R Stahl Inc (A Company Incorporated in the United States of America) v. Aj Development Ltd

CACV 163/2020

[2021] HKCA 1093

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 163 OF 2020

(ON APPEAL FROM HCA NO 1412 OF 2019)

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J U D G M E N T

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Hon G Lam JA (giving the Judgment of the Court):

Introduction

1.The plaintiff claims against the defendant as recipient of money that the plaintiff allegedly transferred to a bank in Hong Kong for the defendant’s account as a result of a fraud practised on the plaintiff.  The defendant says the bank account credited with the money does not belong to it but has been fraudulently opened and operated by third parties.  The judge below refused to grant summary judgment on the ground that Order 14 of the Rules of the High Court (Cap 4A) was excluded by the “fraud exception” in rule 1(2)(b), but entered judgment on admissions in relation to the funds remaining in the account.  The defendant now appeals against the judgment on admissions, and the plaintiff cross‑appeals against the refusal of summary judgment.

Background

2.The plaintiff is a company incorporated in the United States.  The defendant is a Hong Kong company.  The plaintiff’s case is that on 26 July 2019, Mrs Weishaar, its Controller, received a call from someone impersonating Dr Hallmann, the Chief Executive Officer of the plaintiff’s German parent company, as well as emails purporting to be from an attorney called Mr Miller, giving her instructions to arrange a payment of US$662,970, with the beneficiary bank being Standard Chartered Bank (“Bank”) in Hong Kong, the beneficiary name being “AJ Development Limited”, and the beneficiary account number being a specified number (“Account”).  Believing these instructions to be genuine and to be for the purpose of a confidential business acquisition, she caused the plaintiff to wire the sum of US$662,970 through its bank, Bank of America, on that day, through SWIFT, to the Bank for the Account.  Mrs Weishaar discovered the fraud that evening and made a report to Bank of America, the local US police, the US Federal Bureau of Investigation and the Hong Kong Police, but was unable to stop the remittance.

3.The plaintiff instituted the action below on 2 August 2019 and obtained on the next day a Mareva injunction against the defendant as well as an order requiring the defendant to disclose its assets.  The monthly transaction record dated 31 July 2019 since disclosed by the Bank shows:

(1)     the Account had a pre‑existing credit balance of US$0.85;

(2)     the sum of US$662,925.69 (which appears to be US$662,970 less bank charges) was remitted from the plaintiff and credited to the Account on 29 July 2019;

(3)     immediately thereafter on the same date, two sums of US$100,000 and US$110,000 respectively were transferred out from the Account; there is no evidence before us on the destination of the transfers; and

(4)     after interest in the amount of US$9.43 was credited on 31 July 2019, the balance was US$452,935.97.

4.In its statement of claim filed on 12 November 2019, the plaintiff pleads as follows:

(1)     The fraudster who called Mrs Weishaar and sent her the emails made false representations to the plaintiff known to the fraudster to be false.

(2)     Induced thereby, the plaintiff remitted US$662,970 to the Account in the mistaken belief that it was for a business acquisition, which the plaintiff later discovered never existed.

(3)     The payment was not made for good consideration whether provided to the plaintiff or anyone else on its behalf.

(4)     The plaintiff is entitled to restitution of the payment received by the defendant who has been unjustly enriched.  It would be unconscionable for the defendant to retain such enrichment.

(5)     In paragraph 16:

“ Further or alternatively, the Mistaken Payment was obtained by deceit and fraudulent misrepresentation as pleaded … and was received by the Defendant … on constructive trust, imposed by equity on the Defendant for the benefit of the Plaintiff, such property being recoverable and traceable in equity. …”

5.The defendant’s case put forward in the first affirmation of its sole director and shareholder, Ms Zhong Airong (“Zhong”), is as follows.  The defendant was incorporated on 22 November 2018 through an accountants’ firm INNO CPA Ltd (“INNO”).  In December 2018, the defendant instructed INNO to help it open a bank account.  The defendant paid INNO a fee of HK$14,000 for the service, as evidenced by INNO’s debit note and a bank deposit slip.  The requisite documents were accordingly submitted to the Bank and on about 13 December 2018 Zhong attended its Kwun Tong branch and signed the necessary forms.  Zhong enquired after three weeks but was told that the account was not ready.  About eight weeks after signing the documents, upon learning that the account was still not ready, Zhong told INNO that she did not wish to proceed with the application with the Bank, and INNO consequently refunded her the fees charged.  As evidence she produced her bank statement showing a cheque deposit of HK$14,000 on 1 March 2019. 

