Exclusive Networks Deutschland Gmbh v. Wakoon Trading (H.K.) Ltd and Another

HCA 954/2019

[2022] HKCFI 2966

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 954 OF 2019

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Before:  Hon Harris J in Court

Dates of Hearing:  23 – 26 August 2022

Date of Decision:  28 September 2022

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J U D G M E N T

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Introduction

1.The Plaintiff, Exclusive Networks Deutschland GMBH (“END”), has unfortunately been the subject of an email fraud, which resulted in US$438,364.54 being transferred on 19 March 2018 to the 1^st Defendant’s (“Wakoon”) bank account with CTBC Bank. On the following day US$436,810 (“disputed sum”) was transferred from Wakoon’s bank account with CTBC Bank to the 2^nd Defendant’s (“Galaxy”) bank account also with CTBC Bank.

2.Wakoon has not defended the proceedings against it. Galaxy does not dispute that the first transfer was the consequence of the fraud alleged by END. The evidence adduced by END principally consists of that given by Viola Tannhäuser, its Head of Finance and Operations, whose email account it was which was compromised by the perpetrators of the fraud. It was this that allowed the perpetrators to establish that END did business with a company in California called Infoblox and to cause sums that should have been paid to Infoblox to be directed to Wakoon’s CTBC Bank account. As I indicated at the end of the trial I will enter judgment against Wakoon.

3.The dispute at trial was between END and Galaxy against whom END pursues claims for the disputed sum that it is not in dispute was transferred to Galaxy from Wakoon’s bank account the day after Wakoon’s bank account was credited with US$438,364.64 transferred to Wakoon as a consequence of the fraud I have described. END asserts the following causes of action entitling it to recovery of the disputed sum, namely, money had and received, knowing receipt, dishonest assistance and as a constructive trustee. The circumstances in which Galaxy came to receive the disputed sum are as follows.

Background

4.Galaxy carries on business selling computer hardware including video graphics cards and solid state drives. This business is clearly genuine and substantial. Galaxy’s total revenues for its financial year ending 31 December 2016 was HK$4.3 billion; for the 2017 financial year HK$5.4 billion; for the 2018 financial year HK$5.5 billion and for the 2019 financial year HK$4.1 billion.

5.One of Galaxy’s customers is a Chinese company called Shenzhen Jiashi Weiye Technology Co., Ltd (“JWT”). JWT first placed orders with Galaxy in 2016. Each year Galaxy and JWT signed a short agreement, which at trial was called a framework agreement (“framework agreement”), which in very general terms described the basis upon which they would do business. The material parts were the same each year until 2019 and read as follows in translation:

“-- Party A shall perform monthly settlement with Party B. The specitic settlement contents shall be subject to the actual business transaction data (forecast and invoices, etc.) generated by the parties each month.

-- The products produced by Party A based on Party B’s monthly FORECASE shall be the category of irrevocable orders. For the quantity not being able to be delivered for more than three months, the parties shall renegotiate whether to deliver or not and unit prices of the products.

-- For the purchase entered into by the parties, the place of delivery shall be located in Hong Kong on the basis of FOB transaction terms and conditions, with the specific place for handover to be arranged by Party A, and logistics shall be appointed to collect goods. The completion of signing acknowledgment of receipt shall be deemed as the completion of purchase and sale. Thereafter, Party B will no longer bear any possible costs and expenses arising from such goods that have been transacted, including freight charges and insurance expenses, etc. Furthermore, Party B will no longer have the right to control and dominate the goods completed for the transaction.

-- After the purchase and sale is completed, Party A will be required to make payment for goods to Party B in Hong Kong, or upon consultation by the parties, and under the condition favorable to the control over the cash flow of the parties, Party A shall entrust the payment of part of suppliers’ payment for goods of Party B in RMB as the offset of payment for sales owing to Party B by Party A.”

