Idemitsu Chemicals (Hong Kong) Co. Ltd v. Yanqing Ltd and Others

HCA 148/2020

[2023] HKCFI 3072

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 148 OF 2020

______________________

______________________

____________________

DECISION

____________________

1.This is an application by summons dated 19 July 2023 by Idemitsu Chemicals (Hong Kong) Co., Limited in a case brought against 32 defendants, of which only two are the subject of the summons.  These are the 21^st defendant, Haiquan Telecommunications Limited, and the 24^th defendant, Top Lead Hong Kong Group Limited.  Relief against both these defendants is sought by way of summary judgment under Order 14, rule 1, and/or strikeout under Order 18, rule 19.

2.The case arises out of a very serious fraud committed against the plaintiff in January/February 2020.  This case is concerned only with part of it.  I am told that the proceeds of the fraud also spread to the United Arab Emirates.

3.The 21^st defendant and the 24^th defendant are second-level recipients in relation to this fraud.  To be clear, it is not part of the plaintiff’s case in these proceedings that they were part of the fraud.  Essentially, the question arises, as so often arises in these cases, as to which party has to bear the loss.

4.There have been a number of other judgments against other second-level recipients, but I am told that these were, in substance, default judgments.

5.I need say very little about the fraud itself.  The evidence filed by the plaintiff shows that it was highly sophisticated.  It involved the deception of the managing director of the Hong Kong office of Idemitsu Kosan Co. Ltd, a company listed on the Tokyo Stock Exchange.  This was perpetrated by phone calls impersonating the company’s CEO in Tokyo, the use of the name of the New York lawyer to give credence to a non-existent law firm acting in a non-existent M & A transaction that required the transfer of funds, detailed payment instructions and the like, all of which were forged.

6.The whole fraudulent scheme was given traction by the fact that the number showing on the phone of the managing director of the Hong Kong office in the phone calls he believed he was having with the CEO purported to come from the plaintiff’s headquarters in Tokyo.

7.The mechanics of the fraud so far as relevant were as follows.  At the instance of the fraudster (or fraudsters), on 15 January 2020 US$2,978,000 was transferred to the 1^st defendant’s bank account.  Taking the 1^st defendant’s name, this will be referred to as the “Yangqing account” maintained with CMB Wing Lung Bank Limited.

8.The second relevant set of transfers were to the 2^nd defendant’s bank account, which again taking its name, will be referred to as the “Zhigang account”, maintained with the Bank of China (Hong Kong) Limited on 15, 17 and 20 January 2020.  These totaled US$13,171,000.  All these sums were transferred out of the plaintiff’s bank account as a result of the deception that had been practiced upon it.

9.Sums were then dispersed to second level recipients.  The 21^st defendant received US$110,000 from the Zhigang account on 17 January 2020.  The 24^th defendant received US$200,000 from the Zhigang account on 20 January 2020.  These are the subject matter of the proceedings against these defendants.

10.As one would expect, the case has been before the court on numerous previous occasions and there are injunctions in force against the defendants, including the 21^st and 24^th defendant.

11.The position as regards these two defendants is very much the same, if not identical.  The 21^st defendant filed a defence and counterclaim on 16 July 2020, and the 24^th defendant filed a defence and counterclaim on the same day.  The same law firm acted for both defendants and the pleaded defences are also the same.

12.It is that the defendants have a defence on the basis that they were acting bona fide and gave value in respect of the transfers and/or, secondly, that they changed their position in good faith.  In each case, it is pleaded that the defendant in question entered into a contract with a Mr Chan to sell him mobile phones, and the defendants had no reason to believe that transfers into the account were otherwise than legitimate payments in respect of the sales.

13.In the case management proceedings on 8 November 2022, the court made an order directing the 21^st defendant and the 24^th defendant to file and exchange witness statements, followed by an “unless” order to that effect that to be complied with by 13 April 2023. Neither defendant complied with the “unless” order.  Neither defendant has filed any lists of documents.

14.The plaintiff’s submission is that as the 21^st defendant’s and the 24^th defendant’s defences and counterclaims are not supported by evidence, the defences are bound to fail.  It is on that basis that the summary judgment and the strikeout applications have been argued this morning.

15.The defendants’ solicitors came off the record in March and April 2023 respectively.  The defendants have not communicated with the court so far as I am aware and have simply ceased to engage with the proceedings.  Neither defendant has made any appearance at the hearing.  That is how matters now stand.

16.The case as put forward by Mr Leon Ho for the plaintiff is as follows.  The plaintiff seeks monetary judgments against the 21^st and 24^th defendant on grounds of unjust enrichment only.  In these circumstances, he submits, in my view correctly, that the applicable legal principles are as follows. 

17.In Shanghai Tongji Science & Technology Industrial Co. Limited v Casil Clearing Limited (2004) 7 HKCFAR 79, Ribeiro PJ at paragraph 67 set out the framework for approaching a claim in respect of unjust enrichment:

“(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?”

18.The first three requirements cannot be in doubt in the present case in view of the extensive evidence filed on behalf of the plaintiff on 19 July 2023 in support of the summons. 

19.In Arrow ESC Norway AS v M Yang Trading Limited and Others, HCA 239/2016 (unreported, 22 September 2016) Recorder Lisa Wong, SC, as her Ladyship then was, held in a claim against a second-level recipient as a result of a fraud at paragraph 14 as follows:

“In making its case on such bases, the plaintiff does not, and does not need to, make or rely on any allegation of dishonesty or fraud against the 1st defendant. All that the plaintiff has to say and prove is that it transferred the Funds into the Account for no valid underlying reason; that it did not intend the 1st defendant to have the Funds; no consideration has been paid for the Funds by the 1^st defendant to the plaintiff and there is no legitimate reason for the 1^st defendant to have received the Funds from the plaintiff so that the 1^st defendant has been unjustly enriched by receiving the Funds at the plaintiff’s expenses.”

