KOT SEE FOR v. LAM MAN CHEUNG AND OTHERS

HCA 743/2019

[2021] HKCFI 1902

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 743 OF 2019

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________________________

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D E C I S I O N

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1.  By a decision dated 19 April 2021[1], I dismissed an appeal by the 3^rd defendant from the decision of Master Winnie Tsui (as she then was), whereby she refused to strike out the plaintiff’s claim herein against the 3^rd defendant.

2.  By Summons dated 30 April 2021, the 3^rd defendant applies for leave to appeal from the Decision on the grounds stated in a draft Notice of Appeal annexed thereto.

3.  On 13 May 2021, I directed this application to be disposed of on paper.  This is my decision.

4.  While a number of grounds were taken before me by the 3^rd defendant in support of the application to strike out, in the draft Notice of Appeal, the grounds relate only to my reasons at [32] of the Decision, whereby I rejected the 3^rd defendant’s case that the plaintiff’s claim against him should be struck out because of a lack of factual basis or incontrovertibly false.  I set out the grounds here:

“1. The learned Recorder erred in holding that ‘The 3^rd defendant does not (nor is he in a position to) challenge the existence of various pleaded transactions between the plaintiff and the 1^st and 2^nd defendants, for example, the various payments made to or by the plaintiff and the circumstances and purposes thereof. These are evidenced by documents such as … WhatsApp messages’ (Decision §32(1); emphasis added):

(1) While the 3^rd Defendant, in his application for striking out, does not challenge the payments made by and to the plaintiff, the 3^rd Defendant does challenge ‘the circumstances and purposes’ of the payments which, the Plaintiff claims, were procured by the Fraudulent Scheme in relation to the Purported London Transaction viz the Plaintiff’s sale of the Purported Investment Account to the unnamed London buyer(s). The 3^rd Defendant challenges the Plaintiff’s pleaded case that the Plaintiff’s signing of the 3^rd Pledge Agreement was induced by the Activation Capital Representations because that is incontrovertibly contradicted by the contemporaneous documentary evidence, namely, the WhatsApp communication between the Plaintiff and the 1^st Defendant at the material time produced by the Plaintiff.

(2) The learned Recorder erred in holding that ‘the circumstances and purposes’ of the payments are evidenced by documents. Among other things, the pleaded purpose of payment of the Purported Activation Capital for the establishment of ‘working platform’ is not only unsupported, but also contradicted, by the Plaintiff’s own documentary evidence. There is no evidence of any intended sale of the Purported Investment Account or representations about sale of that account.

2. The learned Recorder erred in the characterisation of the 3^rd Defendant’s case as “saying that the plaintiff is now concocting a case of fraud out of the many genuine commercial transactions which did exist” (Decision §32(2)). The learned Recorder failed to have proper regard to the real issue, namely, whether the Fraudulent Scheme as pleaded in the Amended Statement of Claim is sustainable. Whether the Plaintiff’s payments might have been procured by fraud or conspiracy other than those pleaded is not to the point.

3. It was wrong to characterise the 3^rd Defendant’s non-denial of his alleged (i) receipt of cashier’s order of HK$34,600,000 from the 2^nd Defendant and (ii) visits to Sotheby’s Asia as “evidential gap” (Decision §32(3)). These allegations per se, taken at their highest, would not sustain the Plaintiff’s claims. The first and the most fundamental problem of the Plaintiff’s claim remains that the Fraudulent Scheme as pleaded in the Amended Statement of Claim presents a tissue of improbabilities and is flatly contradicted by the evidence which is either undisputed or undisputable.

4. The learned Recorder erred in concluding that the credibility of the Plaintiff’s “explanations (if any)” should be tested in a trial (Decision §32(5)). The Plaintiff has had ample opportunities, and indeed obligations in his ex parte applications, to offer his explanations for the tissue of improbabilities, the contradictions between his pleaded case and the evidence which is either undisputed or undisputable, and the gaps of his evidence.”

5.  The first ground focuses on my holding that the 3^rd defendant does not challenge the “circumstances and purposes” of the various transactions and payments between the plaintiff and the 1^st and the 2^nd defendants, and my holding that such “circumstances and purposes” are evidenced by documents.

6.  The 3^rd defendant’s argument that I erred is based on a reading of what I said about the “circumstances and purposes” in [32(1)] of the Decision out of context.  It has to be read with the rest of [32], in particular [32(2)].  The fundamental point of my reasons is that these payments and transactions, the existence of which was and is not challenged, and despite the absurdities he referred to and which I noted, were not suggested by the 3^rd defendant to be anything other than genuine commercial transactions, as the 3^rd defendant challenges the plaintiff’s case of fraud against the 1^st and the 2^nd defendants and no allegation of fraud or misconduct (except an allegation of illegality referred to at [32(4)] of the Decision which does not affect the otherwise commercial genuineness of the transactions) is made against the plaintiff vis-à-vis those payments and transactions when made or conducted.  The crucial point is that the fact that these not being suggested as anything other than genuine commercial transactions leads to my analysis at [32(2)] as to what the 3^rd defendant’s case amounts to.

7.  What I was referring to was the objective circumstances and purposes of the payments, the existence of which was and is not challenged, and which in my judgment are evidenced by documents.  On the other hand, when the 3^rd defendant says, in ground 1, that he is challenging the “circumstances and purposes” of the payments, he is, as he says in ground 1, referring to the existence or otherwise of the fraud alleged by the plaintiff.  I was not referring to, nor was I making a decision on, the question of the existence of the fraud alleged by the plaintiff.  

8.  More specifically, the 3^rd defendant, in ground 1(1) and the skeleton submissions, focuses on WhatsApp messages from the plaintiff which, it is said, is contradictory to the plaintiff’s case on what he was told by the alleged Activation Capital Representations, which are said to have induced the Third Loan and the Third Pledge Agreement. I did not and do not overlook the various points made on behalf of the 3^rd defendant on this issue. But what the messages did support is that the plaintiff did expect a payment to him of HK$260 million from London on 4 January 2018, as a result of payments made by him (which payments were and are not challenged as having been made).  I do not think that the plaintiff’s case is incontrovertibly contradicted by those messages.