6.In 2019 the framework agreement was modified in the light of END’s claim to provide specifically that all risks arising from the payment arrangement be borne by JWT. As can be seen from the provisions I have quoted the arrangement was that the sums payable by JWT be made monthly. This reflected the business that was carried on between the two. Between the initial transaction, which took place in 2016[1] and March 2021 when Galaxy’s witness statements were filed, the total number of orders placed by JWT, who became one of Galaxy’s biggest clients, was in excess of 1,000. The framework agreement reflected the fact that it was not intended that each order was invoiced and paid for separately. The intention was that at the end of each month JWT settle the amount then outstanding. In practice this is not what happened. The material characteristics of the way in which payment was dealt with are as follows:

(1)  The purchase price was in US$ and JWT settled the sums due in US$.

(2)  As can be seen from Galaxy’s ledger for JWT for the period commencing 17 March 2018 to 21 March 2018 (the period in which the disputed sum was paid) JWT did not make one single payment to settle the amount outstanding at the end of the month. Instead payments were made in tranches during the month. For the period 17 March 2018 to 21 March 2018 seven payments were made in respect of the amounts due to Galaxy.

(3)  As illustrated by the disputed sum itself not all payments were made by JWT transferring sums from its bank account in the Mainland to Galaxy’s bank account in Hong Kong. Some payments were made by remittance agents including Wakoon. Wakoon had acted as remittance agents for JWT on 168 times prior to the disputed sum and paid over US$45 million on JWT’s behalf. These payments had been trouble free. The reasons for using remittance agents was because of the well-known delays experienced by Mainland companies in obtaining approval from regulators in the Mainland, for transferring foreign currencies out of the Mainland.

(4)  The computer products ordered by JWT were manufactured in the Mainland: the relevant one being Shenzhen Musheng Technology Co., Ltd. (深圳沐胜科技有限公司)(“Musheng”). To reduce the cost that would be incurred by Galaxy in exchanging US$ into RMB and remitting sums to its suppliers, JWT paid the manufacturer for the costs of materials direct in RMB and the sum advanced reduced the amount payable by JWT, or remitting agents on its behalf, to Galaxy in Hong Kong.

(5)  Although the framework agreement provides that delivery should be Hong Kong on the basis of FOB terms and conditions, in practice JWT arranged for logistic companies to pick up the finished products directly from the factory in the Mainland: the relevant logistics company being Shenzhen Tiandi Zongheng Logistics Service Co., Ltd. (深圳市天地縱橫物流服務有限公司).

7.Although Ms Tannhäuser suggests in her evidence that the transactions between JWT and Galaxy are not genuine, because, for example, it was uncommercial for Galaxy to allow JWT to know the cost of material it seems to me clear that the relevant transactions were genuine and conducted on terms that are unremarkable in the context of Hong Kong and the Mainland. The issue is whether or not, although genuine there are features of the way in which Galaxy and JWT did business, in particular during the relevant period in March 2018, which support the causes of action advanced by END. END knows nothing of Galaxy’s business and administrating and accounting systems other than that explained in the evidence of Galaxy’s three witnesses: Lam Hung On, Wong Ching Richard and Ding Jinming, who are respectively Galaxy’s finance manager, one of Galaxy’s executive directors and the general manager of Musheng. Before considering that issue further it is necessary to consider the legal principles relevant to END’s claims and Galaxy’s defence.

Legal Principles

8.As I have already explained END advances claims for money had and received, knowing receipt, knowing assistance and a constructive trust. Money had and received refers to a cause of action in unjust enrichment[2]. END argues that Wakoon and Galaxy are unjustly enriched at the expense of END for the value of the disputed sum (or slightly more in Wakoon’s case).

9.Money had and received is a receipt-based cause of action under the common law. It is not dependent on establishing the fault of the recipient[3]. In Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd[4], Ribeiro PJJ explains that “[the] common law cause of action asserted by the plaintiff for money had and received where consideration has totally failed is now generally regarded as a species of claim for restitution based upon principles of unjust enrichment”, and a useful framework for determining such claims is to ask four questions: (a) was the defendant enriched? (b) was the enrichment at the plaintiff’s expense? (c) was the enrichment unjust? (d) are any of the defences applicable?

