Ferrari North America, Inc v. Changhon International Energy Co., Ltd and Others
Read the full judgment text of HCA 852/2017 on BabelCite. This High Court CFI judgment was delivered on 25 September 2019.
1. The Plaintiff in these proceedings is the US subsidiary of the well-known Italian car manufacturer, Ferrari SpA. As a result of a fraud perpetrated by individuals impersonating the CFO of the Plaintiff’s parent company, the Plaintiff was induced to make payment of a total sum of US $6.7 million (“ Amount ”), on 28 March 2017, 30 March 2017 and 31 March 2017, into the bank account of the 1 st Defendant maintained with the Standard Chartered Bank Limited (“ Bank ”) in Hong Kong, as part of a b
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HCA 852/2017 [2019] HKCFI 2318 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 852 OF 2017 ____________
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_______________ J U D G M E N T ________________ Background 1.The Plaintiff in these proceedings is the US subsidiary of the well-known Italian car manufacturer, Ferrari SpA. As a result of a fraud perpetrated by individuals impersonating the CFO of the Plaintiff’s parent company, the Plaintiff was induced to make payment of a total sum of US $6.7 million (“Amount”), on 28 March 2017, 30 March 2017 and 31 March 2017, into the bank account of the 1st Defendant maintained with the Standard Chartered Bank Limited (“Bank”) in Hong Kong, as part of a bogus transaction to purchase shares in a listed company on behalf of the Plaintiff’s parent. 2.On 10 April 2017, the Plaintiff obtained a Mareva injunction against the 1st Defendant, whereby it was restrained from disposing of the Amount. On 30 October 2017, judgment in default was entered against the 1st Defendant, which judgment included a declaration that the 1st Defendant holds the Amount on constructive trust for the Plaintiff, as rightful owner. 3.As a result of disclosure orders obtained against the Bank, documents relating to the 1st Defendant’s account with the Bank (“SCB Account”) show that the entire Amount was transferred in several tranches to the bank accounts of the 2nd to 10th Defendants, on the same or the next business day of receipt. Details of the transfers made to the 2nd Defendant, 5th Defendant, 7th Defendant, 8th Defendant, 9th Defendant and 10th Defendant are as follows:
4.Mareva injunctions were granted by the Court on 24 April 2017, restraining the 2nd to 10th Defendants from dissipating the sums transferred into their accounts from the SCB Account of the 1st Defendant. The injunctions against the 2nd, 8th and 10th Defendants were discharged upon their payment of the respective amounts received into court. 5.Default judgments were subsequently obtained against the 4th, 6th, and 11th to 14th Defendants. Summary judgment was also obtained against the 3rd Defendant, for the amounts transferred into these defendants’ accounts. 6.The Plaintiff by summonses issued on 10 January 2018 seeks summary judgment against the 2nd, 5th, and 7th to 10th Defendants. The claims made by the Plaintiff are for money had and received, and unjust enrichment. 7.The grounds of defence relied upon by the Defendants are that they had altered their position on the faith of the payments received by them, and/or that they are bona fide purchasers for value without notice, such that it would be unjust to require their repayment to the Plaintiff of the sums received by them. The 9th Defendant also claims that the money it had received had been mixed with its own monies. 8.What is not disputed is that each of these Defendants is a trader in frozen meat. The Plaintiff does not allege that these Defendants are parties to the underlying fraud perpetrated on the Plaintiff. It maintains however that none of the Defendants have demonstrated that there are any triable issues of fact or law raised in their purported defences, and summary judgment should be entered against them. Applicable legal principles 9.As explained in Zimmer Sweden AB v KPN Hong Kong Ltd [2016] 1 HKLRD 1016, since the claims against the targeted Defendants do not constitute any allegation of fraud against them, the fraud exception to Order 14 does not apply. 10.The principles applying to applications for summary judgement are trite, and will not be set out here. 11.As for claims of restitution on the basis of unjust enrichment, the applicable principles are summarised in the case of Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548:
