HCA 1732/2022

[2024] HKCFI 980

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1732 OF 2022

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REASONS FOR DECISION

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1.  At the conclusion of the hearing, I (a) allowed the appeal of the 1^st  Defendant (“D1”) against the Order of the Master made on 4 December 2023 dismissing his application to set aside the default judgment entered against him on 10 March 2023 for the sum of US$670,085.96 and damages to be assessed (“the Default Judgment”), (b) set aside the Default Judgment, (c) gave leave to D1 to file out of time the Acknowledgment of Service and his Defence, and (d) made the costs order set out in the last section below.

2.  These are my reasons.

3.  D1 was legally represented by his former solicitors when he filed his summons dated 23 June 2023 applying for the setting aside of the Default Judgment (“the Summons”), but was acting in person when the summons was argued before the Master.  The main contention advanced before the Master was that the Default Judgment was irregularly obtained in that there was no due service on him of the Writ endorsed with the Statement of Claim.  D1 also said in his affirmation, among others, that he did not know the person named “Vicky” or the alleged scam site www.crpto-ct.com (“the Scam Site”).

4.  Recently about 2 weeks ago, D1 was granted legal aid.  At the hearing he was represented by Ms Law of Counsel.  The Plaintiff (“P”) was represented by Mr Bowers, solicitor advocate.  As is trite, this appeal was conducted by way of a re-hearing.

5.  D1 now accepts that the Default Judgment was regularly obtained.  The main ground now advanced for setting aside the Default Judgment was that P’s claim is so defectively pleaded that it is liable to be struck out and therefore no default judgment should have been entered, and if entered, should be set aside.  As a fallback, Ms Law also submitted that within the present setting D1 has a meritorious defence.

P’s claim and his case against D1 and the 2^nd Defendant (“D2”)

6.  The Writ herein endorsed with a Statement of Claim was issued on 12 December 2022.

7.  P was and is a British citizen living in Malaysia and a user of the digital assets trading services on the Huobi trading platform (“Huobi Platform”) provided via the website at www.huobi.com operated by the 3^rd Defendant, a company listed on the HKEX.

8.  D1 was and is the sole director and shareholder of D2 responsible for trade conducted by the Authorized Trader on the Huobi Platform known as “Silkroad1015”.

9.  As pleaded in the Statement of Claim :

a.  “Between about 11 January 2020 and 13 May 2020, the Plaintiff was fraudulently and/or wrongfully induced and solicited by the 1^st and 2^nd  Defendants into performing a series of cross-platform trades on www.crpto-ct.com (Scam Site) and the Huobi Platform (Cross-platform Scam)” (§4.2);

b.  P “was fraudulently and/or wrongfully induced into transacting a series of 8 bank transfers with a combined value of US$670,085.96 to acquire USDTs (stable coins)from the 1^st and 2^nd Defendants (Investments)”(§8);

c.  The details of the 8 transfers were then set out in a table in §8 of the Statement of Claim, consisting of (i) 1 transfer to D1’s Citibank Singapore bank account, (ii) 5 transfers to D2’s Signature Bank New York account, and (iii) 2 transfers to the DBS Bank Singapore account of one Ace Linking Pte Ltd;

d.  P “was further fraudulently and/or wrongfully induced and solicited to convert the acquired USDTs into cryptocurrencies in ICT and GSM in the follow-through transactions into the Plaintiff’s crypto-wallet on the Scam Site” (§9);

e.  “The Scam Site was abruptly shut down on 1 June 2020 with the result that all Investments held by the Plaintiff were unlawfully misappropriated / stolen and/or lost” (§9); and

f.  “It is averred that the 1^st Defendant, the 2^nd Defendant and the Huobi Group have been complicit in the illegal Cross-platform Scam and the 3^rd Defendant has aided and abetted by endorsement of the 1^st and 2^nd  Defendants’ illegal cross-platform activities through the 3^rd Defendant’s and Huobi Group’s business and operation of the Huobi Platform” (§9).