10.In the present case, END submits that the unjust factors are: (1) mistake of fact that the disputed sum was made to the real intended recipient; (2) ignorance of the actual transfer; and (3) the total failure of consideration for the transfer of the disputed sum to Wakoon, and the further transfer of the disputed sum from Wakoon to Galaxy. The element of “unjustness” is satisfied, says END, with the establishment of any one of these unjust factors.

11.The enrichment needs to be at the Plaintiff’s expense. In The Investment Trust Companies v Revenue and Customs Commissioners[5] Lord Reed said at [43]:

“The nature of the various legal requirements indicated by the ‘at the expense of’ question follows from that principle of corrective justice. They are designed to ensure that there has been a transfer of value, of a kind which may have been normatively defective: that is to say, defective in a way which is recognised by the law of unjust enrichment (for example, because of a failure of the basis on which the benefit was conferred). The expression ‘transfer of value’ is, however, also too general to serve as a legal test. More precisely, it means in the first place that the defendant has received a benefit from the claimant. But that is not in itself enough. The reversal of unjust enrichment, usually by a restitutionary remedy, is premised on the claimant’s also having suffered a loss through his provision of the benefit.”

Lord Reed added at [48]:

“There have also been cases, discussed below, in which a set of co-ordinated transactions has been treated as forming a single scheme or transaction for the purpose of the ‘at the expense of’ inquiry, on the basis that to consider each individual transaction separately would be unrealistic. There are also situations where the defendant receives property from a third party into which the claimant can trace an interest. Since the property is, in law, the equivalent of the claimant’s property, the defendant is therefore treated as if he had received the claimant’s property.”

The disputed sum is money, which is Galaxy accepts (unsurprisingly) is a form of enrichment.

12.Galaxy does not dispute these principles and that the first of the two questions identified by Ribeiro PJJ should in the present case be answered in END’s favour. Galaxy says that it, however, has a defence: it was a bona fide purchaser for value without notice (“bona fide purchaser”) and, therefore, the 4^th question should be answered in its favour and, it would seem that if this is the case so also should the 3^rd question, although nothing turns on this as END accepts that if the court finds that Galaxy was a bona fide purchaser that is a complete defence to its claim for money had and received. It is, therefore, necessary to consider the characteristics of the bona fide purchaser defence. Before doing so I would note that in my view it is clear that all four questions should be answered in END’s favour in the case of Wakoon, hence why judgment should be entered in END’s favour against Wakoon.

13.Lord Sumption JSC explains what the determination of bona fide in the context of claims for money had and received, knowing receipt and assistance and for a recipient of assets to be accountable as constructive trustee, in [33] of Papadimitriou v Credit Agricole Corp and Investment Bank[6].

“[W]hether a person claims to be a bona fide purchaser of assets without notice of a prior interest in them, or disputes a claim to make him accountable as a constructive trustee on the footing of knowing receipt, the question what constitutes notice or knowledge is the same. It is a question which has taxed judges for many years. In particular they have been much exercised by the question in what circumstances a person is under a duty to make inquiries before he can claim to be without notice of the prior interest in question. Ultimately there is little to be gained from a fine analysis of the precise turns of phrase which judges have employed in answering these questions. They are often highly sensitive to their legal and factual context. The principle is, I think clear. We are in the realm of property rights, and are not concerned with an actionable duty to investigate. The hypothesis is that the claimant has established a proprietary interest in the asset, and the question is whether the defendant has established such absence of notice as entitles him to assume that there are no adverse interests. The mere possibility that such interests exist cannot be enough to warrant inquiries. There must be something which the defendant actually knows (or would actually know if he had a reasonable appreciation of the meaning of the information in his hands) which calls for inquiry. The rule is that the defendant in this position cannot say that there might well have been an honest explanation, if he has not made the inquiries suggested by the facts at his disposal with a view to ascertaining whether there really is. I would eschew words like ‘possible’, which set the bar too low, or ‘probable’ which suggest something that would justify a forensic finding of fact. If even without inquiry or explanation the transaction appears to be a proper one, then there is no justification for requiring the defendant to make inquiries. He is without notice. But if there are features of the transaction such that if left unexplained they are indicative of wrongdoing, then an explanation must be sought before it can be assumed that there is none.”

