JOHN JOSEPH MCGEE v. NOLD (HK) LTD AND OTHERS

HCA 1258/2021

[2023] HKCFI 409

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1258 OF 2021

________________________

________________________

______________

DECISION

______________

1.  On 2 December 2022 I handed down a decision in this matter granting the Plaintiff summary judgment against certain defendants [2022] HKCFI 3598 (“the Summary Judgment Decision”). This decision is to be read together with the Summary Judgment Decision. Abbreviations and defined terms therein are adopted for the purposes of this decision.

2.  By summons dated 4 January 2023, the Summonsed Defendants applied to stay the execution of the Order dated 2 December 2022 pending appeal (“Stay Application”).  The matter first came before me for a callover hearing on 10 January 2023, having been listed for 3 minutes.  Mr James Sherry, counsel for the Summonsed Defendants (who was not involved in the original substantive hearing), urged the Court to grant the application at the callover hearing.  However, I had not yet had the opportunity to consider submissions from the Plaintiff, who had not anticipated substantive argument and had not been given sufficient time to respond to the skeleton submissions of the Summonsed Defendants (which had only been served on them less than 2 clear days before the hearing).  Miss Tinny Chan, counsel for the Plaintiff, also indicated that her client was considering whether to file further evidence in answer to the stay application. I thus adjourned the matter to 10 February 2023 for a short hearing.

3.  The principles governing stay of execution are trite, as summarized in Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84. Briefly:

(1)  The starting point is that the successful party is not to be deprived of the fruits of his success. It is always relevant to consider the prejudice that would be caused to the successful party in the event a stay is granted, and if necessary, to impose conditions so as to minimise the prejudice caused to him.

(2)  The existence of an arguable appeal (that is, one with reasonable prospect of success) is the minimum requirement before a court would even consider granting a stay. However exceptional the circumstances may be otherwise justifying a stay of execution, if there exist no arguable grounds of appeal, no stay will be granted.

(3)  In the event the court is satisfied that there is a strong likelihood that the appeal would succeed, that in itself would enable a stay to be granted because this would constitute a good reason for a stay.

(4)  If there is just an arguable appeal instead of a strong one, the appellant has to provide additional reasons as to why a stay is justified. The demonstration of an appeal being rendered nugatory in the absence of a stay is a common example.

(5)  Ultimately, the court embarks on a balancing exercise and uses its common sense, but bearing in mind at all times the starting point that the successful party is not to be deprived of the fruits of his success.

4.  Mr Sherry also refers to the case of Asparouh Ianev Dimitrov as administrator of the estate of Kaloian Ianev Dimitrov (Deceased) v Dominic Tak Ming Lau [2021] HKCA 1196, with particular reference to paragraphs 20-21 (which cite the general principles referenced above), and also paragraph 29(2) (which discusses the scenario where it would be difficult for the defendant to recover the proceeds in view of the fact that the plaintiff was a foreign plaintiff and an administrator). With reference to paragraph 29(2) of that decision, it was urged upon the Court that the additional factor of the Plaintiff in this case being resident outside the jurisdiction was a sufficiently good reason upon which a stay pending appeal should be ordered.

5.  As discussed at the hearing, however, in relation to this latter aspect, the plaintiff in the Dimitrov case was in a unique position, in that he was an administrator who “in the natural course of events, [would] most likely proceed to distribute [the proceeds of sale of the Property] to the beneficiaries, whose identities are unknown and who are also likely to be outside this jurisdiction.” (see paragraph 29(2) of the Dimitrov decision). This added wrinkle (viz. the Plaintiff being an administrator who would distribute the relevant funds, and the ultimate recipients of the funds being unknown) is not present in this particular case.

6.  As before me, Mr Sherry does not strongly push the point that his clients have strong grounds of appeal (although I understand he reserves the right to do so before an appellate court). Instead, the main thrust of his argument is that there are good grounds of appeal, and that since the Plaintiff is resident outside the jurisdiction, it is obvious that the appeal (which is bound to go ahead, since no leave is required) would be rendered nugatory if a stay is not granted.

7.  I questioned whether this meant that the proposition being suggested by Mr Sherry was that whenever a foreign plaintiff had brought the relevant proceedings, and the plaintiff had successfully obtained summary judgment, this would generally mean that a stay ought to be ordered, regardless of whether the merits of the appeal were strong or not. He confirmed that that was his proposition.

8.  In answer to the above, Ms Chan refers to the principle that an appellate court would not disturb the exercise of judicial discretion unless it is shown that the judge had made an error of law, or had misapprehended material facts, or had failed to take into account relevant matters, or had taken into account irrelevant matters, or was plainly wrong (Li Nanfeng v Wong Chun Hong [2021] HKCA 1203 at paragraph 38 per Yuen JA). She further took the point that the appeal was unmeritorious.