6.Zhong thought that no account was opened with the Bank.  The defendant had not yet started trading, and had never received any document such as bank statements from the Bank.  It was only after the court documents in the plaintiff’s action were served on the defendant that Zhong approached the Bank in August 2019 and found, to her surprise, that the defendant apparently had an account there with the balance of over US$400,000 after two withdrawals totalling over US$200,000.  Zhong said that she had no knowledge of who transferred the funds to the Account and that the funds did not belong to the defendant. 

7.Further, after the account opening documents were disclosed by the Bank in the proceedings, Zhong in her third affirmation pointed to certain alleged irregularities in those documents.  She said that the email address of the contact person (Jason Ho, a friend of hers) was misspelt; that the correspondence address stated on the account opening form, with which she had no connection, was not provided by her; that she had instead provided the Bank with her own residential address with address proof; that the description of the defendant’s business activities on the form was not provided by her; that the email address of herself as the authorised signatory (which was Jason Ho’s email address) was crossed out and a different email address was substituted without her knowledge; that the signature purportedly approving the change of email address was in her name but not signed by her; that the defendant was wrongly described in the form as a “New to Bank Client” even though Zhong herself had maintained a personal account with the Bank; and that the date of 25 January 2019 appearing in many places in the forms was incorrect since she actually went to the Bank on 13 December 2018, not 25 January 2019.  She alleges that there was probably fraud committed by the Bank’s employees in the opening of the Account, and that the Account had been used by them instead of by her or the defendant.

8.On 6 December 2019, the plaintiff issued a summons for summary judgment and judgment on admissions.  By his decision dated 20 May 2020 (“Decision”), Deputy Judge Hall‑Jones (“the judge”) dismissed the application for summary judgment on the ground that Order 14 was inapplicable by virtue of the fraud exception in rule 1(2)(b) for two reasons.  First, the statement of claim is replete with references to fraud.  There are underlying allegations on which the plaintiff’s claim is based which relate to fraud.[1]  Secondly, the plaintiff had alleged fraud against the defendant because the plaintiff’s affidavit replying to Zhong’s first affirmation seeks to refute the assertion that the defendant did not open the Account and there was therefore a live issue as to whether Zhong was an honest witness.[2] The judge further, obiter, expressed reservations on the view taken in certain previous cases (including Universal Capital Bank and Ferrari, referred to below) that the fraud exception applies only where there is an allegation of fraud against the defendant.[3]  The judge, however, granted the application for judgment on admissions in the amount of US$452,935.97 on the ground that the defendant had admitted that the remaining funds were not its money and that the evidence was clear that the money had come from the plaintiff.[4]

9.The defendant appeals against that judgment on two grounds: (1) that there was in fact no admission made by the defendant to any part of the plaintiff’s claim; and (2) that the judge erred in relying on the plaintiff’s evidence in granting judgment on admissions.  Further, the defendant appeals against the costs order drawn up which requires it to pay the plaintiff’s costs of the action, on the ground that it goes further than the Decision which only requires the defendant to pay the costs of the plaintiff’s summons.

10.By way of cross‑appeal, the plaintiff contends that it is entitled to summary judgment or judgment on admissions for the entire sum of US$662,970, on the ground that (1) the judge erred in holding that summary judgment was precluded by the fraud exception; and (2) the judge erred in entering judgment for only US$452,935.97 when the defendant’s admission extended to all the funds deposited in the Account in the amount of US$662,970.

