Clever Boy Ltd and Another v. Sum Kwok Hang and Another

HCA 2921/2017

[2023] HKCFI 959

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2921 of 2017

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BETWEEN

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J U D G M E N T

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I.  INTRODUCTION

1.In this action, the plaintiffs claim for repayment of a loan of HK$1,500,000 (“the Subject Loan”)  against the 1^st defendant (“D1”)  as borrower and the 2^nd defendant (“D2”)  as guarantor, under an agreement (“the Alleged Agreement”)  allegedly entered into at a meeting between the 2^nd plaintiff (“Ko”)  and D1 on 15 February 2012 (“the 15 February 2012 Meeting”).

2.Ko is sole shareholder and director of the 1^st plaintiff (“CBL”), a company incorporated in the BVI.  D1 and D2 are brother and sister.

3.D2 at all material times resided at Flat 26H, Tower 2, Radiant Towers, 1 Yuk Nga Lane, Tseung Kwan O, New Territories (“the Premises”), which is a property registered in the names of D2 and another brother of D2 as joint tenants. 

4.The plaintiffs obtained default judgment against both defendants on 1 March 2018. By way of execution of the default judgment the Premises were made the subject of a Charging Order. D2 successfully set aside the default judgment on 18 March 2019 and discharged the Charging Order to show cause dated 3 August 2019.

5.D1 was nowhere to be found and the debt remained outstanding. The trial against D2 proceeded.

6.The plaintiffs contend that the Alleged Agreement is evidenced by the following documents –

(1)  a written agreement for a loan of HK$1.5 million from CBL to D1 which was signed by D1 as borrower, and in which D2 was named as guarantor (“the Written Agreement”);[1]

(2)  a copy of D1’s Hong Kong Identity Card (“HKID”)  signed by D1 and provided by D1 to Ko at the Alleged Meeting[2]; and

(3)  a copy of D2’s HKID allegedly signed by D2[3] and provided by D1 to Ko at the 15 February 2012 Meeting.[4]

7.D2 denies liability as guarantor in terms of the Written Agreement.  She claims that she had no knowledge of the Alleged Agreement, nor did she authorise D1 to enter into the Alleged Agreement on her behalf.  She claims that the signatures on the Written Agreement and the copy of her HKID were not in fact hers.  She contends that the Alleged Agreement (if it existed)  is not binding on her.[5]

8.Apart from the contractual claim, the plaintiffs have pleaded an alternative claim in unjust enrichment.[6]  While the pleaded claim under this head in the Amended Statement of Claim remains to be a claim of HK$1,500,000, the plaintiffs has provided for Voluntary Particulars of unjust enrichment only to the tune of HK$1,400,000  as money deposited into D2’s bank account by way of the unpaid loan.  She is therefore alleged to be liable to make restitution of that amount.[7]  In defence, D2 claims that her HSBC Account was in fact being used and operated by D1 solely at D1’s request after she had withdrawn all of the money in the account.  D2’s case is that she had only been acting in a ministerial capacity as an agent for D1 in so far as she had operated the account at all. Additionally, she relies on a change of position in good faith.[8]

 II.   BACKGROUND FACTS ON THE SUBJECT LOAN

9.The parties rely on witness statements and affirmations filed in relation to the setting aside application.  The following facts are undisputed unless otherwise indicated.[9]

10.Ko first met D1 in around 1999 or 2000, through his job at the time as the personal assistant of a trader named Harry Ho.[10]  On the evidence of Ko himself, he was told by Harry Ho that D1 had borrowed two sums of money, respectively HK$68,000 and HK$580,000, from him without repayment.  He was asked by Harry to help chase for his debt.  These unpaid loans were evidenced by two cheques signed by D1, which Ko produced in evidence in this action.

11.On Ko’s own evidence, D1 reignited a closer connection with him in around 2010, and had managed to impress him as a “seasoned investment expert in Germany” based in that market most of the time, and was helping Mainland Chinese businesses invest in Germany. He also held himself out as dealing in crude oil and had introduced business opportunities in crude oil deals to Ko, although they never materialised into transactions. According to Ko, D1 had a “friendly relationship” with him at the time, and he saw the relationship as one with “potential business opportunities in the future”.[11]  He explained he did not raise the issue of D1’s debts owed to Harry Ho to avoid embarrassing him.

12.On Ko’s evidence, his trust in D1 became even more solid after two trips he made to Germany between September and November 2010, arranged and funded by D1.  In the second of these two trips, Ko was introduced to a German, said to be the boss of D1.

13.In early 2011, on some pretext of a need to pay legal fees for the opening of bank accounts for his Mainland clients, D1 requested a bridging loan in the sum of HK$300,000 from Ko with 1% commission payable to Ko.  Ko credited a sum of HK$297,000 (“the First Loan”)  to an account in the name of D2 kept at HSBC (account no. 110-691839-883)  (“D2’s HSBC Account”)  as per the instruction of D1, who explained that it was for avoidance of double taxation as he held a Canadian passport.[12]

14.According to Ko, he has never communicated with D2 on the transfer made into her account as aforesaid. In fact Ko admitted he had never met D2 until, he alleged, in April 2012 outside the home of D2. The First Loan was never repaid, despite repeated demands from March 2011 to early 2012. Excuses were made by D1 which Ko seemed to have accepted on face value at the time.

15.In or around early 2012, despite having defaulted on the First Loan, D1 made yet another request for a “bridging loan” to complete a “lucrative deal” in 3 months, Ko agreed to lend the him a further sum of HK$1,500,000 (i.e. the Subject Loan), in the hope that he could “get back the First Loan”.  According to Ko, about a week before 15 February 2012, he agreed to lend the money to D1 on condition that (a)  D1 would sign a written agreement with him for the loan, (b) the loan would have to be repaid in full within 3 months; (iii)  interest would be charged at 3% if the loan were to remain outstanding after 3 months; and (c) that the loan and interest would be guaranteed by a guarantor who would also sign on the written agreement. D1 proposed his sister D2 as the guarantor of the loan, and told Ko that D2 owned a property in Tseung Kwan O.  Ko asked D1 to provide a signed loan agreement incorporating the above terms, and to provide signed photocopies of his and D2’s HKIDs “so that [Ko] could verify their signatures”.[13]

III.  THE PARTIES’ CASE ON THE SIGNING OF THE AGREEMENT

16.It is the plaintiffs’ case that the Alleged Agreement was concluded at a meeting between Ko and D1 at a café on 15 February 2012.[14]  At this meeting, D1 showed Ko: (1)  an unsigned agreement in terms of the Written Agreement; and (2)  photocopies of his and D2’s HKIDs, bearing what purported to be the initialling of D1 and D2 respectively.[15]

17.The Written Agreement states, inter alia, as follows –

“I, Sum Kwok Hang (Hong Kong Identity Card No. […] residing at 26H, Tower 2, Radiant Towers, 1 Yuk Nga Lane, Tseung Kwan O, New Territories, Hong Kong hereby confirmed and with legal responsibility that I borrowed from Clever Boy Ltd HK$1,500,000.00 at 15 February 2012 and Sum Kwok Hang will pay back at 15 May 2012 with no interest only when pay back on time. Interest must be paid at 3% per month from the delivery day. The loan is guaranteed by Sum Wing Mui (Hong Kong Identity Card No. […].