9.  I have borne the above principles in mind when considering the Stay Application.

10.  First, I have considered the Notice of Appeal in this matter. The points as set out in the notice are essentially reiterations of the arguments that had been placed before me for the purposes of the substantive hearing, which had been considered and rejected. For the reasons I have already discussed at length in the Summary Judgment Decision, I do not consider the proposed appeal to be meritorious.

11.  In addition, as I pointed out to Mr Sherry at the callover hearing, the Notice of Appeal contains two points which are erroneous:

(1)  First, it seeks to appeal against the ancillary disclosure order (discussed in Section F of the decision), but mistakenly identifies this as having been granted in aid of the summary judgment order. In fact, it had been granted at the hearing on 11 October 2022 (i.e. prior to the Summary Judgment Decision).  The ancillary disclosure order was made in support of the injunction order already in place against the Summonsed Defendants, the intention being that pending the Court’s consideration of the summary judgment, the Plaintiff should have the benefit of such ancillary disclosure in order to support the injunction that was then in place.

(2)  Second, the Summonsed Defendants continue to reiterate their original argument that the Plaintiff’s comparison of the nature of their business with that of Emperor Group and Dickson Concepts is unhelpful, further stating that I had erred in accepting the Plaintiff’s submission. However, as was made clear in paragraphs 31(3)-(5) of the Summary Judgment Decision, I had accepted that there was a distinction between the alleged business of the Summonsed Defendants and that of the Emperor Group and Dickson Concepts, and had approached the Summonsed Defendants’ case with this distinction in mind.  The upshot is that I did not place very much weight, if any at all, on the Plaintiff’s submission on this particular point (viz. the comparison of the revenue of Emperor Group and Dickson Concepts on the one hand, and the revenue of the Summonsed Defendants on the other). The consideration and rejection of the Summonsed Defendants’ cases was based on the factors as summarized at paragraph 32 of the Summary Judgment Decision.

12.  I was assured at the hearing on 10 February 2023 that the above would be addressed and corrected.  Mr Sherry’s point was that with those anticipated corrections, the Summonsed Defendants still had good grounds of appeal, and that the various matters as raised by them in their evidence ought to be considered at trial. Notwithstanding the proposed corrections to the Notice of Appeal (which I have not seen a draft of), I continue to consider that the appeal is unmeritorious.

13.  Second, whilst it may be said that there is, in any matter involving a foreign plaintiff, a general risk that the appeal might be rendered nugatory owing to the fact that the Plaintiff is resident outside the jurisdiction, considering matters in the round, I do not consider that this Plaintiff in this particular case should be deprived of the fruits of the judgment.  It is suggested that it would be unfair for the Summonsed Defendants to have to go to the United States (where the Plaintiff is resident) to seek a return of the judgment sum paid if they are successful in their appeal. This submission, however, presumes that the appeal will be successful, which necessitates the Court’s considering the merits thereof.  It also assumes that the Plaintiff will not abide by the procedures of the Hong Kong Court when there is no specific evidence to suggest that he is prone to such conduct.

14.  Every given case must be considered on its own circumstances. Given that I consider the merits of the appeal to be weak, and taking all of the above factors into consideration, I do not consider this to be an appropriate case in which to grant a stay.  I would further mention that I do not agree with the general proposition that once there is a foreign plaintiff involved, this would necessarily mean that a stay ought generally to be ordered.  Nor do I consider that the Dimitrov case supports such a proposition.

15.  In the circumstances, the Stay Application is dismissed.

16.  At the callover hearing on 10 January 2023, there was also before the Court an application by the Plaintiff for variation of the costs order nisi, inviting the Court to perform a gross sum assessment as opposed to leaving the matter to taxation.  As a matter of case management, that is an acceptable course.  Save for relying on the Stay Application and suggesting that this aspect should also be stayed, Mr Sherry does not oppose the Plaintiff’s application.  Having dismissed the Stay Application, I do not see any reason why the Plaintiff’s application for variation of the costs order nisi should not be granted.

17.  Thus, the costs of the Stay Application are to be to the Plaintiff. These shall be assessed on a gross sum basis in writing, together with the costs of the three applications previously determined.

