安徽海牛進出口貿易有限公司 v. Smart Star Honor Ltd and Another

HCA 1111/2022

[2023] HKCFI 3123

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1111 OF 2022

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D E C I S I O N

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1.This is the Plaintiff’s (“P”)’s application for final judgment in the sum of HK$3,000,000 against the 2^nd Defendant (“D2”), made by Summons filed on 15 June 2023 under O 14 r 1 of the RHC.

BACKGROUND

2.In this Action, P claims against Smart Star Honor Ltd (“D1”) and D2.  The summary judgment application is against D2. 

3.P claims it is a victim of a mask-purchase scam.  In this Action, P seeks to recover from D2 (a second layer recipient) the sum of HK$3,000,000 which represents the traceable proceeds of fraud received by it from Xinsun Trading Co Ltd (“Xinsun”).

4.D2 is a licensed operator for money service pursuant to section 30 of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance.  It conducted money exchange and remittance services. 

5.Pursuant to the 1^st Agreement dated 5 February 2020 between Shining Global Enterprises Ltd (“Shining Global”) as the seller of the 3M face masks and P as the buyer, on 7 February 2020, P remitted a sum of RMB2,000,000 to the account of Xinsun with account no 01280020048113 at the Bank of China (Hong Kong) Ltd (“BOC”) (“Xinsun’s 1^st Account”) as part payment of the deposit (“1^st Sum”). 

6.On 10 February 2020, Shining Global and Xinsun executed an authorisation letter under which Shining Global formally authorised Xinsun to receive the consideration under the 1^st Agreement of RMB16,150,000 on its behalf.  

7.On 10 February 2020, P and Xinsun executed a 2^nd Agreement containing the same terms of the 1^st Agreement save and except that Xinsun was listed as seller instead of Shining Global to facilitate the remittance of the remaining part of the deposit to Xinsun’s 1^st Account. 

8.Pursuant to the 1^st Agreement and/or 2^nd Agreement, on 10 February 2020, P remitted a sum of RMB2,845,000 to Xinsun’s 1^st Account as the remaining part of the deposit (“2^nd Sum”) (collectively the “Sums”).  

9.After P discovered the fraud and reported the matter to the Hong Kong Police, it commenced a recovery action against Xinsun under HCA1982/2020.  Final judgment was obtained for RMB4,845,000 (“Judgment Sum”). 

10.P obtained a Garnishee Order Absolute against BOC for the Judgment Sum.  However, the balance in Xinsun’s 1^st Account (RMB303,194.83) was insufficient to satisfy the full Judgment Sum. 

11.Unbeknownst to P, upon receiving the 2^nd Sum from P on 10 February 2020, Xinsun converted the 2^nd Sum into HK$3,149,324.12 which was in account no 01280020048100 (“Xinsun’s 2^nd Account”).  Subsequently Xinsun made the following transfers to D2:

a.  On 12 February 2020, Xinsun transferred HK$1,000,000 from Xinsun’s 2^nd Account to D2’s account no 0713295599031 with the Public Bank (Hong Kong) Ltd (“D2’s Account”);

b.  On 13 February 2020, Xinsun transferred HK$1,000,000 from Xinsun’s 2^nd Account to D2’s Account; and  

c.  On 14 February 2020, Xinsun transferred HK$1,000,000 from Xinsun’s 2^nd Account to D2’s Account. 

(collectively “D2 Sum”). 

12.D2’s account has been frozen.  P does not know D2 and had no prior business relationship. 

13.P claims that D2 is not entitled to withhold the D2 Sum being the money had and received traceable from P and D2 is liable to return the D2 Sum to P.  The D2 Sum received by D2 represents the traceable proceeds from P as trustee de son tort.  P asserts a proprietary claim for the D2 Sum. 

14.Further or alternatively, D2 has unlawfully retained the D2 Sum and has converted the same for its own use. 

15.P’s claims against D2 are based on:

a.    a proprietary claim over the sum of HK$3,000,000, which represents the traceable proceeds of the Sums; and

b.  a personal claim for the same based on unjust enrichment. 

16.D2 filed its Defence on 1 December 2022.  It raised three defences to P’s claims:

a.    Bona fide purchaser: §14.3 of D2’s Defence;

b.  Change of position:§14.3 of D2’s Defence; and

c.    Ministerial receipt: §14.4 of D2’s Defence.  

PROCEDURAL HISTORY

17.After P filed its Statement of Claim (“SOC”) on 30 August 2022 and took out this application in June 2023, it filed the following:

a.    4^th Affidavit of Ronald Yiu Ting dated 15 June 2023, which exhibited the unsworn Affirmation of Lu Zhangyan;

b.  Affirmation of Lu Zhangyan dated 20 June 2023 (“1^st Affirmation of Lu”); and

c.    2^nd Affirmation of Lu Zhangyan dated 1 September 2023 (“2^nd Affirmation of Lu”). 

