Case Detail

HCA 1742/2018

[2025] HKCFI 6373

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1742 OF 2018

________________________

BETWEEN

	CHINA MEDICAL TECHNOLOGIES, INC.	1^st Plaintiff
	(IN LIQUIDATION)
	CMED TECHNOLOGIES LTD	2^nd Plaintiff
	COSIMO BORRELLI AND YUEN LAI YEE in their capacity as the Joint and Several Liquidators of China Medical Technologies, Inc. (In Liquidation)	3^rd Plaintiffs
	and
	BANK OF CHINA (HONG KONG) LIMITED	Defendant

________________________

Before:

Hon Eugene Fung J in Chambers (Open to Public)

Date of Hearing:	3 December 2025
Date of Decision:	24 December 2025

________________________

D E C I S I O N

________________________

1. There were two summonses before the court. The first was the Plaintiffs’ application for an order to compel the Defendant to provide an affidavit to explain how certain documents in its possession have become destroyed (“the Affidavit Application”). The second was the Defendant’s application to order the withdrawal the interrogatories (“the Interrogatories”) administered by the Plaintiffs on 24 October 2025 (“the Withdrawal Application”).

2. The relevant background facts and the procedural history are well known to the parties, and will not be repeated in this Decision. They can also be found in Ng J’s Decision dated 15 October 2021: [2021] HKCFI 3042.

A. AFFIDAVIT APPLICATION

3. By their summons dated 29 May 2025, the Plaintiffs applied for the following order against the Defendant:

“In respect of any documents which are identified or described in Annexure A hereto (“Requested Documents”) which have at any time been in the possession, custody or power of the Defendant, but are no longer in the possession, custody or power of the Defendant, the Defendant do, within 14 days from the date of an order to be made hereon, make and serve on the Plaintiffs an Affidavit or Affirmation (made by a deponent with direct and first-hand knowledge)  providing, on a category by category basis (by reference to the categories set out in Annexure A hereto), an explanation as to when the Defendant parted with them and what has become of them, including by reference to the following matters:
1.1  which documents within the scope of the Requested Documents actually existed;
1.2  which documents were destroyed, the exact dates of their destruction, and the identity of the individuals responsible for authorising, permitting and executing such actions;
1.3  whether any internal document preservation notices were issued upon receipt of the requests for preservation by the Liquidators, and whether any tangible steps were taken to prevent the destruction of potentially relevant documents in accordance with the Defendant’s standard document retention policies (and if not, why not);
1.4  any contemporaneous internal communications by staff of the Defendant relating to the Liquidators’ document preservation requests;
1.5  any relevant internal policies, or regulatory requirements that the Defendant considered it was subject to at the relevant time (from 2013), which prescribed any action to be taken if:
(a)  a request for document preservation was received;
(b)  legal proceedings were contemplated or commenced; or
(c)  the Defendant became aware of, or suspected, the existence of suspicious transactions.”

4. As stated in the affirmations filed on its behalf, the Defendant’s position is that certain relevant documents have been destroyed in the ordinary course of its business and in line with its retention policy and practice. In their Supplemental List of Documents filed dated 25 July 2025 (filed after the Affidavit Application was taken out), the Defendant expressly identified 16 categories of documents in Schedule 2 as “documents which have been deleted from the Defendant’s systems in accordance with the Defendant’s retention policies and/or practice”.

5. However, the Plaintiffs submitted that given the Liquidators’ previous requests for document preservation, there has been no explanation from the Defendant as to how the destruction could have been permitted to take place. And it is that explanation which the Plaintiffs were seeking from the Defendant in the Affidavit Application.

6. Having considered the parties’ submissions, and the particular circumstances in this case, I have come to the view that it is not appropriate to compel the Defendant to make an affidavit to provide the requested explanation. I decline the application for two main reasons.

7. First, I am not satisfied that the Plaintiffs have used the correct procedure to ask the Defendant to provide explanation or give further particulars as to why it has destroyed documents in its possession.

(1)  In their Summons dated 29 May 2025, the Plaintiffs referred to RHC O.24 rr. 3 and 7, and the court’s inherent jurisdiction, to support the Affidavit Application.
(2)  Under O.24 r.5(3), an affidavit given under O.24 r.3 is to be in the prescribed form (Form 27)  to verify a list of documents. This is clearly not what the Plaintiffs were seeking in this application.
(3)  An affidavit envisaged under O.24 r.7 should state whether the relevant document “is, or has at any time been, in [a party’s] possession, custody or power, and if not then in his possession, custody or power when he parted with it and what has become of it”. Again, the Plaintiffs were not seeking this sort of affidavit. The Plaintiffs were looking for particulars of the contents of a discovery affidavit as to how documents have been destroyed. I do not believe what Chu VP said in Liu Hua v Lau Chu Pak [2023] 5 HKLRD 425 at [24] about dealing flexibly with the conclusiveness of discovery affidavit would assist the Plaintiffs. If an O.24 r.7 affidavit does not require a party to state other particulars concerning “when he parted with [the document] and what has become of it”, I do not believe the court can further compel the party to provide additional particulars under O.24 r.7.
(4)  The Plaintiffs referred to P Matthew & H Malek Disclosure (6^th ed, 2024)  at §6-44 where the learned authors made the observation, in the context of paragraph 12.3 of the UK Practice Direction 57AD, that if there is an important document or the circumstances in which the document is no longer in a party’s control is significant, a party can be required to give particulars. The Plaintiffs did not explain or produce any authority to show how this UK practice may be applied in the context of RHC in Hong Kong.
(5)  The Plaintiffs further referred to Glaxo Wellcome UK Ltd v Sandoz Ltd [2018] EWHC 1626 (Ch)  and Tai Wai Cheong v Credit Industriel et Commercial [2013] SGCA 33 for the general proposition that the court has the power to order a further affidavit to explain the circumstances surrounding a party’s discovery. The decision in Glaxo did not identify the basis of the application or the order made by the court. Further, the context in which the Singaporean Court of Appeal made the order in Tai Wai Cheong is far removed from the present case. Accordingly, I do not think the two authorities support the Plaintiffs’ contention that the court can make the order in this application pursuant to O.24 r.7.
(6)  Importantly, in Liu Hua (above), Chu VP at [27] said that “while the discovery affirmation of a party is conclusive at the interlocutory stage, the other party who is not satisfied with the affirmation can still, pursuant to O.26 of the Rules of the High Court, serve on the other party interrogatories requesting the other party to give more particulars”. Therefore, insofar as a party wishes to obtain particulars from another party in relation to matters stated in the other party’s discovery affidavit, the proper way to proceed is to administer interrogatories under O.26.
(7)  The Plaintiffs also relied on the court’s inherent jurisdiction as a basis to make an order to compel the Defendant to explain and provide particulars about its destruction of documents. However, all of the authorities cited by the Plaintiffs were not concerned with discovery of documents.
(8)  Where a party wishes to obtain further particulars on a discovery affidavit filed by another party, I am not persuaded that it is correct for the former to invoke the inherent jurisdiction of the court to compel the latter to provide such particulars by way of affidavit. If the proper approach is to administer interrogatories to obtain such particulars (per Chu VP at [27] of Liu Hua (above)), it appears unnecessary to rely on the court’s inherent jurisdiction to do so.

8. Further and in any event, even if the Plaintiffs have used the correct procedure to seek an order for the Defendant to provide explanation on the destruction of documents by way of affidavit, I would have exercised my discretion against granting the order sought. On the particular circumstances of this case, I am not satisfied that the Plaintiffs are entitled to seek further explanation or particulars from the Defendant in relation to the destruction of documents in an unfocused manner as demonstrated by the width of the orders sought in their Summons.

9. The gravamen of the Plaintiffs’ case is that in the light of the history of this matter, the Defendant has simply failed to explain why no document preservation steps were taken and why documents were destroyed notwithstanding the Liquidators’ previous requests for document preservation. The Plaintiffs have relied on a number of matters to support their application. For the reasons given below, it is my view that such matters do not justify an unfocused approach adopted by the Plaintiffs.

10. In this matter, the Liquidators first requested the Defendant to preserve documents relevant to the CMED Group in March 2013. This was repeated in July 2013 and October 2014. I note that those requests were made in the context of the Liquidators’ requests of assistance from the Defendant, and long before the commencement of these proceedings.

11. The Plaintiffs relied on paragraph 30 of the 3^rd Affirmation of Li Lok Man Daisy (“Li 3”) to contend that the Defendant had allowed the destruction of the backups of Mr Loman Lo’s emails between 2004 and 2008 in December 2014. At that time in December 2014, the Plaintiffs had not yet commenced proceedings in this action. There is also no suggestion that the Defendant knew that the Plaintiffs were contemplating litigation against it. In these circumstances, I do not believe the Defendant is obliged at the present interlocutory stage to provide any further explanation regarding the destruction of documents insofar as it happened in or before December 2014.

12. The Plaintiff also relied on a production order made by Harris J on 10 April 2014 in HCMP 902/2014 to require the Defendant to, amongst other things, keep certain specified documents in safe custody until their copies have been produced to the Liquidators. It is not the Plaintiffs’ case that the Defendant had failed to produce the specified documents pursuant to that order. Indeed, the production order was complied with by the Defendant from April to July 2014. Further, the production order was also not an order for the preservation of documents. Accordingly, I fail to see how this production order can provide a basis for the Plaintiffs to seek an explanation from the Defendant at this stage regarding the latter’s destruction of documents.

13. The Plaintiffs mentioned that although the writ in the original action against the Defendant in HCA 2448/2014 (“the 2014 Action”) was not served until November 2016, the Defendant did have notice of it in March 2015 when it was exhibited in the Liquidators’ evidence in an application under s.221 of Cap.32 in separate proceedings in HCCW 435/2012. The context in which the Defendant had notice of the writ is important. There was no evidence before the court as to why the Plaintiffs did not serve the writ in the 2014 Action until November 2016. The Defendant only received the writ as part of the evidence to support the Liquidators’ application for production of documents in a separate set of proceedings, which application was dismissed in December 2015. In these circumstances, the Defendant can at most be said to have notice of the Plaintiffs’ contemplation of legal proceedings against it in 2015. As mentioned in C Hollander KC Documentary Evidence in Hong Kong (2^nd ed, 2020) at §11-011, there is no express rule which prevents document destruction even when litigation is in reasonable contemplation.

