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Cheng Siu Fai v Swenson Global Opportunities Fund Spc And Others

Judgment Cited authorities 4 Cited in 1 Precedent Map Related
Vincent
Judgment Date20 April 2021
Neutral Citation[2021] HKCFI 1608
Year2021
Judgement NumberHCA2058/2020
Subject MatterCivil Action
CourtCourt of First Instance (Hong Kong)
HCA2058/2020 CHENG SIU FAI v. SWENSON GLOBAL OPPORTUNITIES FUND SPC AND OTHERS

HCA 2058/2020

[2021] HKCFI 1608

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2058 OF 2020

__________________

BETWEEN
CHENG SIU FAI (鄭少輝) Plaintiff

and
SWENSON GLOBAL OPPORTUNITIES FUND SPC 1st Defendant
SWENSON ASSET MANAGEMENT LIMITED 2nd Defendant
CHAN SAI WING (陳世榮) 3rd Defendant
SIN KIN HONG EDWARD (冼健航)
(also known as SIN KIN HONG)		 4th Defendant

__________________

Before: Deputy High Court Judge Dawes SC in Chambers

Date of Hearing: 19 and 20 April 2021

Date of Decision: 20 April 2021

__________________

DECISION

__________________

A. INTRODUCTION

1. The suspension of the IPO of Ant Group Co., Ltd (“Ant Group”) in 2020 was a well-known event. The ramifications (both financial and otherwise) were also considerable. The Plaintiff (“P”) claimed to be a victim of a fraud perpetrated by the Defendants in an arrangement concerning the subscription of the new shares under the IPO.

2. The 1st Defendant (“D1”) (a fund company) and the 2nd Defendant (“D2”) (the investment manager of the fund) are part of the Swenson Financial group of companies (i.e. “Swenson”). The 3rd (“D3”) and 4th Defendants (“D4”) were senior managers of Swenson.

3. P’s case is that he subscribed for shares in D1’s segregated fund (the “Fund”), on the strength of Ds’ representation that P’s subscription monies (“Subscription Monies”) would be used only to subscribe for New Shares (Ant Group shares that are to be issued following the IPO) through the Fund. It is said that Ds knew that P intended to sell the New Shares shortly (or even immediately) after the listing of the Ant Group, so as to make a quick profit. However, Ds never intended to and did not subscribe for the New Shares using P’s Subscription Monies, and worse still refused to refund the Subscription Monies to P after the sudden suspension of the IPO.

4. In terms of the procedural history:

(1) On 7 December 2020, upon P’s ex parte application, proprietary and Mareva injunctions were granted against D1 to D4 freezing the sum of HK$321,800,000 (“Sum”) (i.e., the amount of the Subscription Monies paid by P to D1) (collectively “Injunctions”). In the meantime, the accounts of the Fund, and the Dah Sing account of First Fidelity Capital (“FFC”) with which the Fund maintained a securities account (“FFC Account”), were frozen by letters of no consent (“LNCs”) issued by the Joint Financial Intelligence Unit (“JFIU”).

(2) On 22 December 2020, upon D1’s undertaking (subject to consent from law enforcement agencies) to pay into Court a sum of HK$315,000,000 from the FFC Account, and to realise the securities held in the same account and pay into Court such sale proceeds up to a sum of HK$6,800,000 (“Undertaking”), the Injunctions were discharged by Order of DHCJ MK Liu.

(3) Pursuant to the Undertaking, the sums of HK$315,000,000 and HK$6,800,000 were respectively paid into Court on 29 March 2021 and 8 April 2021, following the withdrawal of the LNCs earlier in March 2021. Ds are now willing to continue the Undertaking until the trial of this action, conditional upon P’s giving of fortification by payment into Court (which will be dealt with below).

5. This is the substantive return date of the Injunctions and there are 4 applications before me:

(1) P’s Summons dated 10 December 2020 for, inter alia, continuation of the Order made by DHCJ MK Liu on 7 December 2020 (respectively, the “Continuation and Discovery Summons”);

(2) P’s Summons also filed on 10 December 2020 for disclosure from DBS Bank Limited, Hong Kong Branch (“DBS Bank”) and Dah Sing Bank, Limited (“Dah Sing Bank”) (“Bankers Books Summons”);

(3) Ds’ Summons filed on 8 March 2021 for fortification (“Fortification Summons”); and

(4) P’s Summons filed on 7 April 2021 for case management directions (“Case Management Summons”).