18.In opposition to P’s Summons, D2 filed the Affirmation of Chu Parkson Check Chau dated 6 July 2023 (“Affirmation of Chu”). 

19.At the hearing before me were two other summonses issued by D2:

a.    D2’s Summons dated 28 August 2023 for leave to amend the Defence (“Amendment Summons”) as per the draft attached thereto (“Draft Amended Defence”); and

b.  D2’s Summons dated 11 September 2023 for retrospective leave to D2 to file the 2^nd Affirmation of Chu Parkson Cheuk Chau dated 28 August 2023 (“2^nd Affirmation of Chu”) and Affirmation of Lau Ah Yan dated 28 August 2023 (“Lau Affirmation”) (“Further Evidence Summons”). 

20.I made orders to dismiss the Amendment Summons and Further Evidence Summons at the hearing, which I hereby set out below. 

Further Evidence Summons

21.Pursuant to the Order of Master J Wong of the High Court dated 10 July 2023, no further affidavit evidence be filed without leave of the Court. 

22.Order 32 rule 11A(4) of RHC provides that:

“Where the determination of the application is adjourned for the hearing of the summons, no further evidence may be adduced unless it appears to the Court that there are exceptional circumstances making it desirable that further evidence should be adduced.” (emphasis added).

23.The parties at the hearing agreed that the rule in Ladd v Marshall [1954] 1 WLR 1489 applied as to whether to admit the Further Evidence.  

24.Under the criteria as discussed in Ladd v Marshall, further evidence is admissible only where:

(i)    such evidence could not have been obtained before with reasonable diligence (“1st Condition”); 

(ii)   would or might, if believed, have a very important influence on the result of the case, though it need not be decisive (“2nd Condition”); and

(iii)  is apparently credible though it need not be incontrovertible (“3rd Condition”). 

25.All these limbs had to be met for the Further Evidence to be admissible. 

Condition 1: Could not have been obtained before with reasonable diligence

26.I noted §§6 and 7 of the 2^nd Affirmation of Chu as to the reason why the further evidence was not adduced earlier which was due to Mr Cheung leaving D2’s employment.  I noted §§4 and 7 of the Lau Affirmation that Mr Cheung left in July 2022 but the newly discovered materials were only accessed in mid-August 2023. 

27.The computer, records and/or documents were always in D2’s possession.  There was no explanation as to what measures or diligence were taken by D2 between July 2022 to mid-August 2023.  D2 had access to the computer, records and/or documents during this time. 

28.During this time, D2 had filed its Defence on 1 December 2022, application for security for costs on 21 April 2023, and affirmations in support of both the security application and in opposition to the summary judgment application. 

29.Accordingly I ruled that D2 had not exercised reasonable diligence and I dismissed the Further Evidence Summons. 

Amendment Summons

30.At the hearing, Mr Cheung submitted that the amendments in the Draft Amended Defence were particulars.  It was submitted that the amendments did not plead a new case but were factual averments. 

31.It was submitted by Mr Cheung that the amendments should be allowed as there was no prejudice on P as witness statements had not been served and there was no new cause of action. 

32.Mr Cheung further submitted that the amendments were  helpful at trial and supported D2’s case on change of position – that it was conducting a legitimate business.  It was submitted that it would be entirely unjust to exclude the amendments.  

33.I dismissed the Amendment Summons as this was an Order 14 setting.  P would be prejudiced as it did not have an opportunity to raise a reply for the purposes of Order 14 based on illegality in light of the purposed amendments.  Such an illegality defence was raised, for example, in DBS Bank (HK) Ltd v Pan Jing [2020] HKCFI 268 at §§55-56 to defeat a defence based on bona fide purchaser. 

34.At the hearing, I made reference to Hong Kong Topkey Limited v Wintac (Hong Kong) Ltd v Anor [2023] HKCFI 1711 at §§14 and 16:

“14. In resisting an application for summary judgment, the defendant is not allowed to raise and rely upon a defence which has not been pleaded in his Defence.