14.This confirms what one would expect, namely, that the inquiry as to whether or not a recipient has acted bona fide is the same in practice as the inquiry as to whether or not the recipient had the relevant knowledge if a plaintiff seeks to establish liability for knowing receipt or assistance or for a recipient to be accountable as a constructive trustee. It follows that if a defendant such as Galaxy establishes that it was a bona fide purchaser the alternative claims necessarily will fail. Mr Ng did not suggest any situation in which the court could properly find that a recipient was bona fide, but had the requisite knowledge to establish the alternative claims. The consequence of this is that all the court needs to consider in dealing with a claim in which the first two questions identified by Ribeiro PJJ in Shanghai Tongji are readily answerable in the plaintiff’s favour, is the claim for money had and received, there is no reasons to consider the alternative claims. As Mr Ng did not seem to dispute this in exchanges I had with him during his opening it is surprising that he pursued the alternative claims in closing. This seemed to be on the basis that even if I am satisfied that Galaxy was a bona fide purchaser for value without notice, it was still open to me to conclude (as I was invited to do) that knowledge acquired after receipt of the disputed sum was sufficient to support a knowing receipt claim[7]. This in my view is plainly not the case if the recipient received money as a bona fide purchaser. The fact that subsequently the recipient is told that the money it has received in good faith and for valuable consideration was in fact the proceeds of fraud does not give rise to a claim in knowing receipt otherwise the bona fide defence would in most cases be defeatable.

15.It seems to me that there is no need to consider the alternative claims. Either END is successful in its claim for money had received or its action stands to be dismissed.

Bona fide purchaser for value without notice

16.In order for Galaxy to succeed in establishing that it was a bona fide purchaser it must demonstrate that it received the disputed sum as consideration for something of value that it had provided to JWT. Mr Ng accepted that this did not require Galaxy to identify precisely, in respect of which goods the disputed sum was paid. The fact that the parties operated a running account, which in most months meant it was not possible to attribute a particular payment to a particular order did not prevent Galaxy establishing that it had given value for the disputed sum.

17.Mr Ng took a different point. He submitted that value had not been given until Galaxy had informed JWT that Galaxy had received payment in respect of sums owed to it. Mr Ng attempted in cross-examination to demonstrate that Galaxy had not done this until early April 2018 when it carried out a reconciliation of the previous months’ account, which was after it became aware of the fraud and, therefore, was not a bona fide purchaser at the relevant time, which Mr Ng argued was when the acknowledgment was given. This in my view was clearly a bad argument on the facts as Mr Wong was able to demonstrate in re-examination of Mr Lam. Galaxy had sent JWT an email on 21 March 2018 confirming receipt of the disputed sum (which was included in a total remittance of US$1,064,370) and that it was in respect of an AR receipt 0335: 2018-03-35. Mr Lam said that the receipt number wrongly had the prefix 2017. This evidence I accept. That disposes of the point, but I will still deal with the authority on which Mr Ng relied to demonstrate that value was not given until its receipt was acknowledged as Mr Ng’s reading of it is in my view wrong.

18.The authority in question is a recent decision of Cheng J in Holy AG v BMW Ltd[8]. Cheng J had before her an application for summary judgment by a plaintiff, who as in the present case, had been the subject of an email fraud and transferred just short of Euro 1 million to the bank account in Hong Kong of a company, Antoine Limited, which then paid part of the sum to the defendant. The defendant argued that the sum it received was consideration for electronic goods it has supplied, and that it understood Antoine had paid the sum as the remittance agent of its client, a Mr Tsang. The evidence revealed, however, that the relevant goods had been supplied after the defendant had been informed that the sum it had received was the proceeds of a fraud perpetrated on the plaintiff. It then ran an alternative argument. Cheng J explains this argument and the reasons why she rejected it in [20]–[27] of her judgment.