9.  Regarding ground 1(2), the 3^rd defendant submits that there is a lack of documentary evidence on the intended sale of the “Purported Investment Account” or the alleged representations.  In his skeleton, he also says that there is no documentary evidence showing the existence of the “Purported Investment Account”.

10.  However, the former matters are said by the plaintiff to be conducted or made orally (but the WhatsApp messages adduced by the plaintiff did, as I said above, suggest that the plaintiff was expecting a payment from London which can be (and I put it no higher than that) supportive of his case that he was selling something via the 1^st defendant to someone in London) while there is in fact some evidence of the existence of the “Purported Investment Account”, namely the screenshots of the plaintiff’s account statements had been produced.

11.  As to ground 2, I must say I do not quite follow it.  I was of course not concerned with any fraud not pleaded, but only the alleged fraud as pleaded, when I referred to “a case of fraud” being, on the 3^rd defendant’s case, being concocted by the plaintiff, at [32(2)] of the Decision.  The question is whether it is plain and obvious that the plaintiff is concocting this particular fraud case out of the genuine commercial transactions he had with the 1^st and the 2^nd defendants, which for reasons in the Decision I was not prepared to say that it is.

12.  As to ground 3, I did not suggest that the “evidential gap” by itself would sustain or prove the plaintiff’s claim, as it is the plaintiff who bears the burden of proof at the trial and to the necessary degree of cogency in light of the seriousness of the allegations made.  However, what I had to decide was whether, at this stage and on affirmation evidence, the plaintiff’s case can be said to have been established to be incontrovertibly false (but not whether the plaintiff’s case is established or will be so) and that can only be made on a totality of evidence approach, which must include not just the “improbabilities” suggested by the 3^rd defendant, but also taking into account the lack of evidence from the 3^rd defendant on the stated issues. 

13.  As to ground 4, the submissions are in effect that because of the “contradictions” and “improbabilities” referred to by the 3^rd defendant, the plaintiff had to, and had the opportunity to, answer which he failed to.[2]   But the question is whether, in the light of such contradictions and improbabilities, which I noted, and in all the circumstances of this case, the 3^rd defendant had established that the plaintiff’s case is incontrovertibly false, which for reasons I stated in the Decision, I held that he had not.  The “evidential gap” of the plaintiff alleged by the 3^rd defendant[3], while a factor to be taken into account, would not in itself prove the 3^rd defendant’s case of striking out (just as the “evidential gap” of the 3^rd defendant would not prove the plaintiff’s case of fraud (and I did not say that it did), just that I took that in account as a factor (amongst others) to hold that the matter ought to go to trial). 

14.  In the course of making submissions on the grounds, both the plaintiff and the 3^rd defendant have, like the appeal from the learned Master before me, made detailed submissions on the facts and evidence.  However, the alleged incontrovertible falsity of the plaintiff’s case must be plain and obvious, but for reasons stated in [32] of the Decision, I do not think that it is reasonably arguable that this is so.

15.  The parties are not in dispute as to the principles regarding an application for leave to appeal to the Court of Appeal.  Leave is not lightly granted and I must be satisfied that the appeal has a reasonable prospect of success, meaning that the prospect must be more than fanciful without having to be probable.  The parties also agree that the intended appeal is against an exercise of discretion by me.   For reasons above, I am not satisfied that there is a reasonable prospect of successfully appealing my discretionary Decision.

16.  I dismiss the application for leave to appeal and summarily assess the costs of the plaintiff at HK$70,000, to be paid by the 3^rd defendant forthwith.

17.  I thank counsel for their assistance.

HCA 743/2019

[2019] HKCFI 2403

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 743 OF 2019

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________________________

________________________

D E C I S I O N

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1.  By a summons filed on 2 August 2019 (“the Summons”), Tang applies for leave to appeal from my decision pronounced on 24 July 2019 (“the July Decision”)[1] and stay of execution of [2] to [4] of the Injunction pending appeal. This decision should be read together with the July Decision. Abbreviations used in the July Decision are adopted herein.

2.  Mr Ambrose Ho SC for Tang proposes the following grounds of appeal:

(1) that I have erred in failing to have regard or proper regard to the infringement of Tang’s fundamental right of PSI in continuing [2] to [4] of the Injunction;

(2) that I have erred in holding that the balance between PSI and the effectiveness of the Injunction can be taken care of by Kot’s undertaking as set out in [30] of the July Decision (“the Express Undertaking”);

(3) that I erred in awarding the entirety of the costs of the Discharge Summons to Kot, given that the Express Undertaking was only offered by Kot at the hearing on 24 July 2019.

3.  The principles concerning leave to appeal are well-established. Leave can only be granted if the appeal has a reasonable prospect of success (which means that the prospect of success is reasonable and more than fanciful, without having to be probable), or there is some other reason in the interests of justice why the appeal should be heard[2]. In respect of an appeal from an exercise of a discretion by the court below, the appeal would not be entertained unless it can be shown that the discretion was exercised under an error of law, in disregard of a principle, under a misapprehension of facts or the conclusion reached was “outside the generous ambit within which a reasonable disagreement is possible”[3].

4.  Tang intends to challenge the decision concerning continuation of [2] to [4] of the Injunction and the decision concerning costs. These are decisions made as a result of the exercise of my discretion.

5.  In respect of Grounds 1 and 2 of the intended appeal, my view is as follows:

(1) In [29] and [30] of the July Decision, I said:

“29. Mr Ho SC submits that in the event that the Court does not accept the arguments above, Tang would rely upon PSI and contend that because of PSI, §§2 - 4 of the Injunction should be discharged.

30. With respect, I am unable to accept Mr Ho SC’s submissions. Each case depends upon its owns facts. In my view, the balance between PSI and the effectiveness of the Injunction in this case can be taken care of by an undertaking offered by Kot that he (including his nominees, agents or servants or any of them) would not divulge any information disclosed by Tang in compliance with the Injunction to the police or the Department of Justice or any law enforcement authority[4]. Ms Tong has told me that Kot is willing to offer the undertaking.”