… That is Sum Kwok Hang and Sum Wing Mui are willing to pay back the loan and interest to the transferred third party.

Borrower: Sum Kwok Hang

Tel: [number provided]

Guaranteed by: Sum Wing Mui

Tel: [number provided]”

18.At the 15 February 2012 Meeting in the presence of Ko, and upon his agreement to transfer the money, D1 initialled against his name on the unsigned Written Agreement. Not satisfied with just his initials on the two documents bearing his name, Ko requested D1 to append his full signature on both the Written Agreement and on the photocopy of his HKID in front of him, which he did.  Ko’s evidence is that he made D1 promise him to procure the signature of D2 on the Written Agreement “in due course”.  As with the First Loan, D1 requested Ko to transfer the Subject Loan to him via D2’s HSBC Account.[16]

19.D2’s case is that she has no knowledge of the 15 February 2012 Meeting nor the terms of the Alleged Agreement said to have been concluded at the meeting. D2 -[17]

(1)  denies the signature appearing on her HKID copy, said to have been tendered by D1 to Ko at the 15 February 2012 Meeting was that of hers;

(2)  denies that she has ever provided D1 or the plaintiffs with a copy of her HKID;

(3)  denies having ever agreed to guarantee the Subject Loan or authorising D1 to enter into the Alleged Agreement or any loan agreement on her behalf; and

(4)  avers that she has never seen the Written Agreement until it was sent to her by the Legal Aid Department by a letter dated 1 August 2018 in the process of applying for legal aid.

20.D2 relies on the following evidence -

(1)  D1 has all along been a financially irresponsible member of the family. In about 1997 he had borrowed HK$2 million from their father, causing their family to have to move their home to smaller premises in order to enable their father to afford the mortgage payments for the loan borrowed to provide the funds to D1.  D1 never repaid the loan[18];

(2)  D1 did not reside with the family and never disclosed his place of work or residence to the family. He would turn up from time to time to see family members, but would go uncontactable for extended periods. He had on occasions asked for loans from their mother, and from D2. While mother had lent him HK$200,000 in about 1999, D2 had modest means and could only afford to lend him small amounts of a few hundred.[19]

(3)  She could not possibly have agreed to guarantee such a substantial loan, as she only had a modest monthly income of about HK$15,000 at the time as a labour officer, was out of employment for over a year between 2015 to 2016,[20] and would not have dreamed of risking the share of ownership of the only home premises she had for herself, her mother and her younger brother residing there.

21.Between 16 February 2012 and 11 April 2012, the plaintiffs paid a total of HK$1,400,000 to D2’s HSBC Account from CBL’s bank account maintained with HSBC (account no. 491-300083-838)  (“CBL’s Account”)  and Ko’s bank account maintained with HSBC (account no. 095-089744-888)  (“Ko’s Account”). The details of the payments were as follows - [21]

Date	From	Amount (HKD)
16/2/2012	Ko’s Account	300,000
16/2/2012	CBL’s Account	200,000
14/3/2012	Ko’s Account	300,000
22/3/2012	Ko’s Account	400,000
11/4/2012	CBL’s Account	200,000

22.However, despite the transfer of HK$1,400,000 of the HK$1,500,000 loan and Ko’s alleged repeated requests, the signature of D2 on the Written Agreement remained outstanding.  According to Ko, D1 said he would make arrangements for Ko to “visit him in his flat” when Ko should bring to him in cash the balance of the loan, and he would ask D2 to sign on the Written Agreement. 

23.D2’s case is that since about 2008, she had given the control of her HSBC Account over to D1 at his request, and had not since made use of the account for any of her purposes, nor concerned herself with the receipt or transfer of any sums into or out of the account, except on occasions when requested and instructed by D1 to make certain withdrawals at the local branch of the bank for his purposes.[22] D2 admits that she continues to receive the bank statements of her HSBC Account. She otherwise pleads no positive case as to whether these sums were received into her account and puts forward no evidence to the contrary. The Agreed List of Issues shows that the receipt of the HK$1.4 million into D2’s HSBC Account is not an issue this court is asked to adjudicate on.

24.The plaintiffs’ case is that on 14 April 2012, Ko made an appointment to meet up with D1 at the main entrance of the building of the Premises in Tseung Kwan O, where they stood and chatted for a while.  He passed the remaining balance of HK$100,000 in cash to D1 and gave D1 the Written Agreement which bore only D1’s signature at the time to let him procure D2 to sign on it.  According to Ko, D1 “was a bit reluctant” but upon Ko’s insistence they both proceeded upstairs towards the Premises. On Ko’s evidence, they proceeded as far as the door but he never ended up entering the Premises, as D1 said his mother was inside and he did not want her to know about the loan.

25.According to Ko, whose account is hotly disputed by D2, right at this juncture, he happened to see a woman making her way towards the Premises, whom D1 identified to him as his sister, D2.  D2 allegedly ignored Ko’s greeting and entered the Premises, followed by D1, while Ko waited outside. Soon after, D1 allegedly emerged from the Premises again, and told him that his sister has signed on the Written Agreement.  Ko therefore believed that the initialling against the name of D2 and her phone number on the Written Agreement were the signature of D2.[23]

26.D2 denies that the signature purporting to be hers on the Written Agreement was appended by her.

27.She claims to have no recollection of any encounter with Ko allegedly outside the Premises, but if D1 had brought any of his friends there she would have remembered it, as it had never happened before.

28.Contrary to the terms of the Alleged Agreement, D1 did not repay the Loan on or before 15 May 2012.[24]

29.Two demand letters dated 9 October 2013 and 28 September 2017 respectively were allegedly sent to the Premises addressed to both defendants.  The plaintiffs allege, which D2 does not admit, that both demand letters were countersigned by D1 in acknowledgment of the debt. 

30.Ko’s attempts to call D1 and D2 respectively on the phone to chase for repayment came to no result.  However, Ko claimed to have talked in person to D2 on two occasions when he went to the building where the Premises were situated and waited for D1 and D2.  He claimed that D2 knew about the [Alleged Agreement] and never denied that she had signed the Loan Agreement”, but had only told him to go and chase D1 for repayment.  There is no clear evidence from Ko as to from which point of time D2 has obtained knowledge of the Alleged Agreement.

31.Ko also gave evidence that D2 had called him after the 2^nd Demand Letter was issued, and that they had a conversation on the telephone lasting 8 minutes.  D2 acknowledged receipt of the 2^nd demand letter, but again asked that Ko chase D1 for the loan, and told him that she could not locate D1 either.   Ko’s evidence was again that D2 never denied having signed the Written Agreement in this call, but would not repay the loan.

 IV.  THE ISSUES FOR DETERMINATION

32.The issues to be resolved by the Court are as follows[25] –

(1)  Whether the Alleged Agreement on 15 February 2012 was binding on D2 as purported guarantor. In particular –

(a)  Whether the signature on the copy of D2’s HKID, allegedly handed over by D1 to Ko at the 15 February 2012 Meeting, was appended by D2, or whether it was forged.