18.  I thank counsel for their assistance.

HCA 1258/2021

[2022] HKCFI 3598

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1258 OF 2021

________________________

________________________

______________

DECISION

______________

A.Introduction

1.  There are three applications before the Court by the Plaintiff in this matter:

(1)  By summons dated 8 December 2021, the Plaintiff seeks continuation of the ex parte proprietary and Mareva injunction against the 7^th to 15^th Defendants, granted by the Honourable Madam Justice Chu on 7 December 2021 (“Injunction Order”) until further order of the Court (“Continuation Application”). The said Injunction Order had previously been continued until further order.

(2)  By summons dated 2 June 2022, the Plaintiff seeks either (a) summary judgment against the 7^th, 8^th, 12^th, and 13^th Defendants (“Summonsed Defendants”), (b) conditional leave to defend for the Summonsed Defendants upon them making payment of the entire claimed sums or making of interim payment of the same into court, or (c) striking out of the Summonsed Defendants’ Defence dated 25 March 2022 on the grounds that it is scandalous, frivolous or vexatious (“O14 Application”).

(3)  By summons dated 23 September 2022, the Plaintiff sought what was in effect an application for ancillary disclosure of the Summonsed Defendants’ assets of an individual value of HK$10,000 or more (“Ancillary Disclosure Application”).

2.  The applications came before me for hearing on 11 October 2022. At the hearing, I granted the Ancillary Disclosure Application and reserved the decision on the Continuation Application and the O14 Application.  This is my decision on the O14 Application and the Continuation Application, and contains brief reasons in respect of the Ancillary Disclosure Application.

3.  At the hearing, the Plaintiff was represented by counsel Ms Tinny Chan and the Summonsed Defendants were represented by counsel Mr Lawrence Cheung.

B.  Background

B1.  The Plaintiff’s Case

4.  The Plaintiff claims to be the victim of a romance scam in which a fraudster (“Ruth”) posed as someone who was romantically interested in him and deceived him into making alleged foreign exchange transactions.  As a result of the scam, it is his case that he transferred a total sum of US$3,930,000 (“Defrauded Sums”) to the 1^st to 6^th Defendants (“1^st Layer Recipients”) between April to July 2021, which were then further transferred to the 7^th to 15^th Defendants (“2^nd Layer Recipients”).

5.  The crux of the Plaintiff’s case has been set out in his 1^st Affirmation dated 24 August 2021 (filed for the purposes of obtaining an ex parte injunction against the 1^st Layer Recipients), and subsequently his 2^nd Affirmation dated 13 December 2021 (filed for the purposes of obtaining the Injunction Order against the 2^nd Layer Recipients).  It is also encapsulated in the Statement of Claim dated 25 February 2022.

6.  The background to his claim has been helpfully set out in some detail in Ms Chan’s skeleton submissions, the relevant portion of which I reproduce below:

(1)  In February 2021, the Plaintiff met a woman named Ruth via an online dating website.  Very soon after, Ruth proclaimed her romantic interest for the Plaintiff, and claimed that she could guide the Plaintiff in making Forex investments on the advice of her highly successful Uncle, who was able to obtain accurate market information due to his position in the Singapore Foreign Exchange Monetary Authority.

(2)  Ruth then instructed the Plaintiff to download from a popular trading platform named MT5 from the App Store and to create an account with the broker, FC Finance.  While the Plaintiff was waiting for his account to be approved, Ruth passed him the WhatsApp contact of what she claimed to be the customer service of MT5 (i.e. the “Fake Customer Service”).

(3)  The Fake Customer Service began to instruct the Plaintiff to make deposits into the designated bank accounts of the 1^st Layer Recipients.  After the Plaintiff made the deposits, the Plaintiff’s FC Finance Account on MT5 would appear to be credited with the amount transferred.  Ruth also taught the Plaintiff how to operate the account and gave the Plaintiff instructions for executing Forex trades under her Uncle’s advice.

(4)  On Ruth, the Fake Customer Service and FC Finance’s representations that (a) FC Finance was a legitimate and regulated financial broker through whom the Plaintiff could make investment and profit on the MT5 App, and that (b) there were no risks in these transactions because of the reliability of Ruth’s Uncle’s information, the Plaintiff transferred a total of US$3,930,000 to the bank accounts of the 1^st Layer Recipients as designated by the Fake Customer Service. (There is no dispute between the parties that the MT5 App is a legitimate platform, but the crux of the Plaintiff’s case, which the Summonsed Defendants do not appear to dispute, is that the records in the app can be readily manipulated by the “broker” in such manner to make it appear that trades had been conducted with actual funds when in fact they had not occurred at all).