(2) At the time of the July Decision, my task was to hold the ring between Kot and Tang. I had no need and did not come to a final view on whether Kot would succeed at the trial and whether Tang’s PSI was indeed engaged in this case. With a view that Kot might succeed at the trial and Tang’s PSI might be engaged, I adopted the interim measures as set out in [30] of the July Decision. I am of the view that this is the right balance between the competing interests.

(3) Mr Ho SC submits that PSI is clearly engaged, and I ought to have considered that as a matter of principle, [2] to [4] of the Injunction should be discharged because of the infringement of Tang’s PSI unless Tang’s rights could be adequately and sufficiently safeguarded. In his submissions, I erred in approaching the issue as a balancing exercise.

(4) With respect to Mr Ho SC, I am unable to accept these submissions. As I said in the above, I have not come to a final view on whether PSI is clearly engaged in this case. Bearing the respective interests of Kot and Tang in mind, I adopted the interim measures as set out in [30] of the July Decision. I note that Mr Ho SC is not saying that as a result of the PSI raised by Tang, [2] to [4] of the Injunction must be set aside as a matter of course. The crux of the matter hinges on whether there is any measure adequately and sufficiently safeguarding Tang’s interest. In other words, the crux is whether the Express Undertaking together with the implied undertaking provided by Kot (“the Implied Undertaking”)[5] constitute an adequate and sufficient measure safeguarding Tang’s interest.

(5) Mr Ho SC submits that notwithstanding these undertakings, there is no adequate protection to Tang in the absence of an undertaking from the Department of Justice (“DoJ”) that no use would be made of the information divulged by Tang in compliance with [2] to [4] of the Injunction[6].

(6) Ms Sara Tong for Kot submits that the Court of Appeal in Manufacturer’s Life Insurance Co of Canada has not laid down any principle that in each and every case where PSI is engaged, adequate protection means that there must be an undertaking from the DoJ not to use the materials disclosed. Similarly, although whether an undertaking from DoJ is necessary has been discussed in Hui Chi Ming, there is no ruling in that case laying down any general principle. Ms Tong submits that the undertakings offered by Kot have already provided adequate protection to Tang.

(7) I agree with Ms Tong. Having considered the written submissions provided by Mr Ho SC and Ms Tong respectively, in my view, there is no authority laying down any general principle that once PSI is engaged, regardless of the facts of the case, there must be an undertaking from the DoJ for protection to be considered as adequate.

(8) In the circumstances of this case, I am of the view that the Implied Undertaking, coupled with the Express Undertaking, put it beyond doubt that Kot (including his nominees, agents or servants or any of them) would not divulge any information obtained by Kot from Tang under [2] to [4] of the Injunction to the police or the DoJ or any law enforcement authority.  In my judgment, that would be an adequate protection to Tang.

(9) Mr Ho SC submits that notwithstanding the undertakings offered by Kot, the police may obtain the information disclosed by Tang by applying for a search warrant against Kot and executing the same, thereby obtaining the documents disclosed by Tang and in Kot’s possession. Mr Ho SC also submits that Kot may disclose the information obtained to other third parties, such as journalists. The information may then be reported in the media and in turn assist the criminal investigation by the police.

(10) With respect to Mr Ho SC, in my view, these are fanciful risks. The disclosure to be made by Tang in compliance with [2] to [4] of the Injunction would be by affirmation(s) and letter(s). These documents would not be publicly accessible. To say that the police would try to obtain these documents from Kot by applying for a search warrant against Kot and executing the same (assuming that the application is successful), with respect, this is really fanciful. To say that Kot would pass the information obtained under the disclosure order to a third party with a view that the third party would provide the information to the police, there is no evidence showing that Kot may do so. Ms Tong submits that Kot has no intention to do so. In any event, Kot is bound by the undertakings and cannot do so.

(11) I am not persuaded that I have erred in principle in the exercise of my discretion. There is no merit in Grounds 1 and 2.

6.  In respect of Ground 3 of the intended appeal, my view is as follows:

(1)  In [36] of the July Decision, I said:

“36. Costs should follow the event. On the question of PSI, Kot has already indicated that he is willing to offer an undertaking to take care of Tang’s interest in Ms Tong’s written submissions provided to the court before this hearing. However, Tang still pursued an application to discharge §§2 - 4 of the Injunction by relying upon PSI in this hearing. That application failed. In my view, Kot should get all the costs. I order that costs of the Discharge Summons and the Amendment Summons (including all costs reserved) be paid by Tang to Kot forthwith, with a certificate for 2 counsel. ……”

(2)  Mr Ho SC submits that the Express Undertaking was only offered at the hearing on 24 July 2019 after the enquiry made by the Court. For this reason, Kot should only be entitled to have 50% of the costs of the Discharge Summons.

(3)  With respect, I am unable to agree with Mr Ho SC. Most of the time in the hearing on 24 July 2019 has been spent on other issues. The time spent on the Express Undertaking is minimal. Further, as submitted by Ms Tong and as recorded in [36] of the July Decision, before the hearing on 24 July 2019, Kot had already indicated that he was willing to offer an undertaking to take care of Tang’s interest if necessary.

(4)  In these circumstances, I am not persuaded that I have erred in principle in awarding costs of the Discharge Summons to Kot without any deduction. There is no merit in this ground.

7.  With respect to Mr Ho SC, I am of the view that the intended appeal does not have a reasonable prospect of success. I also do not see any reason why in the interests of justice the appeal should be heard. The application for leave to appeal must be refused.

8.  Since I have refused to give Tang leave to appeal, the application for stay of execution of [2] to [4] of the Injunction pending appeal must also be refused.

9.  I dismiss the Summons.  Costs should follow the event.  I order that costs of the Summons be paid by Tang to Kot, with a certificate for 2 counsel.  Those costs be summarily assessed.  There be leave to Kot to provide a bill of costs for summary assessment within 7 days, and leave to Tang to provide a written reply to the said bill within 7 days thereafter.