(b)  If the signature was appended by D2, whether she, by that act, accepted the terms of the Alleged Agreement. (“Issue (1)”)

(2)  If the Alleged Agreement was not binding on D2, whether D2 is liable in unjust enrichment in respect of the payments to D2’s HSBC Account in the total sum of HK$1,400,000. (“Issue (2)”)

(3)  If the answer to the above is in the affirmative, whether D2 is entitled to rely on the defences of ministerial receipt and/or change of position. (“Issue (3)”)

33.At the outset it should be noted that, for the purpose of Issue (1)  above, the plaintiffs pursuant to their amendments to the Statement of Claim no longer rely on D2 as a signatory to the Written Agreement, but allege that D2 was a party to the alleged tri-partite agreement of 15 February 2012 as “concluded by, contained in, evidenced by and/or is to be inferred from” (a)  the Written Agreement (which the plaintiffs accepted D2 did not sign on or before 15 February 2012); and (b)  D1’s HKID copy which he signed on; and (c)  D2’s HKID copy which purported to bear her signature and was presented with the unsigned Written Agreement at the 15 February 2012 Meeting.  This is made obvious by the removal of the word “written” before “loan agreement” from the first sentence of §5 of the Amended Statement of Claim, and the particulars added thereunder by amendment -

“5.   By reason of the matters pleaded in paragraph 4 hereinabove,the 2^nd Plaintiff caused the 1^st Plaintiff, in the capacity of a lender and an agent of the 2^nd Plaintiff, to enter into a tri-party written loan agreement dated on 15 February 2012 with the 1^st Defendant in the capacity of a borrower and the 2^nd Defendant in the capacity of a guarantor (“Agreement”)  on the following terms

PARTICULARS

The Agreement was concluded by, contained in, evidenced by and/or is to be inferred from the following documents:

(a)  A written loan agreement prepared and drafted by the 1^st Defendant on behalf of himself and the 2^nd Defendant. Upon request by the 2^nd Plaintiff in a meeting with the 2^nd Plaintiff on 15 February 2012 (the “Meeting”), the 1^st Defendant initialed and gave his full signature on it;

(b)  A photocopy of the HKID of the 1^st Defendant, initialed and provided by the 1^st Defendant (“D1’s HKID”)  to the 2^nd Plaintiff in the Meeting prior to the 1^st Defendant signing on the written loan agreement. Upon request by the 2^nd Plaintiff in the Meeting, the 1^st Defendant gave his full signature on it; and

(c)  A photocopy of the HKID of the 2^nd Defendant signed by her (“D2’s HKID”). It was provided by the 1^st Defendant on behalf of the 2^nd Defendant to the 2^nd Plaintiff in the Meeting prior to the 1^st Defendant signing on the written loan agreement and D1’s HKID.

5A.   The Agreement contains the following express terms:

…

5A.3 The Loan was guaranteed by the 2^nd Defendant agreed to guarantee the Loan in full (the “Guarantee”).”

34.It would appear that the plaintiffs have taken this stance to avoid potential issues of past consideration.[26]  I also note that the terms previously relied on as the terms of the “written loan agreement” are now pleaded as the “express term” of the “Agreement” as defined in §5A of the Amended Statement of Claim, incorporating a “Guarantee” allegedly agreed to by D2.

V.  D2’S APPLICATION TO ADDUCE FURTHER EVIDENCE

35.D2 has taken out an application for leave to adduce further evidence on the signature styles and specimens used by her over the years, especially prior to February 2015, in support of her case that the signature on the copy of her HKID is forged.

36.The plaintiffs oppose the application on the ground of delay.  They contend that the lateness is serious and unexplained, and that prejudice is caused to the plaintiffs by the disruptions in the preparation for trial, the need to consider the new evidence and the need to respond thereto.[27]

37.On the other hand, D2 contends that there is no real prejudice to the plaintiffs, as there is no realistic possibility that the plaintiffs would need to locate any witnesses to counter the additional evidence.[28]

38.The intention on the part of D2 to adduce further evidence pertaining to her signature styles was first brought to the attention of the plaintiffs by letter dated 3 February 2021, enclosing a copy in draft of the Supplemental Witness Statement of Shum Wing Mui (“Supplemental WS of D2”)  but without any proposed exhibits attached[29].  The nature and purport of the supplemental documents to be exhibited was clear, together with the signature of D2 relied on in these documents which all predate the Written Agreement, were set out from the content of the draft supplemental witness statement.  D2 sought the consent of the plaintiff to file the draft supplemental witness statement.

39.On 4 February 2021, a Supplemental List of Documents of the 2^nd defendant listing items 6 to 9 inclusive was filed without leave.  These documents may be matched by their description to those documents identified as [D6] to [D9] (not boldened in typescript)  inclusive in §10 of the draft Supplemental WS of D2.

40.Both the proposed filing of the draft Supplemental WS of D2 and the filing of the supplemental list of documents met with the strong objection of the plaintiffs, as set out in their letter of 5 February 2021.[30]  I note that in the letter of 5 February 2021, the plaintiffs complained of the “wrong” numbering of the documents in the draft Supplemental WS of D2 in that the numbering did not match with the numbering of the documents of the same description in the 2^nd defendants’ Supplemental List of Documents dated 4 February 2012, and that a further four documents identified in the draft Supplemental WS of D2[31] were not included in the Supplemental List of Documents of 4 February 2012.  The plaintiffs were understandably agitated by the confusion caused by the above documents, the fact that the time for the service of trial bundles was fast approaching, and the apparent attempt to answer to §19 of Ko’s Witness Statement (exchanged in March 2020)  had come so late. They refused to give consent mainly on the ground of lateness.

41.On 11 February 2021, a Summons seeking leave on behalf of D2 to file the draft Supplemental WS of D2, the Supplemental List of Documents and a draft Further Supplemental List of Documents was filed and served on the plaintiffs.  The draft Further Supplemental List of Documents covered the four documents which the plaintiffs pointed out were identified in the supplemental witness statement but were not included in the Supplemental List of Documents dated 4 February 2021.  The Summons was set down for hearing together with the trial. At the beginning of the trial, I indicated that I would admit the Supplemental WS of D2 and its related documents in the two lists of documents de bene esse pending determination of the substantive issues.  

42.During oral opening submissions at the trial, the plaintiffs by their counsel withdrew the arguments advanced in §38 of their written Opening Submissions, namely, that it was not open to the Court to begin to consider the possibility of the signature appearing on D2’s HKID copy not being her signature due to a lack of D2 pleading a positive case on the signature not looking like her own.  Accordingly, the court will ignore the points advanced on inadmissibility of evidence of forgery purely based on a lack of pleading of what the “real signature” looks like, or the absence of pleaded reasons why D2 would not have agreed to subscribe to the terms of Written Agreement.  

43.Further, in view of the withdrawal of those arguments, I reject the argument[32] that D2 by her “bare denial” in her defence “must be taken to have admitted the purported signature of hers on the written loan agreement imitates her real signature”, and therefore should be precluded from leading evidence contrary to the deemed admission.  I take the view that the plaintiffs’ argument is based on an unjustifiably narrow reading of §4(6)  of the Re-re-amended Defence, which responds to paragraph (c)  under §5 of the Amended Statement of Claim.

