Prove it – Cogent evidence required to support allegations of fraudulent misrepresentation and conspiracy
The recent judgment in the Hong Kong case, Industrial Bank Co., Ltd v Rich Crown International Industries Limited & Others [2022] HKCFI 81, confirms the high evidential threshold for fraud claims.
The Plaintiff Bank (the Bank) commenced proceedings against the Defendants for outstanding payments owed under a loan facility of HK$800 million. The First Defendant was the borrower, while the Second and Third Defendants were guarantors of the loan.
The Defendants alleged that the Bank introduced a project in Malaysia to the borrower that acted as a pretext to induce the borrower into taking out the loan; the project was a sham, and a business partner of the Second Defendant (the Business Partner) misappropriated the loan proceeds. The Bank argued, amongst other things, that the Malaysian project was never a project of the Bank and, furthermore, the facility agreement expressly provided that it had no duty to monitor the use of the loan proceeds advanced.
The Bank applied for summary judgment, and the Defendants resisted the application on the grounds that (amongst others):
- The Business Partner induced the borrower into taking out the loan by fraudulent misrepresentation, and the Bank knew or ought to have known of the same.
- The Bank conspired with the Business Partner and/or his corporate vehicle to induce the borrower to take out the loan where the proceeds were to be misappropriated by the Business Partner or his corporate vehicle instead of being applied towards the Malaysia project.
The Hong Kong Court rejected the Defendants’ arguments and granted summary judgment in favour of the Bank.
Regarding the Defendants’ allegations of fraudulent misrepresentation and conspiracy, the Court stressed that allegations of fraud must be supported by cogent evidence. Accordingly, parties pleading fraud are expected to ensure a proper basis and credible material to support such a claim. In this case, the alleged misrepresentation and purported knowledge of the Bank were not particularised, and the Defendants did not provide any evidence to show that the Bank knew that the Malaysian project was a sham or that the Business Partner would misappropriate the loan proceeds.
In the BVI (as is the same in Hong Kong), the standard of proof for commercial claims is the same as for all other civil suits; the parties must prove their case on a balance of probabilities. The burden of proof in a commercial fraud claim is the same as for civil claims, but, as in line with this Hong Kong case, the cogency of the evidence must be sufficient and proportionate with the gravity of the allegation.