10.  I thank counsel for the assistance rendered to the Court.

HCA 743/2019

[2019] HKCFI 1871

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 743 OF 2019

________________________

D E C I S I O N

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INTRODUCTION

1.  This is the substantive hearing of the summons (“the Discharge Summons”) taken out by the 2^nd Defendant (“Tang”) on 14 May 2019 for an order to discharge the injunction made by me on 3 May 2019 (“the Injunction”). This is also the substantive hearing of the summons taken out by the Plaintiff (“Kot”) on 29 April 2019 for a preservation order and ancillary disclosure (“the Injunction Summons”). I would first mention some procedural background.

2.  On 29 April 2019, the Plaintiff (“Kot”) commenced these proceedings against all the 3 Defendants herein. At the same time, Kot issued the Injunction Summons, seeking a preservation order of the Subject Antiques and an ancillary disclosure order against Tang. The Subject Antiques are 11 pieces of antiques set out in Annex 1 to the Injunction Summons, which are Chinese porcelain in the Ming and Qing Dynasties. The Subject Antiques are part of a collection called Tianminlou (天民樓) Collection.

3.  The Injunction Summons was heard on 3 May 2019 before me, as I was the Summons Judge on that day[1]. At the end of that hearing, I made the following order (“the Injunction”):

“1.  Pending the determination of the Summons or until further order of the Court in the meantime, the 2^nd Defendant be restrained, whether by himself or by his nominees, agents or servants or any of them or otherwise howsoever from transferring, selling, disposing of, charging, encumbering, or in any way dealing with the items of antiques listed in Schedule 1 to this Order (the ‘Subject Antiques’).

2.  The 2^nd Defendant shall, on or before 12 noon on 10 May 2019, disclose to the Plaintiff, by affirmation/affidavit:

(1)  the precise address and location at which each of the Subject Antiques are presently stored or located;

(2)  whether each of the Subject Antiques are not in the possession, custody and/or power of the 2^nd Defendant;

(3)  if any of the Subject Antiques are not in the possession, custody and/or power of the 2^nd Defendant, details of when and how the 2^nd Defendant parted with such possession, custody and/or power of the same;

(4)  whether any of the Subject Antiques have seen transferred by the 2^nd Defendant to another party, and if so, the details of such transfer(s), including the dates of such transfer(s), to whom such transfer(s) were made and the consideration for which such transfer(s) were made, and the relevant documents pertaining to and evidencing such transfer(s); and

(5)  whether any of the Subject Antiques have been pledged, charged or otherwise encumbered in any way, and if so, the details of all such encumbrances, including the dates of such encumbrances, to whom such encumbrances were made and for what purpose, and the relevant documents pertaining to and evidencing such encumbrances.

3.  The 2^nd Defendant shall take all necessary steps to procure, effect and facilitate the delivery up of each of the Subject Antiques which are within his procession, custody and/or power on or before 12 noon on 10 May 2019 to Eric Art Services of Rooms 7 – 8, 13^th Floor, Texaco Centre, 126 – 140 Texaco Road, Tsuen Wan, Hong Kong (the ‘Storage Company’) for detention, custody and preservation, which shall not be removed or released unless with the written consent of both the Plaintiff and the 2^nd Defendant or further order of the Court.

4.  The 2^nd Defendant shall, at or before 12 noon on 8 May 2019, inform the Plaintiff’s solicitors in writing of the date and time of the intended delivery of the Subject Antiques to the Storage Company by the 2^nd Defendant pursuant to paragraph 3 above.

5.  The Plaintiff and/or his authorized representatives be permitted to inspect the Subject Antiques delivered by the 2^nd Defendant under paragraph 3 above.

6.  There be liberty to apply.

7.  Costs reserved.

8.  There be certificate for 2 counsel.”

4.  Counsel for Kot and counsel for Tang differs on the nature of the Injunction.

(1)  Ms Sara Tong for Kot submits that the Injunction is an order made after a contested interlocutory hearing, and hence can only be discharged on good grounds or change of circumstances being shown. Ms Tong has helpfully referred me to the principles summarized by Au J (as he then was) in Keep Bright Ltd v. Super Auto Investments Ltd[2], which are as follows:

(a)  The Court would only generally consider varying or discharging an interim injunction or an undertaking on good grounds or change of circumstances being shown.

(b)  Further, in an interim order where it is made effectively by consent, or following an inter-partes hearing when both parties were legally represented and had full opportunities to bring to the court’s attention matters relevant to the making of the order, the person seeking to vary the interim order is not entitled to do so as of right or to re-argue it as if it were a re-hearing. The burden is on the party seeking to vary the order to show either there has been some significant change of circumstances or he has become aware of facts that he could not have reasonably found out at the time of interim order.

(c)  However, the position may be different if the parties had contemplated at the time of the interim order that the issues thereunder would be revisited or where the injunction by its terms shows that it was not substantively disposed of but adjourned sine die generally with liberty to apply. The parties may be able, in those circumstances, to re-open the arguments afresh.

(2)  Mr Ambrose Ho SC for Tang submits that the Injunction is an interim interim order and the decision made on 3 May 2019 is a provisional decision. Tang may re-argue the matter in the light of further evidence and further submissions[3]. Mr Ho SC submits that as shown in paragraph 1 of the Injunction, i.e. the duration of the Injunction is only up to the determination of the Injunction Summons and not until the conclusion of the trial, the Injunction is clearly an interim interim order. Further, as shown in the transcript of the hearing on 3 May 2019, the Court has made it clear in that hearing that the order made on that day is an interim interim order.

5.  I agree with Mr Ho SC. The Injunction made on 3 May 2019 is an interim interim order. That being the case, it is open to Tang to re-argue the matter in the light of further evidence and further submissions.

6.  On 14 May 2019, Tang took out the Discharge Summons and filed affirmations in support of the application. Tang claims that by reason of the privilege against self-incrimination (“PSI”) enjoyed by him, the Injunction ought to be discharged. Tang also seeks an interim stay of §§2 - 4 of the Injunction pending the determination of the Discharge Summons (“the Interim Stay”). Originally, the substantive hearing of the Discharge Summons was fixed on 27 November 2019.

7.  On 15 May 2019, Kot applied for ex parte leave to commence committal proceedings against Tang for breach of §§2 - 4 of the Injunction. Leave was granted by me on 30 May 2019.