11.We shall deal with the plaintiff’s cross‑appeal first, and divide the analysis into three questions: (1) is there an allegation of fraud on the part of the defendant; (2) does the fraud exception apply where there is an allegation of fraud but not on the part of the defendant; and (3) if the fraud exception does not apply, should summary judgment be granted?

Is there an allegation of fraud on the part of the defendant?

12.Order 14 rule 1(1) & (2) provides as follows:

“ 1. Application by plaintiff for summary judgment (O. 14, r. 1)

(1) Where in an action to which this rule applies a statement of claim has been served on a defendant and that defendant has given notice of intention to defend the action, the plaintiff may, on the ground that that defendant has no defence to a claim included in the writ, or to a particular part of such a claim, or has no defence to such a claim or part except as to the amount of any damages claimed, apply to the Court for judgment against that defendant.

(2) Subject to paragraph (3) this rule applies to every action begun by writ other than—

(a) an action which includes a claim by the plaintiff for libel, slander, malicious prosecution, false imprisonment or seduction,

(b) an action which includes a claim by the plaintiff based on an allegation of fraud, or

(c) an Admiralty action in rem.

(3) This Order shall not apply to an action to which Order 86 or Order 88 applies.”

13.Rule 1(2)(b) has been explained to have the effect of excluding from Order 14 “any action where there is a claim in respect of which the underlying allegations on which the claim is based constitute an allegation of fraud”: Pacific Electric Wire & Cable Co Ltd v Harmutty Ltd & others [2009] 3 HKLRD 94, §19.[5]  Thus a plaintiff cannot avoid the exception by relying upon other causes of action not based on fraud to seek summary judgment against a defendant, if there is in the action a claim which is based on an allegation of fraud; see also Kays Impex Corporation (HK) Ltd v Arbuthnot Export Services Ltd [1973-1976] HKC 109.

14.To say that a claim is “based on an allegation of fraud” means, as explained in Zimmer Sweden AB v KPN Hong Kong Ltd [2016] 1 HKLRD 1016 at §18(2),[6] that the claim is one for which an allegation of fraud would have to be made by the plaintiff in order to establish or maintain that claim.  In other words, the focus is on what are described as “necessary” allegations in Pacific Electric Wire & Cable at §32.

15.Furthermore, whether or not the fraud exception is engaged is assessed not only with regard to the statement of claim but all relevant materials including the subsequent pleadings and the affidavit evidence available at the time when the application for summary judgment is heard: Zimmer, §18(1).  Thus in A‑1 Business Ltd v Chau Cham Wong Patrick [2009] 5 HKLRD 579, the plaintiff claimed that its director had misappropriated its funds by paying them to his own bank account.  In defence, the defendant, relying on a number of documents, claimed that the payment represented dividends payable to the holding company which had directed the payment to be made to the defendant.  In reply, the plaintiff alleged that the documents were fabricated and backdated to create a fictitious declaration of dividend.  The Court of Appeal, agreeing with the judge below, held that the fraud exception applied.  In Zimmer, the plaintiff claimed that it was induced by fraud to transfer money to the bank account of a company called Kosona, from which funds were then remitted to the bank account of the defendant.  The defendant said that it was a bona fide seller of goods, sourced from three suppliers, to Kosona, and the payment received was the price of goods sold.  The plaintiff in reply alleged that the defendant had not in fact sourced goods from two of the suppliers at all, that the third supplier did not exist, and that the invoice from one of the suppliers was “fake”.  The Court of Appeal held that the fraud exception applied because the plaintiff had clearly asserted the defendant was party to a fraud to keep the money received.[7]

16.In the present case, there is no express allegation of fraud made against the defendant in the statement of claim.  Mr Kelvin Leung, appearing for the defendant, seeks to argue that paragraph 16 is an allegation of fraud on the part of the defendant.  This is not part of the judge’s reasoning and, in the absence of a respondent’s notice, not a point open to the defendant.  In any event, unless paragraph 16 clearly implies that the defendant has been fraudulent (which it does not), we do not think it should be read so widely as to include an allegation of fraud against the defendant: Menfond Electronic Art & Computer Design Co Ltd v Wong Wang Tat Victor & another (CACV 18/2013; 14 May 2014), at §22.[8] The “deceit and fraudulent misrepresentation” mentioned in paragraph 16 is that pleaded earlier to have been committed by the unidentified fraudster.