14. The Plaintiffs further pointed to the JRS report in relation to East Hope made in March 2009 and the Defendant’s decision not to report the matter to the Joint Financial Intelligence Unit made in April 2009. According to paragraph 40(c) of Li 3, the underlying records of that particular JRS report would have been destroyed by the Defendant in April 2016 because of the 7-year retention policy. However, the Plaintiffs had not yet commenced proceedings in this action in April 2016. The writ in the 2014 Action was also not served on the Defendant until November 2016. I do not think it is necessary for the Defendant to explain at this stage why it permitted the destruction of JRS reports in April 2016.

15. The Plaintiffs also relied on the Defendant’s evidence (paragraph 31 of Li 3) that any yearly backup files of Jackie Chiu’s emails between 2006 and 2010 would have been deleted from the Defendant’s backup system between December 2013 and December 2016. They argued that the Defendant should not have been allowed such emails to be deleted. However, the Plaintiffs have only demonstrated the emails involving Jackie Chiu in 2008 and 2009 were in existence. They have not shown the existence of any emails involving Jackie Chiu in 2010. Accordingly, I am not satisfied that it is necessary for the Defendant to provide any explanation at this stage about the preservation of such emails in 2016.

16. The writ in the present proceedings was served in August 2018. The Plaintiffs relied on certain statements made in the affidavit evidence made on behalf of the Defendant in the 2014 Action and a Bankers Book application to suggest that the Defendant took no positive action to preserve relevant documents, and was continuing to allow relevant documents to be destroyed in disregard of its disclosure obligations. I have read those statements in the relevant affirmation and do not believe the Plaintiffs’ suggestion reflects a fair reading of what the various deponents were saying at the time.

17. The Plaintiffs submitted that the Defendant and its former solicitors took no positive action to preserve documents at the time when its difficulties were first identified, but sought to rely on the difficulties years later as a basis for non-compliance with a court order. They relied on a letter dated 28 April 2022 from the Defendant’s former solicitors to support their submissions. Having read the letter, I am unable to agree with the Plaintiffs’ submissions. The letter was written in response to the Plaintiffs’ solicitors’ letter dated 1 April 2022 and the Court of Appeal’s order dated 10 March 2022 in CACV 46/2016, and should be understood in that context. In my view, the letter does not provide a reasonable basis for the Plaintiffs to suggest that the Defendant only started to collate the documents upon the receipt of the Court of Appeal’s order in March 2022.

18. Finally, the Plaintiffs pointed to various parts in the Defendant’s evidence in Li 3 where Ms Li sets out different latest points in time between 2018 and 2024 by which certain class of documents would have been deleted according to the Defendant’s retention policy. I do not think such specific instances would entitle the Plaintiffs to obtain a further affidavit from the Defendant to cover the wide-ranging matters mentioned in the Plaintiffs’ summons. It would be disproportionate and unnecessary to order the Defendant to do so.

19. For all of these reasons, even assuming the court has the power under O.24 r.7 to order the Defendant to file an affidavit to provide particulars and explanation of the contents of the filed discovery affidavits as to how documents have been destroyed, I would not have exercised my discretion to make such an order on the basis of the materials identified by the Plaintiffs.

20. I dismiss the Plaintiffs’ summons dated 29 May 2025.

B. THE WITHDRAWAL APPLICATION

21. In the Withdrawal Application, the Defendants sought to withdraw the Interrogatories administered by the Plaintiffs. The Interrogatories are closely related to the Affidavit Application. As the Plaintiffs acknowledged in their skeleton, the Interrogatories were one procedural route by which they sought to obtain explanation as to how the Defendant’s destruction of relevant documents could have been permitted. The Defendant also regarded the Affidavit Application and the Withdrawal Application as intertwined: the numerous affirmations filed by the Defendant were used both to resist the Affidavit Application and to support the Withdrawal Application.

22. In exercising my discretion in this application, I have borne in mind the relevant principles on interrogatories, which are not in dispute. In particular, I bear in mind what Ma J said at [7(3)] and [7(6)] in Kao Lee & Yip v Donald Koo Hoi-Yan (unreported, HCA 8847/1993, 23 April 2002) that the key consideration going to the exercise of discretion is whether the interrogatories are necessary either for disposing fairly of the cause or matter, or for saving costs.

B1. Interrogatories 1 to 4 – Document Preservation Requests

23. Interrogatories 1 to 4 related to 11 letters written by the Plaintiffs’ solicitors to the Defendant or the Defendant’s former solicitors from 2013 to 2024 requesting, amongst other things, for document preservation.

24. As mentioned in Section A above, the requests made in the letters dated 20 March 2013, 5 July 2013 and 9 October 2014 were made before the Defendant knew that the Plaintiffs were contemplating litigation against it. As far as the requests made in the remaining letters, the majority of them were made in the context of other proceedings.

25. As far as interrogatories 3 and 4 are concerned, I repeat what I said in Section A above that 10 March 2015 is not an appropriate date to ascertain when the Defendant should have commenced its document preservation for the purpose of litigation in these proceedings.

26. In any event, it does not seem necessary to me for the Defendant to produce details as to how the Liquidators’ requests made before the commencement of these proceedings and in the context of other proceedings were dealt with. I am unable to agree with the Plaintiffs that the requested information is essential for the preparation of their case for trial. Making the Defendant to answer the interrogatories will increase costs, and will not save them.

27. I also consider that the interrogatories are oppressive in terms of the extent of details the Plaintiffs sought to obtain from the Defendant.

28. I think interrogatories 1 to 4 should be withdrawn.

B2. Interrogatories 5 to 6 – Document Preservation Ordered by the Court

29. Interrogatories 5 to 6 arose out of the production order made by Harris J on 10 April 2014 in HCMP 902/2014. I repeat what I said in Section A above that this order cannot provide a basis to seek further information regarding the Defendant’s destruction of documents. It follows that the interrogatories are not necessary.

30. In any event, I also consider them to be oppressive in terms of the extent of details the Plaintiffs are seeking to obtain from the Defendant.

31. In my view, interrogatories 5 and 6 should be withdrawn.

B3. Interrogatory 7 – Affirmation of Cheung Hon Kei

32. Interrogatory 7 related to what Mr Cheung said in his affirmation filed on 13 August 2025 regarding his general responsibility as an officer of the Defendant. He said nothing in the relevant part of his affirmation about the relevant documents in this action. The information sought is clearly not essential for the proper preparation of the Plaintiffs’ case at the trial. In any event, the Defendant has confirmed that Mr Cheung will be testifying a witness at the trial for the Defendant. The Plaintiffs may obtain the requested information during cross-examination.

33. This interrogatory is unnecessary and should be withdrawn.

B4. Interrogatories 8 to 12 – Affirmation of Yim Chi Keung

34. Interrogatories 8 to 12 related to certain parts of Mr Yim’s affirmation filed on 13 August 2025 (“Yim 1”) which concern with the Defendant’s records. The Plaintiffs wished to obtain further particulars on what Mr Yim had said in relation to what he and his colleagues did in around April 2015 to search the Defendant’s SAS and JRS systems for the relevant records. According to Mr Yim, he and his colleagues had identified the relevant records in the Defendant’s systems, and copied and pasted the contents of the records into a table (“the Table”).

35. In my view, interrogatories 9 and 10 are relevant requests concerning what Mr Yim had said in paragraphs 25 of Yim 1. In particular, I think interrogatory 10.6 is pertinent in asking whether any internal document preservation notice had been issued in relation to the accounts set out in the Table, and if so, the details associated with such notice(s). This seems to me to be one of the principal objectives of what the Plaintiffs were trying to find out from the Defendant in both the Affidavit Application and their Interrogatories. The answers to the other interrogatories in Interrogatory 10 would provide the relevant context and background to the existence or otherwise of the internal document preservation notice. I note that the Defendant has confirmed that Mr Yim will be testifying as a witness at the trial for the Defendant. However, if these matters are left until cross-examination of Mr Yim at the trial, it is my view that the Plaintiffs are likely to be prejudiced in their conduct of the trial, or otherwise disorganised by the late emergence of the information (Kao Lee & Yip (above) at [7(5)]). I think these interrogatories are therefore necessary.

36. Interrogatory 11 referred to what Mr Yim said in paragraph 35 of Yim 1 and asked whether instructions were issued regarding the deletion of the relevant JRS records in 2024. Contrary to the Defendant’s oral submission, there was no need for the Plaintiffs to establish any “nefarious destruction” on the part of the Defendant. On Mr Yim’s own evidence, it appears that some JRS records created in 2009 (such as those concerning the account of East Hope and Innovative as seen from the Table) would have been deleted in 2024, being 15 years from the date of the JRS report. This took place some 8 years after the commencement of these proceedings. In my view, I think the Plaintiffs are entitled to find out the requested information now so that they can deploy the information to prepare for the trial.

37. As far as interrogatories 8 and 12 are concerned, I do not consider the requested information to be essential for the proper preparation of the Plaintiffs’ case at the trial. In any event, the Defendant has confirmed that Mr Yim will be testifying as a witness at the trial for the Defendant. The Plaintiffs may obtain the requested information during cross-examination.

38. I decline to order the withdrawal of interrogatories 9, 10 and 11. However, interrogatories 8 and 12 should be withdrawn.

B5. Interrogatory 13 – Third Affirmation of Li Lok Man Daisy

39. Interrogatory 13 related to what Ms Li said about other people handling this action for the Defendant. It asked the Defendant to identify the other people and provide confirmation of what those other individuals did at the time and whether they have been asked to provide a witness statement.

40. This is in my view an improper interrogatory. The interrogatory was made in order for the Plaintiffs to find out the identity of the others and whether requests were made of them. In my view, this is fishing for information.

41. Moreover, I do not think that the requested information is essential for the proper preparation of the Plaintiffs’ case at the trial.

42. Interrogatory 13 should therefore in my view be withdrawn.

B6. Interrogatories 14 and 15 – O.24 r.10 Request

43. Interrogatories 14 and 15 related to the Plaintiffs’ O.24 r.10 request made on 22 March 2022 for various documents referred to in the Defendant’s pleading, including various SAS alerts, JRS reports, FCC reviews, STR reports etc (and repeated on 2 May 2023 and 13 November 2023). On 16 November 2023, documents were disclosed by the Defendant pursuant to an O.24 r.10 request. The interrogatories asked the Defendant to identify the individuals at the Defendant who handled the discovery request and details of the steps that were carried out by them. The Plaintiffs submitted that relevant documents continued to be destroyed after the Defendant’s provision of documents in November 2023. This appears to be the case from what Mr Yim said in Yim 1 (see Section B4 above).

44. In my view, the requests in these interrogatories are relevant and necessary. Given that the requested documents (such as Innovative and East Hope JRS reports) continued to be destroyed after the Defendant’s response to the O.24 r.10 request in November 2023, I believe the Plaintiffs are entitled to know the Defendant’s answers to the interrogatories now so that (1) they are in a position to know who within the Defendant was responsible for the non-retention of the relevant documents after November 2023, and (2) they can adequately prepare for the trial on the basis of the information to be provided by the Defendant.