(5)  On 2 August 2021, the Plaintiff tried to execute another Forex trade under Ruth and her Uncle’s instructions as usual.  However, he then lost the entire balance in his FC Finance Account of about US$22,817,340, including the Defrauded Sums he deposited and the profits he made, and was left with a negative balance.  The Plaintiff then spoke to his accountant and realised that he had been scammed when he found out that FC Finance was not a regulated broker.

(6)  The Plaintiff contends that the 1^st Layer Recipients were part of a sophisticated romance fraud scheme designed to deprive the Plaintiff of the Defrauded Sum, as:

(a)  The 1^st Layer Recipients were specifically nominated by the Fake Customer Service to be the recipients of the Defrauded Sums;

(b)  They were all shell companies sharing the same registered addresses as their company secretaries with nominal directors and shareholders based in PRC and ran no discernible business; and

(c)  They had no dealings with the Plaintiff whatsoever and knew or were reckless that they had no justification or entitlement for receiving the Defrauded Sums or right to dispose of the same.

7.  In view of the above developments, the Plaintiff obtained ex parte Mareva and proprietary relief against the 1^st Layer Recipients on 20 August 2021.

8.  Following disclosure by the 1^st Layer Recipients’ banks in the ensuing two months, the Plaintiff was able to track the funds, the bulk of which had been immediately transferred upon receipt by the 1^st Layer Recipients to the 2^nd Layer Recipients in the period between 10 April 2021 and 22 July 2021.

9.  It is the Plaintiff’s case that the onward transfers of the Defrauded Sums by the 1^st Layer Recipients to the 2^nd Layer Recipients were also suspicious, considering:

(1)  The 2^nd Layer Recipients dealt with the 1^st Layer Recipients, which were shell companies, in such significant sums; and

(2)  The vast majority of the aforesaid transfers took place on the same day or within the next day of the 1^st Layer Recipients’ receipt of the Defrauded Sums from the Plaintiff.

10.  The Plaintiff’s case against the 2^nd Layer Recipients is premised upon:

(1)  A personal claim against the Summonsed Defendants for the parts of the Defrauded Sums they respectively received, as they were each unjustly enriched by the Plaintiff’s mistaken payment; and/or

(2)  A proprietary claim against the Summonsed Defendants, who hold the Defrauded Sums on constructive trust for the Plaintiff, as the Defrauded Sums were obtained by fraud and the Summonsed Defendants’ state of knowledge is such as to make it unconscionable for them to retain the money.

(Guaranty Bank and Trust Company v. ZZZIK Inc Ltd (unrep., HCA 1139/2016, 18 July 2016), at §§27-34).

11.  Based on the above, the Plaintiff obtained the Injunction Order against the 2^nd Layer Recipients on 7 December 2021.  At the return date, the Summonsed Defendants consented to continuation of the injunction pending the determination of the Continuation Summons.  Directions were given for the filing of evidence.  The Summonsed Defendants filed their evidence in opposition to the Continuation Application, as well as their Defence, in March 2022.

12.  Subsequently:

(1)  The Plaintiff took out the O14 Application on 2 June 2022. Directions were given for the filing of evidence on 4 July 2022.

(2)  The 1^st Layer Recipients did not defend the action and default judgment was entered against them on 15 June 2022.

B2.  The Summonsed Defendants’ Case

13.  The Summonsed Defendants’ case appears in the various affirmations filed in opposition to the Continuation Application in March 2022, their Defence dated 25 March 2022, as well as the evidence filed in opposition to the O14 Application.  In essence they allege as follows:

(1)  All four entities trade in luxury timepieces.

(2)  The 7^th and 8^th Defendants run an extremely successful timepiece trading business generating hundreds of millions in revenue.  They also state that they take USDT (a cryptocurrency) from their customers, and would also exchange cash and USDT with other businesses in the same trade.

(3)  In explaining the particular transfers they received from the 1^st Layer Recipients, it is said that in December 2020, Mr. Fang of the 7^th and 8^th Defendants was asked by a PRC businessman named 程玉 (“Mr Cheng”) to exchange the latter’s cash for USDT.  The 7^th and 8^th Defendants therefore took parts of the Defrauded Sums from the 1^st Layer Reciepients, and transferred USDT to 程玉 in return.

(4)  Insofar as the 12^th and 13^th Defendants are concerned, they say that received parts of the Defrauded Sums because they were selling expensive timepieces to the 7^th and 8^th Defendants.  It was the 7^th and 8^th Defendants which directed Mr Cheng to directly deposit the price into the 12^th and 13^th Defendants’ bank accounts as part of their USDT exchange transactions.

14.  Legally, the matters asserted by the Summonsed Defendants translate into defences of bona fide purchaser for value as well as change of position.  In consequence, they deny that they hold the Defrauded Sums or their proceeds on constructive trust or that it is unconscionable for them to retain the same.