…

16. In my view, in Kaefer, the Court of Appeal has laid down a general principle that while the defendant has already filed a defence to the plaintiff’s claim, the defendant cannot rely upon an unpleaded defence to resist an application for summary judgment. The authorities cited by Mr Lee are cases decided before Kaefer, and are decisions by the Court of First Instance or by the English Court of Appeal. With respect, these cases must be read subject to Kaefer, which is a recent decision by the Court of Appeal and an authority binding upon this Court. I am of the view that following Kaefer, if the defendant intends to raise a matter which has not been pleaded in his defence to resist the plaintiff’s application for summary judgment, the defendant should seek leave from the Court to amend his own pleading. After considering all the circumstances, including the importance of the proposed amendment to the defendant and whether the proposed amendment would cause any prejudice to the plaintiff, the Court would determine whether leave would be given to the defendant to amend his pleading. If leave is granted, the defendant may rely upon the new matter to resist the plaintiff’s application for summary judgment. If leave is refused, the new matter would remain as an unpleaded matter, and the defendant cannot rely upon the same to resist the plaintiff’s application.”

35.As I ordered that the Amendment Summons be dismissed on the basis of prejudice, the new matters in the Draft Amended Defence could not be relied on by D2 to resist P’s application for summary judgment. 

36.Having dismissed the Further Evidence and Amendment Summonses, I ordered that D2 pay P’s costs of the summonses to be summarily assessed. 

37.The parties agreed that the summary assessment of costs for the two summonses would be dealt with at the same time as the costs of the Order 14 application. 

APPLICABLE LEGAL PRINCIPLES

38.The legal principles for a summary judgment application are not in dispute.  The burden of a defendant is only to show a triable issue or for other reason the issue ought to be tried. 

39.In an O 14 application, the court should not conduct a mini trial on affidavits: Mohan Selvaraj v Grace Ka Man O’Brien unreported judgment dated 21 August 2020, CACV572/2019; [2020] HKCA 698 at §§15-16.  

40.It is sufficient for the court to ask itself whether the defendant’s assertions are believable, not whether they are to be believed.  The approach is to ask:-

(i)  whether the plaintiff has established a prima facie sustainable case on its claim; and if so;

(ii)  whether the defendant has discharged its burden to show there are triable issues. 

41.In Lesnina H DOO v Wave Shipping Trade Co Ltd [2022] HKCFI 1070, Dawes DJ observed as follows at §36:

“Order 14 is for clear cases only, which mean cases in which there is no serious material factual or legal dispute. The procedure is entirely inappropriate where the plaintiff’s entitlement to recover any sum is the subject of any serious dispute, whether of law or fact.”

(i) Whether the plaintiff has established a prima facie sustainable case on its claim

42.Where property is obtained by fraud, equity imposes a constructive trust on the fraudulent recipient that the property is recoverable and traceable in equity: Westdeutsche Landesbank Gironzentrale v Islington London Borough Council [1996] AC 669 at 716C-D. 

43.A victim of fraud may assert a proprietary claim against a recipient insofar as the fraudulently obtained funds are traceable into the hands of the recipient unless the latter can establish that it is a bona fide purchaser for value without notice: Ferrari North America, Inc v Changhon International Energy Co, Ltd [2018] HKCFI 1603 at §12.  

44.In respect of P’s personal claim for unjust enrichment, the test for unjust enrichment is set out in Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79 at §67:

(1)  Was the defendant enriched?

(2)  Was the enrichment at the plaintiff’s expense?

(3)  Was the enrichment unjust? and

(4)  Are any of the defences available?

45.I have carefully reviewed the SOC, Defence, the 1^st and 2^nd Affirmations of Lu, and the Affirmation of Chu. 

46.P’s application for summary judgment complies with the requirements under O 14, rr 1 and 2 and is therefore properly constituted. 

47.The evidence on record shows that:

a.  After the Sums were paid into Xinsun’s 1^st Account, the 2^nd Sum was converted into Hong Kong Dollars in the amount of HK$3,149,324.1 and stored in Xinsun’s 2^nd Account.  Thereafter, three sums of HK$1,000,000 each were transferred from Xinsun’s 2^nd Account into D2’s Account on 12, 13 and 14 February 2022 respectively.  Copies of the BOC bank statements with annotations demonstrating the fund flow are exhibited at LZY-11. 

b.  D2 does not deny that it received HK$3,000,000 from Xinsun: §§3, 4.2, and 8 of Defence. 

c.  The D2 Sum received by D2 represented the “traceable proceeds” of the Sums which P was fraudulently induced to pay out of its account.  Such receipt is therefore imposed with a constructive trust, and properly forms the subject of P’s proprietary claim. 

48.In respect of P’s personal claim for unjust enrichment, enrichment requires the obtaining of a benefit.  The benefits which may constitute enrichment include money, goods, etc: TTI Global Resources HK Ltd v Hong Kong Myhone Technology Co Ltd [2021] HKCFI 306 at §18.  Funds in this case were transferred from P’s bank account to Xinsun to D2.  The law treats the transfer as equivalent to a direct transfer of value: see Chitty on Contracts, 33rd Edn at §29-028. 