“20. Originally, in its pleadings and affirmations, Touki Trading suggested that Touki Trading gave value for the Sum by releasing the Goods to Mr Tsang, and at a time before Touki Trading was aware that Holy AG had been fraudulently induced to part with the Sum. In its Defence of 4 June 2020, Touki Trading pleaded that Mr Tsang procured the transfer of the Sum to Touki Trading’s account in settlement of the First Invoice, and that after such transfer, the Goods were delivered to Touki Trading on 21 March and 27 March 2020, and released to Mr Tsang on the same dates, such matters being generally relied upon in support of the plea that Touki Trading was a ‘bona fide purchaser for value without notice’. In the Affirmation of Lau Siu Chi dated 7 May 2020 (‘Lau 1^st’), made by Mr Lau, a director of Touki Trading, it was said that Touki Trading was unaware of the fraud practiced on Holy AG, and that the Goods were released to Mr Tsang on 21 and 27 March 2020. In the 2^nd Affirmation of Lau Siu Chi dated 24 March 2021 (‘Lau 2^nd’), it was said that the Goods were delivered to Mr Tsang on 21 and 27 March 2020 and that this was before Touki Trading was aware that the Sum had been generated from illegal activities.

21. It is now accepted, however, that by the time that the Goods were released to Mr Tsang, Touki Trading could no longer claim not to have notice of Holy AG’s claim that the Sum constituted proceeds of a fraudulent scheme, having been served with the Injunction and accompanying papers on 16 March 2020.

22. Mr Chan has therefore instead submitted[9] that Touki Trading provided consideration as ‘purchaser’ of the Sum in one of two ways:

(1) by the act of ‘debiting’ the amounts due under the First Invoice and the Further Invoice of RMB 662,225 and RMB 1,913,315 from the running account with Mr Tsang on 6 March 2020, thus ‘setting off’ the two amounts against, ‘inter alia’, the Sum, and thereby partially paying for the two amounts due under the invoices;

(2) alternatively, by the act of crediting the Sum to the running account with Mr Tsang on 5 February 2020.

23. I deal first with the (latter) argument that the act of crediting the Sum to the running account with Mr Tsang on 5 February 2020 amounted to the provision of value for receipt of the Sum. I do not agree that the mere receipt of a sum, and internally acknowledging that it has been received, can amount to the giving of value. Mr Chan cited Royal Bank of Scotland v Tottenham [1894] 2 QB 715 at 717 for the proposition that a bank that gives credit upon receipt of a customer’s cheque is considered to have provided valuable consideration. However, in that case, it was not the mere fact of deposit of the cheque which constituted the consideration given by the bank, but rather, the fact that the bank gave the customer credit in the amount of the cheque without the cheque having cleared. Merely entering the value of the cheques on the ledger does not constitute the giving of consideration: Akrokerri (Atlantic) Mines Ltd v Economic Bank [1904] 2 KB 465 at 470; AL Underwood Ltd v Barclays Bank Ltd [1924] 1 KB 775 at 805. Furthermore, as Mr Chan fairly acknowledged, Lord Templeman in Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 observed that:

‘…If a thief deposits stolen money in a building society, the victim is entitled to recover the money from the building society without producing the pass book issued to the thief. As against the victim, the building society cannot pretend that the building society gave good consideration for the acceptance of the deposit’ (at 562B);

and

‘…when the customer hands over his cash at the cash desk, and receives his chips, does the store give valuable consideration for the money so received by it? In common sense terms, the answer is no. For, in substance and in reality, there is simply a gratuitous deposit of the money with the store, with liberty to the customer to draw upon that deposit to pay for any goods he buys at the store. … It follows that, by receiving the money in these circumstances, the store does not for present purposes give valuable consideration for it. Otherwise a bank with which money was deposited by an innocent donee from a thief could claim to be a bona fide purchaser of the money simply by virtue of the fact of the deposit’ (at 576G).

24. I then turn to the argument that the act of debiting the amounts of RMB 662,225 and RMB 1,913,315 from the running account with Mr Tsang on 6 March 2020 constituted payments for the amounts due under the First Invoice and the Further Invoice, and therefore amounted to provision of value for receipt of the Sum.