17.As to the argument that the plaintiff’s affidavit evidence raises directly or by implication allegations of fraud on the part of the defendant, it seems to us that all that was being said by the plaintiff was that the defendant owned and had full authority to operate the Account despite Zhong’s protestations to the contrary.  The plaintiff does invite the court not to accept Zhong’s evidence but this does not, in our judgment, mean that there is a claim based on an allegation of dishonesty or fraud.  As pointed out in Tang Yuan Yi v Tokyo International Investment Ltd [2021] HKCFI 944 at §64(c), the contrary reasoning would mean that whenever a plaintiff seeks summary judgment on the basis that the defendant’s defence is incredible, there is an implied allegation of dishonesty or fraud which precludes summary judgment from being granted.  That could not have been the intention of the rule.  Here the plaintiff does not need to allege, and does not do so simply by contending that Zhong’s evidence is incredible, that the defendant is complicit in the fraud practised on the plaintiff or has been guilty of some other fraud.  The plaintiff can assert that Zhong’s evidence is incredible and that in fact the defendant did open and operate the Account, without alleging or necessarily implying that it was party to the fraud.  The plaintiff would have a cause of action even if the defendant was an innocent recipient of the funds.  The present case may therefore be distinguished from A‑1 Business and Zimmer where the plaintiff in reply to the defence raised contended that the transactions through which the defendant had allegedly obtained the money were in fact fictitious and supported by fake documents.

Does the fraud exception apply where there is an allegation of fraud but not on the part of the defendant?

18.There are plainly pleaded allegations of fraud made against the fraudster.  Whilst these allegations do not have to be made for a claim mounted purely in restitution for unjust enrichment, they are, on the plaintiff’s argument, a necessary part of its claim against the defendant in constructive trust.  We shall comment on the plaintiff’s entitlement below but for present purposes it is sufficient to note that on the plaintiff’s own case, these allegations have to be made by it in order to obtain the proprietary remedy sought.

19.Does rule 1(2)(b) exclude actions containing claims of which allegations of fraud on the part of a non‑party are a necessary ingredient?  On behalf of the plaintiff, Mr Ernest Ng submits that it does not, relying on a series of decisions in the Court of First Instance and the provisional view expressed by the Court of Appeal in one case.  The judge had reservations regarding the decisions cited to him and thought that their reasoning did not sit comfortably with the wording of the rule and with Pacific Electric Wire & Cable.[9]  For his part, Mr Leung does not seek to support the judge’s view.  We have therefore not heard any contested argument on the issue.  However, given the conflicting judicial opinions at first instance and since the question is material to how the plaintiff’s summons should be disposed of, we shall deal with it.

20.The first case in which the point arose is Universal Capital Bank v Hongkong Heya Co Ltd [2016] 2 HKLRD 757.  There the plaintiff was induced by a fraudulent email to transfer money to a Hong Kong bank account of a company.  On the next day, part of the money was transferred from that company’s account to the defendant’s bank account.  On the plaintiff’s application for summary judgment, Deputy Judge Burrell stated (at §18):

“ (1) The underlying reason for the fraud exception is to prevent summary judgment in a case where serious allegations of dishonesty are made or implied against a party to the proceedings so that such a party may have an opportunity to answer the allegations, or put in a more familiar way, ‘have his day in court’.

(2) The defendant company here has no need of such protection. … [N]o allegations of dishonesty/fraud are made against it. Further, no similar allegations are made against its ‘operator’ Yang.