15.  At the hearing, in addition to asserting the defences specific to the Summonsed Defendants (as ummarized above), Mr Cheung also sought to cast doubt upon the tenability of the Plaintiff’s case against the 1^st Layer Recipients. In essence, he contended that Ruth’s interest in the Plaintiff and the forex transactions could well have been genuine, pointing to inter alia:

(1)  There was no need for the scam to be so complex (involving multiple trades and a lengthy period of sums being transferred);

(2)  Ruth had previously offered up and “paid” US$350,000 to reduce the amount the Plaintiff owed under his account when the “trades” did not go as planned;

(3)  It was the Plaintiff who “made the first move” only a few days after they met online; and

(4)  Ruth had sent the Plaintiff many photos of herself and her Uncle; and

(5)  Ruth had even bought an expensive luxury watch (a Patek Philippe) even though they had not met in person;

(6)  The Plaintiff failed to immediately verify the status of FC Finance after he discovered the fraud, the result being that there was only evidence to show that FC Finance’s website was no longer accessible about 9 months after his last trade. The suggestion is that many legitimate businesses had encountered difficulties during this period and one could not exclude the possibility that FC Finance was simply one of those businesses;

(7)  The Plaintiff, being a highly educated and successful medical doctor, would not have easily fallen into an investment scam; and

(8)  All of the above should be tested under cross examination.

16.  In addition to the above, Mr Cheung also presented an argument that expert evidence was required in relation to the use of USDT in the luxury watch trade, and also in relation to accounting matters. The issues identified in his skeleton include:

(1)  “The legitimacy and popularity of using USDT” and “[the wide use of] USDT … in the trading of expensive timepieces”;

(2)  “The difference in nature, if any, of selling pre-owned pricey timepieces and the business of Emperor and Dickson Concepts” (this comparison to Emperor Group and Dickson Concepts having been raised by the Plaintiff to highlight the extraordinary revenue generated by the Summonsed Defendants’ trading activities).

17.  It was suggested that the above issues would be addressed by an “expert” involved in the field of “trading of expensive timepieces”.

18.  It was further suggested that accounting expert evidence in respect of “the level of auditors’ fees to revenue generated” was also required (again, since the Plaintiff had pointed to the relatively modest sum of auditors’ fees charged for auditing businesses wherein there was said to be substantial revenue generated by the alleged trading of luxury timepieces).

19.  These arguments will be addressed below.

C.  RELEVANT LEGAL PRINCIPLES

20.  There is no dispute between the parties as to the applicable principles, whether in respect of summary judgment or continuation of injunctive relief.

C1.  Summary Judgment

21.  The relevant legal principles for summary judgment under O.14 of the Rules of High Court (“RHC”) are well settled.  In short:

(1)  It is trite law that the mere assertion in an affidavit of a given situation does not, ipso facto, provide leave to defend, since it is incumbent on the defendant to raise a defence or triable issue, and in so doing to descend upon particulars.  The issue is not whether the defendant is believed, but whether the assertions are believable.

(2)  That whether the defendant’s assertions are believable is a question to be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as is either undisputed or beyond reasonable dispute.

(3)  Furthermore, the Court will not take the alleged defence on its face value but test it against the evidence disclosed in the affidavit including matters such as contemporaneous documents, whether the alleged defence is inconsistent with the defence previously put forward or whether the defence is only recently raised despite opportunity being given to the defendant to respond earlier.  The Court will also consider the inherent probability of the defence.  But what the Court should not do is to conduct a mini-trial on complicated factual issues.

(4)  If the evidence of the defendant is incredible in any material respect, it cannot be said that there is a fair or reasonable probability that the defendant has a real or bona fide defence and judgment will be given to the plaintiff.

(5)  Unless it is obvious that the defence is frivolous and practically moonshine, O.14 ought not be applied.

See: Hong Kong Civil Procedure 2022 at §§14/4/9, 14/4/9A.

22.  Furthermore, leave to defend conditional on the full amount claimed being paid into court may be ordered where the defence is shadowy or there is little or no substance in it or the case is almost one in which summary judgment should be ordered: HKCP 2022 at §§14/4/16.

23.  As to the alternatives put forward by the Plaintiff:

(6)  Interim payment of the claimed sums: The test is essentially the same as that for granting conditional leave to defend, namely whether the defence raised can be said to be shadowy. However, the burden is on the plaintiff to show on the balance of probabilities that it would, and not merely that it is likely to, succeed at trial.  The standard of proof required is high: HKCP 2022 at §29/11/1 and Delco Participation B V v Chiho Environmental Group Limited (formerly known as Chiho-Tiande Group Limited) & Another[2020] HKCFI 1643 at §31.