44.§4A(6)(i)  of the Re-re-amended Defence reads as follows –

“It is denied that the signature on the copy of the 2^nd Defendant’s Hong Kong Identity Card … was that of the 2^nd Defendant. It is averred that the signature on the Purported HKID Copy purporting to be that of the 2^nd Defendant’s was forged.” (emphasis added)

45.In the sub-paragraph quoted above, the denial was not, on a natural and plain reading, narrowly confined to a denial of the signature having been appended by D2.  Less still does it impliedly add any admission to the effect that the forgery nevertheless does look like her own signature.  The sub-paragraph does not go on to deal with the evidentiary aspect of whether the signature was a good forgery or a poor forgery, or whether it “imitates” any particular form of D2’s “real” signature or if it was a poor attempt at imitation.  

46.I reject any submissions to the effect that D2 should be precluded from leading evidence on what her signature looks like in support of the denial that the signature appearing on her HKID copy “was that of” her own.

47.I have considered the parties’ arguments in the round. I do not find it necessary or profitable to base my decision on D2’s application to adduce further evidence on the merits of the disputed evidence.  It suffices for me to conclude that the proposed new evidence is sufficiently relevant and material for the purpose of considering the issue of whether the signature was that of D2’s and belongs to D2.  I consider that the evidence of the additional documents supplied are relevant to providing access to pre-February 2012 archives that contain the specimens of signatures of D2, the like of which specimens were already in evidence prior to the application, albeit only on other documents which postdate the 15 February 2012 Meeting.

48.While it is regrettable that the application to admit the Supplemental WS of D2 and its related documentary evidence was only formally made less than a month before the trial, in my view it has not caused and is unlikely to cause any real prejudice to the plaintiffs: there is nothing the plaintiffs were able to identify that they could have done to improve their case or to dent D2’s case in response but were deprived of the opportunity to do so due to lateness.  Rather, the plaintiffs have had ample opportunity to conduct extensive cross-examination of D2 in respect of the contested evidence.

49.While I would not rule out the situation in some cases where the lateness of a similar application, in view of the nature and extent of the evidence to be adduced, would by itself infer significant prejudice without more, this is not such a case.  The pleadings and evidence involved in this case is limited (not exceeding three three-inch box files in all), and the issues well-defined. The plaintiffs have had the draft Supplemental WS of D2 available more than one month before the start of the trial, and could well have inspected the documents referred to shortly thereafter.

50.I would exercise my discretion to admit the supplemental witness statement of D2, and for completeness would give leave to D2 to file the Supplemental List of Documents and the Further Supplemental List of Documents.

 VI.  ESTOPPEL/ RES JUDICATA

51.The plaintiffs submit that the facts forming the background to the loan as pleaded in the original unamended Statement of Claim are “indisputable” as they have been concluded and decided by the default judgment against D1.  If that position were to be upheld, D2 would be estopped from advancing a case contrary to what has been pleaded in §5 of the unamended Statement of Claim, namely, that the plaintiffs entered into a “tri-party (sic)  written loan agreement dated 15 February 2012 with the 1^st Defendant in the capacity of a borrower and the 2^nd Defendant in the capacity of a guarantor”.  The plaintiffs rely on Spencer Bower and Bradley on Res Judicata (4^th edn)  §§2.2, 9.31, and HKCP 2021 §13/9/22.

52.D2 contends that the paragraph cited from HKCP 2021 has no application, as it only applies to a third party applying to set aside a default judgment said to affect its interest. Counsel for D2 further submits that the statements in Spencer Bower & Bradley above on the application of the doctrine of res judicata are clearly confined to situations where the decision given is both “final and on the merits”.  The default judgment obtained against D1 only was clearly not on the merits.  On this point, I agree with D2.  If that were not the case, it would make a mockery of the order to set aside the default judgment originally against D2 to enable her to defend the claim as she sees fit.

53.Counsel for D2 further relies on the judgment of Deputy Judge of the High Court Simon Picken QC in John Page v Champion Financial Management Limited & Ors [2014] EWHC 1778 (QB)  where the Court was asked to determine an identical issue – whether the facts forming the basis of a claim in which default judgment was obtained against one defendant would bind another defendant by precluding the other defendant from running any defence inconsistent with those facts.

54.The deputy judge took the view that public policy in favour of consistency between judgments is outweighed by the overriding public policy interest in ensuring that a co-defendant is able properly to defend itself. The circumstances in which a co-defendant is precluded from advancing any defence on ground of its inconsistency with a default judgment obtained against any co-defendant must be kept within limited bounds.  He also decided that even in the absence of a co-defendant making use of the mechanism of applying to set aside the default judgment against another defendant, the contention that the co-defendant should thereby be precluded from disputing the plaintiff’s case is against the more fundamental principle based on public policy referred to above. At §69 of the judgment, the deputy judge concluded that –

“a default judgment obtained against one defendant (defendant A)  does not preclude another defendant (defendant B)  in the same proceedings from advancing, by way of defence to a claim against it (defendant B), a case which is inconsistent with the default judgment which has been obtained (against defendant A).”

55.I find myself in agreement with the reasoning and conclusion of the deputy judge in John Page. I am not persuaded that the doctrine of res judicata applies in the present case, nor do I consider it is just or fair for D2 to be precluded from presenting her case in any manner inconsistent with the facts upon which default judgment was obtained against the D2.

VII.  APPLICABLE LEGAL PRINCIPLES

56.The parties are in agreement that –

(a)  the burden of proof that D2 consented to being a party to the purported Agreement is borne by the plaintiffs; and

(b)  the evidentiary burden to prove that the signature on D2’s HKID copy was forged is borne by D2 who alleged her signature has been forged.

57.In respect of unjust enrichment, the plaintiffs rely on the test propounded in Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Cleaning Ltd (2004)  7 HKCFAR 79 at §67, comprising a framework of 4 questions posed as follows –

(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?

58.The plaintiffs rely on two unjust factors, namely, total failure of consideration and a mistake of fact.

59.In relation to total failure of consideration, the plaintiffs rely on Goss v Chilcott [1996] AC 788 at 797F-H and Shanghai Tongji (supra)  at §§79-80 for the proposition that a lender is entitled to recover the amount advanced under a loan to the borrower on the ground that the money had been paid for a consideration which had failed, i.e. the failure of the borrower to perform their contractual obligation to repay the loan. The plaintiffs submit that the same principle ought to extend to cases where the borrower defaulted on the loan and the lender seeks to recover the loan amount from the recipient (such as D2)  even though that recipient is not the borrower himself. 

60.In relation to mistake of fact, the plaintiffs submit that, in the event this court holds that D2 is not bound by the Agreement, they paid the money to D2 on the mistaken belief that D2 was bound.  The plaintiffs rely on Guaranty Bank and Trust Co v ZZZIK Inc Ltd (unrep)  HCA 1139/2016 18 July 2016 at §27 for the proposition that money paid under a mistake of fact is prima facie recoverable, provided that (i)  the payer did not intend the payee to have the money in any event, (ii)  the money was not paid for good consideration, and (iii)  the payee has not in good faith changed his position.