45. On the other hand, the request in interrogatory 15.5 is objectionable as it seeks discovery of documents.

46. I decline to order the withdrawal of interrogatories 14, 15.1 to 15.4. However, interrogatory 15.5 should be withdrawn.

B7. Interrogatories 16 to 20 – Correspondence with the JFIU

47. Interrogatories 16 to 20 related to information regarding the Joint Financial Intelligence Unit (“JFIU”). The JFIU is jointly run by the Hong Kong Police Force and the Hong Kong Customs & Excise Department, and is not part of the Defendant.

48. In Yim 1, Mr Yim referred to his colleagues not knowing about the retention period of records on the JFIU online reporting platform. The Plaintiffs sought to ascertain the steps the Defendant has taken to confirm various information about the JFIU.

49. I do not see how the requested answers can be said to be essential information without which the Plaintiffs cannot adequately prepare their case for the trial. Nor can it be said that they would save costs. I am not satisfied that these interrogatories are necessary for the fair disposal of the matter, or for saving costs.

50. In any event, the request in interrogatory 20 is objectionable as it seeks discovery of documents.

51. Interrogatories 16 to 20 should therefore in my view be withdrawn.

B8. Interrogatory 21 – Other Questions

52. In their oral reply submission, the Plaintiffs accepted that they should not pursue this interrogatory. Interrogatory 21 should also be withdrawn.

B9. Additional Interrogatories – OCRM System Records and Emails

53. According to the Defendant, its Customer Relationship Management System (“OCRM”) records are for relationship managers or relevant employees to record matters about the Defendant’s clients, including meetings and visits with the Defendant’s clients. At the hearing, the Plaintiffs referred to the OCRM records which, according to the Defendant’s evidence, were automatically deleted 7 years after the closure of a bank account. The Plaintiffs further referred to Li 3 where Ms Li said that “records relating to China Medical in the OCRM System would have been deleted in or around November 2019” and “records relating to Supreme Well in the OCRM System would have been deleted in or around December 2018”. The Plaintiffs also showed that given that Worldpro’s bank account was closed in June 2014, the relevant OCRM records of Worldpro would have been deleted in June 2011.

54. The Plaintiffs submitted that such OCRM records were deleted after the commencement of these proceedings and that the Defendant has never proffered any explanation for the lack of discovery in relation to the relevant OCRM records. At the hearing, the Plaintiffs amended their Interrogatories to include two additional interrogatories on document preservation notice(s) relating to the OCRM records.

55. Two additional interrogatories were also added to the Interrogatories regarding document preservation notice(s) relating to the yearly backup files of emails of Loman Lo and Jackie Chiu.

56. Given that the additional interrogatories were added by the Plaintiffs during the hearing, and that the Defendant has not had the chance to fully consider them, it is inappropriate for the court to express any view on them. They are in any event not the subject of the Defendant’s Withdrawal Application. However, I note the position indicated by the Defendant through its Leading Counsel at the hearing that the additional interrogatories are much more limited in scope and are derived from something that are missing in discovery, and that they should be easier to handle.

B10. Conclusion

57. For all the above reasons, (1) I decline to order the withdrawal of interrogatories 9, 10, 11, 14, 15.1 to 15.4, (2) I order the withdrawal of interrogatories 1 to 8, 12, 13, 15.5, and 16 to 21, and (3) I make no order in relation to the newly added interrogatories in relation to the OCRM system records and emails dated 3 December 2025.

C. DISPOSITION

58. I dismiss the Plaintiffs’ summons dated 29 May 2025. As to the Defendant’s summons dated 7 November 2025, I order that interrogatories 1 to 8, 12, 13, 15.5, and 16 to 21 are to be withdrawn. I further order that the time within which interrogatories 9, 10, 11, 14, 15.1 to 15.4 are to be answered be extended to 28 days from the date of this decision.

59. As mentioned earlier, both parties have treated the Affidavit Application and the Withdrawal Application as closely related to each other, and in my view correctly so. In these circumstances, I believe it is right to globally consider the costs of and occasioned by both applications together. In my view, the Plaintiffs have raised some legitimate grounds for contending that the Defendant has not adequately explained why some of the relevant documents have been destroyed after the commencement of these proceedings. They needed to come to court to obtain the explanations which I have now ordered the Defendant to provide. To that extent, I think the Plaintiffs should be regarded as the receiving party on costs in both of the applications, even though they have not succeeded in the Affidavit Application. It seems to me just and appropriate to attribute 15% to reflect the Plaintiffs’ limited success in the two applications globally. I believe it is fair to give to the Plaintiffs 15% of all their costs of and occasioned in both applications.

60. Nonetheless, it seems to me that the Plaintiffs should only get their 15% of costs if they succeed at the trial. The Plaintiffs’ reasons for requiring the explanations from the Defendant now are to ascertain “what further steps may be needed to address [the Defendant’s conduct] – ranging from the drawing of adverse inferences to the striking out of its Defence”. Such potential further steps would have been unnecessary if the Plaintiffs cannot ultimately succeed at the trial.

61. For these reasons, I make an order nisi that the 15% of the costs of and occasioned in the Affidavit and Withdrawal Applications be in the Plaintiffs’ costs in the cause. For the avoidance of doubt, this order means that the Plaintiffs will only get their entitlement to 15% of costs which have been occasioned by the two applications if they succeed in the action, but that they will not be liable to pay the costs of the Defendant in respect of the two applications if judgment is given in favour of the Defendant at the trial.

	(Eugene Fung)
	Judge of the Court of First Instance High Court

Mr Charles Manzoni SC, instructed by Karas So LLP and Mr Jason Karas, Solicitor Advocate, of Karas So LLP, for the 1^st to 3^rd Plaintiffs

Mr Laurence Li SC and Mr Jonathan Ng, instructed by Herbert Smith Freehills Kramer, for theDefendant

HCA 1742/2018

[2021] HKCFI 3042

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1742 OF 2018

_________________

BETWEEN
	China Medical Technologies, Inc (in liquidation)	1st Plaintiff
	CMED Technologies Ltd	2nd Plaintiff
	Cosimo Borrelli and Yuen Lai Yee in their capacity as the joint and several liquidators of China Medical Technologies, Inc (in liquidation)	3rd Plaintiff
and
	Bank of China (Hong Kong) Limited	Defendant

_________________

Before: Hon Ng J in Chambers (Open to public)

Dates of Hearing: 20-21 May 2021

Date of Judgment: 15 October 2021

________________

J U D G M E N T

________________

Introduction

1. The Writ in this action was issued on 27 July 2018 claiming damages, equitable compensation, restitution and a declaration under s 275 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32 (“CO”) in respect of the fraudulent transfer of US$355.5 million (“Funds”) belonging to the 1st Plaintiff and/or the 2nd Plaintiff to Supreme Well Investments Limited (“Supreme Well”) between November 2006 and December 2009. The Defendant was the banker of the 1st Plaintiff. The Defendant was also the banker of Supreme Well.

2. By summons dated 21 December 2018, the Defendant applied to strike out the Statement of Claim and dismiss the action. Subsequently, the Plaintiffs were granted leave to amend the Statement of Claim while the Defendant was granted leave to amend the striking out summons.

3. There is before this court the Defendant’s application by Amended Summons dated 17 February 2021 (“Defendant’s Summons”) for an Order that the Amended Statement of Claim filed on 28 July 2020 (“ASOC”) be struck out and this action be dismissed on the grounds that:

(1)  It discloses no reasonable cause of action;
(2)  It is scandalous, frivolous or vexatious;
(3)  It may prejudice, embarrass or delay the fair trial of the action; and/or
(4)  It is otherwise an abuse of the process of the Court.

4. There is also before this court the Plaintiff’s application by summons dated 26 April 2021 (“Plaintiff’s Summons”) seeking leave to file a Re-Amended Statement of Claim (“RASOC”) and an amended Further and Better Particulars of the Statement of Claim (“AFBPs”). The proposed amendments remove the claims based on breach of contract and negligence. The remaining causes of action are dishonest assistance, knowing receipt, unjust enrichment/restitution and fraudulent trading under s 275 CO.[1]

Factual Background

5. The factual background for the purpose of the present application is set out in some detail in the Defendant’s skeleton submissions. As the Plaintiffs do not appear to dispute that, this court will adopt it, with certain modifications, as follows.

6. The 1st Plaintiff was incorporated in the Cayman Islands on 6 July 2004 and was listed on the NASDAQ on 10 August 2005. At all material times prior to its winding up, the 1st Plaintiff was held out as having a principal business of developing, manufacturing and marketing advanced surgical and medical equipment in the PRC. The 2nd Plaintiff was a wholly owned subsidiary of the 1st Plaintiff.

7. Between 2006 and 2013, the 1st Plaintiff’s board of directors consisted of the following individuals:

Name Position
Mr Wu Xiaodong (“Wu”) Chairman and Chief Executive Officer
Mr Samson Tsang Tak Yung (“Tsang”) Director and Chief Financial Officer
Minshi Shen Director and Chief Operating Officer
Ting Zheng Director
Lawrence Arthur Crum (“Dr Crum”) Independent non-executive director
Cole R Capener (“Mr Capener”) Independent non-executive director
Iain Ferguson Bruce (“Mr Bruce”) Independent non-executive director
Ruyu Du (“Dr Du”) Independent non-executive director
Yuedong Li (“Dr Li”) Independent non-executive director
Guoming Qi (“Dr Qi”) Independent non-executive director

8. The Plaintiffs’ case is that the alleged fraud was committed on the 1st and 2nd Plaintiffs by the following individuals who were directors or officers of the 1st Plaintiff:

(1)  Wu;
(2)  Tsang;
(3)  Mr Feng Zhu (“Zhu”), the Vice President for Business Development and Investor Relations as well as Senior Vice President of Operations of the 1st Plaintiff; and
(4)  Zhong Chen (“Chen”), Chief Technology Officer of the 1st Plaintiff.
(collectively “4 Individuals”)

9. In essence, the Plaintiffs claim that the 4 Individuals had breached their fiduciary duties to the 1st Plaintiff by causing the 1st Plaintiff to acquire fluorescent in situ hybridization technology (“FISH Technology”) for US$176.8 million in February 2007 (“FISH Transaction”) and surface plasmon resonance technology (“SPR Technology”) for US$345 million in October 2008 (“SPR Transaction”) from Supreme Well and its subsidiaries (“Supreme Well Group”).

