time and invite the court to conclude that by virtue of their number it is probable that something more than negligence or indifference was their cause. This is to invite speculation and conjecture.  It is necessary for the court to find facts, which assessed in context are indicative, in the present case, of the Defendants’ attitude and motives.  Context includes how a person or a company normally conducts its affairs.  If it is normally casual and unsophisticated, it is difficult to infer anything about the motives for dealing with a particular transaction in a casual and unsophisticated manner. Similarly, if the facts can credibly be explained as mistakes or errors of judgment an inference of, in the present case, conscious non-compliance by the Directors with their duties, or recklessness indifference to doing so, cannot properly be made.”

13.  It seems to me that UNA’s submission, which I have quoted above invites the court to indulge in speculation and conjecture.  It is not helped that in the case of the first matter, taking of photographs, none of the Defendants’ witnesses were asked about the website and the affirmation referred to does not state that the website shows photographs of watches.

14.  What the video shows is a number of Patek Phillipe watches and one Rolex in boxes used, according to the HCA 1048 Defendants’ witnesses, for transporting watches, which allow the face of the watch to be seen.  I note that the transcript records those present discussing the fact that the next door premises were being renovated and the smell of paint thinner was unpleasantly strong and the door had to be left open, which probably would not have encouraged Sin to stay longer than was necessary.  One can see and hear Danny and Tang checking the model number on the box against what I assume (they were not asked) was either the invoice or some other list with the watch reference numbers on them.  The watch boxes were then given to Sin.  It is correct that Sin is not shown collecting presentation boxes or watch certificates.  Danny and Tang said this was not unusual as they were bulky and Sin had taken delivery of eight watches.  Hung and Tang were not asked if Sin ever collected the boxes and the certificates.  Danny said he did not know.

15.  The third matter referred to is an occasion in about 2018 when Happy Wise purchased a valuable diamond and Yau On, a pawnshop owned by Hung’s Father, sent it to GIA for certification, and it was identified as a diamond that Graff had reported as stolen.  It was Hung’s unchallenged evidence that he received repayment from his customer and saw no reason to spend money defending an action brought by Graff in the United Statements for delivery up of the diamond.  Nothing can be inferred from this one incident about the bona fides of the sale of the watches.  The submission simply serves to illustrate the artificiality of UNA’s attack on the HCA 1048 Defendants’ bona fide, which involves pointing to minor matters that of themselves demonstrate nothing of substance, and inviting the court to conjecture that viewed cumulatively they suggest that the HCA 1048 Defendants must have had doubts about the sale and consequently their case that the sale was bona fide fails.  The fallacy of this approach is further illustrated by the 8^th complaint.  The discrepancy between what is said in Hung’s supplemental witness statement and his oral evidence (hardly an uncommon feature of evidence in civil trials) does not tell the court anything useful about the sale of the watches Hung says he purchased from Mr Nader and Justin Gruenberg.  As UNA does not suggest the sale to Mega was bogus it is difficult to see what difference their evidence would have made.  Ms Leung argued that it had not been demonstrated that the watches recorded on the two invoices had been given to Mega.  I can see no reason not to accept the HCA 1048 Defendants’ evidence that they were given to Sin or read anything material into Mr Nader and Mr Gruenberg not giving evidence.  Neither can much be read into Sin’s unsurprising unwillingness to give evidence to support Hung’s evidence as this would have resulted in him having to explain how he was involved in the receipt by Mega of sums fraudulently obtained from UNA.

16.  It seems to me that the HCA 1048 Defendants have demonstrated that their sale of the watches to Mega was bona fide. I will dismiss the Action and make a costs order nisi that the Plaintiff pays the HCA 1048 Defendants’ costs such costs to be taxed if not agreed with a certificate for one counsel.

HCA 1048/2018

[2019] HKCFI 1509

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1048 OF 2018

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D E C I S I O N

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INTRODUCTION

1.  By a summons filed on 7 March 2019 (“the summons”), the 1^st defendant applies for an order to discharge the Mareva injunction granted against the 1^st defendant by Anthony Chan J on 7 May 2018 and continued by Lok J on 11 May 2018 (“the D1 Injunction”) for HK$16,777,016.99 (“the HK$16.7 million”).  The 1^st defendant also seeks costs of the summons.

2.  As explained below, the real dispute between the plaintiff and the 1^st defendant now is not whether the D1 Injunction should be discharged, but who should bear the costs of the summons.