12.In Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd [2004] HKCFA 21, the Court of Final Appeal set out the appropriate test in unjust enrichment cases as follows:
The Plaintiff’s case 13.The Plaintiff has shown that the Amount had been paid from its bank account to the 1st Defendant, and had been paid out from the 1st Defendant’s SCB Account to the accounts of the 2nd, 5th, 7th, 8th, 9th and 10th Defendants. The 1st Defendant has already been adjudged to hold the Amount as constructive trustee for the Plaintiff. In opposition to the Plaintiff’s application for summary judgment, the onus is on each of the Defendants to show that it has reasonable grounds for an arguable defence, and not merely to assert such, but to condescend to particulars to show that its assertions are credible. The case against the 2nd Defendant 14.On 29 March 2017, US $957,968 (after deduction of bank charges) was transferred from the Plaintiff’s bank account into the SCB Account of the 1st Defendant as a result of the fraud. On the next day, the sum of US $236,885 was transferred from the SCB Account into the 2nd Defendant’s bank account (2nd Sum). 15.The 2nd Defendant claims that it had been trading in frozen meat parts for over 10 years. It acted as an agent of overseas frozen food suppliers, as the receiver/consignee of frozen meat shipped to Hong Kong for sale here. The 2nd defendant charges agency and incidental fees for these services. 16.In the course of its business, the 2nd Defendant would bill the purchaser of the frozen meat, acting on behalf of the supplier. Upon receipt of the purchase price, the 2nd Defendant would transfer the amount to the overseas supplier, adding agency and other fees to the transaction costs. 17.According to the Defence of the 2nd Defendant, it was instructed by its supplier in early March 2017 that frozen meats would be shipped to Hong Kong, for sale to a purchaser. An invoice was issued by the 2nd Defendant to the purchaser, and upon the purchaser’s settlement on 30 March 2017 of a sum of US $236,877.27, after deduction of bank charges, the 2nd Defendant transferred the amount received to its supplier on 31 March 2017. 18.The 2nd Defendant claims that it had received the money as agent for its supplier in the course of its business, without notice of any fraud, and had transferred the money received in good faith, so as to have detrimentally changed its position. 19.As the Plaintiff highlighted, the Defence of the 2nd Defendant contains bare denials and assertions, and it has produced no documentary evidence at all in support of the claims made in the Defence. The 2nd Defendant has not identified its principal/supplier, nor the purchaser of the products for which payment was allegedly made. The 2nd Sum received by the 2nd Defendant, and the amount the 2nd Defendant claims it had transferred to its supplier on 31 March 2017 (US $351,129), a day after receipt of the 2nd Sum, do not tally. The 2nd Defendant admits that it had no previous connection or dealings with the 1st Defendant, from which the 2nd Sum was remitted into its account. No purchase orders, invoices, or remittance instructions have been produced to evidence the 2nd Defendant’s bare assertions of payment, and dealings. 20.The 2nd Defendant has not claimed and has not produced evidence to show what happened to the frozen meat which was to be sold and for which the payment was alleged to have been made. On its pleaded case, the 2nd Defendant was contractually bound to pay to its supplier the US $351,129 in the usual and ordinary course of its business as agent for the supplier. It also has the contractual right to seek or recover payment from the buyer, and alternatively, to sell the frozen meat to an alternative customer for payment to the supplier, if the meat had not been delivered. 21.As the court held in Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 at p 580F-G, for a claim of change of position:
22.To establish a change of position defence, a defendant must show that as a result of the receipt of money, it has incurred “extraordinary expenditure”. As the editors of Goff & Jones: The Law of Unjust Enrichment (9th Ed) observed at para 27-08:
23.On the 2nd Defendant’s case, there is nothing to show that it would not have made the payment to its supplier in the usual course of its business, but for its receipt of the 2nd Sum from the 1st Defendant. 24.I also accept the Plaintiff’s submissions, that in circumstances where the 2nd Defendant knew that the 2nd Sum was not paid by its buyer, but by a party with which it had no previous connection, it had not changed its position in good faith. 25.In all the circumstances as described above, the 2nd Defendant cannot rely on any defence that it would be inequitable to require it to make repayment of the 2nd Sum to the Plaintiff, when it has legal remedies against the purchaser of the meat products (Laerdal Medical Limited v Hong Kong Haocheng International Trade Limited HCA 2193/2016, 21 June 2017). 26.There is no arguable defence of ministerial receipt. The 1st Defendant is not the 2nd Defendant’s buyer (as the 2nd Defendant admits), nor is the 1st Defendant the buyer of meat supplied by the Defendant’s principal/supplier. The money received by the 2nd Defendant from the 1st Defendant falls outside any principal and agent arrangement that may exist between the 2nd Defendant and its unidentified supplier. 27.The 2nd Defendant has failed to show that there is any triable issue or reason for trial, and the Plaintiff is entitled to summary judgment against the 2nd Defendant. The case against the 5th, 8th, and 10th Defendants 28.The pleaded cases of these Defendants are substantially identical. They claim that they had purchased frozen meat products in bulk from overseas suppliers, at times which range from February to March 2019, and sold them to unidentified buyers in Hong Kong. For the 10th Defendant, it claims that it had first been approached by an unidentified buyer which expressed interest in the purchase of frozen meat, whereupon the 10th Defendant ordered the products from an unidentified supplier for shipment to Hong Kong. The Defendants all claim that their respective buyers then paid for the products, and upon receipt of the purchase price from their buyers, the products were released to the buyers, and without notice of any fraud or knowledge of the Plaintiff’s claim, the Defendants had changed their position by contracting to purchase further frozen meat products, for sale in the usual and ordinary course of their business. 29.As such, the Defendants claim that they had bona fide supplied valuable consideration for the monies received from the 1st Defendant, and had detrimentally changed their position in reliance on the receipt. 30.As in the case of the 2nd Defendant, the 5th, 8th, and 10th Defendants have not condescended to any particulars in relation to their alleged purchases and sales of the products, for which they claim they had received the monies as purchase price. Apart from the 5th Defendant’s assertion that it had ordered the frozen products from a company named Ess Food, there are no particulars of the alleged suppliers from which the Defendants bought, or of the buyers to which the Defendants sold, the products in question. No documents have been produced in support of the transactions relied upon, to establish the causal link between the Defendants’ receipt of the money from the 1st Defendant, and its payment to suppliers by way of alleged change of position. As the Plaintiff argued, the payments alleged to have been made by the 5th, 8th and 10th Defendants were payments in the usual course of their business of buying and selling frozen meat products. They have not established by any evidence that but for the receipt of the sums paid into their accounts, they would not have placed the further orders for the frozen products. 31.In any event, each of the 5th, 8th and 10th defendants has a legitimate cause of action and right to pursue its respective purchaser for the price properly due in respect of the products sold and delivered to them on the strength of the monies received - not from the buyers but from the 1st Defendant. 32.On the pleaded case of the 5th, 8th and 10th Defendants, I do not accept that it has been shown that there is any triable issue for an arguable defence of detrimental change of position, such that it would be inequitable to require these Defendants to make restitution to the Plaintiff. 33.As for the defence of the 5th, 8th and 10th Defendants being bona fide purchasers for value, the Court explained in Shanghai Tongji Science & Technology Industrial Co Ltd (2004) 7 HKCFAR that it is critical to identify and correctly characterize the transaction providing the basis for the enrichment, for the purposes of identifying the relevant consideration or anticipated performance, and ascertaining whether it had totally failed. The 5th, 8th and 10th Defendants have not been able to show by credible evidence that there was a transaction, or any business dealings or connection whatsoever, between them and the 1st Defendant - from which the money had been received, and for which the Defendants had provided consideration. The case against the 7th Defendant 34.The case of the 7th Defendant is more substantial in terms of the evidence adduced. 