10. The FISH and SPR Transactions were presented to the Board of the 1st Plaintiff as arm’s length commercial transactions. In fact, Supreme Well and the Supreme Well Group were secretly controlled by Tsang and the medical technology purportedly acquired by the FISH and SPR Transactions was of little or no value. The Plaintiffs allege that Wu and Tsang caused the 1st Plaintiff to pay out significant sums as the purported consideration for the FISH and SPR Transactions, which were then transferred onwards to various third party recipients controlled by or connected to the 4 Individuals. These payments can be grouped into 2 tranches.

11. The first tranche of payments (“First Tranche”) consists of transfers from the 1st and 2nd Plaintiffs to Supreme Well and Innovative Technology Investment Ltd (“Innovative”) as follows:

(1)  Between November 2006 and December 2008, Wu and/or Tsang caused the 1st Plaintiff to transfer a total of US$303.75 million to Supreme Well, including its account with Bank of East Asia (Hong Kong) Ltd (“Supreme Well BEAHK Account”) and its accounts with the Defendant (“Supreme Well BOCHK Accounts”), by 52 cashier orders purchased with funds from the 1st Plaintiff’s account with the Defendant (“P1 BOCHK Account”).
(2)  In February 2007, Wu and/or Tsang caused the 1st Plaintiff to transfer US$10 million to Innovative’s account with the Defendant (“Innovative BOCHK Account”) by 2 cashier orders purchased with funds from the P1 BOCHK Account.
(3)  Between December 2008 and January 2009, Wu and/or Tsang caused the 1st Plaintiff to transfer more than US$100 million to the 2nd Plaintiff’s account with Standard Chartered Bank (Hong Kong) Ltd (“P2 SCBHK Account”). Between March and December 2009, Wu and/or Tsang then caused the 2nd Plaintiff to transfer a total of US$51.75 million to the Supreme Well BOCHK Accounts by 3 cashier orders purchased with funds from the P2 SCBHK Account.

12. The second tranche of payments (“Second Tranche”) consists of payments from Supreme Well and Innovative to bank accounts of other entities associated with or controlled by the 4 Individuals, including East Hope International Ltd, Innovative, Kam Hing Trading Co, Worldpro Investments Ltd and Neway Global Investments Ltd (“Third Party Payees” and “Third Party Accounts” respectively).

13. It is not in dispute that on 10 February 2009, the 1st Plaintiff’s auditor KPMG Hong Kong received an anonymous letter (“Anonymous Letter”) alleging that the FISH and SPR Transactions were, in essence, fictitious related-party transactions designed to siphon off a significant portion of the 1st Plaintiff’s assets. The Anonymous Letter stated that:

(1)  The FISH and SPR Transactions involved possible illegal and fraudulent activities.
(2)  The FISH and SPR Transactions were highly unusual and suspicious by reason of the following facts:
(a)  Supreme Well and its subsidiary Molecular Diagnostics Technologies Ltd were BVI shell companies with no apparent business operations;
(b)  the two shell companies were controlled by certain parties in China with relationship to the CEO and management of the 1st Plaintiff;
(c)  the SPR Technology was still under research and development and had not been approved by any health authorities in the world for commercial sale; and
(d)  the consideration for the transactions involved a substantial portion of the 1st Plaintiff’s cash balance.
(3)  The irregularities had led industry insiders to believe that the 1st Plaintiff grossly inflated the price of its acquisitions and channelled cash from investors to company insiders’ pockets without proper disclosure and possibly in violation of laws.

14. On 12 February 2009, KPMG Hong Kong provided a copy of the Anonymous Letter to Mr Bruce in his capacity as the Chairman of the 1st Plaintiff’s Audit Committee. After receiving the Anonymous Letter, the Audit Committee was advised on 20 February 2009 that it should engage independent lawyers to undertake an investigation of the matters alleged. On 6 April 2009, the Audit Committee resolved to appoint Paul, Weiss, Rifkind, Wharton & Garrison LLP (“Paul Weiss LLP”) as independent counsel to conduct an investigation into the allegations in the Anonymous Letter (“Investigation”). For this purpose, Paul Weiss LLP enlisted the assistance of New York firm AlixPartners LLP (“AlixPartners”) as forensic accountants.

15. Paul Weiss LLP and AlixPartners proceeded to carry out the Investigation from April 2009 onwards. The bulk of the work (at least as far as the FISH and SPR Transactions are concerned) was completed by July 2009. On 18 July 2009, Paul Weiss LLP provided a substantive report on the Investigation orally to the Audit Committee. In broad terms, the advice was that the allegations in the Anonymous Letter had no merit. On the same day, the Audit Committee resolved that “the allegations of the fraudulent activities contained in the anonymous letter had no merit”. A month later, the Audit Committee resolved to close the Investigation.

16. On 27 July 2012, the Grand Court of the Cayman Islands ordered that the 1st Plaintiff be wound up as insolvent and that Mr Cosimo Borrelli and Mr Kenneth Krys be appointed as the joint official liquidators of the 1st Plaintiff. On 29 November 2012, the Hong Kong Court ordered that Mr Borrelli and Ms Yuen Lai Yee (“Liquidators”) be appointed as the joint and several provisional liquidators of the 1st Plaintiff until the determination of a petition to wind up the 1st Plaintiff in Hong Kong. On 1 September 2014, the Hong Kong Court ordered that the 1st Plaintiff be wound up and that the Liquidators continued as provisional liquidators of the 1st Plaintiff. On 2 February 2015, the Liquidators were appointed as the joint and several liquidators of the 1st Plaintiff in Hong Kong.

17. Meanwhile, on 2 December 2014, the Liquidators filed a protective writ (“2014 Writ”) against the Defendant in HCA 2448/2014 (“2014 Action”). The validity of the 2014 Writ lapsed and the Order to extend the writ was set aside by Au-Yeung J, as affirmed by the Court of Appeal. Leave to appeal was refused by the Appeal Committee of the Court of Final Appeal.

18. On 27 July 2018, the Plaintiffs filed the Writ in the present action.

19. On 19 March 2015 and 14 December 2016, the 1st and 2nd Plaintiffs filed the writ of summons in HCA 577/2015 and in HCA 3272/2016 respectively. In those proceedings, the 1st and 2nd Plaintiffs brought claims against Paul Weiss LLP and its associated Hong Kong firm Paul, Weiss, Rifkind, Wharton & Garrison (collectively “Paul Weiss”) for allegedly negligent advice or misstatements given to the 1st Plaintiff’s Audit Committee in July 2009.

20. In broad terms, their claim was that Paul Weiss had failed to act with reasonable care, skill and diligence by reason of their (1) failure to adequately investigate whether the FISH and SPR Transactions were related party transactions, (2) failure to adequately investigate whether the consideration paid pursuant to those transactions was grossly inflated, (3) failure to adequately investigate certain unusual features of the transactions and (4) failure to adequately advise the 1st and 2nd Plaintiffs. A substantial part of the 1st and 2nd Plaintiffs’ allegations was that Paul Weiss failed to undertake reasonable independent enquiries to determine whether Supreme Well and its subsidiaries were related parties as alleged. But for the negligent advice, they would have been able to take steps to recover the payments to Supreme Well et al and stop any further payments to those parties in July 2009. Their case was that they should and would have been able to discover the Alleged Fraudulent Scheme within a very short period of time after the commencement of the Investigation.

21. In February 2018, Paul Weiss applied to set aside service of the writs on Paul Weiss LLP in Hong Kong on the ground that it did not carry on business in Hong Kong and to stay the proceedings on the ground of forum non conveniens. The applications were dismissed by G Lam J (as he then was) on 25 October 2019.

Deliberation

22. The applicable principles are uncontroversial. They are stated in Hong Kong Civil Procedure 2021 at para 18/19/4:

(1)  Striking out a plaintiff’s claim should only be done in “plain and obvious” cases.
(2)  Plain is not the same as simple and obvious is not the same as short. If on a careful reading of the Statement of Claim however complicated, it can be seen that there is no cause of action, the Court can, and probably will, order it to be struck out.
(3)  The claim must be “obviously unsustainable”, the pleadings “unarguably bad” and it must be “impossible, not just improbable, for the claim to succeed” before the Court will strike out a claim.
(4)  There should be no trial upon affidavits. Disputed facts are to be taken in favour of the plaintiff.
(5)  Where the legal viability of a cause of action is sensitive to the facts or requires a minute and protracted examination of the documents and facts of the case, an order to strike out should not be made.

23. As succinctly summarised in its Executive Summary, the Defendant submits that the remaining causes of action of knowing receipt, fraudulent trading, unjust enrichment/restitution and dishonest assistance should be struck out and the action be dismissed because:

(1)  The knowing receipt claim is not reasonably arguable because there was no “beneficial receipt” by the Defendant.
(2)  The fraudulent trading claim is not reasonably arguable because the 1st Plaintiff was in the business of developing, manufacturing and marketing medical equipment which involved the acquisition of other businesses, whereas the fraudulent transactions and the consequent misappropriation of the 1st Plaintiff’s funds was a fraud committed in the course of the 1st Plaintiff’s business - it was not the carrying on of a fraudulent business.
(3)  The fraudulent trading claim fails to comply with the mandatory requirement of Rule 58 of the Companies (Winding-Up) Rules that it should be made by summons and should be served in the manner in which an originating summons is required to be served. Non-compliance with Rule 58 cannot be cured by Rule 209 because Rule 58 is a statutorily required procedure and is not a mere formality. Insofar as the Court has a residual discretion, it should not cure the non-compliance because the Plaintiffs were well aware of the Rule 58 requirement before they issued the writ in this action.
(4)  The knowing receipt, dishonest assistance and restitution claims are time-barred.