8.  On 6 June 2019, Kot commenced HCMP 832/2019 (“the Committal Proceedings”) for committal of Tang.

9.  On 10 June 2019, Tang filed a defence in these proceedings, in which he asserted PSI.

10.  On 8 July 2019, Tang filed his evidence in opposition in the Committal Proceedings. Tang is relying upon PSI as a defence in the Committal Proceedings.

11.  On 9 July 2019, Tang made an ex parte application (with notice to Kot) for an interim stay of §§2 to 4 of the Injunction pending the determination of the Discharge Summons[4]. I refused the application on the ground that there was no sufficient urgency justifying the application being made ex parte. After the hearing, Tang’s solicitors wrote to the Court and applied for an early hearing of the Discharge Summons.

12.  On 15 July 2019, I directed that all the applications in the Discharge Summons would be heard and determined in the present hearing and I also vacated the hearing on 27 November 2019.

13.  On 18 July 2019, Tang issued a summons for leave to amend the Discharge Summons and to file a further affirmation (“the Amendment Summons”). The purpose of the amendments is to allow Tang to raise an application for fortification. I have heard the Amendment Summons on de bene esse basis.

14.  Since this is the substantive hearing of the Discharge Summons, there would be no need for me to consider the interim stay application in the Discharge Summons. The issue before me today is whether the Injunction should be discharged or not.

THE PARTIES’ RESPECTIVE CASES

15.  Before analyzing the arguments put forward by counsel, I would first briefly set out the parties’ respective cases.

16.  Kot’s case is as follows:

(1)  Kot is now 86 years old and a collector of the Tianminlou Collection. He is the victim of a fraudulent scheme (“the Fraudulent Scheme”) perpetrated by the 1^st Defendant (“Lam”) and Tang, pursuant to which Lam and Tang conspired together to induce Kot into pledging and thereafter assigning the Subject Antiques to Tang at gross undervalue, for the purported purpose of funding or facilitating a fictitious transaction which never existed.

(2)  In around May 2016, Kot was induced by Lam and others into opening a purported account for investment in gold products (“the Purported Investment Account”), into which Kot injected not less than HK$73 million during the period between June 2016 and May 2017.

(3)  In around June 2017, and as Kot was keen to exit his purported investments, Lam and Tang fraudulently misrepresented to Kot that there were buyers in London willing to enter into a transaction to purchase his investments in the Purported Investment Account (“the Purported London Transaction”).

(4)  Thereafter, Lam and Tang fraudulently misrepresented to Kot that various additional sums of funding were temporarily required for the purpose of facilitating the Purported London Transaction, which sums would be returned to him together with the remittance of the sale proceeds when the transaction was completed.

(5)  Induced by fraudulent misrepresentations made by Lam and Tang, and during the period between June 2017 and October 2018:

(a)  Kot entered into four pledge agreements (collectively, “the Pledge Agreements”) pursuant to which he agreed to pledge various antiques as security for purported loans from Tang in order to meet the alleged funding requirements for the Purported London Transaction.

(b)  On Lam’s instructions, Kot paid over HK$129.5 million of the HK$130 million (being the entirety of the proceeds of such loans) to Lam and Wayshine Global Group Limited (“Wayshine Global”), amongst which at least HK$17,717,000 was immediately transferred back to Tang by Lam.

(c)  Kot subsequently entered into three assignments (collectively, “the Assignments”) pursuant to which (i) he assigned the pledged antiques at gross undervalue in discharge of his purported liability under the pledge agreements (ii) assigned an additional antique, also at gross undervalue, to raise further funds for the Purported London Transaction which was in turn also paid to Lam and Wayshine Global.

(6)  As a result of the Fraudulent Scheme, Kot was induced to pay over (a) a total of HK$283.65 million to Lam and/or Wayshine Global, (b) HK$15.2 million to Tang in discharge of purported loans (and interest) owed to him, and (c) HK$3.6 million to the 3^rd Defendant on the instructions of Tang. Kot has also parted with possession of the Subject Antiques, the whereabouts of which are now unknown (Tang has refused to disclose the same). Kot obtained virtually nothing in return after making all these payments.

(7)  Kot (with his son’s assistance) discovered the fraud in around late October 2018 (including that the Purported Investment Account and the Purported London Transaction never existed), and the matters were reported to the Police and arrests were made as a result.

(8)  In December 2018, Kot applied for and obtained Norwich Pharmacal disclosure orders against various banks, pursuant to which disclosures have been ongoing even up to the end of March 2019, which revealed further evidence of fraud (including, inter alia, the remittance of funds from Lam to Tang as mentioned in the above).

(9)  Further, all the Pledge Agreements are illegal and unenforceable as a matter of law by reason of the following:

(a)  Each of the Pledge Agreements contravenes section 18 of the Money Lender Ordinance (“MLO”), for there is no inclusion or attachment of a summary of provisions of Part III and Part IV of the MLO in each agreement. This is a contravention of section 18(2) of the MLO.

(b)  On the date of each of the Pledge Agreements, Tang did not hold a money lender’s licence granted under section 11 of the MLO, in contravention of section 23 of the MLO.

(c)  The first 3 Pledge Agreements provide directly for the rate or amount of interest being increased by reason of any default in the payment of sums due therein, in contravention of section 22(1)(c) of the MLO.

17.  Tang has not put forward any positive case and is relying upon PSI as a defence to Kot’s claim.

GROUNDS IN SUPPORT OF THE DISCHARGE SUMMONS

18.  Mr Ho SC submits that the Injunction should be discharged for the following reasons:

(1)  There is no serious issue to be tried as against Tang.

(2)  Damages would be an adequate remedy.

(3)  Tang has exercised PSI and should not be compelled to disclose the whereabouts of the Subject Antiques.

19.  I would examine these grounds in turn in the paragraphs below.

SERIOUS ISSUE TO BE TRIED

20.  Mr Ho SC argues that there is no serious issue to be tried. He submits:

(1)  In considering whether a serious issue to be tried has been made out, the court is not obliged to accept whatever evidence the plaintiff chooses to place before it without any critical thinking[5].