THE FACTS

3.  On 27 April 2018, the plaintiff obtained a Mareva injunction in HCA 966/2018 against 4 companies, one of which is Mega Wealth Chance Limited (“Mega Wealth”).  The plaintiff claimed that it had been fraudulently misled to transfer money to the 4 companies.  The plaintiff also found out that Mega Wealth had transferred, out of the sum mistakenly remitted by the plaintiff, HK$17,353,441.34 to the 1^st defendant herein.

4.  The plaintiff then commenced these proceedings against the 1^st defendant[1].  On 7 May 2018, the plaintiff obtained the D1 Injunction in an ex parte application heard by Anthony Chan J.  On 11 May 2018, the D1 Injunction was continued by Lok J in an inter partes hearing.  The 1^st defendant was not present in these hearings.

5.  On 15 May 2018, the 1^st defendant’s solicitors (“ITC”) wrote to the solicitors then acting for the plaintiff and offered an explanation.  The 1^st defendant claimed that it was designated as the recipient of the price of expensive watches sold by the 3^rd defendant to Mega Wealth.  The 3^rd defendant owned a watch and jewellery business known as Happy Wise Watch & Jewellery Company (“Happy Wise”).  Its sole shareholder was the 2^nd defendant.  The 2^nd defendant was also the shareholder and director of the 1^st defendant.

6.  After the transferred sum came into the 1^st defendant’s possession, the 2^nd defendant transferred sums totalling HK$13,200,000 to the 3^rd defendant and withdrew cash of HK$4,000,000.  It is claimed that the transfers and the cash withdrawal are for the business purpose of Happy Wise.

7.  On 27 July 2018, the plaintiff brought the 2^nd and the 3^rd defendants (who are also represented by ITC in these proceedings) into this action.  On 3 August 2018, the plaintiff obtained an injunction from Lisa Wong J freezing the 2^nd and the 3^rd defendants’ respective assets in the said sums of HK$4,000,000 and HK$13,200,000 (“the D2 and D3 Injunction”).  On 7 August 2018, the 2^nd and the 3^rd defendants paid HK$17,200,000 into court (“the Payment”) and the D2 and D3 Injunction was discharged.

8.  On 29 January 2019, ITC wrote to the plaintiff’s solicitors (“Haldanes”) and invited the plaintiff to consent to the discharge of the D1 Injunction.  In that letter, ITC said[2]:

“This letter concerns the injunction obtained against the 1^st Defendant which was granted ex parte by Anthony Chan J and continued by Lok J (‘the Injunction’).

Under the Injunction, the 1^st Defendant’s assets were frozen up to the value of HK$16,777,016.99. (We note however that the value which your client sought to restrain before Anthony Chan J, on the face of the ex parte summons, was HK$17,353,441.34.) The Injunction provides for cessation of its effect if the 1^st Defendant paid the restrained sum into court or made provision for security in that sum.

The 2^nd and 3^rd Defendants have subsequently, when facing another injunction granted by Lisa Wong J, paid into Court a sum of HK$17.2M, so as to bring about the cessation of effect of that injunction.

The 2^nd Defendant practically owns the 3^rd Defendant and he is willing to use the said payment into Court to secure the Plaintiff’s interest in the Injunction vis-à-vis the 1^st Defendant.

In this action, your client’s claim against all 3 Defendants only amounts to HK$17,353,441.34. It cannot possibly obtain judgment more than that sum in total against any or any combination of the Defendants.

We write to ask your client’s consent for formal discharge of the Injunction so that a substantive application to Court and the associated costs can be avoided.

We look forward to hearing from you before the close of business this Friday. If your client is not minded to give consent, please let us know why the Injunction only served to freeze assets up to HK$16,777,016.99.

Our clients’ rights are reserved.”

9.  On 1 February 2019, Haldanes replied and said that they were taking instructions and would give a substantive reply within 14 days.

10.  On 13 February 2019, Haldanes replied and said[3]:

“We refer to your letter of 29^th January 2019.

We refer to the reliefs claimed by our client in the Statement of Claim as amended on 27^th July 2018. Our client claims against the Defendants, inter alia, for an order for the return of HK$17,353,441.34, HK$4,000,000 and HK$13,200,000 by the 1^st, 2^nd and 3^rd Defendants respectively.

We acknowledge that the 1^st Defendant is subject to an injunction order granted by Anthony Chan J on 7^th May 2018 which was subsequently continued by Lok J. We also acknowledge that the 2^nd and 3^rd Defendants were subject to an injunction order granted by Lisa Wong J dated 3^rd August 2018 which was discharged by the 2^nd and 3^rd Defendants upon payment into Court of HK$17.2M.