25. In order to rely on the defence of bona fide purchaser for value without notice, the purchaser must have given value in the form of executed, and not merely executory, consideration. A purchaser’s promise counts as value only to the extent that the purchaser has completely performed it. See Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies (5^th ed.) at 8-250. Thus in Great Investments Ltd and others v Warner and others (2016) 243 FCR 516 at [108] to [109], the Federal Court of Australia observed, obiter, that receipt of bonds which would only discharge a debt to the extent that money was realised from the bonds, or to the extent that they retained their value, would not be “value” for the purpose of this defence.

26. In the present case, I do not agree that the mere making of entries by Touki Trading unilaterally in its record of the running account on 6 March 2020[10] constitutes the giving of value for receipt of the Sum on 5 February 2020. There is nothing to suggest that any entry made on 6 March 2020 could not have been simply amended or reversed by Touki Trading, at least at any time prior to communication to Mr Tsang that his debts had been discharged. There is no evidence (whether from Mr Lau or Mr Tsang) that there was any communication to Mr Tsang on 6 March 2020 (or at any other time prior to 16 March 2020) that his debts pursuant to the First and Further Invoices had been discharged (indeed, the Further Invoice had not even been issued as at 6 March 2020).

27. I therefore do not consider that Touki Trading has a real defence of bona fide purchaser for value without notice.”

19.It seems to me clear that Cheng J did not suggest, let alone hold, that a contract for the supply of goods, which have been delivered only becomes completed or executed when not only has payment been made for the goods, but the supplier informs the purchaser that it has been paid by, for example, issuing a receipt. There is no reason to treat either the supply of the goods or the payment of the price as executory consideration just because the supplier had not informed the purchaser that the purchase price has been received. As Cheng J explains in [25] “A purchaser’s promise counts as value only to the extent that the purchaser has completed performed it”. JWT had completed performed its promise by causing the disputed sum to be credited to Galaxy’s bank account.

20.END knows little about Galaxy’s business and how it is conducted other than that, which is revealed by the documents that Galaxy disclosed. It has no reason to question Galaxy’s explanation of how it conducted its business with JWT. Mr Ng conducted the cross-examination of Galaxy’s two witnesses as if he were conducting an inquiry into what had happened despite being frequently reminded that this was not a proper approach. On a number of occasions he put to the witnesses a case for which he had no evidential foundation. For example, he suggested to Mr Lam that Galaxy had failed to produce to its auditors, Deloitte, full and adequate records in respect of the transactions with JWT. This was entirely speculative. There is nothing to suggest that Deloitte did not have access to all documents they required to conduct their audit.

21.END’s case in closing in my view can be distilled to two points. First, that there was something inherently suspicious or questionable about JWT paying through remittance agents and that given that Galaxy’s witnesses accepted that Galaxy put in place no anti-money laundering or know your client procedures, Galaxy was not a bona fide recipient. Secondly, the ledgers and account documentation did not demonstrate with sufficient clarity that the disputed sum was paid in consideration for goods that had been delivered.

22.Galaxy is a supplier of goods to purchasers many of whom are based in the Mainland. Galaxy does not operate the kind of financial services business that is obviously open to abuse by persons seeking to launder money or simply transfer the proceeds of a crime or fund, for example, terrorist activities. The evidence before me is quite clear. Galaxy sold computer products and was paid in arrears. This is not a business model, which by its nature is open to misuse. It does not seem to me that there is any particular reason why it should have to put in place the kind of procedures required of banks to determine the source of deposits. Neither does it seem to me that there was anything inherently suspicious about payment being made by a Mainland purchaser through remitting agents. This is quite common. In the present case JWT had, as I have already explained, used Wakoon to make payments without any issues arising on 168 occasions prior to the disputed sum being paid. In these circumstances, in my view Galaxy was acting bona fide in accepting the payment on 29 March 2018 and I so find.