49.In Lipkin Gorman (A Firm) v Karpnale Ltd. [1991] 2 AC 548, the House of Lords held that “at the expense” is generally established when the enrichment was obtained by direct transfer, but it is also proved if the benefit obtained by the defendant is an asset which is traceable to the plaintiff’s asset.  Here, the funds transferred from P’s bank account to Xinsun to D2 belonged to P.  Thus, prima facie, D2 was enriched at the expense of P. 

50.Accordingly I am satisfied that P has established a prima facie sustainable case for its claim. 

(ii) Whether the defendant has discharged its burden to show there are triable issues

51.I deal with two introductory points before discussing D2’s defences. 

Whether the alleged fraud is a triable issue

52.In this case, it is unnecessary for P to assert (and it did not do so) that D2 received the funds in question fraudulently or dishonestly: see  Lesnina at §31-32.

53.Although a fraud perpetrated by fraudster(s) is the underlying reason why P has suffered loss and commenced these proceedings, P has expressly confined its claim against D2 to a proprietary claim, and a personal claim based on unjust enrichment, to be approached in accordance with the framework set out by the Court of Final Appeal in Shanghai Tongji Science at §67.  See also Ferrari at §12, 14-15. 

54.D2 does not admit the alleged fraud and puts P to strict proof: §6 of Defence.  D2 raised the argument that the existence of the alleged fraud is a triable issue, as the alleged fraud is relevant to the first three questions as raised by Ribeiro PJ in Shanghai Tongji Science at §67, and P’s claim against a recipient insofar as the fraudulently obtained funds are traceable into the hands of the recipient: Westdeutsche Landesbank Gironzentrale at 716C-D; Ferrari at §12. 

55.Mr Cheung drew my attention to Tsang Tse To v Sun Bon International Logistic Ltd and Another [2023] HKCFI 740 at §20, in which Yeung J was of view the defendants in that case had not pleaded any positive case countering the alleged fraud did not absolve the plaintiff from proving the same. 

56.In an appeal against Master Kenneth Lee’s order granting the defendants unconditional leave to defend, Yeung J was of the view that D1 in that case had discharged its onus with reference to the evidence before the court that there were triable issues in respect of the plaintiff’s case on the alleged fraud, hence whether the plaintiff indeed effected the transfers by mistake, and hence whether D1 was obliged to effect restitution: at §29. 

57.In Tsang Tse To, the plaintiff’s case was that he was the victim of an investment fraud by downloading an app and opening an account on the app.  The cornerstone of the plaintiff’s case was that the app and the investments traded through it were fictitious.  The fictitious allegations were in turn based significantly on the allegation that representations from the alleged fraudster were false – he being a successful investor having made stable returns through the app being false, and the circular plea that the app and investments were genuine when they were not.  There was no direct evidence on the falsity of those representations: at §§28(a), (f), and (g). 

58.Yeung J was of the view that there were unexplained and disturbing features of the plaintiff’s claim that he, being an educated person in economics and finance with experience in investing who had conducted research on the app, would have been induced merely by chats with a stranger whom he first knew only less than 10 days ago into parting with upwards of HK$10,000,000: at §28(o). 

59.Tsang Tse To was an unusual case and can be distinguished from the present one.  In this case, Li, who introduced himself as a trader in China from Shining Global and represented to P’s GM that Shining Global was a franchised distributor of 3M products (§10 of 1^stAffirmation of Lu), admitted to P’s GM that he had no connections with Shining Global, and claimed to be a victim of a fraudulent arrangement to which he was not privy (§21 of 1^st Affirmation of Lu).  On February 2020, P’s GM contacted 3M to enquire whether they had actually received an order from Shining Global, who confirmed that no such order had been received (§23 of 1^stAffirmation of Lu). 

60.It was pleaded at §19 of the SOC that Xinsun was not entitled to withhold the sum of RMB4,845,000.  On 24 November 2020, the Plaintiff commenced an action against Xinsun under HCA1982/2020 for the return of the sum of RMB4,845,000 from Xinsun’s account.  Due to Xinsun’s failure to give notice of intention to defend, P obtained final judgment against Xinsun for the Judgment Sum on 29 December 2020.  P proceeded to obtain a Garnishee Order Absolute against BOC for the Judgment Sum (§26-27 of 1^st Affirmation of Lu).  

61.Accordingly, D2 has not discharged its onus with reference to the evidence before the court that there are triable issues in respect of P’s case on the alleged fraud.  

Relevance of the security for costs application

62.On 21 April 2023, D2 took out a summons seeking security for costs from P in the sum of HK$580,000 from the commencement of the  Action up to and including the exchange of witness statements (“Security Summons”).  