Knowing Receipt

24. The paragraphs in the draft RASOC directly relevant to knowing receipt are as follows.

“79. In the period from November 2006 to December 2008, Mr Wu and/or Mr Tsang caused the First Plaintiff to pay a total of US$303.75 million to Supreme Well by way of 52 cashier orders purchased with funds from the First Plaintiff’s BOCHK Account, of which account Mr Wu and Mr Tsang were the only authorised signatories.
80. In the case of each misappropriation from the First Plaintiff’s BOCHK Account, Mr Tsang sent a written instruction to the Defendant, addressed to one or more of the Known BOC Employees including Loman Lo and Jackie Chiu, that (a) requested the payment of funds from the First Plaintiff’s BOCHK Account to Supreme Well via cashier order and (b) advised that the cashier orders would be collected from the Defendant, in most instances by Mr Tsang personally. In each instance, the cashier orders were collected by Mr Tsang and/or another individual from the Defendant’s King’s Road Branch on the same day or in the days immediately following the payment instruction, and were then deposited within one or two business days into accounts in the name of Supreme Well either at the Defendant’s King’s Road Branch, or at a branch of BEAHK.
…
82. In each instance, the First Plaintiff’s BOCHK Account was debited the face value of the cashier orders upon their collection, and the Supreme Well accounts were credited these amounts upon their deposit into the relevant accounts.
…
259. Further or alternatively, the Defendant was liable to the First and/or Second Plaintiffs in knowing receipt, in that:
259.1 misappropriated funds deposited into bank accounts held with the Defendant in the total amount of at least US$205 million by cashier orders on or about 5 March 2007 (US$76.8 million), 29 May 2007 (US$7.45 million), 2 August 2007 (US$22 million), 11 February 2008 (US$20 million), 16 October 2008 (US$47 million), 10 March 2009 (US$10 million) and 3 July 2009 (US$21.75 million), and any benefits derived therefrom, were received beneficially by the Defendant;
259.1A. each of the misappropriations were conducted by a deposit of one or more cashier orders by Mr Tsang on behalf of Supreme Well as customer, which deposits had the effect in law of creating a loan by Supreme Well to the Defendant;
…” (emphasis added)

25. It is well established that one of the essential elements of this cause of action is the beneficial receipt by a defendant of assets which are traceable as representing the claimant’s own assets: El Ajou v Dollar Land Holdings Plc (No 1) [1994] 2 All ER 685, 700.

26. The Defendant submits that the Plaintiffs’ case fails to satisfy the requirement of beneficial receipt because as a matter of law, the Defendant, as a bank, did not beneficially receive any assets. The bank only receives money as agent for the account holder and does not receive it for its own use and benefit, unless the money pays off an overdraft: Agip (Africa) Ltd v Jackson [1990] Ch 265, 292B (per Millett J); Lewin on Trusts (20th ed) para 42-085.

27. It is true that the above legal proposition is supported by the authorities cited. But that proposition is inconsistent with other equally well-established principles that (i) a deposit by a customer (including a deposit by a cheque) creates a relationship of debtor and creditor between the bank and the customer^{^[2]} and that (ii) money paid into a bank account belongs legally and beneficially to the bank and not the account holder. In Foskett v McKeown [2001] AC 102, 128A, Lord Millett observed that:

“ … Money paid into a bank account belongs legally and beneficially to the bank and not to the account holder. The bank gives value for it, and it is accordingly not usually possible to make the money itself the subject of an adverse claim. Instead a claimant normally sues the account holder rather than the bank and lays claim to the proceeds of the money in his hands…”

28. Further, the distinction drawn in Agip (Africa) Ltd v Jackson between receipt by a bank into an account that is in credit and receipt into an account that is overdrawn is not universally accepted. For instance, Agip (Africa) Ltd v Jackson has been criticised in Uzinterimpex JSC v Standard Bank Plc [2008] 2 Lloyd’s Reports 456 in which Moore Bick LJ said at [39] ‑ [40]:

“ 39. … However, it has long been established that the relationship between banker and customer is one of creditor and debtor: see Foley v Hill (1848) 2 HL Cas 28. The customer whose account is in credit lends the money to the bank for use by it in its business. The distinction drawn in Agip v Jackson between receipt by a bank into an account that is in credit and receipt into an account that is overdrawn has been criticised on the grounds that the nature of the relationship between banker and customer is such that the bank always has the benefit of using the customer’s money for its own purposes until such time as it is called upon to repay the debt: see in particular Bryan, ‘Recovering Misdirected Money from Banks: Ministerial Receipt at Law and in Equity’ published in Restitution and Banking Law, 1998, ed Rose. …
40. In my view there is a good deal of force in Dr Bryan’s criticism of the decision in Agip v Jackson, but it is unnecessary for the purposes of this appeal to decide whether it is well-founded …”

29. For the present purpose, another distinction is drawn by the learned editors of Goff and Jones The Law of Unjust Enrichment (9th ed) at paras 28-08 to 28-10 between deposit of funds by the account holder himself and deposit of funds by a third party:

“ In a series of cases against banks which have received and dealt with misapplied trust property, the question has arisen whether the bank has received the property for its own benefit or has acted ministerially. To understand the authorities on this issue properly, it must be appreciated that the situation where the misapplied property has been deposited by the account holder differs from the situation where the property has been deposited by a third party.
In the first situation, the bank always receives the money beneficially, and never receives it ministerially: there is simply a loan of money from the account holder to the bank, or if the account is overdrawn, a repayment of the debt owed to the bank by the account holder. Hence, the bank is potentially liable to claims that are predicated on the basis that it has received misapplied property for its own benefit, where a trustee or fiduciary himself deposits trust money into his personal account. Certain cases to the contrary, which suggest that in this situation a bank can only be liable as a dishonest assistant, are incorrect in principle.
In the second situation, where cash is deposited with a bank by a person other than the account holder, or the bank’s own account with a central clearing bank is credited as a result of instructions from such a person, the bank will almost always take the proceeds of the transaction ministerially as agent for the account holder. It has been hard for the courts and legal scholars to accept this proposition although cases can be marshalled in its support. One reason for their difficulties may be that they have not always clearly understood that a bank which receives a third-party deposit on its customer’s behalf does not receive ‘beneficially’ simply because it takes good title to the money and then uses the money as its own: ‘beneficial receipt’ as distinguished from ‘ministerial receipt’ of money entails not merely that a defendant takes good title to the money, but also that the defendant does not have to account for an equivalent sum to a principal who is legally liable to the claimant from the moment of the defendant’s receipt.” (emphasis added)

30. In its Reply submissions, the Defendant submits that an intra-bank transfer ie a “payment” from account A to account B of the same bank has no effect on the level of a bank’s assets. What happens is a change in entries in the bank’s internal accounts as Lord Millett explained in Foskett v McKeown at 128B-C. That may well be so. If the Plaintiffs’ pleaded case were that the misappropriated funds were transferred directly from the P1 BOCHK Account to the Supreme Well BOCHK Accounts, then the Defendant might have a point. But that was not what the Plaintiffs have pleaded.

31. As pleaded in paragraph 259.1A of the draft RASOC, Tsang deposited the cashier orders in question on behalf of Supreme Well into its bank accounts with the Defendant as customer. That is the first situation referred to in Goff and Jones quoted above. If so, the Defendant received the funds represented by the cashier orders beneficially instead of ministerially.

32. To conclude, as submitted by Mr Manzoni SC, there is at least a difficult and unsettled question of law involved in this cause of action and that it is inappropriate to strike it out.

Fraudulent Trading - no cause of action

33. The Plaintiffs’ case on fraudulent trading is pleaded at paras 261 and 262 of the RASOC:

“261. Further or alternatively, by reason of its conduct as pleaded herein, the Defendant was knowingly a party to the carrying on of the business of the First Plaintiff with intent to defraud creditors of the First Plaintiff, with reckless indifference as to whether or not the creditors of the First Plaintiff were defrauded and/or whether or not the business of the First Plaintiff was carried on for a fraudulent purpose.
262. In the premises, the Third Plaintiffs seek remedies against the Defendant under s. 275 of the Companies Ordinance in respect of the debts and other liabilities of the First Plaintiff in the amount of at least US$355.5 million or as the Court may direct.”

34. At para 159 of the AFBPs, the Plaintiffs further elaborated on its plea at para 261 as follows:

(1)  The 1st Plaintiff’s business involved the acquisition of inter alia technologies to complement its existing business.
(2)  The business operations of the 1st Plaintiff were conducted by the 4 Individuals.
(3)  The FISH and SPR Transactions, presented to the Board and public as legitimate arm’s length transactions, were not arm’s length transactions made for proper commercial purposes. They were undisclosed related party transactions.
(4)  By procuring and carrying out the FISH and SPR Transactions, the 4 Individuals intended to defraud the creditors of the 1st Plaintiff, or were recklessly indifferent as to whether those creditors were defrauded or otherwise acted for a fraudulent purpose.
(5)  The Defendant participated in the carrying on of the 1st Plaintiff’s business by executing all payment instructions from Tsang and/or Wu.

35. Section 275 CO 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.”

36. As stated in para 16-039 of McPherson & Keay The Law of Company Liquidation (4th ed), carrying on business is interpreted broadly. Indeed, “carrying on business” is so broad that it is not necessary for the liquidator to prove that there has been a course of conduct, as a single transaction or act is able to constitute it, citing Re Gerald Cooper Chemicals Ltd [1978] Ch 262.

37. At paragraph 67 of its skeleton submissions, the Defendant argues that the Plaintiffs clearly fail to establish the Alleged Fraudulent Scheme constitutes the “carrying on” of the 1st Plaintiff’s business as what the Plaintiffs have pleaded is not the carrying on of the 1st Plaintiff’s business, but simply a fraud on the 1st Plaintiff. The long and short of the Defendant’s argument is that because the FISH and SPR Transactions were not proper commercial transactions but were used as a means of misappropriating the 1st Plaintiff’s funds payable as consideration thereunder, they could not amount to the carrying on of the 1st Plaintiff’s business.

38. This court does not agree.

39. On the Plaintiffs’ pleaded case, the 1st Plaintiff did enter into and complete the FISH and SPR Transactions as part of its business which involved the acquisition of technologies. By entering into the Transactions, the 1st Plaintiff was to obtain the technology and other assets for the purpose of selling FISH and SPR products. The fact that (i) the technology had no or little commercial value, and (ii) the Transactions were used as a means of misappropriating the 1st Plaintiff’s funds and were a fraud on the 1st Plaintiff, does not alter the pleaded fact that the 1st Plaintiff had entered into the Transactions as part of its business. Equally, the fact that the Transactions were intended to defraud the 1st Plaintiff does not mean that they could not be intended to defraud the 1st Plaintiff’s creditors - the two are not mutually exclusive. As far as the pleaded intention to defraud the 1st Plaintiff’s creditors is concerned, that is fact sensitive and, for the purpose of striking out, is to be taken in favour of the Plaintiffs.

40. What the Defendant seems to be suggesting is that because the Transactions were fraudulent transactions, they could not constitute the carrying on of the 1st Plaintiff’s business. With respect, it is exactly because the Transactions were fraudulent which triggers section 275 CO. As Mr Manzoni SC submits, accepting the Defendant’s argument in this respect would require an absurd interpretation of the section, which would exclude businesses which are predominantly fraudulent.

41. To conclude, this court is of the view that it is arguable the pleaded case of fraudulent trading does disclose a reasonable cause of action.