61.D2’s arguments focus on the questions of whether D2 was enriched, and whether any of the defences are applicable. There appears to be no disagreement between the parties[33] on the following principles on the defence of ministerial receipt in unjust enrichment –

(a)  An agent who receives a benefit for which he must account to his principal should be able to resist a claim in unjust enrichment whether or not he pays the value of the benefit to the principal, and whether or not he takes good title to the property which he then uses as his own, because his obligations to account means that he never takes the value of the benefit for himself, and the principal alone is enriched by the transaction: Goff & Jones on Restitution 9^th Edition §28-02.

(b)  The claim lies against the principal, not the agent who is not enriched: ibid. §28-03.

62.In respect of the defence of bona fide change of position (ibid §28-02), D2 relies on it in respect of each payment over to D1 of the sums deposited into D2’s Account. D2 carries the burden of proving that her position has changed bona fide, and that it has so changed that it would be inequitable in all the circumstances to require her to make restitution to the plaintiffs.  The mere fact that she has spent the money, in whole or in part, does not of itself render it inequitable: Liu Ke Mian Lorraine v De Xin Da Trading Co Ltd (unrep)  HCMP 1481/2016 20 September 2016 at §30.

63.In order to discharge the onus of proving the defence of bona fide change of position, a defendant must put the defence forward in his pleadings fairly and squarely so that the factual merits could be explored at the trial: Seridom Servicios Integrados Idom S.A.U. v Heng Wen Trade Co, Ltd & Ors (unrep)  HCA 1631/2017, 21 January 2019 at §76 for the proposition that.

64.Further, the plaintiffs rely on Goff & Jones at §28-06 for the proposition that actual, not conceptual, payment over is required to establish the defence of change of position.

65.In contrast, in respect of the defence of ministerial receipt, it is accepted by both parties that the question is whether the agent came under an immediate accounting duty when he received the benefit and should therefore have been entitled to escape liability, whether or not he actually paid the value of the benefit over to the principal: Goff & Jones at §28-03.  This “preferred view” of the learned authors of Goff & Jones have been considered and adopted in Yerrid Law Firm v Qiansbaizi Trading Ltd & Anor. [2021] HKCFI 620 by DHCJ Paul Lam SC in a case where he decided that the defence had a real prospect of success.

66.Both parties also cited Goff & Jones at §28-04, concerning the policy behind the defence of ministerial receipt. The paragraph states as follows –

“From a policy perspective, the reason why the law should permit defendant to make this argument is that it is desirable to protect agents from being caught in the middle of disputes between their principals and third parties. An agent will be faced with an impossible dilemma if he is sued by a claimant to recover a benefit but is also called upon to account for this benefit by his principal (who may incur consequential losses if the agent fails to comply). Agents perform a valuable function as intermediaries with the power to create legal relations between others, and it enhances their ability to perform this function if they are allowed to “drop out” when disputes arise between their principals and third parties over transfers of benefits from one to the other. Allowing agents to do this also makes the law simpler and reduces multiplicity of suits.”

VIII.   DISCUSSION AND FINDINGS

(A)  Issue (1)  - Whether the Alleged Agreement was binding on D2

67.The plaintiffs’ case is that the Alleged Agreement was partly oral and partly in writing, made on 15 February 2012 at a meeting with D1 which D2 did not attend.  Ko gave direct evidence of D1 signing on the Written Agreement which the plaintiff relied on as evidence of the terms of the Alleged Agreement. D2 did not sign on the document.  There is no direct evidence that D2 has seen the Written Agreement, or had in any way been informed of and accepted the terms of the Alleged Agreement on or prior to the 15 February 2012 Meeting except the hearsay evidence of Ko himself.  Ko’s evidence was that he had been assured by D1 that his sister would support him on his loan and has agreed to act as the guarantor. 

68.In addition to the background facts set out under Sections II and III above, I shall highlight the following material facts that emerged from the witness statements and the oral evidence of Ko as the circumstances surrounding the 15 February 2012 Meeting –

(1)  Ko became impressed with how D1 was doing in business since September 2010 when he organised and funded his at least the first of his two trips to Germany. He had been developing greater trust in him as a businessman in the months running up to the 15 February 2012 Meeting.

(2)  Ko knew that D1 has had a record of not paying his debts.  He failed to pay the debts owed to a mutual friend Harry Ho, and the First Loan of HK$297,000 lent by Ko to him in 2011.

(3)  However, Ko was not prepared to press D1 for the repayment of Harry Ho’s debts because he did not want to embarrass him.  He also saw potential in future business partnership with D1.

(4)  Despite his defaulting on the previous loan, he was persuaded to lend him a much bigger second loan of HK$1.5 million because he had placed trust in D1, and D1 told him that his family was supportive of him. D1 also told him his sister had a property in Tseung Kwan O. Ko therefore asked D1 to procure his sister, who was the holder of the account receiving the previous loan, to be the guarantor of the Subject Loan.[34] He also demanded to have a copy of her HKID with signature in order to “verify her signature”.

(5)  There is no evidence to suggest that Ko thought D1 had any share in the ownership of the Premises. The mention of D2 owning the Premises the value of which would provide backing to the guarantee to be provided by D2 was to enable D1 to obtain the loan.  This was a discussion between Ko and D1, to which D2 was not privy.

(6)  Ko had never met D2 to prior to the 15 February 2012 Meeting, and had no personal knowledge of D2 having been aware of the terms of the Alleged Agreement. Despite having asked D1 to produce a written loan agreement signed by him and D2 as a prerequisite for the loan, he only managed to have procured the signature of D1 on the Written Agreement at the 15 February 2012 Meeting, and on D1’s HKID copy at the meeting. 

(7)  The photocopy of D2’s HKID that D1 produced at the 15 February 2012 Meeting was just a loose sheet of paper and not an integral part of the Written Agreement.  It did not refer to any other document, and bore no signature of any witness.  Neither was D2 there at the 15 February 2012 Meeting to afford Ko the opportunity to verify that she indeed knew the terms of the Alleged Agreement and agreed to be bound by them.

(8)  Despite the above, Ko was content to proceed to agree to make transfers of money on the strength of the signature appearing on the loose sheet of HKID copy of D2, without any means of verifying, at the time of the 15 February 2012 Meeting, that

(a)  the photocopy of D2’s HKID was obtained and used with the authority of D2;

(b)  the signature was indeed appended by D2;

(c)  by appending her signature on the copy of her HKID, she  was signifying she had read and accepted the terms appearing in the Written Agreement, which did not bear any signature purporting to be hers.

(9)  There is no explanation why at the 15 February 2012 Meeting, Ko could have believed that D2 had agreed to the terms of the Written Agreement and signified it by signing on her own HKID copy which refers to nothing, but had not gone on to sign the Written Agreement which did provide a space for her signature.

(10)  Ko required D1 to sign his signature on his HKID copy again at the 15 February 2012 Meeting to make sure that D1 acknowledged the loan[35], because he was aware that the signature appearing on D1’s HKID copy was different from D1’s signature on his cheques.  Yet, he was unable to make that verification on D2’s signature there and then, and he had never seen D2’s signature before.