23.So far as the accounting position is concerned this is quite clear in my view. Galaxy’s debtor account ledger for JWT clearly shows a sum owed by JWT to Galaxy during the relevant period. The most relevant page of the ledger is that for the period 17 March to 21 March 2018 inclusive. This shows US$1,064,700.70 being credited to JWT’s ledger on 20 March 2018. This figure differs slightly from the amount actually received of US$1,064,370 because of an adjustment for an exchange rate difference as the amount recorded in the ledger was in Hong Kong dollars as Galaxy accounted in Hong Kong dollars as demonstrated by its audited financial statement. I shall refer to this sum as the “composite sum”. The composite sum consisted of:

(1)  the disputed sum, which was transferred on 20 March 2018 by a domestic internal transfer between Wakoon’s account with CTBC and Galaxy’s account with CTBC;

(2)  US$14,000 paid by Tpwelsun Co Ltd;

(3)  two payments of US$216,000 and US$200,000 paid by Wintech International (HK) Electronics Limited;

(4)  US$84,000 paid by Boxin Trading Co. Limited; and

(5)  another (and apparently uncontroversial payment) of US$113,560 by Wakoon.

The US$ amounts were converted into HK$ at an exchange of rate of 7.8 and reduced the balance shown as owing by JWT to Galaxy at close of business on 20 March 2018 to HK$1,095,457.52.

24.There is no sensible reason for doubting that the composite sum was paid in respect of goods that had already been delivered. It was Mr Lam’s evidence that JWT paid for goods in arrears and this evidence was not challenged.

25.Galaxy has to establish on the balance of probabilities that the disputed sum was paid as consideration for goods that it had delivered. It does not have to demonstrate that on 20 March 2018 its account records were perfectly accurate. The occasional errors or anomalies in the accounting records is unremarkable. I say this because Mr Ng’s lengthy cross-examination seemed intended to tease out of Galaxy’s witnesses’ discrepancies, which would support a submission that the accounts were unreliable. I will not address all the points Mr Ng raised in his closing, which in my view do not justify rejecting Galaxy’s case that the disputed sum was paid for goods sold to JWT. I deal with the more significant. I would note in this regard that, as Mr Wong submitted, it was unsatisfactory that many of the matters, which were pursued by Mr Ng in cross-examination were not matters to which Galaxy has been alerted either by the pleadings or anything in Ms Tannhäuser’s evidence and, therefore, Mr Lam in particular, who I though dealt well with Mr Ng’s frequently pedantic and unrealistic lines of cross-examination, was in the position of having to explain the underlying accounting documents, which were four years old without any forewarning of what aspects of them he might be questioned in detail on. By way of example of the pointlessness of some of the questions (although it was a question put to Mr Wong, rather than Mr Lam) Mr Ng asked about the exchange rate used to convert the US dollar payments recorded in the ledgers to Hong Kong dollars. Mr Wong explained that Galaxy accounted in Hong Kong dollars (as is apparent from its audited financial statement) and for its internal accounting purposes and reporting to management during the year it used an exchange rate of 7.8 rather than the spot rate. Mr Wong explained that there was no exchange rate differential which benefited or prejudiced Galaxy. Mr Ng insisted that he be permitted to put to Mr Wong that Galaxy profited from the difference between the spot rate and the exchange rate (7.8) shown in the ledgers. This was clearly wrong, irrelevant and Mr Wong predicably disagreed.

26.Despite having accepting in his Opening that the fact that Galaxy and JWT operated a running account did not prevent Galaxy relying on the bona fide purchaser defence, Mr Ng argued in his closing that the suggestion in Mr Wong’s opening that the disputed sum was attributable to particular invoices, namely, 177 and 178 (the Defence simply pleaded that the disputed sum reduced the running balance), which was not consistent with a screen shot of a document forming part of Galaxy’s account records that Mr Lam obtained during his cross-examination at Mr Ng’s request, which attributed the composite sum to invoices 171, 172, 176 and 177, meant that Galaxy could not identify the consideration referrable to the disputed sum. That is not, however, in my view what is required of Galaxy. What is required is for Galaxy to show that it gave value for the disputed sum. This in my view it has done. The fact that Galaxy cannot identify particular goods that were paid for by the disputed sum or that in attempting to explain how it and JWT accounted for their dealings the explanation varies on occasions depending on what part of the process is being scrutinized, makes little difference. For example, the audited financial statements are more general than the debtor ledgers and the debtor ledgers are more general than the vouchers and the attribution of payments as recorded in the screen shot of the voucher produced by Mr Lam. How one explains the way in which Galaxy and JWT accounted for their dealings will likely depend on what level of detail a witness descends into. It is clear that Galaxy and JWT operated a running account and that at least in some instances particular payments were attributed by Galaxy to particular invoices although to some degree the attribution was notional in the sense that it reflected a decision by Galaxy to do so rather than because the parties had agreed that it did.

