Introduction

In a landmark judgment delivered on 16 January 2026, the Court of First Instance (China Medical Technologies, Inc (in liq) v Wu Xiaodong & Ors [2026] HKCFI 276) ruled on a sophisticated fraud that saw US$521.8 million misappropriated from a NASDAQ‑listed medical technology company. The decision provides authoritative guidance on the knowledge requirement for dishonest assistance and the postponement of limitation periods in fraud cases.

Background

The 1^st Plaintiff, China Medical Technologies, Inc (“CMED”), was a Cayman Islands company that raised US$631 million between 2005 and 2010 through public offerings and convertible notes. After CMED collapsed and was wound up in 2012, its liquidators discovered that US$521.8 million had been stolen through two sham transactions: the FISH Transaction (acquisition of Fluorescent In‑Situ Hybridisation technology for US$176.8 million) and the SPR Transaction (acquisition of Surface Plasmon Resonance technology for US$345 million).

The transactions were presented to CMED’s board as genuine arm’s‑length deals. In reality, they were undisclosed related‑party transactions at a gross overvalue. Expert evidence showed the FISH Technology was worth only US$3 million and the SPR Technology only US$5 million. The funds were laundered through a web of BVI and Hong Kong companies controlled by the defendants.

Key issues

Knowledge required for dishonest assistance

The 6th Defendant  argued that a defendant must have actual knowledge of the underlying breach of trust before he can be liable for dishonest assistance of the fraud, relying on Clark Quantum Kent v Hai Tin Ltd [2021] HKCA 1846. The Court rejected this, holding that the Court of Appeal’s observations in that case merely meant that “dishonesty must relate to the assistance of the breach,” which do not impose a minimum knowledge requirement.

Applying the two‑stage test from Ivey v Genting Casinos [2018] AC 391, the Court first ascertained the defendant’s actual state of knowledge (subjectively), then asked whether his conduct was dishonest by the objective standards of ordinary decent people. The Court noted with approval the English Court of Appeal’s view in Group Seven Ltd v Nasir [2020] Ch 129 that “the simplicity of the two‑stage test for dishonesty should not be complicated by the introduction, as a matter of law, of a minimum content of knowledge”. Accordingly, the 6^th Defendant and the other two Defendants were all found liable for dishonest assistance even though they did not have full knowledge of the primary breach.

Limitation periods (time bar) in fraud cases

Directors’ fraudulent breaches of trust: Under s.20(1)(a) of the Limitation Ordinance (Cap 347) (“LO”), no limitation period applies to “fraud or fraudulent breach of trust to which the trustee was party or privy”. Following Burnden Holdings v Fielding [2018] AC 857, a director’s breach of fiduciary duty involving misappropriation is treated as a breach of trust. In this case, the Court held that Mr Tsang (the 2nd Defendant) was such a trustee, so the usual 6‑year limitation period did not apply to the claims against him.

Postponement of limitation periods for claims “based upon fraud”: Under s.26(1)(a) of LO, an action is based upon the defendant’s fraud if fraud is a “necessary allegation” to constitute the cause of action (Beaman v ARTS Ltd [1949] 1 KB 550). The Court held that the claims for unlawful means conspiracy, dishonest assistance and knowing receipt were all based on the defendants’ fraud, but the claim for unjust enrichment was not, because dishonesty had no material relevance to its elements. Crucially, the burden was on the plaintiffs to prove they could not have discovered the fraud with reasonable diligence. The Court accepted that the liquidators could not reasonably have done so before December 2013, when they obtained banking documents revealing that CMED’s CFO was the sole signatory of the counterparty’s account.

Deliberate concealment: Under s.26(1)(b) of LO, “concealment” includes both active steps and non‑disclosure (Potter v Canada Square Operations Ltd [2024] AC 679). The Court inferred deliberate concealment from the 5^th Defendant’s active involvement in forging signatures and from the 13^th Defendant’s persistently unreliable evidence.

Takeaways

The judgment confirms that dishonest assistance does not require proof that the defendant knew the precise details of the breach – it is enough that the defendant’s conduct falls below ordinary standards of honest dealing.

Meanwhile, limitation defences are of limited value in fraud cases. S.20(1)(a) of LO removes the limitation period entirely for fraudulent breaches by directors, while ss.26(1)(a) and (b) postpone the start of the limitation period until the fraud could reasonably have been discovered. Critically, a company in liquidation is not treated as if it were still trading – the court will take a pragmatic view of what investigations could reasonably have been conducted given the obstacles placed by former management.

For practitioners, when pleading dishonest assistance or knowing receipt, it is essential to set out a holistic case. Individual facts may be consistent with innocence, but the cumulative weight of suspicious circumstances can justify an inference of dishonesty. In fraud cases, always consider whether s.20(1)(a) (no limitation) or s.26 (postponement) of LO applies, and gather evidence of when the fraud was or could reasonably have been discovered.