…

(4) Whilst it is true that the Hong Kong courts have adopted a fairly wide and liberal interpretation of ‘fraud’ when considering the application of Order 14, rule 1(2)(b), it should not be applied automatically merely because there are allegations of fraud or dishonesty in the bigger picture. The question remains, does the underlying allegation of fraud (which does exist here) on which the claim is based (which it is not in this case) constitute an allegation of fraud against the defendant? It seems that the answer to this question in this case is in the negative.

(5) To say otherwise would take away from a plaintiff an opportunity to utilize the Order 14 procedure in cases where it might be clearly merited.”

Accordingly, he held that the fraud exception did not apply, but in the end decided to give conditional leave to defend.

21.Universal Capital Bank was applied in Arrow ECS Norway AS v M Yang Trading Ltd & others (HCA 239/2016; 22 September 2016), another case where the plaintiff remitted money to a bank account in Hong Kong pursuant to a telephone and email scam.  The plaintiff said it had parted with the money because of a fraud perpetrated by unknown fraudsters, but it confined the bases of its claim against the defendant to payment under mistake of fact and unjust enrichment, without making any allegation of dishonesty or fraud against the defendant.  Recorder Lisa Wong SC, following Universal Capital Bank, held that the fraud exception in rule 1(2)(b) did not apply.

22.In Laerdal Medical Ltd v Hong Kong Haocheng International Trade Ltd (HCA 2193/2016, 21 June 2017), the plaintiff applied for summary judgment against the recipient of €496,000 remitted by the plaintiff as a result of an email fraud and succeeded before a Master.  On appeal, Deputy Judge Saunders referred to Universal Capital Bank and held that the plaintiff did not need to establish the fraud that was perpetrated on it in order to establish its claim against the defendant recipient.  On this basis he held that the fraud exception was not engaged, and eventually dismissed the defendant’s appeal.  Subsequently, on the plaintiff’s application for security for costs of the defendant’s appeal against Deputy Judge Saunders’ decision, this Court[10] expressed its provisional view on the fraud exception as follows:

“ Ground 2 relates to the fraud exception and the availability of Order 14 proceedings. The defendant’s contention is that there is fraud involved in the transaction as the defendant ‘is considered as the dishonest recipient’ of money from the plaintiff caused by fraudulent email and the bank account of the defendant has been frozen because of the plaintiff’s report to the police. This ground is of no merit. The fraud exception is not engaged. The question is whether the underlying allegation of fraud (which existed here) on which the claim is based (which it is not in this case) constitutes an allegation of fraud against the defendant. The plaintiff has confined its claim against the defendant on unjust enrichment.”

Unfortunately neither Deputy Judge Saunders’ nor this Court’s decision was cited to the judge below.

23.In another impersonation fraud case, Ferrari North America, Inc v Changhon International Energy Co Ltd & others [2018] HKCFI 1603, Lisa Wong J again took the same approach, and held that the plaintiff, who had confined its claim to restitution based on unjust enrichment, was entitled to apply for summary judgment against a recipient of the funds.

24.In Xiao Long v Great Wall Securities Ltd (formerly known as Colors Securities Ltd) [2019] HKCFI 2769, Marlene Ng J also held that while there might have been fraud alleged, the fraud exception was not applicable as there was no need for the plaintiff to assert that the defendant was the fraudster.[11]

25.In DBS Bank (Hong Kong) Ltd v Happy Grace International Development Ltd [2019] HKCFI 2864, Deputy Judge M K Liu, relying on Ferrari North America, also held that the fraud exception did not apply in that case, since the plaintiff, the victim of an impersonation fraud, did not allege that the defendant recipient had been directly involved in the fraud, but simply relied on unjust enrichment as the cause of action.[12]