63.On 27 July 2023, after hearing the Security Summons, the court dismissed D2’s application for security for costs by reason that P had a high probability of success.  P drew my attention to the findings made on the Security Summons, and parts of the Security Summons transcript were replicated in the 2^nd Affirmation of Lu at §10. 

64.I do not think the comments of the court on the Security Summons are relevant to this application for summary judgment.  Different tests apply to the two applications.  It may be that P will eventually succeed after the issues are tested at trial, but the test on this application is whether D2 has discharged its burden to show there are triable issues.  

65.While there may well be matters arising from the documents and the surrounding circumstances which raise questions and call for further scrutiny, I note the commentary in Hong Kong Civil Procedure 2023 §14/4/9B, which Tsang Tse To referred to at §11: 

“Where there are unexplained features of both the claim and the defence which are disturbing because they bear the appearance of falsity and disreputable business dealings and questionable conduct, the court should not make tentative assessments of the respective chances of success of the parties or the relative strengths of their good or bad faith, and should not on such an examination grant the defendant conditional leave to defend, but should give unconditional leave to defend …” (emphasis added).

66.I now turn to D2’s defences. 

Ministerial receipt

67.D2 pleads that as a licensed MSO, it was at all material times the agent of its service customers and Golden Thunder Global Development Ltd (“Golden Thunder”) was the principal of D2.  D2 claims that it received HK$3 million as agent (and caused this transfer) as instructed by its money service customer before receiving notice of P’s claim and/or any alleged impropriety: §14.4 of Defence. 

68.The receipt and handling of the HK$3 million in total by D2 amounted to a ministerial receipt: §14.4 of Defence.  

69.In order to establish this defence, D2 must (at a minimum) be able to prove the existence of an agency relationship between itself (as agent) and its principal (which D2 claims to be Golden Thunder): Goff & Jones, The Law of Unjust Enrichment (10th Edn), §28-01. 

70.Ms Au submitted there is an inherent contradiction between the defence of “ministerial receipt” and the other two defences: in the former case, D2 assumes the role of an “agent” which does not receive the sums in question as beneficial owner; in the other two scenarios, however, D2 is assumed to have received the sums beneficially. These two scenarios cannot co-exist. 

71.However, this defence is pleaded in the alternative to the bona fide purchaser and change of position defences: §14.4 of Defence. 

72.D2 did not adduce any credible evidence of any agency relationship between it and Golden Thunder. 

73.Ms Au drew my attention to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap 615), in which each money service operator (“MSO”) has to have a licence and specify in its application to the Customs and Excise Department (“C&E”) for the licence, among other things, the bank accounts to be used for operating the money service; any change of particulars (eg use of a new bank account) must be notified to the C&E within 1 month: see Yerrid Law Firm v Qiansbaizi Trading Ltd & Anor CACV 170/2021 (unrep, 21 June 2023) at §§12, 29-30. 

74.In my view, the lack of any notice given by Golden Thunder to the C&E in respect of its (intended) use of D2’s bank account for its MSO business negates the suggestion of any agency relationship between it and D2. 

Bona fide purchaser

75.D2’s case is that:

a.  Since late 2019, D2 has maintained a business relationship with Golden Thunder and on 12, 12, 14 February 2020, Ms Ng of Golden Thunder engaged D2 for money exchange and remittance services.  

b.  On 12 February 2020, D2 was approached by Ms Ng of Golden Thunder for the exchange and remittance of HK$1 million, which would be deposited by Xinsun and that the person in charge of Xinsun was a Mr Huang Xiang Long (“Mr Huang”). A copy of his identity card has been produced.  D2 and Golden Thunder agreed the daily exchange rate from HK$ to RMB at 0.91350.  Details of the designated recipient (name, bank name, and bank account) were provided by Golden Thunder. A remittance notice dated 12 February 2020 was issued to Golden Thunder containing the particulars.  After the confirmation of receipt of HK$1 million, pursuant to Golden Thunder’s instructions, D2 at its expense on the same day transferred RMB913,500 from its mainland bank account maintained with ICBC (account no 6222-0802-0002-7485-898) to Chen’s account maintained with the same bank (account no 6222-0340-0003-3731-146). 

c.  On 13 February 2020, D2 was again approached by Ms Ng of Golden Thunder for the exchange and remittance of HK$1 million, which would be deposited by Xinsun.  D2 and Golden Thunder agreed the daily exchange rate from HK$ to RMB at 0.912.  The designated recipient and bank account were the same as on 12 February 2020.  A remittance notice dated 13 February 2020 was issued to Golden Thunder containing the particulars.  After the confirmation of receipt of HK$1 million, pursuant to Golden Thunder’s instructions, D2 at its expense on the same day transferred RMB912,000 from its mainland bank account maintained with ICBC (account no 6222-0802-0002-7485-898) to Chen’s account maintained with the same bank (account no 6222-0340-0003-3731-146).  