20.Thus, as noted by Chow J, as his Lordship then was, in a later decision in Arrow ECS Norway AS v M Yang Trading Limited and Others [2018] 5 HKC 317 at paragraph 22, subject to the defence of change of position, the plaintiff is entitled to recover sums received by second-level recipients on the grounds of money had and received, unjust enrichment and/or restitution.  This, of course, applies to any other available defence that there may be.

21.Against that legal background, the plaintiff’s claims against the 21^st defendant and the 24^th defendant under unjust enrichment are simple.

(1)  The bank records of the Zhigang account show that the 21^st defendant received US$110,000 from the Zhigang account on 17 January 2020, a few hours after the relevant transaction, and the 24^th defendant received US$200,000 from the Zhigang account on 20 January 2020, again, a few hours after the relevant transactions.  Plainly, the 21^st defendant and the 24^th defendant were enriched at the expense of the plaintiff.

(2)  On the plaintiff’s case, made good by extensive affirmation evidence, the plaintiff’s funds were transferred to the 21^st defendant and the 24^th defendant as a result of the fraud perpetrated upon the plaintiff and in the mistaken belief that the payments to the 2^nd defendant were for a merger and acquisition project on behalf of Idemitsu headquarters in Tokyo.

22.Clearly, the plaintiff did not intend the 21^st defendant or the 24^th defendant to receive any part of the funds and no consideration has been paid to it by either of those defendants for the funds.  There was, in fact, no legitimate reason for the defendants to receive funds from the plaintiff.  For that reason, the enrichment is clearly unjust.

23.So the real question that arises in the case relates to the fourth element identified by Ribeiro PJ in the Shanghai Tongji Science & Technology Industrial case – are any of the defences applicable?

24.It is submitted by the plaintiff, and I accept, that the burden of pleading and proving a defence to an unjust enrichment claim rests with the defendant.  The plaintiff relies in this respect on paragraph 1 – 32 and following of Goff & Jones on Unjust Enrichment, 10^th Edition, (Sweet & Maxwell, 2022). To be more precise, citing the passage in the text book relied on by the plaintiff, once the necessary elements of the claim have been pleaded and proved by the plaintiff, the burden in that respect always lying on the plaintiff, the burden of pleading and proving a defence to an unjust enrichment claim generally rests with the defendant.  Thus:

“A defendant can make two types of argument in reply to a claim in unjust enrichment: he can deny that the claimant has established an element of his action, or admit that the claimant has established a prima facie right to restitution, but argue that restitution should be reduced or withheld for another reason. Distinguishing clearly between “denials” and “defences” can make it easier to understand the substantive content of both the claimant’s and the defendant’s arguments in unjust enrichment cases. It can also matter because the burden of pleading and proving the elements of a claim always lies on the claimant, while defences must generally be pleaded and proved by the defendant.” (para 1-32)

25.As the 21^st defendant and the 24^th defendant’s enrichment is unjust, unless either of them can establish a defence the plaintiff should be entitled to summary judgment.

26.To put the point into a broader context, in a case like this, it is not sufficient for a defendant simply to raise the defence of bona fide purchaser or change of position.  Since the onus of proof is generally of necessity on the defendant which has received the stolen money, the defence must be made good by the defendant by such evidence as is sufficient to show an arguable defence at the summary judgment stage.

27.So in the present case, detailed evidence on the defendants’ pleaded dealings with Mr Chan would be required to show, if it could be shown, that the defendants have a defence or, at the summary judgment stage, an arguable defence.  None of that material has been presented by either defendant here.  As it was rightly put, all that there are is a series of unsupported assertions in the pleadings, and this is not cured by the fact that there is (as required by the rules) a Statement of Truth verifying the pleading on behalf of the defendant concerned.

28.In these circumstances, I am satisfied that the plaintiff is entitled to summary judgment against both defendants.  I need not go further and decide the application to strike out the defences made on the basis of non-compliance with the directions as to evidence.

29.There are counterclaims pleaded on the basis of loss of business by reason of the injunctions against the 21^st and 24^th defendants having been wrongly granted.  Accepting the plaintiff’s submissions, I consider that the plaintiff is entitled to an order striking out these counterclaims.  This is because the undertaking in damages given by a plaintiff in obtaining an injunction does not found any cause of action.  The remedy (if there are any grounds for a remedy) is to apply in the proceedings in which the undertaking is given.  See Wingames Investments Limited v Mascot Land Ltd No. 2, [2013] 1 HKLRD 1186 at paragraphs 22 and 23, Fok JA (as his Lordship then was), and C T Bowring & Company (Insurance) Ltd v Corsi & Partners [1994] BCC 713 at 7298B, Lord Millett.

30.The plaintiff is entitled to an order that:

(1)  the 21^st defendant do pay the plaintiff a sum of US$110,000.00 together with pre-judgment interest at 1 % p.a. over the HSBC prime rate from 14 April 2020 to the date of this judgment, and at judgment rate thereafter until full payment; and

(2)  the 24^th defendant do pay the plaintiff a sum of US$200,000.00 together with pre-judgment interest at 1 % p.a. over the HSBC prime rate from 5 May 2020 to the date of this judgment, and at judgment rate thereafter until full payment. 

31.As to costs, (on a nisi basis) the plaintiff is entitled to the costs of the action against the 21^st and 24^th defendants respectively, including all costs reserved and this application, to be taxed if not agreed.

Mr Leon Ho, instructed by K & L Gates, for the plaintiff

The 21^st and 24^th defendants were absent