(11)  Ko’s “insistence” on D2 giving her signature afterwards only shows a significant amount of diffidence, even on the part of Ko, that a mere HKID copy with a signature purporting to be from D2 was hardly enough to assure him that she did agree to be legally bound by the terms of the Written Agreement.[36]

69.On the other hand, D2’s evidence was that D1 had been a financially irresponsible person to the family.  The description by D2 of this aspect of D1’s attributes is in fact consistent with the account of Ko’s experience of D1, namely, that he had owed debts and had on more than one occasion failed to pay his debts owed to a mutual friend and to him respectively.

70.With the above in mind, it is hard to imagine how anyone in the position of D2 would agree to be legally bound to guarantee such large loan to her financially irresponsible brother, particularly when she in fact has half ownership of her own home which she stood to lose.  I can find no sound reason to disbelieve D2’s evidence of her limited financial means, and her description of her family circumstances, including the relationship between D1 and the rest of the family.  I find that whereas D2, like her parents, was accommodating and trying to be helpful to D1 through good times and bad times, given her stage of life and limited financial prospects, it is inherently improbable that she would have committed herself to an arrangement which was likely to lead to her own financial ruin, and would likely cause the loss of her family home.

71.I find that it is inherently unlikely that D2 had authorised or otherwise permitted D1 to use the copy of her HKID to signify her acceptance of her liability as guarantor for D1’s borrowing of the Subject Loan.  I accept the evidence of D2 that D1 had from time to time accessed the Premises to visit their mother, and could have come into possession of a copy of D2’s HKID without D2 realising it.  However, that is a very long leap from the conclusion that she had provided the signed copy of her HKID to signify acceptance of the terms of the Alleged Agreement, i.e. to act as guarantor of her brother’s HK$1.5 million loan.

72.I find that the plaintiffs have failed to prove, on a balance of probabilities, that D2’s HKID copy was provided by D2 with her signature for the purpose of the Alleged Agreement. In any event, I reject the suggestion by Ko that purely by allowing a “personal document” such as her HKID copy to fall into the hands of D1, with or without her signature, D2 should be taken to have accepted its use to signify an agreement the terms of which she was not otherwise shown to have accepted.

73.Having made the above finding, it is strictly unnecessary for me to go ahead to make findings of forgery (Issue (1)(a)): even if D2 had provided D1 with a copy of her HKID with her signature on it, the plaintiffs is still required to prove how such a document could per se make D2 a party to an agreement the terms of which she cannot be shown to have subscribed to.

74.In my view, the fact that the purported signature of D2 shown to Ko to persuade him to start transferring the loaned sum was only on an ID Card Copy of D2 but not on the Written Agreement is of considerable significance.  According to the evidence of Ko, both D1 and D2 were supposed to have signed on the Written Agreement before their meeting. Yet, D1 turned up with the required formal document containing the alleged terms of the proposed loan, but failed to secure the signature of D2 on it despite the space for her signature having been provided for.  This is to be contrasted with the careful approach taken by KO with regard to D1’s signature. At the urging of Ko, D1 had had to append his full signature on his HKID copy and the Written Agreement under Ko’s watch.

75.On Ko’s own evidence, he was plainly not satisfied with the fact that D2 had not signed on the Written Agreement.  Ko made D1 sign on the unsigned document at the meeting.  Yet, his evidence was that he “trusted” D1 enough to believe in his oral assurance at the meeting that D2 had agreed to the terms of the purported guarantee.  Under cross-examination, Ko had no reason to proffer on why he still agreed to transfer the funds despite D1 not having secured D2’s signature on the Written Agreement which contains the terms of the loan and the guarantee.  All he could say was that he was led to trust D1 more since the trips to Germany, and that D1 assured him and he believed that D2 had agreed to “support” D1.  His misplaced trust, even if it were to be believed, could not without more have made D2 a party to the Alleged Agreement.

76.Ko further relies on the evidence of his alleged visit to the Premises together with D1, in order to obtain D2’s signature on the Written Agreement (the original of which with D1’s signatures was held by Ko), which remained outstanding despite the transfer of HK$1.4 million.  If the visit was with a view to “verifying” the signature of D2 by seeing her in person and getting her to also sign on the Written Agreement as a belt and braces approach, the exercise completely failed its purpose.  On Ko’s own evidence, he never ended up witnessing D2 signing on any document, nor verifying the earlier signature on her HKID copy.   Even if Ko did see D2 walk past them to enter the Premises, D1 made excuses not to let Ko through the door of the Premises.  All that Ko ended up achieving was to be shown a signature on the Written Agreement ostensibly similar to that on D2’s HKID copy after D1 re-emerged from the Premises.  Ko remained unable to verify that either signature was indeed that of D2. He did not manage to obtain D2’s personal confirmation that she did agree to the terms of the Written Agreement by reference to the signature on the HKID copy he was shown on 15 February 2012.

77.Ko’s evidence was that he has had subsequent telephone conversations with D2 when she admitted to knowing about the Subject Loan, and did not deny having signed on the Written Agreement. In my view, even if there were subsequent conversations between D2 and Ko when Ko chased for repayment of the loan and was met with D2’s urge for him to chase the debtor, it does not assist in making good the Alleged Agreement as a tri-partite agreement.   There remains no reliable evidence to show, on a balance of probabilities, that D2 had known and understood the terms as at 15 February 2012, and had accepted those terms making her the guarantor of the Subject Loan when the Alleged Agreement was concluded.

78.In so far as D2’s signatures are concerned, for completeness, those appearing in evidence on archived documents as well as the ones in issue have been reproduced in tabulated form for the Court’s reference. This is reproduced as Table A attached to this Judgment.

79.If it had been necessary for me to come to any view on whether D2 is to be believed that the signature on the photocopy of her HKID allegedly shown to Ko on 15 February 2012 was hers, I would accept her evidence that it was not hers, as corroborated by what is self-evident from the documents tabulated in Table A.  I bear in mind that the hearsay evidence of D1 tendered by Ko that D2 had signed on the three documents identified in section 1 of Table A is inherently unreliable. When D1 told Ko they were D2’s signature, it was far more likely to be a lie than to be the truth.  It served D1’s purpose at the time to lead Ko to believe that his sister had agreed to guarantee the Subject Loan.  Whereas Ko was impressed with D1’s ability as a businessman at the time and had trusted him to repay him the loan when he was to complete the lucrative deal, when that does not turn out as he has hoped it would, it serves Ko’s purpose to now insist that he did believe D1 has secured the agreement of D2 at the time.  However, if D1 had had no difficulty securing D2’s agreement to the Alleged Agreement by signing on her HKID Copy to signify acceptance, it would have made no sense that he would not have procured her also to sign on the Written Agreement.

80.I do not find that the plaintiffs’ argument on D2 not diligently following up on her report to the police adds anything to the plaintiffs’ claim. Even if it could be suggested that she would have suspected that it was D1 who had exploited a copy of her HKID to secure a loan from the plaintiff without her knowledge, it begs the question as to what further she could be expected to have done in those circumstances in terms of calling up the police or pressing for charges of the forger, when D1 is nowhere to be found even by his anxious creditor, the 1^st plaintiff.

