Hill Dickinson’s Hong Kong office wins substantial fraud claim against a former director of a PRC company

Acting for a US private equity firm (the ‘investor’), the Hong Kong office of international law firm Hill Dickinson has recently secured a significant judgment from the High Court of Hong Kong for substantial damages (over US$15 million) against a former director of a PRC based security monitoring services provider, China Alarm Holdings Limited (‘CAHL’).

Partners, Damien Laracy and Bryan O’Hare, led the team with assistance from Janice Yik (associate) and Joni Wong (trainee).

The investor commenced the action in 2012, culminating in a two week trial which concluded in March 2016. The High Court handed down its judgment on 24 March 2016. The damages claim against the former director was based on fraudulent misrepresentations contained in a prospectus offer document and related finance documents, pursuant to which the investor was induced to invest US$15 million in CAHL in 2004. The investor subsequently lost the entire investment of US$15 million when CAHL was eventually placed into insolvent liquidation in 2009.

The defendant sought to defend the claim by arguing that the Investor’s funds had been deployed to make substantial contractual payments pursuant to two agreements which CAHL had entered with his personal companies (which the Court accepted were never disclosed to the investor) for the provision of alleged consultancy and management services to CAHL. During the trial, the defendant also unexpectedly admitted for the first time during cross-examination that he had actually used a substantial proportion of the US$15 million to pay ‘Special Consultants’ in the PRC to entertain PRC government officials to try and secure lucrative Government contracts (which never materialised).

The Court held that the defendant had made a series of false representations to the Investor relating to the intended use of capital and the financial expenditure of CAHL and the Investor had been induced to invest US$15 million to CAHL. As such, the defendant was ordered to pay approximately USD15 million damages to the investor together with interest (to be assessed).

Additionally, the Judge commented in the judgment that the solicitors’ preparation of the case for trial was ‘exemplary’ and ‘the proceedings have been an advertisement for civil justice in Hong Kong’.