(2)  Kot’s case involves serious allegations of fraud against, inter alia, Tang. It is trite that the more serious the allegation sought to be proved is, the more cogent the evidence relied upon to support it must be[6].

(3)  Kot’s evidence against Tang is extremely flimsy and does not support any serious issue to be tried.

(4)  On Kot’s own case, Tang was the person who advanced a total of HK$130 million to Kot pursuant to the various Pledge Agreements and the Assignments. The receipt of this sum of money is expressly accepted by Kot on his own case. Kot also did not dispute that he had signed on each of these documents.

(5)  The consequence is that Kot is prima facie bound by the Pledge Agreements and the Assignments and has no claims whatsoever in respect of the Subject Antiques. It is trite that a document signed by someone of full age and ordinary understanding is treated as valid unless and until it can be set aside on one of the established bases. The person relying on the document does not need to show that it was signed “with knowledge of its contents” before the document is taken to be valid. To disown a signed legal document, facts constituting the particular vitiating factor relied on must be established by the evidence[7].

(6)  Kot is relying upon fraudulent misrepresentations and conspiracy to found a case against Tang. However, there is insufficient evidence to establish the connection between Tang and the alleged Fraudulent Scheme perpetrated by Lam.

(a)  On Kot’s case, it was Lam (not Tang) who introduced Kot to the allegedly fictitious gold investments scheme and induced Kot to advance funds to Lam and/or entities related to him. Tang did not come into the picture until early June 2017 when the 1^st Pledge Agreement was signed. Kot did not adduce evidence to prove that Tang himself knew anything about the allegedly fictitious gold investment scheme.

(b)  There was no concrete evidence that Tang himself made any misrepresentation to Kot. The misrepresentations allegedly came from Lam not Tang. The only representation which allegedly came from Tang concerned the effect of the three Assignments, which only concerned the prevention of accrual of interest on the outstanding loans from Tang under the previous Pledge Agreements. There is nothing to suggest that Tang made any representation in relation to the fictitious investment scheme of Lam.

(7)  The conspiracy claim does not even begin to kick off either.

(8)  The sum total of the evidence adduced by Kot against Tang on the connection between Tang and Lam appears to be that (i) Tang was introduced by Lam to Kot; (ii) there was proximity in timing between the transfer of funds by Tang to Kot and by Kot to Lam; (iii) there were several cheques drawn by Tang in favour of Kot in the sum of HK$17.7 million; and (iv) some related companies with Tang have allegedly received funds from Lam. None of these factors, whether individually or in combination of each other, provides any valid ground to found a grand-scale fraud case against Tang.

(a)  The mere fact that Tang was introduced by Lam to Kot hardly points to anything. Tang in fact was the person who actually advanced HK$130 million to Kot and stood on a completely different footing than Lam who allegedly repeatedly demanded the advancement of funds from Kot. Importantly, there is nothing to suggest that Tang knew anything about Lam’s fraudulent scheme against Kot.

(b)  The same can be said about the proximity of timing in the transfer of funds. In the absence of any proof that Tang stood to gain from the transfer of funds transferred by Kot to Lam, the mere fact that the loans advanced by Tang was used by Kot to settle payments demanded by Lam does not lend support to the allegation that Tang was an accomplice in the fraudulent scheme.

(c)  The evidence of the cheques drawn in favour of Tang by Lam in the sum of HK$17.7 million is hardly indicative of the alleged conspiracy. Whilst Kot is keen to invite the Court to draw the inference that these transfers involved money lent by Tang to Kot, such nexus between transfers, even if inferred, cannot be extended to support a further speculation that Tang was therefore complicit in the fraudulent scheme, bearing in mind that Lam and Tang were known to each other and they referred business to each other. The size of the transfer of HK$17.7 million is in any event nothing comparable to the HK$130 million advanced by Tang to Kot or the HK$587 million allegedly paid by Kot in Lam’s investment scheme. The same can be said in relation to the evidence on the transfer of funds by Lam to allegedly related companies of Tang.

(d)  It is most telling that the above pieces of evidence are all that Kot could obtain after having applied for extensive Norwich Pharmacal discovery against 11 banks. One would have thought that if there is any concrete evidence to show the connection between Lam and Tang and the benefit gained by Tang from the funds transferred by Kot, Kot would have highlighted and adduced the same in his affirmation in support of the Injunction Summons.

(9)  Kot’s other points on the fraud case against Tang should also be treated with caution. For example, Kot appears to complain that the value of the Subject Antiques far exceeded the consideration stated in the Pledge Agreements or Assignments. However, it is hardly anything worth remarking that the value of a security was in excess of the amount advanced, to secure the debtor’s performance of repayment. In any event, it was entirely up to Kot to decide whether to pledge or to assign the Subject Antiques or not and if so on what terms, and Kot has not pleaded any case of duress against Tang. Kot also acknowledged that he knew the accompanying antique dealer who was present at Tang’s visit to Kot’s home, and there is no suggestion that this person was not a genuine antique dealer or that he was somehow also part of the conspiracy with Lam and Tang to defraud Kot. Kot’s case of the assignment of the Subject Antiques at “gross undervalue” is therefore misconceived.

(10)  Furthermore, whilst Kot seeks to give an impression that he was somehow the victim of the pledge of his antiques to Tang, it should be noted that, on Kot’s own case, he has on no fewer than 5 occasions borrowed from people other than Tang, who were described as “friends” or “third parties”, by pledging his antiques to raise funds. Kot was therefore desperate at the material times to secure funds from others (including Tang) and improve his financial conditions by pledging the antiques in his possession as security for the loans.

(11)  Further, whilst Kot puts his case on a proprietary basis, it is remarkable that Kot has never expressly claimed that he himself is or was the beneficial owner of the Subject Antiques.  To the contrary, Kot has repeatedly asserted that the Subject Antiques “belong to [his family]” without specifying the ownership.

(12)  Insofar as Kot’s claim for the relief of rescission is concerned, Kot’s own case is that he has received HK$130 million pursuant to the Pledge Agreements or the Assignments. Kot however has not demonstrated that he is in a financial position to effect counter-restitution of the said sum in the event that his fraudulent misrepresentation claim succeeds. In fact, the evidence adduced by Kot suggests that he is not financially well - off and was in the habit of pledging antiques in his possession to raise funds to meet his financial needs. Therefore, without assurance of the ability to make counter-restitution, the Court is unlikely to grant the remedy of rescission sought by Kot.

