Leung Lily v. Fan Kwan Wang

DCCJ 1079/2021

[2023] HKDC 1822

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1079 OF 2021

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JUDGMENT

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INTRODUCTION

1.This case involves a telephone scam, cryptocurrency transactions, and potential money laundering activities by way of cryptocurrency trading.

2.The plaintiff, Madam Lily Leung, claims to have been the victim of a telephone scam, resulting in a loss of HK$1.6 million to the scammers. A Mr Chan Wai Lit is the first-tier recipient of HK$800,000 out of the HK$1.6 million in Hong Kong, while the remaining HK$800,000 has been remitted overseas. The defendant, Mr Fan Kwan Wang, is the second-tier recipient of the HK$800,000 from the said Chan Wai Lit. The defendant asserts that he is a bona fide purchaser because the money he received from Chan Wai Lit was payment for USDT (ie Tether, a type of cryptocurrency pegged to the US dollar) that he had sold to Chan Wai Lit in a genuine cryptocurrency transaction.

3.There is no dispute regarding the flow of the money. The defendant has accepted that the HK$800,000 (or more accurately HK$799,970) had been received in his bank account. The court’s only task, as agreed between the parties, is to determine whether the defendant has a viable defence of bona fide purchaser for value without notice in respect of the HK$799,970 received. If such a defence is established, it will defeat the plaintiff’s claim for unjust enrichment against the defendant.

THE PLAINTIFF’S CASE

4.The plaintiff, an 80-year-old retiree with a secondary education, gave oral evidence in court and adopted her witness statement as evidence in chief.

5.On or about 15 August 2020, a male individual (introduced himself as one Mr Ma) claiming to be an officer of a Mainland law enforcement agency contacted the plaintiff by telephone. The plaintiff was informed that her HSBC bank account was involved in a money laundering case. She was asked to cooperate with the investigation, or she would face arrest and be sent to the Mainland for further interrogation.

6.On 17 August 2020, Mr Ma contacted the plaintiff by telephone again. He requested the plaintiff to open a bank account with the Bank of China (Hong Kong) with Internet banking services and to transfer her money from HSBC to the Bank of China. While the plaintiff did not know how to open a bank account with Internet banking service at the Bank of China, Mr Ma sent a female person to assist her and accompany her to open the bank account.

7.Upon opening a savings account with the Bank of China (“the New Account”), the plaintiff was accompanied by the said female person to visit HSBC and to purchase a cashier’s order for HK$1.6 million. The cashier’s order was then deposited into the New Account.

8.Between 18 and 10 August 2020, a total sum of HK$1,530,100 was transferred from the New Account to two other bank accounts not held by the plaintiff, via internet banking, without the plaintiff’s knowledge. In particular of which, on 19 August 2020, a total sum of HK$800,000 (out of the said HK$1,530,100) was transferred in four separate transactions to the bank account of Chan Wai Lit at Airstar Bank.

9.According to the information provided by Airstar Bank upon discovery, the account of Chan Wai Lit had an opening balance of HK$45 on 19 August 2020. It received 4 credit transactions of HK$200,000 each from the plaintiff’s Bank of China account on the same day. It then had 5 debit transactions of HK$20,000, HK$178,410, HK$200,430, HK$200,940, and HK$200,190, totalling HK$799,970 transferred to the defendant’s bank account with ZA Bank also on the same day.

10.Within the same day, the defendant transferred a total sum of HK$571,470 in four separate transactions from his ZA Bank account to another bank account he opened with Airstar Bank.

11.The ending balance at the defendant’s ZA Bank account and Airstar Bank account before they were frozen, are HK$6.42 and HK$518,273.08, respectively.

12.Both Airstar Bank and ZA Bank are virtual bank in Hong Kong.

13.The plaintiff’s case is based on the fraud. Mr Ngai, counsel for the plaintiff, confirmed to the court that the plaintiff’s claim is only unjust enrichment, not constructive trust. He submitted that proving fraud is necessary to demonstrate how it was unjust for the defendant to keep the plaintiff’s sum of money.

14.It is the plaintiff’s evidence that she had no knowledge or dealings with Chan Wai Lit or the defendant. She also stated that she did not know how to use Internet banking services on a computer. The withdrawals of money from the New Account were made without her knowledge or consent. She only became aware of the fraud on 20 August 2020 when the police informed her about the incident. With the company of his younger brother, she then went to give a statement to the police about the incident. With the assistance of her lawyers, she now claimed, by civil action, against the defendant for the return of the sum of HK$799,970. In her Statement of Claim, it was pleaded that she was defrauded into opening the Bank of China account and depositing the money into such account; the money transferred from the said Chan Wai Lit to the defendant was made without her knowledge or consent and were indicative of money-laundering activities; and the defendant had unjustly enriched himself at her expense.

15.The plaintiff confirmed in court that the contents of the bank statements of HSBC and Bank of China were correct. At the end of her testimony, she pleaded with the defendant to return her money, her entire life’s savings.

16.The plaintiff’s evidence was not challenged in court. Mr Poon, counsel for the defendant, confirmed to the court that the defendant would not take issues on all the banking transactions, including the amounts and the dates of the transactions, from Chan Wai Lit to the defendant. Mr Poon said that the defendant confirmed the receipt of HK$799,970 from the plaintiff (through Chan Wai Lit) as per the bank transaction records shown by the plaintiff. He said that the defendant would only rely on proving the defendant’s defence.

17.I find the plaintiff to be a credible witness. Her case was also supported by contemporaneous documents, namely her police statements made immediately after the incident on 20 August 2020 and 7 September 2020. Her version of account given in the police statements was consistent with her case.