Fraudulent Trading - procedural objection

42. The Defendant submits that the claim based on fraudulent trading should be struck out on the ground that it fails to comply with Rule 58 of the Companies (Winding-Up) Rules. The objection is purely technical since there is no suggestion that the Defendant has suffered any prejudice as a result.

43. The relevant parts of Rule 58 provide:

“(1) An application under any of the following provisions—
(a) section 276 of the Ordinance;
(b) section 275(1), (2) or (4) 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, …”

44. In relation to a claim under section 276 CO brought in a writ action, this court held in China Medical Technologies, Inc v Wu Xiaodong [2020] 1 HKLRD 342 that the procedure under Rule 58 is mandatory.

45. In that case, the defendant applied to strike out a number of paragraphs of the Statement of Claim relating to inter alia the claim made under section 276 CO on the ground that they disclosed no reasonable cause of action and constituted an abuse of process while the plaintiffs applied under RHC O 2 r 1 to cure any irregularity in the manner of commencement of the section 276 claim.

46. In support of the striking out application, counsel for the defendant advanced 4 grounds in support[3]:

“(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.”

47. This court held the first 2 grounds boiled down to procedural irregularity in that the plaintiffs had failed to follow the procedure under Rule 58 - they were not concerned with whether or not the pleaded section 276 claim disclosed a reasonable cause of action. It was in that context that this court held that the procedure under Rule 58 is mandatory and suggested at [14] the following:

“ … 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. …” (emphasis added)

48. As far as the 3rd and 4th grounds are concerned, they were concerned with whether or not the section 276 claim disclosed a reasonable cause of action. As to that, this court said at [15]:

“15. As for the 3rd and 4th 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.”

49. It is for this reason that this court struck out the section 276 “claim” as disclosing no reasonable cause of action.

50. Judging from the Plaintiffs’ skeleton, it seems that they advisedly accept the correctness of this court’s decision in China Medical Technologies, Inc v Wu Xiaodong as well its applicability to a claim under section 275 CO. Indeed, the Plaintiffs have issued a summons in HCCW 435/2012 on 31 August 2020 (“Summons”) asserting a claim under s 275 CO against the Defendant and seeking consolidation of the summons with the present action.

51. Given this court’s conclusion that it is arguable the pleaded case of fraudulent trading does disclose a reasonable cause of action, it is obviously inappropriate to strike it out on the 1st ground that it discloses no reasonable cause of action. The Defendant has not made it clear and this court does not see how the failure to follow the Rule 58 procedure comes within the other 3 grounds for striking out.

52. In any event, as this court sees it, the most appropriate and direct way to cure the procedural irregularity is to actually follow the procedure under Rule 58, which the Plaintiffs have done by issuing the Summons on 31 August 2020. Mr Manzoni SC further invites this court to follow the same course as that suggested in China Medical Technologies, Inc v Wu Xiaodong viz to consolidate the Summons with the present action. That course would be in line with the underlying objectives of the CJR in promoting a sense of reasonable proportion and procedural economy in the conduct of proceedings in that it would avoid unnecessary further amendments to the RASOC without causing any prejudice to the Defendant.

53. However, since the Summons has been adjourned by consent pending the determination of the Defendant’s present application[4] and the Defendant is not agreeable to vary the consent order, it is inappropriate for this court to make an order for consolidation at this stage. But this court expects the parties to fulfil their duty under RHC O 1A r 3 and deal with the Summons properly after this Judgment is handed down.

54. Given that the non-compliance with Rule 58 has already been cured by the issue of the Summons, it is academic and hence unnecessary to consider the questions raised by the parties as to whether non-compliance with Rule 58 can be cured by Rule 209 of the Companies (Winding-Up) Rules or RHC O 2 r 1(3).

Limitation

55. An order striking out a statement of claim, which is based on a limitation defence, can only be sustained if that defence is manifestly and immediately destructive of the plaintiff’s claim: Kensland Realty Ltd v Tai Tang & Chong(2008) 11 HKCFAR 237 at [153] per McHugh NPJ.

56. The Defendant submits that the claims for (i) knowing receipt, (ii) unjust enrichment/restitution and (iii) dishonest assistance are all subject to a 6-year limitation period and that each of these causes of action must have accrued by 4 December 2009 ie the date on which the last of the First Tranche payments were completed at the latest. Thus over 8 years had elapsed between the accrual of the pleaded causes of action and the issuance of the writ in this action on 27 July 2018.

57. Judging from the Plaintiffs’ skeleton argument as well as its Annexure 2, it does not appear the above is in dispute. What the Plaintiffs seek to argue is that they are entitled to rely on section 26(1) of the Limitation Ordinance (“LO”) on the basis that the action is based upon the fraud of the Defendant; alternatively, section 22 on the basis of the 1st and 2nd Plaintiffs’ disability.

Section 22

58. Section 22(1) and (3) LO provides:

“(1) If on the date when any right of action accrued for which a period of limitation is prescribed by this Ordinance, the person to whom it accrued was under a disability, the action may be brought at any time before the expiration of 6 years from the date when the person ceased to be under a disability or died, whichever event first occurred, notwithstanding that the period of limitation had expired: …
(3) For the purposes of this section and section 22A, a person shall be deemed to be under a disability while he is an infant or of unsound mind, …” (emphasis added)

59. The Plaintiffs’ pleaded case is that they had suffered from a “disability” until the Liquidators were appointed on 27 July 2012 because the 1st and 2nd Plaintiffs were, until then, controlled by the wrongdoers Wu and Tsang. At paragraph 49 of their skeleton, they submit that (i) the definition of “disability” cannot be restricted to cases of infancy and unsound mind and (ii) the most obvious way that a company could come within the definition of “disability” is when it was controlled by wrongdoers, such that it was unable to act to advance its own interests. No authority is cited in support of the above submissions save for (i) the Australian decision Gerard Cassegrain & Co Pty Ltd v Cassegrain [2011] NSWSC 1156[5] in which a company was held to be under a disability during the period when it was in receivership, and (ii) section 3 of the Interpretation and General Clauses Ordinance, Cap 1 which defines “person” to include “corporate” person.

60. As explained in the Defendant’s Reply submissions, Gerard Cassegrain & Co Pty Ltd v Cassegrain does not assist the Plaintiffs since section 11 (3) of the NSW Limitation Act 1969, which the Australian Courts relied upon, provides for an entirely different definition of “disability” from our section 22 which involves a detailed factual inquiry into a plaintiff’s mental and physical circumstances. Section 3 is also of little assistance since under section 2 of Cap 1, the definitions apply save where the contrary intention appears from inter alia the context of any other Ordinance, in the present case, the LO. Hence, one still has to ascertain the meaning of “disability” in the context of section 22. As the Hong Kong and UK authorities show, corporations are excluded from the ambit of section 22.

61. In Chan Kam Nun v Immigration Department [2018] 1 HKLRD 1251, the defendant applied to strike out the Statement of Claim on the ground inter alia that it was time-barred. In answer to that, the plaintiff, a natural person, relied on section 22 to postpone the running of time. The Master granted the defendant’s application and rejected the Plaintiff’s argument that because of his inability to return to Hong Kong and his lack of means to instruct a lawyer, he was under a “disability”. The Master’s decision was upheld on appeal.

62. It was in this context that DHCJ To concluded that the term “disability” should be given a narrow meaning to include only “a lack of mental capacity” by reason of being a minor or being mentally disabled or suffering from mental disorder. At [19], the learned Deputy Judge said:

“19. I have to adopt an even narrower interpretation. The English equivalent of the term ‘無行為能力’ is “disability”. Both the Chinese term and its English equivalent have a very broad meaning, including a lack of ability to act, such as lack of money, physical power, physical fitness, intellectual ability and mental ability, and also covering people like minors, mentally handicapped, mentally disabled, physically disabled and physically handicapped. However, as a legal term or expression, it carries a relatively narrow meaning. … Therefore, ‘disability’ refers to a lack of mental ability, that is to say, not having sufficient intellectual ability to make a rational decision, by reason of being a minor or mentally disabled or suffering from mental disorder.”

63. As the Defendant points out, there is nothing to suggest that Chan Kam Nun is wrongly decided. None has been put forward by the Plaintiffs.

64. As for UK authorities, the Plaintiffs have very properly drawn this court’s attention to the case of Kazakhstan Kagazy Plc v Baglan Abdullayevich Zhunus [2017] EWHC 3374 at [559] in which Picken J held that the English equivalent of section 22 only applies to natural persons.

65. The Defendant submits that the short point here is that there is no difficult point of law or factual issue. The Plaintiffs’ reliance on section 22 is plainly misconceived. This court agrees.

Section 26(1)

66. Section 26(1) 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;
…
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.”

67. The pleas relevant to section 26 (1) are set out in paragraphs 272 to 273 of the RASOC:

“272. The Defendant’s conduct as pleaded herein was dishonest and/or unconscionable, comprising ‘fraud’ within the meaning of s. 26(1) of the Limitation Ordinance (Cap 347) (‘Limitation Ordinance’). The Plaintiffs first discovered that Mr Tsang was the sole ‘Authorised Person’ on the ~~First Plaintiff’s~~ Supreme Well BOCHK Accounts in February 2014, and in the period thereafter, that the Defendant had engaged in the dishonest and/or unconscionable conduct alleged herein.
273. The Plaintiffs could not with reasonable diligence have discovered the Defendant’s dishonest and/or unconscionable conduct sooner than they did. In the premises, section 26(1) of the Limitation Ordinance operates so as to postpone the limitation period in respect of the Plaintiffs’ claims for dishonest assistance and knowing receipt.” (emphasis added)