In paragraph 4 of your letter, you state that ‘the 2^nd Defendant practically owns the 3^rd Defendant and he is willing to use the said payment into Court [of HK$17.2M] to secure the Plaintiff’s interest in the Injunction vis-à-vis the 1^st Defendant.’

We fail to see how the use of the HK$17.2M (as paid into Curt by the 2^nd and 3^rd Defendants) in the manner proposed would secure our client’s interest against the 1^st Defendant without compromising our client’s interest against the 2^nd and 3^rd Defendants at the same time. We would welcome some clarification on this issue prior to considering your proposal.

In the meantime, all our client’s rights are expressly reserved.”

11.  On 18 February 2019, ITC wrote back and said that the 1^st defendant would take the necessary steps to protect its own rights.

12.  On 7 March 2019, the 1^st defendant filed the summons and an affirmation in support of the summons[4].

13.  On 12 March 2019, Haldanes wrote to ITC and said that the affirmation in support of the summons had not addressed how the payment would secure the plaintiff’s interest against the 1^st defendant.  Haldanes further said that the plaintiff was opposing the summons.

14.  No affirmation in opposition has ever been filed by the plaintiff.

15.  On 3 June 2019 (just 7 days before this hearing), Haldanes wrote to ITC and said[5]:

“We wish to put on record that, in our letter to you dated 13 February 2019 in response to your letter dated 29 January 2019, we asked for ‘some clarification’ prior to considering your proposal for a discharge of the Order. But in your letter in reply to us dated 18 February 2019, not only did you not attempt to proffer any clarification whatsoever but proceeded to take out the Summons without further notice. It is therefore inaccurate and frankly disingenuous of your client, the 2^nd Defendant, to have deposed at § 7 of his Affirmation dated 6 March 2019 that we ‘opposed’ your proposal and had acted unreasonably by doing so.

Be that as it may, we believed and continue to believe that your proposal would not secure our client’s interest against the 1^st Defendant without compromising our client’s interest against the 2^nd and 3^rd Defendants at the same time. However, in light of the 2^nd and 3^rd Defendants having made payment into court of HK$17,200,000 on 7 August 2018 and purely for the sake of saving time and costs, we are not in principle opposed to the idea of varying the Order subject to the 2^nd and the 3^rd Defendants, who are also your clients, giving an undertaking in the following terms:

“This Order shall cease to have effect with respect to the 1^st Defendant upon the undertaking of the 2^nd and 3^rd Defendants that the amount of HK$17,200,000 (paid into Court by 2^nd and 3^rd Defendants on 7 August 2018) stand as security for the Plaintiff’s claim against the 1^st, 2^nd and / or 3^rd Defendants jointly and / or severally until trial or further order.”

Please let us have your response to our above proposal by close of business on 5^th June 2019 so that the parties may make a joint application for an order by consent that the Order be varied in terms.

In the meantime, all our client’s rights are expressly reserved.”

16.  On 4 June 2019, ITC replied and said[6]:

“Our client, the 1^st Defendant, has done what it has to do as a reasonable litigant before issuing the summons due for substantive hearing next Monday. We also note that up to last Friday, your client was still chasing for the draft index to the hearing bundle. Our counsel has to prepare the submissions for the hearing. All this means that your client’s offer to dispose of the summons comes very very late indeed to avoid the costs of the substantive hearing. That said, we are prepared to withhold the brief to counsel until the close of business today if your client agrees to an order in terms of paragraph 1 of the summons with costs of and occasioned by the summons to our client down to today.

We note your client’s request for an undertaking from the 2^nd and 3^rd Defendants (which are stated in italics in your letter). They have indicated before that they have no problem giving it. In any event the payment into Court made by them would cover the 1^st Defendant’s position vis-à-vis your client given the nature of the defence of these 3 Defendants. On their behalf, we agree to such undertaking, though it should not be viewed that any of the Defendants are obliged to give it to your client.

If we do not hear from your client before 4:30 pm today, we will take that the hearing of the summons cannot be avoided.”

17.  Subsequently, Haldanes proposed that costs of the summons be costs in the cause as a compromise.  The proposal was not accepted by ITC.

18.  As revealed in the correspondence, the real dispute between the plaintiff and the 1^st defendant now is the costs of the summons.

DISCUSSION

19.  Mr Albert Yau, counsel for the 1^st defendant, has made a short and succinct submission.  I agree with Mr Yau.  In my view, this is a simple and straightforward matter.  The plaintiff has no valid reason not to accept the offer made by ITC in their letter dated 29 January 2019.