10.  Apart from the above quoted, P also pleaded misrepresentation, inducement and conspiracy, thus :

“VI.MISREPRESENTATION

19. The 1^st and/or 2^nd and/or 3^rd Defendants made negligent and/or fraudulent misrepresentations to the Plaintiff (causing the Plaintiff to fall victim to the Cross-platform Scam) which were relied upon by the Plaintiff and which induced the Plaintiff to make the Investments and suffer loss and damage upon the abrupt shutdown of the Scam Site on about 1 June 2020 referred to as paragraphs 8 - 9 above.

VII. INDUCEMENT / CONSPIRACY

20. Further or alternatively,

20.1 The 1^st and/or 2^nd and/or 3^rd Defendants fraudulently and/or wrongfully induced the Plaintiff to make the Investments and which caused him to suffer loss and damage upon the abrupt shut down of the Scam Site on about 1 June 2020 referred to at paragraphs 8 - 9 above; and/or

20.2 The 3^rd Defendant has aided and abetted by endorsement of the 1^st and 2^nd Defenders illegal cross-platform activities through the 3^rd Defendant’s and Huobi Group’s business and operation of the Huobi Platform.

21. Further or alternatively,the 1^st and/or 2^nd and/or 3^rd Defendants conspired to do the acts referred to at paragraphs 8 - 9 above.”

11.  As pointed out by Ms Law, and not disputed by Mr Bowers, the parts of the Statement of Claim quoted in the preceding 2 paragraphs are all the averments pleaded in the Statement of Claim as against D1.

12.  Moreover, there were also the following pertinent allegations made in P’s letter before action dated 7 November 2022 by his solicitors Messrs Bowers.law to D1[1], to which was attached as Annex 1 certain screen-shots of WeChat messages exchanged between P and a person named “Vicky” (“the WeChat Messages”):

“3. For each of the Investments, the account representative at the Scam Site by the name of “Vicky” (WeChat ID: Amy167103[XXXXXX] acted as the intermediary on behalf of you and/or Silkroad to communicate with our client in WeChat and disclosed the account details for the various bank accounts held with Citibank and DBS Bank in Singapore and Signature Bank in New York in your name and/or in the name of Silkroad to initiate payment from our client to you and/or Silkroad In exchange for USDTs held on the Huobi Platform. The USDTs were subsequently converted into cryptocurrencies in ICT and GSM in the follow-through transactions into our client’s crypto-wallet on the Scam Site. Copies of the relevant WeChat exchanges are enclosed in Annex 1. It is clear from these WeChat exchanges that you and/or Silkroad were all along using the account representative at the Scam Site as a conduit in perpetrating the scam.”

13.  Notably however, and as pointed out by Ms Law, and not disputed by Mr Bowers,  in the Statement of Claim (a) the person “Vicky” was not even mentioned, (b) also not pleaded was the alleged fact that “Vicky” acted on behalf of D1 and/or D2, (c) such allegations quoted in paragraph 12 above are not pleaded, (d) none of the messages sent by “Vicky” in the WeChat Messages were pleaded as forming part of the “fraudulent and/or wrongful inducement or solicitation” or of the negligent and/or fraudulent misrepresentation pleaded against D1 and D2.  

Parties’ affirmation evidence

14.  As the question of service of the Writ has by now become immaterial, I will skip the mention of the parties’ evidence thereon.

15.  In D1’s 1^st affirmation filed on 10 July 2023, D1 (a) set out the trading procedures of the Huobi Platform, (b) confirmed that he actually received all the 8 transfers of money from P in the amounts and manner as P pleaded, (c) said that the 8 transactions were all duly completed and that P has received in total 651,339.201438 USDTs, and (d) said that D1 and D2 did not know the person named “Vicky” or the alleged Scam Site.

16.  In his affirmation filed on 1 August 2023, P referred to the WeChat Messages and said (in paragraph 16.5) that “[“Vicky”] was in fact at all relevant times acting as the conduit for 1^st and 2^nd Defendants with access to specific k