(7)  Strike out of the Summonsed Defendants’ defence dated 25 March 2022 on the ground that it is scandalous, frivolous or vexatious:  The principles are trite and summarised in Chan Sunny as Executor of the Estate of deceased Kam Shan Lin v Chen Min Chun and Ors[2022] HKCFI 1659 at §§26-30.

C2.  Continuation of Injunctive Relief

24.  The relevant principles are similarly trite.

25.  In order for a proprietary injunction to be continued, P must show that:

(1)  There is a serious issue to be tried in relation to a proprietary claim over property that is bona fide the subject matter of the cause or action;

(2)  The balance of convenience is in favour of granting the injunction, and it is just and convenient to grant the injunction, although the court will readily find that the balance of convenience favours the preservation of the funds pending trial; and

(3)  While there is no need to show a real risk of dissipation, something ought to be done for the security of the property, and damages may not be an adequate remedy.

See Heitkamp & Thumann v Living Profit Trading[2018] HKCFI 1006 (“Heitkamp (CFI)”) at §§55-58 per DHCJ Marlene Ng (affirmed by the Court of Appeal in [2019] HKCA 119 at §32).

26.  In order for the Mareva injunction to be continued, P must show that: (1) there is a good arguable case on the merits; (2) there are assets within the jurisdiction; (3) there is a real risk of dissipation of assets; and (4) the balance of convenience is in favour of the grant: HKCP 2022 at §29/1/65.

27.  I have borne the above principles in mind when considering the parties’ submissions and evidence.

D.  O14 APPLICATION

28.  Logically, the parties were in agreement that the summary judgment application should be considered first.

29.  Having considered the evidence filed, the parties’ submissions, and the circumstances of this particular case, I consider that the Summonsed Defendants have not raised any defences or assertions which are believable, nor have they raised any triable issues.

30.  First, insofar as the attempt to cast doubt on the Plaintiff’s ‘romance scam’ case:

(1)  The bulk of the matters cited above in paragraph 15 go to the suggestion that the trades and relationship may well have been a ‘genuine’ one. I do not consider the Summonsed Defendants are able to raise a credible defence on such basis.

(2)  I see no particular issue with the complexity of the scam or the methodology by which the Plaintiff was progressively encouraged to transfer his money into the alleged forex trading account.  The Courts in Hong Kong have seen a bevy of similar cases in recent years, and the methodology adopted is well documented.  The mere fact that there were a couple of occasions where “Ruth” purported to spend her own money is also in keeping with such methodology.  These factors thus do not support an argument in favour of the Defendants.

(3)  Moreover, bearing in mind that it rests on the defendants to raise a believable defence or triable issue, simply suggesting that the trades and romance might have been genuine, without more, is insufficient in the circumstances.

(4)  The argument is further weakened (to the point of being untenable) by the fact that the 1^st Layer Recipients (i.e. the entities specified by the “customer service”) had not seen fit to defend against the action themselves.

(5)  In the above context, it is difficult to see what benefit there might be in cross-examining the Plaintiff on the alleged genuineness of the trades or the relationship.  Insofar as the alleged genuineness of the trades are concerned, his credibility is not the determinative factor.  As to the genuineness of the romance, there is no alternative positive case (supported by some positive evidence) that the Summonsed Defendants would be able to put forward to counter the Plaintiff’s version of events.

(6)  I thus do not consider that the Summonsed Defendants have raised any believable defences or triable issues in this regard.

31.  Second, as to the suggested need for expert evidence:

(1)  I note that this point was only developed in Mr Cheung’s skeleton argument.

(2)  Putting aside this procedural point for the moment, I further note that no actual experts have been proposed on the part of the Summonsed Defendants.  It is thus difficult to assess with particularity whether any such expert(s) would be able to assist the Court on the issues raised, particularly insofar as the use of cryptocurrency and the trading of luxury timepieces is concerned.

(3)  Further, I consider that no expert is required insofar as the difference in nature of trading pre-owned luxury timepieces and the business of Emperor Group or Dickson Concepts is concerned.  These are factual matters which are readily gleaned from information that is publicly available and from the context within which the Summonsed Defendants have put forward their case, whether in their evidence or in the Defence.

(4)  In essence, the Summonsed Defendants allege that they specialize in high value, individual pieces, sold from a specialist shop in Tsim Sha Tsui, whereas Emperor Group and Dickson Concepts’ business is in relation to new timepieces across a much broader spectrum, involving multiple shops and employees. I accept this distinction (with the proviso that I would consider the factual assertions and their believability below), and have assessed the Summonsed Defendants’ case with this distinction in mind.