35.The 7th Defendant is one of the largest importers of frozen meat products in Hong Kong, its customer base consisting of wholesalers, retailers, hotels, airlines, supermarkets, department store chains, fast food chains, sports clubs, food factories, restaurants and cafés. One of its customers is Mr Mu Wenshu (“MW”), the sole proprietor of a frozen meat business on the Mainland, trading under the name of Uwealth Trading Limited (“UT”). 36.The 7th Defendant claims that the sum of US $221,115 paid into its account with Bank of China on 29 March 2017 (“7th Sum”) was received by it as payment for the price of frozen products it had sold to UT. In support, the 7th Defendant claims that it had purchased frozen meat products from a supplier, JBS SA of Brazil (“JBS”), by a purchase order dated 13 December 2016, and from another supplier, Offal Esp SA of Argentina (“Offal”), by a purchase order dated 29 December 2016. In December 2016, the 7th Defendant’s salesperson contacted UT, which approach led to orders being placed by UT with the 7th Defendant for the purchase of frozen meat products on 2 occasions, as evidenced by 2 invoices issued by the 7th Defendant to UT. The first was invoice No P 530967 for US $100,748.42 in respect of the products sourced from JBS. The second was invoice No 531118 for US $120,150 in respect of the products sourced from Offal, the total amount being US $220,898.42. Offal issued an invoice dated 26 February 2017 in respect of the products sold and shipped to the 7th Defendant, in the sum of US $113,400, and JBS issued an invoice dated 28 February 2017 in respect of the products sold and shipped to the 7th Defendant, in the sum of US $97,850.78. 37.The Plaintiff has highlighted the fact that the invoices issued by JBS and Offal, for US $211,250 in total, do not tally with the invoices issued by the 7th Defendant to UT, which were for US $220,898.42. 38.The Plaintiff further pointed out that in respect of the invoices issued by the 7th Defendant, apart from the name of UT, there were no other stated details of the purchaser, such as its address, telephone or fax number. Even the name, address and contact details of the 7th Defendant are conspicuously absent in the purported invoices. 39.The 7th Defendant claims that it had made payment to both JBS and Offal for the products purchased. However, the evidence of the 7th Defendant’s payment shows that the amounts paid do not tally with the amounts stated in the relevant invoices of JBS and Offal. The 7th Defendant sought to explain that the payments include deposits for other products purchased from JBS. This may not be unusual, in the case of consistent dealings between trading companies. However, the explanation offered by the 7th Defendant, that part of the difference represents bank charges of US $215.69 in respect of remittances, is not entirely credible, when other documents show that the fees charged by the bank were only US $1.9. 40.The 7th Defendant cannot dispute that the 7th Sum was received from the 1st Defendant, and not UT which it claims was the purchaser of the products. The 7th Defendant, and MW who gave evidence on the 7th Defendant’s behalf, both admit that they did not know the 1st Defendant, and had no direct dealings with the 7th Defendant. The 7th Defendant had no knowledge why the 7th Sum was remitted to its account by the 1st Defendant. 41.However, the 7th Defendant claims that in the course of its dealings, it had received payments from entities which were not its customers, on at least 9 other separate occasions. 42.The Plaintiff argued that the 7th Defendant had no basis to claim that the windfall it had received from the 1st Defendant, a complete stranger, was in fact received as allegedly rightful payment for the 7th Defendant’s sale of frozen meat products to UT. According to the Plaintiff, there is no evidence to show any link between the 7th Sum paid into the 7th Defendant’s account, and the purported payment claimed to have been made by UT, the alleged buyer of products from the 7th Defendant. 43.According to the evidence of MW, adduced for the 7th Defendant, MW had made inquiries with regard to the arrangements for the deposit of the 7th Sum into 7th Defendant’s account. In short, MW claims that due to exchange controls on the Mainland, UT had to pay RMB to remittance and currency exchange agents on the Mainland, and these agents would arrange for US dollars to be paid into the 7th Defendant’s bank account in Hong Kong. Foreign exchange agents would give MW confirmation of such remittance, MW would inform the 7th Defendant of the remittance of the purchase price into its bank account, and after checking that the funds had been received in its bank account, the 7th Defendant would release the relevant documents to UT, to enable UT to collect the products at the container terminal. 