d.  On 14 February 2020, D2 was again approached by Ms Ng of Golden Thunder for the exchange and remittance of HK$1 million, which would be deposited by Xinsun.  D2 and Golden Thunder agreed the daily exchange rate from HK$ to RMB at 0.912.  The designated different recipient (Li) and bank account were provided by Golden Thunder.  A remittance notice dated 14 February 2020 was issued to Golden Thunder containing the particulars.  After the confirmation of receipt of HK$1 million, pursuant to Golden Thunder’s instructions, D2 at its expense on the same day transferred RMB912,000 from its mainland bank account maintained with Ping An Bank to Li’s account maintained with the China Construction Bank (account no. 6217-0072-0008-8212-827).  

76.Accordingly, D2 claims it had given value to the receipt of HK$3,000,000 by remitting sums in total of RMB2,737,500 to Chen and Li: §14.3 of Defence. 

77.The elements of the bona fide purchaser for value without knowledge defence are as follows:

(1)  there is a purchase for value;

(2)  of the legal estate in property;

(3)  in good faith;

(4)  without notice; and

(5)  at the time of the transfer of the legal estate:

Lesnina at §41, quoting Lewin on Trusts 20^th Edn. §44-119.  

78.The burden is on D2 to produce credible evidence. 

79.D2’s case is that it has maintained a business relationship with Golden Thunder.  D2 is a licensed operator for money service.  It conducted money exchange and remittance services. 

80.Although P claims that there are simply no documents to show any agreement between D2 and Golden Thunder with respect to the carrying out of money exchange, exhibited at “CPCC-1” is an account opening form for Golden Thunder dated 29 October 2019, although the bank account information of Golden Thunder is missing from this form.

81.D2 has also produced a copy of the Hong Kong Identification Card of Mr Wong Ka Bo, who from Golden Thunder’s 2019 Annual Return is a director of Golden Thunder.  A copy of Golden Thunder’s money service operator license has also been exhibited, along with its Certificate of Incorporation. 

82.P criticised the evidence that was produced by D2 regarding Golden Thunder.  However, I cannot say that based on the evidence produced by D2, no real business was transacted between the two.  This needs examination at trial.  There was no evidence before the court that D2 had notice of the fraud. 

83.I have examined carefully the evidence produced by D2 in the form of three remittance notices and online transfer records:

a.  The Remittance Notice dated 12 February 2020 states the sender’s name as “Golden Thunder”, with the sum for exchange being HK$1 million at the agreed rate from HK$ to RMB at 0.91350.  It also shows the beneficiary’s name 陈娜贤 (Chen), the ICBC account no (account no 6222-0340-0003-3731-146) and the amount remitted being RMB913,500.  These details match with the online transfer record of 12 February 2020 provided by D2.  

b.  The Remittance Notice dated 13 February 2020 states the sender’s name as “Golden Thunder”, with the sum for exchange being HK$1 million at the agreed rate from HK$ to RMB at 0.912.  It also shows the beneficiary’s name 陈娜贤 (Chen), the ICBC account no (account no 6222-0340-0003-3731-146) and the amount remitted being RMB912,000.  The amount remitted and the beneficiary’s name match with the online transfer record of 13 February 2020 provided by D2.  It also shows that the transfer was successful. 

c.  The Remittance Notice dated 14 February 2020 states the sender’s name as “Golden Thunder”, with the sum for exchange being HK$1 million at the agreed rate from HK$ to RMB at 0.912.  It also shows the beneficiary’s name 李乐诗 (Li), the China Construction Bank as beneficiary bank, the account (account no 6217-0072-0008-8212-827), and the amount remitted being RMB912,000.  These details match with the online transfer record of 14 February 2020 provided by D2.  It also shows that the transfer was successful. 

84.In response to D2’s defences on bona fide purchaser and change of position, P’s 1^st Affirmation of Lu stated that there was no evidence that the sum of RMB2,737,500 was transferred by D2: §37(a), 38-41.  Based on the above evidence, I am unable to accept that there is no triable issue that D2 paid away RMB2,737,500 in good faith in exchange for the sum of HK$3,000,000 received from Xinsun.  Two of the online records show that the transfers were successful. The details of the remittance notices from D2 matched those of the online transfers. 