(5)  I shall discuss the accounting point further below. Suffice to say at this juncture that the Court deals regularly with accounts and auditors, and it would not be necessary for the Court to ask an ‘expert’ to opine on the very narrow issue of the level of auditors fees as contrasted with the level of revenue generated.

32.  Third, as to the actual defences sought to be raised by the Summonsed Defendants, these rest on their factual case that they were running a legitimate watch trading business and that the cryptocurrency transactions were part and parcel of such legitimate business.  In this regard, I consider the Summonsed Defendants have not raised any believable defence or assertions or any other triable issue, taking into account the following matters:

(1)  The contemporaneous documents produced by the Summonsed Defendants in support of this alleged legitimate business are incredibly sparse.  Insofar as the 7^th and 8^th Defendants are concerned, these consist essentially of (a) a lease agreement for a shop in Tsim Sha Tsui (the monthly rent being $28,000); (b) company search records indicating that the 7^th Defendant is a company with only HK$1 of paid-up capital and the 8^th Defendant is a company with HK$10,000 of paid-up capital; (c) audited accounts which on their face show that the 7^th Defendant generated $648 million of revenue and the 8^th Defendant generated $312 million of revenue in the period of just over a year or so (slightly longer for the 7^th Defendant), with the assistance of 6 employees.

(2)  Notably, the accounts do not point to any significant inventory which one might expect would exist if the core business was really trading luxury timepieces of significant value (the 7^th Defendant’s accounts had none, the 8^th Defendant’s accounts had a minimal amount).

(3)  Even putting aside the relatively modest auditing fee (which I do not place particular weight on), the fact remains that there are many other items of evidence which should exist, but which were not produced, to justify the incredible sums of revenue generated.  These include (non-exhaustively): inventory lists showing how stock was kept track of, sets of contemporaneous documents showing the active trading of timepieces, correspondences with clients and suppliers, evidence on where such timepieces were sourced (auction houses, private collectors, and the like), evidence on where such timepieces were sold.  None of these particulars were provided in any coherent or comprehensive manner.

(4)  Insofar as the 7^th and 8^th Defendants allege that they had been engaged with cryptocurrency transactions with Mr Cheng, the immediate rhetorical question is why has no evidence been tendered by him to support the Summonsed Defendants’ case? Aside from his name and the bare assertion that he was a wealthy and successful businessman, there is very little put forward about him or his business.  There has also been no explanation proffered as to whether they remain in contact with him, and if so, why he has not filed such evidence. In the absence of any explanation, one can only assume what Mr Cheng has to say would not support their case.

(5)  Furthermore, the case asserted on the alleged need for cryptocurrency payments does not, even on its own merits, hold up.  The reason given for Mr Cheng’s original request to the 7^th and 8^th Defendants was that he was unable to deal freely with his money and thus needed their assistance to engage in these cryptocurrency transactions.  However, the documents show that Mr Cheng in fact kept arranging funds to be transferred to Hong Kong, and not only that, he and the 7^th and 8^th Defendants’ representative would regularly consult on which bank accounts to transfer to in order to avoid alerting the banks of suspicious transactions and having to explain such large sums to the banks.

(6)  As to the 12^th and 13^th Defendants, they were the recipients of funds which were the subject of dealings by Mr Cheng. The issues and difficulties raised above thus apply equally to them.  Furthermore, the evidence produced is similarly scant, there being only some invoices and acknowledgment of payment receipts exchanged between the 12^th or 13^th Defendants on the one hand and the 7^th Defendant on the other (in other words, no third party involvement).  The lack of evidence in respect of their overall business is similarly telling, much along the lines of paragraph 32(3) above.

(7)  In the course of oral submissions, Mr Cheung drew the Court’s particular attention to the fact that (a) a lease was genuinely signed specifying that the purpose of the business was selling watches; (b) there had been ‘due diligence’ done on the 1^st Layer Recipients; (c) the audited accounts support the watch trading story, whereas fraudsters would not go to the trouble to do so; (d) the records show that there were actual transfers and USDT transactions taking place (where for the relevant period, USDT sent out exceeded the sums received and in issue in these proceedings); and (e) the relevant invoices had already been produced in relation to the sums received.

(8)  Briefly, in relation to the above:

(a)   The fact that the lease was signed is, of itself, neither here nor there.  One can allege that a certain type of business was being carried out in a lease, but this does not mean that this business was actually carried out in reality.