68. Further and Better Particulars of the said pleas are given in paragraphs 172 to 180 of the AFBPs:

“172. During the period from at least November 2006 to February 2012:
172.1 the FISH Transaction was presented to the Board of the First Plaintiff and the public as a legitimate arm’s length acquisition by the First Plaintiff and its subsidiaries of the FISH Technology from supposedly independent third parties, Supreme Well and its subsidiaries, for purchase consideration of US$176.8 million; and
172.2 the SPR Transaction was presented to the Board of the First Plaintiff and the public as a legitimate arm’s length acquisition by the First Plaintiff and its subsidiaries of the FISH [sic] Technology from supposedly independent third parties, Supreme Well and its subsidiaries, for purchase consideration of US$345 million.
173. On 10 February 2009, the Plaintiffs’ auditor, KPMG Hong Kong received an anonymous letter (‘Anonymous Letter’) [CMTL.009.007.102274]. The Anonymous Letter alleged, inter alia, that the vendors in the FISH and SPR Transactions were British Virgin Islands shell companies with no apparent business operations, which are controlled by certain parties in China with relationships to the First Plaintiff’s management.
174. Following receipt of the Anonymous Letter, the Audit Committee of the First Plaintiff engaged law firm Paul, Weiss Rifkind, Wharton & Garrison LLP and / or Paul, Weiss Rifkind, Wharton & Garrison (a Hong Kong firm) (‘Paul Weiss’) to inter alia conduct an independent internal investigation into the allegations made in the Anonymous Letter. Paul Weiss in turn engaged forensic accounting firm AlixPartners LLP.
175. Following the conduct of the internal investigation, Paul Weiss advised the Audit Committee, inter alia that (‘Paul Weiss Advice’)
175.1 there was no merit whatsoever to the allegations raised by the Anonymous Letter;
175.2 there was nothing out of the ordinary to report with respect to the FISH and SPR Transactions;
175.3 they did not find any evidence to support the allegations in the Anonymous Letter; and
175.4 the FISH and SPR Transactions had the earmarks of a legitimate, arms-length transaction and that they had concluded that they were not related party transactions.
176. By press release dated 30 July 2009, the First Plaintiff publicly announced that the Anonymous Letter had been received, and that the Audit Committee had conducted an independent internal investigation with the assistance of Paul Weiss and Alix Partners, who had reported to the Audit Committee that ‘the investigation has not identified evidence to support the allegations made in the anonymous letter’ [CMTL.001.006.005413].
177. Following receipt of the Paul Weiss Advice, it was reasonable for the Plaintiffs not to conduct further investigations into the allegations made in the Anonymous Letter. The Plaintiffs were not aware of any evidence that the FISH and SPR Transactions were related party transactions, or that the Defendant knew this to be the case, or even that the proceeds of the FISH and SPR Transactions had been received into accounts held with the Defendant.
178. In any event, further investigation prior to the appointment of the Liquidators would not have led the Plaintiffs to discover that Mr Tsang was the sole ‘Authorised Person’ on the Supreme Well Primary BOCHK Account and the Supreme Well Secondary BOCHK Account (‘SW Signatory Information’), and therefore the Defendant’s knowledge of this, prior to February 2014.
179. Following the appointment of the Liquidators on 27 July 2012, the Liquidators investigated the affairs of the First Plaintiff, but could not with reasonable diligence, have discovered the Defendant’s dishonest and/or unconscionable conduct by reference to the SW Signatory Information or otherwise sooner than they did, in that:
179.1 immediately following the Liquidators’ appointment, by letter dated 2 August 2012 [FOLDERS.021.000094], the Liquidators requested that the Defendant provide information regarding the First Plaintiff’s accounts with BOCHK, including copies of bank statements. The Defendant initially declined to provide the Liquidators with the requested information without a Court Order issued by the Hong Kong Court;
179.2 by letter dated 19 October 2012, the Defendant advised it would provide the requested information upon receipt of a sealed copy of the Order of the Grand Court of the Cayman Islands by which the Liquidators were appointed [FOLDERS.021.000015]. This Order was provided to the Defendant by letter dated 25 October 2012 [FOLDERS.021.000018];
179.3 by letter dated 8 November 2012 [FOLDERS.021.000020], the Defendant provided information to the Liquidators which identified the payments out of the First Plaintiff’s BOCHK Account, but not to whom the payments were made, and accordingly, the Liquidators did not know which payments, if any, had been made to Supreme Well;
179.4 by letter dated 27 November 2012 [FOLDERS.021.000021], the Liquidators requested copies of remittance instructions, confirmations, debit advices and withdrawal slips in relation to 85 payments made from the First Plaintiff’s BOCHK Account so that they could identify to whom the payments were made;
179.5 by letter dated 31 January 2013 [FOLDERS.021.000046], the Defendant provided transaction records in relation to the requested payments. This information identified that US$303.75 million had been paid directly to Supreme Well by way of 48 cashier orders, but did not identify where the cashier orders had been deposited. By letter dated 28 March 2013, the Liquidators requested this information from the Defendant [FOLDERS.021.000050];
179.6 by letter dated 4 June 2013 [FOLDERS.021.000065], the Defendant provided the Liquidators with 47 of the 48 cashier orders drawn in favour of Supreme Well. The cashier orders disclosed that Supreme Well deposited 31 of the orders with the Defendant. Thus, the Liquidators became aware that Supreme Well held an account with the Defendant. However, the Liquidators did not have any information in relation to the account, other than its account number;
179.7 by letter dated 5 July 2013 [FOLDERS.021.000083], the Liquidators requested details of all bank accounts held by Supreme Well, Zhu Feng, Chen Zhong. Mr Tsang, Mr Wu and Chengxuan, and copies of their bank account statements;
179.8 by letter dated 18 July 2013 [FOLDERS.021.000087], the Defendant advised the Liquidators that it would not provide the requested information unless they received a Court Order, search warrant, or consent from the account holders;
179.9 at that time, the Liquidators had an extant petition to the High Court of Hong Kong for an order that the First Plaintiff be wound up in Hong Kong, which was listed for hearing on 26 and 27 August 2013. In the event that the petition was granted, the Hong Kong Liquidators would be able to seek orders for production of documents from the Defendant relating to Supreme Well’s account with the Defendant;
179.10 on 5 September 2013, the High Court of Hong Kong informed the Liquidators that it intended to dismiss the petition to wind up the First Plaintiff and set aside the appointment of its provisional liquidators;
179.11 in or around mid-September 2013, during the course of confidential discussions between the Liquidators and the Hong Kong Police, it became obvious to the Liquidators that the Hong Kong police had obtained from the Defendant documentation relating to Supreme Well’s bank account with the Defendant (‘SW BOC Documents’), and that the SW BOC Documents would be helpful for the Liquidators’ investigations. Thereafter, the Liquidators took steps to obtain the SW BOC Documents from both the New York branch of the Bank of China (BOCNY) and the Hong Kong Police;
179.12 on 26 September 2013, the foreign representative of the First Plaintiff filed a motion in the US Bankruptcy Court for the issuance of subpoenas against BOCNY for the production of the SW BOC Documents. The motion was approved by the US Bankruptcy Court, and on 23 October 2013, the subpoena was issued, and thereafter served on BOCNY. By letter dated 19 November 2013, BOCNY advised the Supreme Well had never been a customer of Bank of China in the USA and that no responsive documents were found in respect of the subpoena. On 6 December 2013, BOCNY filed a response and objection to the subpoena;
179.13 the Liquidators thereafter sought, and on 6 February 2014 obtained from the High Court of Hong Kong, a confidential order for of production the SW BOC Documents by the Commissioner of Police, with such production to only be made if no notice of objection is made by the Defendant within seven days; and
180. the Defendant was served with the 6 February 2014 Order and made no objection to production of the documents to the Liquidators. Accordingly, on 20 February 2014, the Liquidators received the SW BOC Documents, which disclosed to them the SW Signatory Information for the first time.” (emphasis added)

69. As far as the facts pleaded in paragraph 179 regarding the Liquidators’ request for documents from the Defendant are concerned, they are supported by the 1st affidavit of Cosimo Borrelli filed herein on 25 August 2020 at section B4 (“Borrelli 1”).

70. In their skeleton, the Plaintiffs submit that time under section 26 does not start to run until a plaintiff has, or could with reasonable diligence, have, discovered the fraud of the defendant. Discovery of the fraud perpetrated by Tsang or Wu is not of itself sufficient for time to run - the Plaintiffs also have to know or be able to discover the Defendant’s part in their fraud.

71. In the present case, it is pleaded that the Defendant’s fraud was in fact not discovered until February 2014, at the earliest. That plea, even if disputed, has to be taken in favour of the Plaintiffs for the present purpose. The question then is whether the Defendant’s fraud could with reasonable diligence have been discovered earlier than in 2014 and if yes when.

72. On the Plaintiffs’ part, their primary allegation of fraud against the Defendant is that its 2 employees, Loman Lo and Jackie Chiu, were aware that the FISH and SPR Transactions were improper. Loman Lo and Jackie Chiu were aware of this because they were the relationship managers of the P1 BOCHK Account and the Supreme Well BOCHK Accounts, as well as other accounts through which the misappropriated funds were laundered. In order for the Plaintiffs to discover the Defendant had the requisite knowledge that the FISH and SPR Transactions were improper, they needed to discover that the Defendant knew Tsang was on both sides of the FISH and SPR Transactions by discovering that Tsang was the account signatory of the Supreme Well BOCHK Accounts. The Plaintiffs only found out about that when they obtained the Supreme Well bank documents in February 2014. It was therefore only at that time that the Plaintiffs discovered the fraud of the Defendant. The Writ in this action was issued and served within 6 years.

73. On the other hand, the Defendant submits that the Plaintiffs have failed to show that, objectively, a well-advised plaintiff with their resources could not with reasonable diligence have discovered the claim against the Defendant[6]. This is because the only essential fact that the Plaintiffs said was missing is information of the Defendant’s knowledge that Tsang was on both sides of the FISH and SPR Transactions by being the sole “Authorised Person” of the Supreme Well BOCHK Accounts (“Supreme Well Signatory Information”). It submits that from the following undisputed facts, the Plaintiffs could with reasonable diligence have discovered the Supreme Well Signatory Information well before the cut-off date of 27 July 2012.

74. First, the 1st Plaintiff’s board of directors was put on notice of the Alleged Fraudulent Scheme by the Anonymous Letter on 4 February 2009 ie more than 3 years before the cut-off date. The Anonymous Letter did more than merely put the 1st Plaintiff on notice of the existence of a potential fraud. It expressly suggested that the FISH and SPR Transactions were fraudulent related party transactions, involving a grossly inflated consideration, which were designed to siphon off the 1st Plaintiff’s assets to entities associated with its CEO and officers.

75. Second, on the Plaintiffs’ own case, (i) Paul Weiss was negligent and (ii) had Paul Weiss not been negligent, the 1st and 2nd Plaintiffs would have discovered the Alleged Fraudulent Scheme earlier.

76. Third, it is the Plaintiffs’ own case in the Paul Weiss Proceedings that had Paul Weiss not been negligent, the 1st and 2nd Plaintiffs would have prevented payments made after 1 July 2009 and taken steps to freeze, trace and recover the funds paid out prior to 1 July 2009.

77. Fourth, it is undisputed that it took less than 1 year and 7 months, between their appointment on 27 July 2012 and 6 February 2014, for the Liquidators to obtain the requisite documents from the Defendant and discover the Supreme Well Signatory Information.