6. Ms Queenie Lau (together with Ms Natalie So) for the Ds indicated that Ds are willing to continue the Undertaking until the trial of this action and the Sum would remain in Court. Having heard the submissions from Mr Rimsky Yuen SC (together with Mr Jose Maurellet SC, Mr James Man and Mr Keith Chan) for P and some preliminary observations from the Court, Ds also indicated that they are prepared to give further discovery (by D1 and D2) under §2 of the Continuation and Discovery Summons. Further, Ms Lau also helpfully indicated that Ds are neutral on the Bankers Books Summons and the Case Management Summons (in respect of P’s application for a speedy trial). The main battle between P and Ds was on the issue of fortification.

B. P’s CLAIM

7. Extensive submissions were made by the two sides on the merits of P’s claim. Whilst detailed analysis and findings are unnecessary at this stage, they are nevertheless relevant in a number of ways. Briefly stated:

(1) P placed considerable reliance on contemporaneous records of communications (such as WeChat text messages and transcripts of WeChat voice messages) evidencing that D4 (on behalf of D1/D2) falsely represented to P that his Subscription Monies were intended only to be used by D1 to subscribe for New Shares of Ant Group under its intended H share IPO (“Subscription Representation”). It is said that Ds made the Subscription Representation fraudulently, knowing it to be untrue. Further, the Subscription Representation plainly induced P into subscribing for Redeemable Shares in D1 and paying the Sum of Subscription Monies to D1 (on 28-29 October 2020).

(2) P’s primary case is that Ds never intended to and did not in fact use the Subscription Monies to purchase any shares of Ant Group, whether they are New Shares or Old Shares (i.e., pre-existing Ant Group shares prior to the IPO). Instead, Ds used the monies for their own purposes unknown to P or dissipated the same. P runs a secondary case alleging that Ds had always intended to and did in fact purchase Old Shares, rather than subscribe for New Shares, using the Subscription Monies. It is said that on either case, the Subscription Representation was false. Ds never intended to use P’s Subscription Monies to subscribe for New Shares in Ant Group.

(4) In addition, when P sought refund of his Subscription Monies after the suspension of the Ant Group IPO, P was induced into signing certain Redemption Documents (including a Redemption Request Form and Redemption Side Letter) by D3’s representation on 11 November 2020 that, as long as P signed the documents: (i) the Fund would refund HK$230 million of the Subscription Monies to P immediately; (ii) the remainder of the Subscription Monies withheld by the Fund would be refunded to P after Ds had resolved the issue regarding the Old Shares; (iii) no redemption fees would be charged from or payable by P for the aforesaid refunds. (“Redemption Representation”).

(5) The Redemption Representation turned out to be false in that the redemption documents stipulated that a 25% redemption fee would be charged. The representation was made fraudulently (or negligently), in that Ds knew full well – from a meeting between P and D4 on 9 November 2020 where P expressly made the same clear – that P was unwilling to pay any redemption fee for the refund of his Subscription Monies.

8. P placed considerable reliance on WeChat messages and a transcript of a meeting dated 9 November 2020 to evidence the representations made. P’s position is that it has a strong claim even considering that P is alleging, inter alia, that he was defrauded by the Subscription Representation into executing the Subscription Agreement and the corresponding side letter.

9. It is probably fair to say that Ds took issue with almost every aspect of P’s claim. The nature and effect of the representations made are hotly contested. Reliance is also placed on the express terms in various documents signed by P including non-reliance clauses and terms confirming the absolute discretion of the Fund Manager to invest and manage. Considerable reliance is also placed on the Subscription Agreement signed with China Prospect Securities Limited on 3 November 2020 (“China Prospect Agreement”) tosupport the contention that Ds had all along sought to carry out the investment objective of subscribing for Ant Group shares.

10. Despite the detailed submissions made by the parties, I find it unnecessary to form any views on the strength of P’s case. However, it is important to recognize that P has a proprietary claim for the monies paid.

C. FURTHER DISCOVERY AND THE BANKERS BOOKS SUMMONS

C1. Further Discovery by Ds

11. The purpose of the discovery application under §2 of the Continuation and Discovery Summons was to ascertain the whereabouts of the monies paid by P. Evidence was already filed by Ds (Affirmation of D4 – “Sin 1st”) giving a detailed description of the fund flow in respect of the whereabouts of the Sum since it was paid by P. The only criticism by P is to do with a sum equivalent to 5% of the Subscription Monies (HK$16,090,000) deducted as subscription fees and transferred to the HSBC account of D2 and then to the BOC account of Swenson Financial Holdings Group Limited (“Swenson Holdings”). It is said that 2% of the subscription fee (HK$6,436,180) was transferred to a Lau Man Hin (as referral fee) but there is no disclosure or explanation as to the whereabouts of the remaining HK$10,048,695. Mr Yuen SC made it clear that as a result of the Affirmation of D4, P’s application for discovery is limited to this sum.

12. As indicated above, given Ds’ latest position, I make an order in terms of the draft submitted by the parties which is limited to the HK$10,048,695.

C2. Discovery against Dah...

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