(b)  The so-called due diligence consisted solely of a few business registration certificates and the like.  This does not take the case of watch trading or legitimate trading of USDT any further as the certificates give little information on the actual business of the 1^st Layer Recipients.

(c)   The deficiencies and problems with the accounts have already been discussed above.

(d)  The fact that more USDT was sent out than in issue in the present case again does not remedy or rectify the problems identified above.

(e)   Similarly, the production of a few invoices as to the alleged sales between the Summonsed Defendants is of little assistance when the overall picture and evidence produced is so lacking.

(9)  Viewed in totality, therefore, and bearing in mind the burden rests on the Summonsed Defendants in contesting a summary judgment application, none of them have put forward arguable or believable defences on the facts. The factual basis on which they found their defences of bona fide purchaser and change of position is woefully deficient, and their Defence cannot even begin to get off the ground.

33.  I would add, finally, that even if I were wrong on the assessment above, I would have ordered that there only be conditional leave to defend, the condition being that there be full payment into Court of the sum in dispute.  This is based upon the shadowy nature of the Defence, and in particular, the many unexplained features of the USDT transactions which point to money laundering activities rather than any actual legitimate business.

34.  In the circumstances, I will grant summary judgment in favour of the Plaintiff.

E.  CONTINUATION APPLICATION

35.  In view of the above, it is unnecessary to consider the Continuation Application.

36.  Again, for completeness, I would add that if I had not granted summary judgment, the injunction would no doubt be continued pending trial on the basis that in view of the matters discussed above, plainly, the grounds for proprietary and mareva relief are made out.  The factors analysed above clearly show a serious issue to be tried (for the purposes of proprietary relief) and a good arguable case (for the purposes of Mareva relief) on the part of the Plaintiff.

37.  I would mention that insofar as the risk of dissipation is concerned, in addition to the above observations, the Summonsed Defendants, despite saying that they were conducting substantial trading, have never applied to vary the injunctive relief to allow for ordinary business spending.  This rather begs the question whether they have any such legitimate expenses to begin with and if so, how they have survived without being able to fund their business.

38.  As to the balance of convenience, very little has been said by the Summonsed Defendants about this issue.  Plainly, it would be better to hold the status quo and secure the sums in question pending trial.

F. REASONS FOR DECISION ON ANCILLARY DISCLOSURE APPLICATION

39.  At the hearing, the Plaintiff had also sought – and I had granted – ancillary disclosure to the effect that the Summonsed Defendants were to inform the Plaintiff in writing of all their assets of an individual value of HK$10,000 or more (to be confirmed in an affidavit).  A proviso was built in to the proposed order on the basis that they would be entitled to refuse to provide some or all of the information on the grounds that it may incriminate them.

40.  The Summonsed Defendants complained of the lateness of the application, and the somewhat odd manner in which it was couched (by way of an amendment summons dated 23 September 2022, seeking to amend the O14 Summons).

41.  The crux of the objection was that the Summonsed Defendants required time to seek legal advice (on the issue of self-incrimination) and thereafter to give proper instructions to their legal team.  It was said that “[The Summonsed Defendants] are unable to state whether they will oppose this application, and if yes, to what extent.”

42.  At the hearing, I had inquired of Mr Cheung what amount of time his clients required to take such advice, bearing in mind they had been well aware of the request for ancillary disclosure since late August 2022 (when the Plaintiff’s solicitors wrote to the Summonsed Defendants’ solicitors seeking the same), and yet had not taken any steps to either file evidence in opposition or indicate any further stance save to say that they required more time.

43.  Upon further discussion, I had indicated that it seemed to the Court that first, a reasonable amount of time had already lapsed since the Summonsed Defendants were first made aware of the request; and secondly, disclosure of this nature was not unusual in injunction applications in order to render the injunctive relief effective.  Further, whilst Ms Chan had fairly conceded that the application was somewhat late, the Court did not consider that this lateness of itself was a reason to reject the application.  Finally, it was noted that the terms of the order proposed catered for the possibility that the Summonsed Defendants might eventually wish to rely on their right against self-incrimination.

44.  It was in such circumstances that, having considered the relevant facts placed before the Court (as discussed in the sections above), I allowed the amendment summons dated 23 September 2022, and further made the order at the hearing that the Summonsed Defendants were to give the disclosure in the terms sought, albeit with a slightly longer timeframe of 28 days (rather than the 14 days originally proposed by the Plaintiff).

G.  COSTS

45.  I make an order nisi that the Summonsed Defendants shall bear the Plaintiff’s costs for all three applications, to be taxed if not agreed.

46.  I thank counsel for their assistance.