81.As the plaintiffs fairly pointed out in their closing submissions[37], the determination of Issue (1)  above turns heavily on whether the evidence of Ko or the evidence of D2 is to be believed.  I have no hesitation in accepting the evidence of D2 in regard to Issue (1), particularly in relation to why she would not have agreed to guarantee the Subject Loan, and the fact that she did not sign on the two copies of her HKID or on the Written Agreement.

82.The court finds against the plaintiffs on Issue (1).

(B)  Issue (2)  - Whether D2 is liable in unjust enrichment

83.I now turn to Issue (2), the plaintiffs’ alternative claim in unjust enrichment for restitution of the value of HK$1,400,000 deposited into D2’s HSBC Account from the plaintiffs’ accounts.

84.The plaintiffs submit that[38] –

(1)  D2 was enriched by the HK$1,400,000 deposited into D2’s HSBC Account.

(2)  D2’s enrichment was at the plaintiffs’ expense, because the sums were transferred from the plaintiffs’ bank accounts. More precisely, her enrichment was at the expense of Ko, since the payments by CBL were made by it as Ko’s agent.[39]

(3)  D2’s enrichment was unjust, because –

(a)  the payments were made on the mistaken assumption that D2’s signatures were genuine and that she was bound by the guarantee;

(b)  further or alternatively, the consideration or basis of the payments has totally failed.[40]

85.There is no dispute that HK$1.4 million was paid into the account of D2.  The issue remains whether the “ministerial receipt” defence applies that might impact on whether D2 was in fact enriched. 

(B1)  Unjust Enrichment - Mistake of Fact

86.In view of the court’s ruling on Issue (1)  above, the plaintiffs consider the argument on mistaken belief as being immediately available to them.  In view of the burden of proof carried by the plaintiffs to prove the enrichment being “unjust”, the court finds it necessary to consider whether “mistaken assumption” of the liability of D2 as guarantor prior to the advancement of the HK$1.4 million has been made out. 

87.As set out in paragraphs 67-68 above, the facts and circumstances of the case show that even on the evidence of Ko, he was plainly not satisfied that the lack of signature of D2 on the Written Agreement would sufficiently enable him to get the benefit of a guarantee from D2 as represented by D1.  Yet, on his evidence, due to the trust he placed in D1 in believing that he was doing crude oil business with German parties, and that may lead to potential business for himself, he was persuaded to advance the money nevertheless.  His insistence on procuring the signature of D2 by physically visiting D2’s home amply fortifies such a view.  However, as he had been excluded from the opportunity to witness D2 personally signing on the Written Agreement, it did not improve his position as he had hoped it might.

88.Counsel for the plaintiffs sought to press the argument that there would have been no reason for the plaintiffs to agree to make the transfer had they not believed that D2 had agreed to be the guarantor.  I do not agree that the evidence supports that view, as the availability of an enforceable guarantee did not stand in the way of the plaintiffs jumping into the deal – [41]

(1)  D1 and Ko were already partners in business dealings, with Ko hoping for future business opportunities through D1.  Ko lent D1 the First Loan even without a written loan agreement, let alone a guarantor. The deal was for him to take a commission from D1.

(2)  D1 had won his trust through the two trips to Germany.  At the time of the loan, Ko gave evidence that he trusted him and came to have “stronger confidence in him”.

(3)  Ko had been told that the Subject Loan was needed as a bridging loan to complete a major deal.  Ko believed that when the deal was completed it would bring proceeds that would enable D1 to repay his First Loan as well.  Ko was obviously impressed by the prospect of success of the deal, rather than to look towards seeking repayment from D1’s sister.

(4)  When asked why he could be sure that what appeared on the HKID copy of D2 presented at the 15 February 2012 Meeting was D2’s signature without anyone witnessing the signing of it, Ko at first said that it was because D1 told him so.  When pressed further, he had had to admit that that was why he made an appointment with D1 to go to D2’s home, for her to sign the Written Agreement.  He admitted that he had never seen her signature before, and accepted that the Written Agreement did not contain her signature.

(5)  Under cross-examination, when pressed on the purported signature of D2 further, Ko said that D1 had assured him many times over the telephone that his sister “supported” him, a term which is vague and general.  When asked if that meant that he was not sure if the signature on the HKID copy was that of D2’s at the 15 February 2012 Meeting, his answer to counsel for D2 was “you can say that”.[42]

(6)  Ko then said D1 had told him he had shown D2 the Written Agreement for her to see, though he could see no signature ended up being obtained.  His evidence was to the effect that D1 promised him that he would ask D2 to sign on the Agreement at a future time.[43]

(7)  On 14 April 2012 outside the building of the Premises, Ko had to insist on visiting the home of D2, which D1 tried to stop.  Ko did not succeed in trying to patch up the agreement by securing D2’s signature on the Written Agreement after the 15 February 2012 Meeting.  In the end, he was again blind-sided by D1 producing a “signed” copy allegedly signed by D2.  This was two months after the date of the allegedly conclusion of the Alleged Agreement. [44]

89.From the tested evidence of Ko, it appears clear that the 14 April visit of the Premises by Ko was clearly made in the hope of affixing D2 with liability as guarantor, but only after the conclusion of the Alleged Agreement, when Ko became concerned that D2’s liability of a guarantor to the loan might not have properly been created.  By April 2012, Ko had become anxious to exert pressure on D1 to make his sister sign on the Written Agreement herself, thinking that it might help the 1^st plaintiff’s position as a creditor.[45]

90.The evidence highlighted above demonstrates that by the time of the making of all of the HK$1.4 million advances, Ko remained of the view that it was imperative to obtain D2’s signification of agreement to the guarantee under the Written Agreement because he could not be sure that she indeed agreed to be bound by it.  That was because the plaintiffs knew well that the signature on the HKID Copy of D2 did not actually signify her agreement to the terms of the unsigned document. On his own evidence, Ko felt the strong need to see her sign on the Written Agreement herself.  This led to his 14 April visit and his standing outside the building for a considerable time negotiating with D1 and waiting for D2 to come home, for the opportunity to witness her signature on the Written Agreement.

91.Based on the evidence presented before me, I take the view that the money was paid over at the relevant time more likely on the strength of the trust placed on D1, and the prospect of success of D1’s business venture, rather than on the enforceability of the purported guarantee, which on Ko’s own evidence he knew to be shaky and unreliable.  I find myself compelled by the evidence to find, on a balance of probabilities, that the money was paid over without any belief in good faith at the time that D2 was bound by the Alleged Agreement, but rather on the wishful thinking that D2 might be persuaded to sign on the Written Agreement subsequently to give the plaintiffs an added layer of protection.

92.I find that the plaintiffs have failed to make out their case on the enrichment being unjust based on a mistake of fact.

(B2)  Unjust Enrichment - Total Failure of Consideration

93.I next deal with total failure of consideration as a basis for alleging the enrichment was unjust. I refer to the dicta of Ribeiro PJ in Shanghai Tongji at §79 –

“‘Consideration’ in the context of a restitutionary claim based on total failure of consideration is the anticipated performance for which the money was paid, or the “basis or purpose” of the payment.” (emphasis added)

94.The enrichment in question is in the making of the loan to D1, HK$1,400,000 of which was into D2’s HSBC Account.  The plaintiffs contend that the principle ought to extend to D2 as the recipient of the funds for which she made no repayment as guarantor by way of consideration.[46]  The basis or purposes of the payment was to make a repayable loan.  No repayment was received from either D1 or D2.  D2 takes no issue on the facts in this regard.