26.In Tang Yuan Yi v Tokyo International Investment Ltd [2021] HKCFI 944, the plaintiff was induced by an investment scam perpetrated by a person to remit money to various bank accounts including an account of the defendant.  Deputy Judge William Wong SC held that as the plaintiff had simply made a claim based on unjust enrichment against the defendant without alleging fraud or dishonesty against it, the fraud exception did not apply.  In so holding, the Deputy Judge considered that the judge’s view in the present case on the scope of the fraud exception was at odds with previous cases and did not sit well with the principles laid down by the Court of Appeal.[13] He further stated that there is no good reason to shield a defendant from summary judgment when no allegation of fraud has been made against him; nor does the fraud exception protect a non‑party against whom an allegation of fraud has been made, since he will in any event not appear to answer the allegation and any finding made will not be binding on him.[14]

27.Except for Ferrari North America and DBS Bank where the defendant did not appear, the above authorities were decisions after argument with legal representation.  In our view, the approach adopted in this line of authorities should be followed.  We agree with the reasoning of Deputy Judge Burrell in Universal Capital Bank and that of Deputy Judge William Wong SCin Tang Yuan Yi.  In particular:

(1)     The purpose of the fraud exception has been explained by Kaplan J in Skink Ltd (in liquidation) v Comtowell Ltd & another [1994] 2 HKLR 26 at 37 as follows:

“ I can only think that the fraud exception to O.14 was inserted in England and maintained in Hong Kong because the O.14 jurisdiction was wholly inappropriate for cases where the Court had to consider whether a person was guilty of fraud or at the material time had an intention to defraud. Such findings have very serious consequences, and it could not have been thought right that persons should be condemned, as it were, unheard save on affidavit.”[15]

(2)     Where allegations of fraud are made against a third party only, the defendant has no need of such protection.  There is no slur against him such as would arise from a judgment in an action that included allegations of fraud against him even where the judgment was not based on those allegations.  Nor is he deprived of an opportunity to refute any charge of fraud against him, because there is none.

(3)     Shorn of the need to protect the defendant, it is difficult to perceive any reason in principle which justifies excluding an action from Order 14 on the mere ground that it contains an allegation of fraud against a third party.

(4)     Even if the action is not summarily determined but goes to trial, the third party will not take part and answer the allegation of fraud against him.  Excluding Order 14 does not therefore afford any protection to the third party, who is in any event not bound by any findings made in the case.

(5)     To adopt the contrary view would mean Order 14 would be automatically excluded merely because there are allegations of fraud in the background against other persons.  This would deprive a plaintiff of the opportunity of utilising the summary procedure in cases where it might be clearly merited.  It would also be against the public interest to require a plaintiff to go to trial, taking up additional judicial resources, if the case otherwise warrants summary disposal.

(6)     The rule does not exclude any action that includes an allegation of fraud but one that includes a claim based on an allegation of fraud.  This suggests it is a matter between the parties.  It has been held in England that the claim must be based on an allegation of fraud committed on the plaintiff rather than against others such as the public: Sony Corporation & another v Anand & others (No 2) [1982] FSR 200, 204.  We consider that at the other end it must be based on an allegation of fraud not on the part of any person, but the particular defendant referred to in rule 1(1) against whom the plaintiff applies for judgment under the rule.  This is a meaning which the language of the rule, understood in the light of its context and object, is capable of bearing[16] and the meaning which should in our view be adopted.  We do not think that this construction conflicts with anything that was said in Pacific Electric Wire & Cable, which was not a case concerned with the present issue at all.

28.Accordingly, we conclude that the plaintiff’s action is not excluded from Order 14 by the fraud exception.

Should summary judgment be granted?

29.It is therefore necessary to deal with the merits of the application for summary judgment.  The plaintiff relies on a restitutionary cause of action against the defendant based on a payment by mistake.  It further asserts a proprietary claim to the funds in the Account, based on the dictum of Lord Browne‑Wilkinson in Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 at 716:

“ I agree that the stolen moneys are traceable in equity. But the proprietary interest which equity is enforcing in such circumstances arises under a constructive, not a resulting, trust. Although it is difficult to find clear authority for the proposition, when property is obtained by fraud equity imposes a constructive trust on the fraudulent recipient: the property is recoverable and traceable in equity.”