85.Regarding P’s allegations that the exchange transaction is illegal under PRC law and/or carried out in an unlawful or illegal manner as a matter of Hong Kong law relied on at §37(b), (c), and 42-49 of the 1^st Affirmation of Lu, these are also issues that should be tried.  No charge has ever been laid by C&E and/or law enforcement agents as of today against D2.  There has not been any disciplinary action taken against D2 by C&E for breach of licensing conditions:  §38 of Affirmation of Chu.  I refer to Lesnina at §46-61.  

86.On the question of good faith, in Tsang Tse To, Yeung J at §37 observed the following:

“When considering those defences, Clarke LJ observed in Niru Battery Manufacturing Co v Milestone Trading Ltd [2004] QB 985 at §149 that the essential question is whether it would be inequitable or unconscionable, and thus unjust, to allow the recipient of money paid under a mistake of fact to deny restitution to the payer. Whether the recipient has acted otherwise than in good faith will be dependent upon the circumstances, so that it is not possible to lay down absolute principles, though a failure to act in a commercially acceptable way and sharp practice of a kind that falls short of outright dishonesty as well as dishonesty itself may be so regarded. His Lordship agreed to the following proposition, that:

‘The factors which will determine whether it is inequitable to allow the claimant to obtain restitution in a case of mistaken payment will vary from case to case, but where the payee has voluntarily parted with the money much is likely to depend on the circumstances in which he did so and the extent of his knowledge about how the payment came to be made.’” (my emphasis).

87.Ms Au drew my attention to Kaefer v Winfield Marine Services Co Ltd [2022] HKCA 807, which Chu JA of the Court of Appeal observed at §55 as follows:

“The Judge’s finding that there was a lack of good faith in that the defendant failed to act in a commercially acceptable way is based on the undisputed fact that the defendant, on a regular basis, accepted payments from unknown third party for fuels supplied to vessels when it did not know the identity of the vessel owners, and that it would not make enquiries to verify the source of funds received. Contrary to the defendant’s submission, this issue is not about whether the defendant was negligent; it is the defendant’s modus operandi that calls into question the issue of good faith. In any event, it is for the defendant to establish that it has acted in good faith. We agree with the Judge that the relevant supporting facts are only known to the defendant, but it has failed to bring them into evidence. We see no reasonably arguable basis to challenge the Judge’s finding that there was a lack of good faith in light of the defendant’s failure to act in a commercially acceptable way.”

88.In my view, the present case can be distinguished from Kaefer.  In Kaefer, Li J in the Court of First Instance considered that the good faith element was not established having regard to the fact that (i) the defendant provided substantial amount of fuel when it did not know the identity of the vessels or their owners; (ii) the defendant accepted payment from Tangxin without enquiry; (iii) the defendant delivered most of the fuels before receiving payment; and (iv) the defendant’s modus operandi suggested that it had no concern as to the source of the funds that came to it:  §17(7) of Kaefer.  

89.Prior to accepting instructions by Golden Thunder, D2 performed the following measures in relation to due diligence: (i) collecting and keeping a copy of the Certificate of Incorporation and 2019 Annual Return of Golden Thunder; (ii) collecting and keeping a copy of the Hong Kong Identification Card of the director of Golden Thunder, Mr Wong Ka Bo; (iii) collecting and keeping a copy of the account opening form and remittance notices; and (iv) collecting and keeping a copy of the license of Golden Thunder as a MSO.  D2 also collected and retained a copy of the identification card of the person in charge of Xinsun, Mr Huang Xiang Long. 

90.Mr Chu, the sole director and shareholder of D2, states that it is a common and even daily practice for MSOs to exchange updated information on the available currencies (in terms of currencies of which the MSO’s respective clients choose to make the deposit and the desired currencies), so that timely and efficient matching can be carried out.  He further states that it is also frequent and common among MSOs to allow credits to be registered for future use or set off outstanding balance from past credit:  §36(d) of Chu’s Affirmation. 

91.I cannot ascertain from the affirmation evidence whether or not there were any breaches of the Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Money Service Operators) (“the Guideline”) or statutory requirements.  Whether or not D2 acted in a commercial acceptable way for a licensed MSO for the purposes of ascertaining good faith should be explored at trial and cannot be determined on the basis of affirmation evidence alone. 

92.In Lesnina, D8 and D10 received sums of money from D1 which were paid out by the plaintiff pursuant to an alleged email fraud.  D8 alleged that the amount corresponded with payment of the first instalment for goods sold and delivered to a PRC company under a contract; and D10 alleged that the amount corresponded with a currency investment transaction.  There was evidence of a payment receipt for the alleged first instalment as well as remittance and bank deposit receipts for the alleged currency investment transaction.  There was no evidence that either D8 or D10 had knowledge of the alleged email fraud.  The plaintiff made a proprietary claim and personal claims in unjust enrichment and knowing receipt against D8 and D10, and applied for summary judgment to recover the monies received, arguing that as the monies received involved “underground banking” in circumvention of foreign currency exchange controls under PRC laws, such illegality precluded the reliance by D8 and D10 on the defences of bona fide purchaser for value without notice or change of position. 