21.  Notwithstanding the eloquent submissions of Mr Ho SC, I am unable to agree that there is no serious issue to be tried.

22.  As submitted by Ms Tong, “serious issue to be tried” is not a steep hurdle. All that has to be shown is that the claimant has prospects of success which in substance and reality exist, and odds against success do not defeat him. As long as there is a serious issue, it matters not whether the court thinks that the chances of success at trial is 90% or 20%[8]. If the opposing party seeks to show that there is no serious issue to be tried, the threshold is high, as it would be necessary to demonstrate that the claim should be struck out[9]. Further, in the context of a preservation order, it is well established that a detailed enquiry into the relative merits of rival claims is not necessary[10].

23.  Ms Tong submits that:

(1)  Tang has chosen not to file any evidence to rebut the evidence filed by Kot. In other words, the evidence relied upon by Kot is entirely unchallenged.

(2)  In considering whether Kot has shown a serious issue to be tried on the Fraudulent Scheme as claimed by him, the Court should take all the evidence into account and to view the matter by adopting a holistic approach.

(3)  The contention that there is “nothing” to suggest that Tang has knowledge of or involvement in the Fraudulent Scheme is clearly groundless. There is no statement on oath from Tang to such effect. Further, Tang’s involvement in the Fraudulent Scheme and his conspiracy with Lam can be reasonably inferred from, inter alia, the following unchallenged evidence:-

(a)  Shortly after Tang’s first loan to Kot on 8 June 2017 and Kot’s payments to Lam on 12 June 2017 (including payment of a sum of HK$40 million into Lam’s HSBC account), Lam issued four cheques from the same HSBC account in favour of Tang’s ICBC Macau Account. The four cheques were respectively issued on 23 June 2017, 29 June 2017, 29 June 2017 and 16 July 2017, totalling a payment of HK$17,717,000. The clear inference to be drawn from the temporal proximity in the remittance into and the withdrawal from Lam’s account is that Tang received the traceable proceeds of the funds which he had lent to Kot, which payment was procured by misrepresentation under the Fraudulent Scheme and the terms of which inured substantial benefits in favour of Tang by reason of the extortionate interest rates as well as substantial undervalue of the pledged antiques.

(b)  There is also evidence that first-layer recipients of Kot’s funds have transferred such funds to companies associated with Tang.

(c)  No explanation whatsoever has been given by Tang in relation to his receipt of such substantial funds from Lam and the proximity in timing of such payments (which is unlikely to have been coincidental). The arguments for Tang suggest that such payments were somehow referable to the alleged business dealings between Lam and Tang, which is unsupported by any evidence. Such baseless speculations cannot detract from the unchallenged evidence of Tang’s receipt of substantial funds from Lam shortly after he made his first loan to Kot, which were derived from the proceeds Lam pocketed as part of the Fraudulent Scheme.

(4)  The circumstances in which each of the Pledge Agreements and Assignments were presented to Kot for signing provide further grounds to infer a conspiratorial agreement between Lam and Tang. The Pledge Agreements and Assignments were pre-arranged and decided as between Lam and Tang themselves with no participation of Kot, who was simply presented with the documents by Lam and Tang for signing. In particular, on 8 June 2017 (at the same occasion when the first loan of HK$50M was made by Tang and the 1^st Pledge Agreement was signed), Lam made a sudden request for an additional HK$10M security for the Purported London Transaction, and Tang (without any hesitation or surprise) agreed to lend the additional sum to Kot who was again immediately presented with a pre-arranged pledge agreement (i.e. the 2^nd Pledge Agreement) for signing.

(5)  It cannot be disputed that Tang himself stood to benefit substantially from the highly oppressive and unfavourable terms of the Pledge Agreements and the Assignments at Kot’s expense. The value of antiques pledged to him under the Pledge Agreements are substantially higher than the loan amounts, of which Lam and Tang must have been well aware. The interest terms under the Pledge Agreements, which were arranged between Lam and Tang, were obviously extortionate. In the case of the 1^st to 3^rd Pledge Agreements, they provide for the rate of interest to be increased to 48% p.a. by reason of default in loan repayment, in contravention of section 22 of the MLO. The Assignments were also at a gross undervalue to the value of the Subject Antiques, of which Lam and Tang must have been well aware.

(6)  The fact that Kot has borrowed from other parties is wholly irrelevant to his claims in conspiracy and fraudulent misrepresentation against Tang. Kot’s unchallenged evidence is that he entered into the Pledge Agreements and Assignments solely by reason of and in reliance upon the fraudulent misrepresentations of Lam and Tang. Tang’s suggestion that Kot was desperate to secure funds from others is not borne out by the mere fact of Kot’s borrowings, and in any event not in any way detract from the merits of Kot’s claims against Tang.

(7)  As to Tang’s assertion that Kot has not demonstrated that he is in a financial position to effect counter-restitution, such argument is misconceived. Counter-restitution is not required where a plaintiff’s inability to return a particular asset or benefit is the result of the defendant’s wrongdoing[11]. The HK$130 million which Kot has received under the Pledge Agreements has been wholly paid to Lam and/or Wayshine Global as part of the Fraudulent Scheme to which Tang was a party. Insofar as Tang is suggesting that Kot is out of pocket in the sum of HK$130 million and may be unable to return the same to him, this was clearly caused by Tang’s own wrongs.

24.  In my view, Ms Tong has put forward forceful submissions. Bearing in mind that “a serious issue to be tried” is not a steep hurdle, I am satisfied that Kot has clearly met the threshold and has demonstrated that there is a serious issue to be tried between him and Tang in these proceedings. My conclusion is further reinforced by the following:

(1)  Even if Tang has no participation in the Fraudulent Scheme, based upon the evidence now before me, I do not see any defence to the claim made by Kot under the MLO. If the underlying loans are not enforceable loans, the Pledge Agreements (not deeds) may well be agreements not supported by any consideration and are also unenforceable. The Assignments were entered into as a result of the Pledge Agreements. The unenforceability of the Pledge Agreements may have an adverse impact on the Assignments.