30.While that dictum has been the subject of some debate,[17] it has been applied in Hong Kong in a number of cases involving cyber fraud.[18]  Assuming it represents the law, it should nevertheless be noted that the dictum refers to a “fraudulent recipient”.  Given that the alleged fraudster is not said to have received any money, and the alleged recipient (the defendant) is not said to be fraudulent as the plaintiff has been at pains to emphasise, it is not clear how the dictum can assist it: cf Zeif Incorporated v Tekchandani Ajai Mohan (trading as D’Ziner Collections (Hong Kong)) & others [2021] HKCFI 38, §45.

31.Irrespective of the precise legal basis of the plaintiff’s claim, it is necessary for it to establish at least that the defendant received the funds.  As stated above, the defendant says that it had terminated the process before the Account was opened and that the Account had been opened using documents that contained alterations and information not provided by Zhong.  The defence, in other words, is that the Account is not the defendant’s and the Bank had no authority to maintain the Account for the defendant. 

32.Receipt of the funds by the defendant is not established merely by showing receipt by the Bank through an inter‑bank transfer from Bank of America.  It seems to us that the defendant would only have been paid the funds if the Bank accepted the funds for the defendant’s account and had authority to do so.  If the defendant’s factual case is established, it is at least arguable that the Bank will have had no actual authority to do so.  Whether or not the Bank had apparent authority is not a matter that has been argued before us.  In any event, the initial representation to the plaintiff that the defendant had an account with the Bank was made in an email from the alleged fraudster.  It is highly questionable whether such a representation could form the basis of apparent authority.  If a receiving bank does not have the beneficiary’s authority to receive payment, then it may have to hold the funds as agent for the originator, and as between the originator and the beneficiary, payment is not regarded as having been completed: see e.g. Paget’s Law of Banking (15^th ed), §§22.93–22.95.  As such, the dispute whether the Account had in fact been opened by the defendant has a potential impact on whether the plaintiff should be claiming the money from the Bank rather than from the defendant.  With respect, it is not correct for the plaintiff to say and for the judge to hold that the matters raised by the defendant were irrelevant as between the plaintiff and the defendant.[19] 

33.Against the factual allegations raised by the defendant, there is no sworn evidence from any bank officer.  The only response from the Bank so far was made in the form of a letter dated 24 April 2020, a copy of which was exhibited to Zhong’s 4^th affirmation which the judge refused to admit.  Anyhow the defendant says that the signatures of Zhong on some of the documents produced by the Bank via that letter were forged.  The defendant has, as mentioned above, adduced evidence including some documentary evidence in support of its version of events.  The discrepancies and alterations in the account opening documents on their face call for some explanation.  In these circumstances the defendant’s account cannot, in our view, simply be dismissed as incredible.

34.The defendant has also seen fit to try to pick holes in the plaintiff’s case that it was the victim of a fraud perpetrated by a third party.  Thus the defendant contends that Mrs Weishaar as an experienced controller ought to have spotted various suspicious features of the emails, that Mrs Weishaar’s account of what happened is incredible, and that if the plaintiff had indeed been defrauded, one could not rule out the possibility that she was involved in the fraud.  Given our conclusion above it is unnecessary to discuss this argument in any detail.  In any event it may not provide a defence because if Mrs Weishaar was party to the fraud (and we make no finding to that effect), there would clearly have been a breach of fiduciary duty on her part entitling the plaintiff to assert an equitable proprietary interest in the money paid out and to trace it in equity to the money received by the defendant, if any.

35.While Zhong’s first affirmation preceded the plaintiff’s summons, the third affirmation came after it.  Instead of dismissing the summons, for the reasons given above we consider the defendant should be given leave to defend the action.  It is unnecessary to discuss whether there should be any condition, for the plaintiff has the protection of the Mareva injunction already granted, and has advanced no submission for the imposition of conditions.  We therefore give the defendant unconditional leave to defend.