(1)  The plaintiff is claiming HK$17,353,441.34, HK$4,000,000 and HK$13,200,000 against the 1^st, the 2^nd and the 3^rd defendants respectively.  However, according to the plaintiff’s case, all the sums received by the 2^nd and the 3^rd defendants are from the sum wrongfully received by the 1^st defendant from the plaintiff.  That being the case, even if the plaintiff entirely succeeds in the trial, the total of the principal sums which can be ordered against all the 3 defendants would not be more than HK$17,353,441.34.

(2)  The amount frozen by the D1 Injunction is the HK$16.7 million, which is slightly less than the amount claimed by the plaintiff against the 1^st defendant.  As to why the court set this amount in the D1 Injunction, the 1^st defendant does not know since it was not present in the hearing before Anthony Chan J and in the hearing before Lok J.  ITC has asked for the answer on this question in their letter dated 29 January 2019, but no answer has been given by Haldanes.  Be that as it may, it is clear that the court has taken the view that the amount being frozen by D1 Injunction should be the HK$16.7 million, no more and no less.  The plaintiff’s interest in the D1 Injunction is the HK$16.7 million.

(3)  In ITC’s letter dated 29 January 2019, it has been conveyed to the plaintiff that the 2^nd defendant and the 3^rd defendant are willing to use the Payment to secure the plaintiff’s interest in the D1 Injunction.

(4)  The Payment is greater than the sum frozen by the D1 Injunction.  In these circumstances, the plaintiff’s interest under the D1 Injunction is fully protected.

20.  Mr Thomas Lee (together with Mr Justin Ismail) submits that the 1^st defendant has acted unreasonably by reason of the following:

(1)  The 1^st defendant did not provide clarification on how its proposal would secure the plaintiff’s interest against the 1^st defendant without comprising the plaintiff’s interest against the 2^nd and the 3^rd defendants at the same time.

(2)  The 1^st defendant did not act reasonably in the negotiation.

(3)  The 1^st defendant’s overall conduct in the run-up to this application is confrontational and uncompromising.

With respect, I am unable to accept these submissions.

21.  The plaintiff’s case is that all the funds received by the 2^nd defendant and the 3^rd defendant are from the sum wrongfully received by the 1^st defendant from the plaintiff.  That being the case, if the plaintiff can successfully recover HK$17,200,000 from the 2^nd and the 3^rd defendants, the plaintiff would have no ground to demand the 1^st defendant to pay the HK$16.7 million secured by the D1 Injunction to the plaintiff.  Conversely, if the plaintiff fails in its claim against the 2^nd and the 3^rd defendants but succeeds in its claim against the 1^st defendant, the plaintiff would be entitled to realize the interest secured by the D1 Injunction, which is the HK$16.7 million.  In my view, that interest is sufficiently protected by the offer made by the 2^nd and the 3^rd defendant in ITC’s letter dated 29 January 2019.  In that letter, ITC has on behalf on the 2^nd and the 3^rd defendants unambiguously said that these 2 defendants are willing to use the Payment to secure the plaintiff’s interest in the D1 Injunction.  There is no need for Haldanes to seek any clarification.

22.  Having carefully considered the correspondence passing between ITC and Haldanes, I am of the view that there can be no valid criticism against the 1^st defendant’s conduct in the negotiation.  With respect, no legitimate concern has been raised in Haldanes’ letters.  As said before, the meaning of ITC’s letter dated 29 January 2019 is clear and unambiguous.  There is no need for Haldanes to seek any clarification.  The proposal therein is a reasonable proposal.  If Haldanes merely want the 2^nd and the 3^rd defendants to express their offer made in ITC’s letter dated 29 January 2019 in the form of an undertaking, Haldanes can certainly put forward their suggestion and the parties can have further discussion on this.   Unfortunately, Haldanes only raised the undertaking issue in their letter dated 3 June 2019, just 7 days before the substantive hearing of the summons.  ITC immediately replied on the next day that the 2^nd and the 3^rd defendants had no problem in giving the undertaking requested.

23.  I take the view that this application is occasioned by the unreasonable attitude of Haldanes.  Costs of the summons should be borne by the plaintiff.  Since the 1^st defendant is asking for costs in any event in the summons, I would so order.

DISPOSITION

24.  Upon the undertaking given by the 2^nd and the 3^rd defendants that the Payment stands as security for the plaintiff’s claim against the 1^st, the 2^nd and/or the 3^rd defendants jointly and/or severally until trial or further order, I order that the D1 Injunction be discharged.  I order that costs of and occasioned by the summons be paid by the plaintiff to the 1^st defendant in any event.

25.  I thank counsel for the assistance provided to the court.