(2)  Further, Tang is the pledgee under the Pledge Agreements, and at the same time he is also the assignee under the Assignments. That being the case, Tang may have offended the rule prohibiting sale of a mortgaged property by the mortgagee to himself[12], and the Assignments may have to be set aside in these circumstances.

DAMAGES IS NOT AN ADEQUATE REMEDY

25.  It is well established that the court would refuse to grant a preservation order if damages will be an adequate remedy for the plaintiff[13].

26.  Mr Ho SC submits:

(1)  Kot’s assertion that the Subject Antiques belong to a family collection and are of “much sentimental value” does not sit well with his own case that he has in the past pledged the antiques in his possession on no more than 5 different occasions to other people in order to raise funds for himself.

(2)  Kot has pledged antiques from the collection of Tianminlou to someone for the advancement of a loan in the sum of HK$140 million in or around September 2018 and sold the antiques in the Tianminlou collection at two auctions in or around Spring 2019.

(3)  Given that Kot has repeatedly pledged and sold the antiques in the Tianminlou collection for the purpose of raising funds for himself, it is difficult to see the need for a preservation order to preserve the Subject Antiques whether as an interim interim measure or pending trial.

(4)  The Injunction should be discharged for the reason that damages would be an adequate remedy.

27.  Ms Tong submits:

(1)  As part of the Tianminlou collection, the Subject Antiques are unique and exquisite porcelains from the Ming and Qing dynasties made for Imperial use, and is part of a family collection passed down by Kot’s late father. They are of much sentimental value which cannot be fully assessed in monetary terms.

(2)  How Kot has dealt with other items of antiques in the past is irrelevant for the purpose of the Court’s determination of interim relief in respect of the Subject Antiques. A preservation order is to preserve property which is the subject matter of the cause or matter, or as to which any question may arise therein. The 11 specific items of the Subject Antiques form the very subject matter of the proceedings. The position in relation to other antiques in the Tianminlou collection, which do not feature in the Fraudulent Scheme, is wholly irrelevant.

28.  With respect to Mr Ho SC, I am unable to accept his submissions on this issue. I am in agreement with Ms Tong. In my view, damages will not be an adequate remedy in these proceedings.

PSI

29.  Mr Ho SC submits that in the event that the Court does not accept the arguments above, Tang would rely upon PSI and contend that because of PSI, §§2 - 4 of the Injunction should be discharged.

30.  With respect, I am unable to accept Mr Ho SC’s submissions. Each case depends upon its owns facts. In my view, the balance between PSI and the effectiveness of the Injunction in this case can be taken care of by an undertaking offered by Kot that he (including his nominees, agents or servants or any of them) would not divulge any information disclosed by Tang in compliance with the Injunction to the police or the Department of Justice or any law enforcement authority[14]. Ms Tong has told me that Kot is willing to offer the undertaking.

FORTIFICATION

31.  Mr Ho SC submits that in the event that the Court is not minded to discharge the Injunction, Tang would ask for an order to require Kot to pay into Court a sum of HK$130 million as a condition for the continuation of the injunctive relief against Tang or as fortification of Kot’s cross-undertaking as to damages. The basis of this application is that Kot has received HK$130 million from Tang. If Kot succeeds on his fraudulent misrepresentation claim, Kot would have to make counter-restitution of the said sum to Tang. However, Kot is not in a sound financial position to do so. As shown in the evidence, Kot has repeatedly pledged or sold the antiques in his possession for the purpose of raising funds for himself. At the same time, there is a legitimate concern that Kot is not in a position to compensate Tang in the event that the Court subsequently finds that his claim against Tang is not established.

32.  With respect to Mr Ho SC, I am unable to accept these submissions.

(1)  If Kot succeeds on his fraudulent misrepresentation claim, that means Tang is a party in the Fraudulent Scheme. As set out in paragraph 23(7) above, in these circumstances, counter-restitution is not required in this scenario.

(2)  If Kot fails at the end in these proceedings, Tang can only require Kot to compensate him the losses suffered by him as a result of the Injunction. The figure of HK$130 million is the aggregate amount of the purported loans received by Kot from Tang, not losses that Tang is likely to suffer by reason of the Injunction. In any event, Tang has not even stated that he is in possession, custody or power of the Subject Antiques, being the premise upon which any loss under the Injunction would be suffered. Even if Tang has possession, custody or power of the Subject Antiques, he has not shown what losses he may suffer in being prohibited from dealing with them in the meantime.

33.  I dismiss this application made by Tang. Since I am of the view that there is no merit in the fortification application, there is no point to allow the Amendment Summons. I dismiss the Amendment Summons.

DISPOSITION

34.  For the reasons above, I order that the Injunction be continued until the conclusion of the trial or a further order made by the Court in these proceedings, with the addition of the undertaking offered by Kot mentioned in the above.

35.  I dismiss the Discharge Summons.

36.  Costs should follow the event. On the question of PSI, Kot has already indicated that he is willing to offer an undertaking to take care of Tang’s interest in Ms Tong’s written submissions provided to the court before this hearing. However, Tang still pursued an application to discharge §§2 - 4 of the Injunction by relying upon PSI in this hearing. That application failed. In my view, Kot should get all the costs. I order that costs of the Discharge Summons and the Amendment Summons (including all costs reserved) be paid by Tang to Kot forthwith, with a certificate for 2 counsel. Those costs be summarily assessed on paper. Kot do file and serve a bill of costs for summary assessment within 7 days, and Tang do file and serve a written reply to the said bill within 7 days thereafter.

37.  Lastly, it remains for me to thank counsel for the helpful assistance provided to the Court.

Ms Sara Tong & Ms Esther Mak, instructed by Mayer Brown, for the Plaintiff in HCA 743/2019

Mr Ambrose Ho SC leading Mr Jeremy Cheung, Ms Karen Cheung & Mr Jeff Chan, instructed by Ambrose Lam & Co., for the 2^nd Defendant in HCA 743/2019