44.There is no evidence of any direct payment by UT to the 7th Defendant. However, there is some evidence of arrangements having been made by MW through an intermediary, Mr Ma (“Ma”), and instructions by MW to Ma to remit US $221,115 to the 7th Defendant, and instructions by Ma to MW to pay RMB into the account of one Mr Chen (“Chen”). According to MW, the confirmation he received from Ma showed that the US dollar amount had been paid by the 1st Defendant into the account of the 7th Defendant on 30 March 2017, but he had no idea of the identity of the 1st Defendant, nor had Ma ever mentioned the role and name of the 1st Defendant to him. 45.After the commencement of these proceedings, MW had made further inquiries and discovered that Ma was in fact another intermediary, that the remittance of the US dollar amount had been arranged through Ma’s contact, XJ, and that XJ had in turn received the US remittance confirmation from his contact, AC. Ma did not know, and did not directly deal with, the 1st Defendant. The Plaintiff highlighted the fact that no affidavit evidence has been adduced by Ma, or the other intermediaries, to corroborate the 7th Defendant’s case as pleaded. Nevertheless, there is evidence that MW, as purchaser, gave instructions for the payment of a sum, largely representing the price, into the specified account of the 7th Defendant, the vendor. 46.I bear in mind indications made by the court, that the mere use of and resort to “underground banking systems” is not sufficient to find guilt, or lack of good faith (eg Arrow ECS Norway AS v Xin Cheng Holdings (International) Company Limited HCA 239/2016, 12 May 2016). It has to be proved that the recipient knew or had reason to believe that the money received had an illicit source. 47.On the evidence as available, I accept that there is no direct relationship between the 7th Defendant’s receipt of the 7th Sum and its payment to its suppliers. 48.Yet, I accept that the defence of change of position in good faith to a claim in restitution is fact sensitive, as the Court of Appeal indicated in paragraph 20 of its judgment in Liu Ke Mian Lorraine v De Xin Da Trading Co Ltd HCMP 1481/2016, 30 September 2016. In relation to the 7th Defendant in this case, it cannot be said that there is a total absence of evidence to show that UT had arranged for payment to be made to the 7th Defendant, in respect of the products purchased by UT from the 7th Defendant. The 7th Defendant’s case is that as one of the largest importers of frozen meat in Hong Kong, it deals with voluminous transactions on a daily basis, and it is not possible, and not its usual practice, to verify the details of each and every transferor for each transaction. This is not incredible. On receipt of payment from its customers, it would utilize the proceeds of sale to pay its own suppliers. The 7th Defendant claims that in reliance on the receipt of funds from UT, it had made payment to other overseas suppliers, in the usual and ordinary course of its business, between 30 March 2017 and 5 April 2017, in a total sum exceeding US $2.6 million. 49.Whilst the evidence produced by the 7th Defendant may not be perfect or complete at this stage, I accept that what the 7th Defendant has produced may show an arguable defence of change in position in good faith. The facts as to the causal connection between the receipt of payment from UT and the payment to the overseas suppliers will have to be further tested after discovery and by cross-examination at trial, but I am prepared to give the 7th Defendant leave to defend for this to be tried. 50.Whether or not the 7th Defendant’s use of funds received from unknown sources constitutes turning a blind eye, and lack of good faith, also depends on further factual evidence to be adduced and determined at trial. The case against the 9th Defendant 51.On 31 March 2017, US $1,941,968 was transferred from the Plaintiff’s bank account into the SCB Account of the 1st Defendant as a result of the fraud. On the next day, the sum of US $547,152 was transferred from the SCB Account of the 1st Defendant into the 9th Defendant’s two bank accounts (9th Sum). 