The defendant’s appeal

Judgment on admissions

36.RHC Order 27 rule 3 provides as follows:

“ Where admissions of fact or of part of a case are made by a party to a cause or matter either by his pleadings or otherwise, any other party to the cause or matter may apply to the Court for such judgment or order as upon those admissions he may be entitled to, without waiting for the determination of any other question between the parties, and the Court may give such judgment, or make such order, on the application as it thinks just. …”

37.The admissions relied upon by the plaintiff in its application for judgment are, first, that the defendant was not trading at all and, secondly, that the funds in the Account did not belong to the defendant.  Plainly these facts alone are not sufficient for the plaintiff to have judgment.  Quite apart from the issue discussed above as to whether the defendant has actually received any property, the plaintiff has to prove the other elements of its cause of action, including that the money paid out was its money and that it was paid out because of a mistake.  There are no clear and unambiguous admissions of those facts.  As was said in Re Chung Wong Kit (a bankrupt) [1999] 1 HKLRD 410 at 412I, while the court may draw inferences from primary facts in a summary judgment application, in an application for judgment on admissions the court must consider the actual admissions, albeit in some cases those may be made by implication. 

38.On behalf of the plaintiff Mr Ng relies on Barnard v Wieland (1882) 30 WR 947, which was a case where the plaintiff sued on certain mortgage deeds and the court looked at the deeds upon an application for judgment on admissions.  It should be noted, however, that the defence there craved leave to refer to the deeds and “save as by such deeds, when produced, shall appear”, did not admit the deeds were to the purport or effect mentioned in the statement of claim.  On this pleading, and given that execution was admitted, it was clear that the deeds were in substance admitted subject to their production.  This case therefore does not support the plaintiff’s general proposition that the court may have recourse to the plaintiff’s evidence for the purpose of entering judgment on admissions.

39.In an ordinary case, where the other ingredients of his cause of action, though not admitted, cannot seriously be disputed, a plaintiff may well be able to obtain summary judgment based on his evidence on the other ingredients in combination with the defendant’s admissions.  But in a case where Order 14 is excluded by the fraud exception as the judge held to be the case here, or where there are triable issues as we find to be the case, we do not think it is open for the plaintiff to rely on such limited admissions to obtain judgment under Order 27. 

40.It follows that the defendant’s appeal should be allowed and the judgment on admissions set aside.

Zhong’s 4^th Affirmation

41.The defendant seeks to rely on the 4^th affirmation of Zhong filed on 6 May 2020 (one day prior to the hearing before the judge) which the judge refused to admit on the ground that it was directed to the dispute between the defendant and the Bank and added nothing to the debate.[20] This Court has previously ruled that the defendant may challenge the judge’s refusal to admit the evidence without obtaining leave.[21]  We have read the affirmation de bene esse.  In light of our conclusions above based on the first and third affirmations of Zhong, we consider it unnecessary to admit the 4^th affirmation of Zhong.  We also note that the 4^th affirmation was filed very late.  In the circumstances we see no valid ground for disturbing the Judge’s refusal to admit it.

Costs order below

42.In the Decision, the judge made an order nisi that the defendant pay the plaintiff’s costs of the plaintiff’s summons.[22]  The order drawn up was an order nisi that the defendant pay the plaintiff’s costs of the plaintiff’s summons and costs of the action.  On the footing that judgment was only given for part of the claim, it is hard to see why the plaintiff should be given the costs of the action.  The question has however been superseded by our decision to give leave to defend, pursuant to which the usual order would be costs in the cause.

Conclusion

43.For the above reasons, we make the following orders:

(1)     The plaintiff’s cross‑appeal be dismissed except that the judge’s order dismissing the plaintiff’s application for summary judgment be substituted by an order giving unconditional leave to defend.

(2)     The defendant’s appeal be allowed and the judgment on admissions entered below be set aside.

44.As an order nisi, we order that costs below be costs in the cause, and that the defendant do have the costs of its appeal and the cross‑appeal.

Mr Ernest C Y Ng, instructed by Tanner De Witt, for the Plaintiff

Mr Kelvin Leung, instructed by How & Co, for the Defendant