Read the full judgment text of HCA 239/2016 on BabelCite. This Court of First Instance judgment was delivered on 7 May 2018 before Chow J.
Civil law – restitution – money had and received – unjust enrichment – change of position defence – illegality – Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (Cap 615) – unlicensed money service operators – customer due diligence – summary judgment – fraud-induced bank transfers. Plaintiff Norwegian company induced by impersonation fraud to transfer US$23,395,000 to 2nd Defendant's bank account – US$17,423,000 not recalled and US$4,188,175 transferred to accounts of 5th, 10th, 11th, 13th, 14th and 15th Defendants (Second Level Recipients) – Second Level Recipients admitted receipt but raised defence of change of position – whether illegality precludes reliance on defence of change of position – whether there was causal link between receipt and change of position – whether Second Level Recipients acted in good faith. Held (Chow J): Following Barros Mattos Junior v MacDaniels Ltd [2005] 1 WLR 247, an innocent recipient cannot rely on a change of position that is itself illegal; the court has no discretion to balance the equities and the illegality may only be ignored on the de minimis principle. The decision in Barros Mattos Junior is founded on Tinsley v Milligan [1994] 1 AC 340, which remains binding on the Court of First Instance; any reconsideration in light of Patel v Mirza [2017] AC 467 can only be undertaken by higher courts. The 5th, 11th and 15th Defendants operated unlicensed money service businesses contrary to Part 5 of Division 2 of Cap 615. The 10th, 13th and 14th Defendants permitted Silver Fast, a licensed operator, to use their accounts without any customer due diligence, breaching paragraphs 2, 3, 8, 9 and 13 of Schedule 2 to Cap 615. These breaches were not de minimis, being precisely the type of measures designed to prevent rapid successive transfers of fraud proceeds. The 11th and 15th Defendants also failed to produce sufficient evidence of a causal link. The Second Level Recipients did not act in good faith, as they failed to act in a commercially acceptable way. Summary judgment entered for the Plaintiff with pre-judgment interest at prime rate plus 1% per annum and post-judgment interest under Section 49 of the High Court Ordinance, plus costs of the application on a party-and-party basis with certificate for one counsel.
Legal issues: Whether illegality precludes the defence of change of position · Whether there was a causal link between receipt and change of position · Whether the Second Level Recipients acted in good faith
Outcome: Summary judgment for the Plaintiff against the 5th, 10th, 11th, 13th, 14th and 15th Defendants in terms of paragraphs 1(a) and (e), 2(a) and (e), 3(a) and (e), 4(a) and (e), 5(a) and (e), and 6(a) and (e) of the Plaintiff's summons dated 8 February 2018. The defence of change of position is not available to the Second Level Recipients due to illegality, absence of causal link (in the case of the 11th and 15th Defendants) and absence of good faith.
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