52.The 9th Defendant claims that it was acting at the material time as agent for one Mr Yung on the Mainland (“Yung”), who would purchase frozen meat from various suppliers in Brazil, for shipment to Hong Kong and then to the Mainland. The 9th Defendant pleads that it acted as Yung’s agent in making payment to the suppliers, completing the relevant paperwork for import of the products into Hong Kong, and transporting the products on Yung’s instructions. 53.The pleaded case of the 9th Defendant is that the 9th Sum was received in its bank account on 31 March 2017. The 9th Defendant was informed by Yung’s staff that the 9th Sum had been deposited, and on 3 April 2017, it was instructed to make payment to Yung’s suppliers with the money deposited. Payment was made by the 9 Defendant on 3 April 2017, in 5 tranches. The 9th Defendant claims that it was a bona fide recipient of the 9th Sum, and that it had changed its position by paying out the 9th Sum to the suppliers, which it would not have done but for the receipt of the money and the instructions from Yung. 54.I accept the submissions made on behalf of the Plaintiff, that there are contradictions and inconsistencies in the pleaded case and the evidence produced by the 9th Defendant. Although the 9th Defendant’s plea in its defence is that “Yung would purchase frozen meat products from suppliers” in Brazil, and that the 9th Defendant was acting as its agent, the documents produced show that the orders with the suppliers were all placed by the 9th Defendant. On the face of the documents, the 9th Defendant is itself the purchaser of the products and the party contractually bound to pay the suppliers, and there is no further evidence from the 9th Defendant to explain the anomaly. 55.There is in fact no evidence at all to coorborate the 9th Defendant’s assertion of the existence of Yung as its principal. The messages on deposits made into the 9th Defendant’s bank account were all from one Fong, and not Yung. 56.As highlighted by the Plaintiff, there is no correlation between the 9th Sum received by the 9th Defendant from the 1st Defendant, and the total sum of US $578,554.16 said to have been transferred by the 9th Defendant to the suppliers in Brazil. This transfer was made in 5 tranches, and there is no apparent reason for the 9th Defendant to make the last transfer of US $10,000, when the total of the first 4 tranches (US $568,554.16) already exceeds the 9th Sum received by the 9th Defendant, for the purported purpose of settling the price of the products sold to Yung. 57.There is no credible evidence of any causal connection between the receipt of the windfall from the 1st Defendant, and the 9th Defendant’s subsequent payment to the Brazilian suppliers, or that the payment to the suppliers would not have been made by the 9th Defendant in the ordinary and usual course of its business, either as agent of Yung as the 9th Defendant alleges, or as purchaser of the products, as the documents show. 58.On the 9th Defendant’s own evidence, the 9th Sum was also used to pay the salary of its employee. Such payment is expenditure in the ordinary and usual course of the 9th Defendant’s business, and cannot credibly be said to have been made only because of the receipt of the 9th Sum. 59.There is no explanation or evidence as to whether the frozen meat products had been received, or delivered to Yung. In any event, I accept the submissions of the Plaintiff that the 9th Defendant clearly has recourse against Yung for payment. 60.The 9th Defendant has not in any way condescended to particulars or provided any evidence of its assertion that the 9th Sum had been mixed with its own funds. 61.In all the circumstances, the 9th Defendant has not shown that there is any triable issue for any arguable defence, and summary judgment should be entered against it. Disposition 62.For all the foregoing reasons, summary judgment as sought is entered against the 2nd, 5th, 8th, 9th and 10th Defendants, in terms of the Order 14 Summonses, with interest at judgment rate from date of Writ to date of payment. 63.Leave is granted to the 7th Defendant to defend the Plaintiff’s claims, with costs in the cause. The Plaintiff and the 7th Defendant should submit within 14 days agreed directions for the further conduct of the action.
Mr Sebastian Hughes, instructed by Munros, for the plaintiff Mr Leon Tang, instructed by Patrick Mak & Tse, for the 2nd, 5th, 8th & 10th defendants Mr Norman Nip and Ms Kelly Shum, instructed by Keith Lam Lau & Chan, for the 7th defendant The 9th defendant did not appear | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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