HONG KONG SAR, CHINA Law and Practice Contributed by: George Lamplough, Vanessa Cheng and Curtis Pak, Holman Fenwick Willan
(The Yerrid Law firm v Qianshaizi Trading Limited and Another [2023] HKCA 788). It is not uncommon for victims to encounter an evidential lacuna which prevents them from directly linking payments received by first-level recipients to funds received by second- or third- level recipients. In appropriate circumstances, the courts may draw adverse inferences from the failure by defendants to produce documents and/or witnesses, which they can reasonably be expected to produce, in relation to the victim’s tracing exercise (ANZ Commodity Trading Pty Ltd v Excellence Raise Overseas Limited and Others [2023] HKCFI 179 – in which Holman Fenwick Willan acted for the successful bank). Professional Service Providers Professionals engaged to carry out services such as maintaining accounts, conducting audits or calculating tax liabilities may unwittingly facili - tate a fraud. They may find themselves exposed to tortious claims such as negligence and breach In general, the limitation period in Hong Kong for causes of action in both tort and contract (except contracts under seal) is six years from the date on which the cause of action accrued (Section 4 Limitation Ordinance (Cap 347) (LO)). Where fraud, mistake or concealment has occurred, the limitation period does not begin until the fraud, mistake or concealment is dis - covered, or could have been discovered with reasonable diligence (Section 26(1) LO). However, it is still important to act quickly when fraud is discovered. Hong Kong law prevents a victim of fraud from recovering property, enforc - ing a charge or setting aside a transaction affect - of professional standards. 1.4 Limitation Periods
ing such property where an innocent third party purchased the property for valuable considera - tion (Section 26(4) LO). At the opposite end of the spectrum, there is no limitation period for a beneficiary to bring an action in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy, or to recover trust property or proceeds from the trustee (Section 20 LO). However, the Court of Final Appeal has recently clarified that “constructive trustees” whose trusteeship arose solely as a result of their wrongful conduct (for example making a secret and unauthorised profit) would fall outside of the scope of Section 20(1) LO (Hui Chun Ping v Hui Kau Mo [2024] HKCFA 32). However, the equitable doctrine of laches (lack of diligence in making a legal claim) may apply and bar such claims. 1.5 Proprietary Claims Against Property To recover property that has passed from hand to hand, victims must first identify and locate the property and prove that it belongs to them. Victims may be able to trace their funds into the property and thus claim a proprietary interest. The tracing rules developed by the English courts and applied in Hong Kong will determine whether the victims can claim a proprietary inter - est in the property. Proprietary claims are power - ful because they take priority over the claims of other creditors. Tracing in Equity: The Subordination Principle Where the proceeds of fraud are mixed with other funds, victims must use the tracing rules and the principles of subordination to identify their property. Broadly speaking, the subordina - tion principle holds that, as between the victim and the wrongdoer, the equities are unequal
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