27.The fact that Galaxy’s ledger shows the running account as being in credit in February and early March seems to me to make no difference. The ledger shows the running account going into debit on 18 March 2018. Any payment made when the running account was in debit necessarily must be attributable to goods supplied. I accept that if the account has been in credit that might not be a conclusion that could properly be drawn. However, that is not the position. Mr Ng took a similar point in relation to the payment for materials by JWT direct to Musheng. Musheng’s general manager Ding Jinming gave evidence, and in cross-examination said that JWT paid for materials 45 days in arrears. Mr Ng submitted that this suggested that the disputed sum could be a pre-payment. It seems to me that the position in respect of the payment for material is immaterial in determining whether or not the disputed sum was paid for goods already sold and delivered. The disputed sum may notionally have been a partial payment for goods if Musheng was at 20 March still owed payment for materials, but this is irrelevant to the question of whether or not the disputed sum is attributable to goods that had been collected.

28.Similarly, in my view the conclusion that the disputed sum was made for value is not effected by other subsidiary objections advanced by Mr Ng. The chopped delivery notes produced by Musheng show the delivery of goods attributed to invoices 171, 172, 176, 177 and 178 as having taken place on 20 March 2018. If one treats the disputed sum as attributable to these invoices or any of them it follows that the goods had been collected at the time payment was made and before Galaxy became aware of the fraud.

29.Mr Ng also suggests that in certain respects JWT’s March ledger does not tally with that of Galaxy. This is correct. For example, the last item for 20 March 2018 in Galaxy’s ledger shows a debit balance HK$1,095,457.52. The last item for 20 March 2018 in JWT’s ledger shows a debit balance of RMB99,287,658.23. It was Mr Lam’s evidence in cross-examination that he was not particularly interested in the contents of JWT’s internal ledgers (copies of which were sent to Galaxy during the course of the month) as they would be reconciled in the following month. It does not seem to me that anything of substance turns on this. There is nothing to suggest that Galaxy and JWT had a dispute over how much JWT owed Galaxy for the goods that had been supplied in the period prior to 20 March 2018. There is nothing in the evidence that I was taken through, which in my view justifies me rejecting Galaxy’s case that the disputed sum was received in consideration of goods that had been sold to JWT and delivered to or collected by it. As I have already explained the issue is not the precision of Galaxy’s accounts it is whether or not the disputed sum was paid and received in respect of goods that had been delivered or collected. I am satisfied on the balance of probabilities that it was and that Galaxy has demonstrated that it was a bona fide purchaser for value without notice.

Conclusion

30.For the reasons I have explained I enter judgement against Wakoon and dismiss the action against Galaxy. I make a costs order nisi that Wakoon pay END’s costs including any reserved costs of the Action against Wakoon such costs to be taxed on a party and party basis if not agreed with a certificate for one counsel. I will make a costs order nisi that END pay Galaxy’s costs including any reserved costs such costs to be taxed if not agreed on a party and party basis save for one day, which shall be taxed on an indemnity basis, with a certificate for one counsel. In my view approximately one day of the trial was unnecessary and the consequence of Mr Ng’s prolix and unhelpful cross-examination and it is appropriate that Galaxy recover its actual costs rather than an amount that is likely to be less than the costs it has actually incurred.

Mr Felix Ng and Ms Tiffany Tse, instructed by C Y Lam & Co, for the plaintiff

Mr Alexsander Wong, instructed by Chong & Partners LLP, for the 2^nd defendant

The 1^st defendant was not represented and did not appear