78. On the basis of the above, the Defendant submits that (i) assuming Paul Weiss had not been negligent and the Plaintiffs were motivated by a reasonable sense of urgency, it is clear that the 1st and 2nd Plaintiffs could have discovered the Alleged Fraudulent Scheme by July 2009 or shortly thereafter and then traced the funds into Supreme Well’s bank accounts and (ii) having discovered the Alleged Fraudulent Scheme by the 4 Individuals, the Plaintiffs have not shown that a well-advised company in the position of the 1st and 2nd Plaintiffs could not, with reasonable diligence, have proceeded to discover the Supreme Well Signatory Information before the cut-off date of 27 July 2012.

79. It seems to this court that the Defendant’s said submissions are at most reasonably arguable but fall well short of being manifestly and immediately destructive of the plaintiff’s reliance on section 26(1) LO.

80. Whether or not the Plaintiffs could, with reasonable diligence, have discovered the fraud of the Defendant earlier than February 2014 and if yes when is highly facts sensitive and requires a minute and protracted examination of the documents and facts of the case. The Defendant’s submissions depend heavily on inter alia the knowledge of the 1st Plaintiff’s board of directors, including in particular that of its Audit Committee, and the action that they could have taken with that knowledge, after receiving the Anonymous Letter on 4 February 2009. The Defendant’s submissions also rely on an examination of Paul Weiss’ conduct in investigating the allegations in that letter. But as the Plaintiffs point out, Paul Weiss’ investigation was directed at possible wrongdoing by the former management of the 1st and 2nd Plaintiffs, not at the conduct of the Defendant.^{^[7]} Whether Paul Weiss should nevertheless have gone on to look into the Defendant’s conduct is clearly debatable.

81. To conclude, in accordance with the well-established principles governing striking out, the matter is wholly unsuitable to be decided in this application. Subject to the Defendant’s submission below to the effect that the claims in unjust enrichment and knowing receipt are outside the ambit of section 26(1)(a), this court is not satisfied it is plain and obvious that the Plaintiffs would be unable to rely on section 26(1)(a) to postpone the running of time.

82. The Defendant’s submission is straightforward. Section 26(1)(a) only applies if the fraud of the defendant is an essential element of the cause of action. If fraud is not an essential element, the fact that the pleadings also make reference to fraud or conduct amounting to fraud does not suffice: Beaman v ARTS Ltd [1949] 1 KB 550, 558 per Lord Greene MR, 567 per Somervell LJ.

83. The issue was recently canvassed by Mimmie Chan J in Hing Yip Holdings (Hong Kong) Limited v Cellmark China Limited[2021] HKCFI 1396, 17 May 2021 concerning claims based on want of authority and knowing receipt. At [230] to [236], the learned Judge analysed the authorities and concluded obiter that fraud was not an essential element of either claim so that section 26(1) had no application. At [232] to [236], the learned Judge explained her reasoning as follows:

“232. For section 26 (1) to apply, the Plaintiff has to establish either that the action is based upon the fraud of the Defendants, or any fact relevant to the Plaintiff’s right of action had been deliberately concealed from the Plaintiff by the Defendants, in which case limitation shall not begin to run until the Plaintiff had discovered the fraud or concealment, or could with reasonable diligence have discovered it.
233. Whilst the Defendants accept that dishonest assistance is based upon fraud (to fall within section 26 (1) (a)), they do not accept fraud to be a necessary allegation to constitute knowing receipt and want of authority. Knowing receipt requires unconscionability on the basis of the defendant’s knowledge (BCCI v Akindele; Williams v Central Bank of Nigeria [2014] AC 1189) but as Counsel submitted in the context of the Plaintiff’s claim in knowing receipt, unconscionability requires a lower standard than dishonesty (Akai). The Plaintiff relies on Williams v Central Bank of Nigeria [2014] AC 1189 to contend that knowing receipt is accepted as activating section 26 (1) (a) of LO. In that case, Lord Neuberger observed at para 119 of his judgment:
‘Finally, it is right to mention that in some cases of dishonest assistance or knowing receipt, even though the normal six-year period may have expired, a claimant may be able to invoke section 32 of the 1980 Act, which postpones the commencement of the six years, in cases ‘based on the fraud of the defendant’, or where the defendant has ‘deliberately concealed’ relevant facts from the claimant.’ (Emphases added)
234. The above only states that in some cases, the six-year limitation may be postponed either in cases which are based on fraud, or where the defendant has deliberately concealed relevant facts. It is not, on its face, a broad and general statement that all cases of knowing receipt are based on fraud as a necessary element of the cause of action.
235. The Defendants rely on Brent Borough Council v Davies [2018] EWHC 2214 (Ch), which contains a more thorough analysis. There, the Court explained its basis for finding that knowing receipt is not based on fraud, and I agree with that finding:
…
236. The necessary elements required for setting aside the transactions on the basis of want of authority are lack of actual and apparent authority, and do not include fraud.”

84. Relying on Beaman v ARTS Ltd and Hing Yip Holdings (Hong Kong) Limited (and the authorities cited therein), the Defendant submits that since fraud does not form an essential element of the unjust enrichment[8] or knowing receipt claim, the Plaintiffs cannot rely on section 26(1) to postpone the running of time.

85. The Plaintiffs, on the other hand, refer this court to a recent decision by DHCJ Le Pichon in China Metal Recycling (Holding) Limited (in Liquidation) & Anor v UBS AG & Anor[2021] HKCFI 918 at [61] - [72] in which the learned Judge examined the issue whether section 26 is limited to common law fraud or extends to unconscionable conduct. At [72], the learned Judge concluded that there was a serious question to be tried that the meaning of fraud in section 26 included where the defendant acted with “some knowledge of the impropriety of the conduct involved” or unconscionably.

86. In this court’s view, China Metal Recycling (Holding) Limited (in Liquidation) only assists the Plaintiffs in so far as the knowing receipt claim is concerned. It is accepted by the parties that one of the essential elements of that claim is “knowledge on the part of the defendant that the assets are traceable to a breach of fiduciary duty or breach of trust”: El Ajou v Dollar Land Holdings Plc (No 1) supra. In section F of the draft RASOC, the Plaintiffs have pleaded extensively on the Defendant’s knowledge of the misappropriation by the 4 Individuals. Hence, it is at least arguable that section 26(1) can cover the Plaintiffs’ claim for knowing receipt, as the Defendant originally conceded in its skeleton submissions.

87. As for the unjust enrichment claim, not only is fraud not an essential ingredient of the claim, the Plaintiffs have not even pleaded any unconscionable conduct on the Defendant’s part or knowledge of the impropriety of the 4 Individuals’ conduct. All that the Plaintiffs have pleaded, at paragraph 260 of the draft RASOC, was want of authority of the 4 Individuals, period. With respect, this court fully agrees with Mimmie Chan J when her Ladyship concluded that a claim based simply on want of authority must be outside the ambit of section 26(1). In fact, if one looks carefully at para 273 of the draft RASOC, the Plaintiffs have not relied on section 26(1) in relation to this claim.

88. To conclude, of the 3 claims which are prima facie time-barred, this court is of the view that it is arguable that the Plaintiffs can rely on section 26(1) to postpone the running of time for the knowing receipt and dishonest assistance claims, but not the unjust enrichment claim. In other words, this court is of the view that the limitation defence is manifestly and immediately destructive of the unjust enrichment/restitution claim which should be struck out.

Disposition and costs

89. The unjust enrichment/restitution claim pleaded at paragraph 260 of the ASOC is hereby struck out. Save as aforesaid, the Defendant’s Summons is hereby dismissed.

90. Concerning the Plaintiffs’ Summons, there does not appear to be any “opposition” from the Defendant save that it would be futile to give leave to the Plaintiffs if it succeeds in striking out the entire ASOC. Since this court is not minded to strike out the entire ASOC, the Plaintiffs’ Summons is hereby allowed. There shall be an Order in terms of paragraphs 3 to 5 of the Draft Order annexed to the Plaintiffs’ skeleton, save that the time for the Defendant to file and serve its Defence be revised to 56 days from the date of this Order.

91. As for costs, in the absence of agreement between the parties within 14 days, they are directed to obtain a hearing date for submissions on costs, 1 hour reserved.

92. Liberty to apply.

93. It remains for this court to thank counsel on both sides for their helpful assistance.

	(Peter Ng)
	Judge of the Court of First Instance
	High Court

Mr Charles Manzoni SC and Mr Jason Karas, instructed by Lipman Karas, for the Plaintiffs

Mr Sew-tong Jat SC, Mr Julian Lam and Mr Joshua Chan, instructed by K W Ng & Co, for the Defendant

[1] At the hearing, both parties’ arguments are premised on what is pleaded in the draft RASOC.

[2] See for instance DEX Asia Ltd v DBS Bank (Hong Kong) Ltd [2009] 5 HKLRD 160 at [59].

[3] See [7] of the Judgment.

[4] See this court’s Order dated 16 November 2020.

[5] Upheld in Cassegrain v Gerard Cassegrain & Co Pty Ltd (2013) 305 ALR 648.

[6] Test Claimants in the FII Group Litigation v Revenue and Customs Commissioners [2020] 3 WLR 1369 at [255].

[7] Borrelli 1 at [27].

[8] Plaintiffs’ claim is based on want of authority of the 4 Individuals and fraud is not pleaded as an element of this claim: see paragraph 260 of the draft RASOC.

CHINA MEDICAL TECHNOLOGIES, INC (IN LIQUIDATION) AND OTHERS v. BANK OF CHINA (HONG KONG) LTD

Related cases with same parties

Files (3)

BETWEEN
	CHINA MEDICAL TECHNOLOGIES, INC. (IN LIQUIDATION)	1^st Plaintiff
	CMED TECHNOLOGIES LTD	2^nd Plaintiff
	COSIMO BORRELLI AND YUEN LAI YEE in their capacity as the Joint and Several Liquidators of China Medical Technologies, Inc. (In Liquidation)	3^rd Plaintiff
	and
	BANK OF CHINA (HONG KONG) LIMITED	Defendant

Date of Hearing:	9 October 2025
Date of Decision:	9 October 2025

Name	Position
Mr Wu Xiaodong (“Wu”)	Chairman and Chief Executive Officer
Mr Samson Tsang Tak Yung (“Tsang”)	Director and Chief Financial Officer
Minshi Shen	Director and Chief Operating Officer
Ting Zheng	Director
Lawrence Arthur Crum (“Dr Crum”)	Independent non-executive director
Cole R Capener (“Mr Capener”)	Independent non-executive director
Iain Ferguson Bruce (“Mr Bruce”)	Independent non-executive director
Ruyu Du (“Dr Du”)	Independent non-executive director
Yuedong Li (“Dr Li”)	Independent non-executive director
Guoming Qi (“Dr Qi”)	Independent non-executive director