93.Summary judgment was refused in Lesnina by Dawes DJ, holding that there were triable legal issues as to whether D8 and D10 were bona fide purchasers for value without notice or there was a change in position on the basis they had given value for the monies received.  In that case, Dawes DJ was not satisfied that the plaintiff demonstrated that the factual cases of the D8 and D10 were wholly unbelievable or incredible: at §40 Lesnina. 

94.Summary judgment should be granted in the clearest of cases: Lesnina at §66.  In this case, although P claims that there are various weaknesses in the evidence produced, I cannot say that D2’s bona fide purchaser defence is wholly unbelievable or incredible.  It should be tested at trial. 

95.In all the circumstances, I am unable to conclude on the evidence before the court that there does not exist a triable issue in respect of D2’s defence based on bona fide purchaser for value without notice.  In my view, any such conclusion can only properly be reached at a trial after full discovery is made and after oral evidence is adduced. 

Change of position

96.D2’s defence is that it changed its position by causing and instructing RMB2,737,500 in total to be remitted to designated accounts by Golden Thunder at the expense of D2: §14.3 of Defence. 

97.In TTI Global Resources HK Ltd v Hong Kong Myhone Technology Co Ltd [2021] HKCFI 306, To DJ §55 set out the elements of the change of position defence:

(1)  there was a causative link between the receipt of the benefit and his change of position, so that, “but for” the receipt of the benefit, the defendant’s position would not have changed, either because the defendant no longer has the benefit received or because he has changed his position in some other way in reliance on the receipt of the benefit; and  

(2)  the defendant’s position must have changed in circumstances which make it inequitable for him to make restitution to the plaintiff: 

Chitty on Contracts 33^rd Edn at §29-187. 

98.This defence is not available to someone who has changed their position in bad faith or to a wrongdoer: see Lipkin Gorman at 580, or if the change was unlawful: Barros Mattos Junior v General Securities and Finance Co Ltd & Another [2005] 1 WLR 247, at §43. 

99.I refer to the three remittance notices and online transfer records.  Based on the evidence, I am unable to say there are no triable issues for the change of position defence.  D2’s change of position defence is not unbelievable or incredible.  Comparing the transferred sums to D2 with the outward remittances from D2’s accounts to Li and Chen, and given their occurrence on the same date and comparable amounts are converted from HKD to RMB, I am of the view that triable issues have also been raised.  I cannot say that D2 fails to meet the requisite “but for” test as regards the defence of change of position, in that D2 did not incur any extraordinary expenses in paying Li and Chen. 

Unjust enrichment claim

100.Given my findings above on the defences of bona fide purchaser and change of position, P’s summary judgment application also fails insofar as it is based on unjust enrichment. 

CONCLUSION

101.On the basis of the evidence discussed above, I am not satisfied that D2’s defences based on bona fide purchaser and change of position are unbelievable and incredible.  I am of the view that triable issues have been raised by D2.  P has not demonstrated that this is a clear case for summary judgment.  D2’s defence cannot be dismissed at this stage and should be tested at trial.  Unconditional leave to defend is granted to D2. 

DISPOSITION

102.For all the reasons above, I formally make an order to dismiss P’s summons. 

103.I make a costs order nisi that P shall pay the costs of the summary judgment application to D2, with certificate for one counsel, to be summarily assessed.

104.Any application for variation shall be made within 7 days from the date of this decision by letter to this Court.  Unless the costs order nisi has been varied, and for the purpose of assessment, D2 is directed to file its Statement of Costs within 7 days from the date of this Decision, P to file its Statement of Objections 7 days upon receipt, and D2 to file its reply 7 days thereafter. 

105.D2 shall pay P’s costs of the Further Evidence and Amendment Summonses, to be summarily assessed.  P is directed to file its Statement of Costs within 7 days from the date of this Decision, D2 to file its Statement of Objections 7 days upon receipt, and P to file its reply 7 days thereafter. 

106.Assessment of costs will be conducted on the papers. 

107.I thank Ms Au and Mr Cheung for their helpful submissions. 

Ms Astina Au instructed by W. K. To & Co. for the Plaintiff

Mr Lawrence Cheung and Mr Chan Yip Hei, instructed by Francis Kong & Co. for the 2^nd Defendant