95.I am satisfied that the plaintiffs have made out their case on unjust enrichment based on total failure of consideration.

(C)  Issue (3)  – D2’s Defences to Unjust Enrichment

(C1)  Ministerial Receipt

96.In support of her defence of ministerial receipt, D2 contends that she received the payments in a ministerial capacity and therefore was not personally enriched.[47]

97.In this regard, it is D2’s evidence that[48] –

(1)  In around 2008, D2 stopped using D2’s HSBC Account and started using another bank account.

(2)  In or around 2011, D1 asked D2 to let him use D2’s HSBC Account for his own purposes.  She agreed because he was her brother and she thought he would not do her any harm.

(3)  She took out all her remaining money from the account, gave D1 the ATM card of the account, and told him the password for making transactions using the ATM card. After that, she did not concern herself with the transactions that D1 made with D2’s HSBC Account.

(4)  On some occasions, D1 would ask her to make withdrawals by attending the local branch of HSBC in person, without telling her the reasons for the withdrawals.

98.The plaintiffs contend that[49] –

(1)  D2’s allegation regarding the use by D1 of her HSBC Account since early 2011 is mere assertion without any documentary support. It is unreasonable and risky to lend one’s bank account to another, not for one-time use but for a prolonged period of time.

(2)  In any event, even if D2 had lent her HSBC Account to D1, there is no evidence that D2 did not also use the account for herself. It is open to the Court to find that both D1 and D2 were using D2’s HSBC Account.

(3)  Since D2 claims not to know the purpose for which moneys were deposited into D2’s HSBC Account, she has no basis for saying that she received the deposits as D1’s agent.

99.The documentary evidence shows that the account had an opening balance of HK$87.90 before the funds started to flow in. By June 2012, practically all of the funds received from the plaintiffs have been withdrawn.

100.The issue turns on whether the court is prepared to accept the evidence of D2 that in fact she had -

(1)  Surrendered control over the account to D1 in or about 2011 and had acted in the capacity of an agent in her dealings in the account;

(2)  That any of the withdrawals she made was at the request of D1 and for his purpose alone;

(3)  Although she was aware of large sums of money flowing into the account, and had assisted D1 in making withdrawal, she had not been enriched in any way from the receipts into the account. [50]

101.The plaintiffs have no positive evidence to put forward on enrichment of D2, other than to say that the money had been credited into D2’s account, and that D2 has not shown she had handed over complete control of the account to D1, and in any event her evidence should not have been believed.

102.In considering this aspect of D2’s evidence, I continue to bear in mind evidence of the personal attributes of D1, his past history especially his financial track record, his relationship with his family members, and the family circumstances of D2 in assessing whether it was credible that D2 would have conducted herself in the way she said she did in handling her HSBC Account.

103.I bear in mind that the standard of what is a risky or imprudent manner of handling bank accounts may vary from person to person depending on their personal experience, level of education, exposure and family circumstances. I find that it is probable that D2 while harbouring some doubts as to why D1 would need to borrow her account for his use, would have found the risk acceptable to her.  Her evidence was that suspected, but did not know as a fact, that her brother might have become a bankrupt. Whether that turns out to be true or not, one can understand that her suspicion (which D1 did not verify)  may have led her to think that he needed some help.  It is also unsurprising that she felt she should help if it was not expected to get her into trouble.

104.Having observed D2 in the witness stand, I find her a quiet, sincere and simple woman. She appeared to the court to have answered the questions as best she could without prevarication. She is from a family that is traditional and conservative, that probably believed in hard work and conservative money management. She did not come across as sophisticated in financial or business matters, or contrived in trying exonerate herself.  I find her a credible witness. I find it more probable that she would have agreed to assist D2 by lending him the use of her HSBC Account by only conducting bank transactions at D1’s instructions for D1’s purposes, without regarding any of the sums advanced into her account as her own.  The court does not find it necessary to be satisfied that she had had to be aware of how much money was credited into her HSBC Account and at which points of time in order for the duty to account to D1 arise, as long as she regarded any sums that had been credited into the account during the relevant period since 2011 not to be money at her own disposal, but money at the disposal of D1. 

105.I would accept the evidence of D2 that she had at the request of D1 allowed him to take over use of her HSBC Account for a period of time, after she withdrew all her money out of it. It can be implied that the operation of her HSBC Account was agreed to be through D1’s use of the ATM card with the password provided to him.  D2 had since been “not concerned” with the transactions in relation to that account.  That was because D2 had since not regarded the money credited into her HSBC Account as being at her disposal, but was rather at the disposal of D1 alone, with assistance from her to withdraw larger amounts (not possible through the ATM)  as and when requested.  The pattern of movement of the funds for the relevant period of time lends support to her evidence.[51]

106.I also accept her evidence that she believed the monetary transactions through the account to be for D1’s business dealings, without concerning herself with any of the funds credited into or withdrawn from it.  I am also prepared to accept that the agreement with D1, either express or to be implied in relation to the use by D1 of her HSBC Account, obliged her to account for any receipts in the account to D1, which she did whenever called upon to do so.  The court notes that this is consistent with the evidence of Ko in relation to the First Loan he made to D1: D1 told him that D2’s HSBC Account was merely used as a receptacle for the First Loan made to him by Ko, to avoid attracting possible tax liability as a Canadian citizen. Whether or not that was the true reason matters not.  The clear message was that D2’s HSBC Account was but D1’s receptacle for receiving the borrowed sum.

107.In so far as necessary, I would accept D2’s evidence supplemented by the bank statements that transactions including ATM withdrawals, currency and gold exchanges and the larger amount of withdrawals that depleted the funds in the account between February to April 2012 s evidence of payment over to D1 of the sums that were credited into D2’s HSBC Account by the plaintiffs.  I find that D2 was not enriched by the payment into her HSBC Account of HK$1,400,000 by the plaintiffs or either of them.

108.I find that the defence of ministerial receipt succeeds, and the plaintiffs’ claim in unjust enrichment against D2 fails. 

(C2)  Change of Position

109.For completeness I shall briefly deal with the defence of change of position.  The plaintiffs argue that the defence must fail because D2 has not pleaded particulars as to by which transactions and in what sums she is said to have changed her position.[52]  I am with the plaintiffs on this point.  There was neither pleading nor evidence to support such a defence.  I have no hesitation in dismissing it.

IX.  CONCLUSION

110.The plaintiffs’ claims against D2 are dismissed.

111.Costs should follow the event.

112.I make a costs order nisi for costs of the action against the 2^nd defendant to be paid by the plaintiffs to the 2^nd defendant, to be taxed if not agreed.

113.It remains for me to thank counsel for their able assistance.

Mr Tasman Tam, instructed by Yip, Tse & Tang, for the plaintiffs

Mr Moses Park, instructed by F. Zimmern & Co., for the 2^nd defendant

Annexure