18.I have noted that it was mentioned in the police statement dated 20 August 2020 that the plaintiff’s HK$1.6 million was originally a 3-month Fixed Time Deposit from 25 May 2020 to 25 August 2020 with HSBC. Such time deposit was going to be matured in a few days during the time of the incident. The plaintiff said that she had no choice but to cancel it and had to forego the interest, which she was entitled under the terms of the deposit. I accept the plaintiff’s evidence. I find that there was no justifiable reason for her to cancel the said time deposit other than being coerced by the fraudsters in doing so.

19.It is also noteworthy that the plaintiff was still using the traditional HSBC Savings Passbook (as exhibited in the bundle) for her bank account. This old type of savings book is the most convenient way for elderly people to follow their banking transactions. I accept the plaintiff’s evidence that she had no knowledge or skill of using any Internet banking services. Further, the page inside the Passbook clearly showed that HK$1,599,800 (after deducting the bank charge of HK$200) was credited from a “TIME DEP” (time deposit), and HK$1,600,000 was withdrawn to purchase a “C. ORDER” (cashier’s order) on 17 August 2020. Additionally, a deposit slip showed that the cashier’s order was deposited into the New Account on 17 August 2020 at 14:30. These pieces of supporting evidence are all consistent with the plaintiff’s account of the event.

20.In the circumstances, I accept all the evidence the plaintiff gave and find that she was indeed a victim of the telephone scam. I am satisfied that the plaintiff has established a prima facie case against the defendant, subject to the defendant’s defence.

THE DEFENDANT’S DEFENCE

21.The defendant pleaded the very defence of bona fide purchaser as follows.

22.The defendant averred that he was not involved in the alleged scam or fraud perpetrated by Mr Ma or the female person. He claimed to have no knowledge of them or the said Chan Wai Lit. He refuted any allegations of money laundering and maintained that the transactions made between Chan Wai Lit and him were a bona fide sale and purchase of cryptocurrency, hence no unjust enrichment on his part.

23.Insofar as the relevant transactions concerned in this case, the defendant averred in the Defence that:

(1)  He came to know Mr Wong Chun (“Wong Chun”) through mutual friends in 2015. In or about July 2020, Wong Chun mentioned to him that he was investing in cryptocurrency, in particular USDT. Wong Chun told him that he could supply USDT to him for investment and trading purposes.

(2)  In or about August 2020, the defendant opened a trading account with Huobi Global (“Huobi” or 火幣), an online over-the-counter trading platform for different kinds of cryptocurrency, including USDT. He registered the account with his real mobile phone number and his ZA Bank account number. Huobi requested information from him, such as a copy of his HKID card, facial recognition data, and video record of the declaration for authentication purposes.

(3)  On its platform, Huobi lists potential buyers' asking prices and potential sellers' offering prices. If a buyer and a seller agree on the final trading price, the transaction is completed through the mutual transfer of real-world currency and cryptocurrency.

(4)  The defendant did more than one hundred transactions with different buyers/sellers around August and September 2020. On 19 August 2020, he received a message from the said Chan Wai Lit on Huobi, asking for a total of 100,000 USDT, which is in the value of about HK$786,000. He had no previous dealing with that Chan Wai Lit either on Huobi or anywhere else.

(5)  After negotiations between the defendant and Chan Wai Lit using the Huobi platform, they settled for a total of HK$799,970 in exchange for 100,000 USDT.

(6)  The said Chan Wai Lit transferred a total of HK$799,970 to the defendant’s ZA Bank account and the defendant transferred 100,000 USDT to Chan Wai Lit on 19 August 2020. After the transaction, they had no further transactions or communication ever since then.

24.Counsel for the defendant submitted in his opening that the defendant’s cryptocurrency trading was legitimate as it was conducted through the certified and renowned Huobi platform. The counsel stated that the platform certifies all traders and transactions, and the defendant had no reason to doubt the effectiveness of the platform’s due diligence KYC in preventing fraud, money laundering, or criminal activities. It was submitted that the defendant, by virtue of his trust upon the platform, traded a sum of HK$800,000 with Chan Wai Lit for value in providing the cryptocurrency, the USDT. He said that, in essence, the defendant sold the cryptocurrency worth approximately about HK$800,000 and received HK$800,000 in return, and that it was a genuine transaction. The defendant paid in USDT and received HK dollars as consideration.

25.Essentially, the defendant runs the defence of “bona fide purchaser” “for value” (in providing the USDT) “without notice” (of the alleged scam or fraud).

THE LAW OF BONA FIDE PURCHASE

26.It is well established that a claim for restitution based upon principles of unjust enrichment involves asking four questions: (1) Was the defendant enriched? (2) Was the enrichment at the plaintiff’s expense? (3) Was the enrichment unjust? (4) Are any of the defences applicable? (Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd [2004] 7 HKCFAR 79, para 67, per Ribeiro PJ). The burden of proof lies on the defendant to show that she was a bona fide purchaser for value without notice (Chan Chun Chung v PBM (Hong Kong) Ltd (2004) 7 HKCFAR 178 at para 14; Credit One Finance Ltd v Yeung Kwok Chi [2020] HKCFI 2450).

27.The law of bona fide purchase was well explained in Goff & Jones on Unjust Enrichment (10^th ed, 2022), paras 29-03 to 29-05:

“The law generally holds that no one can pass a better title to property than the title he possesses. At common law, this principle is encapsulated in the rule nemo dat quod non habet (‘no one gives what he does not have’); in equity the principle informs the operation of the rule qui prior est tempore potior est jure (‘he who is first in time is stronger in law’). However, the law also provides that in some exceptional situations a purchaser of legal title from a vendor whose title is defective will acquire legal title free of defects if he gives value and acts in good faith and without notice.

At common law the nemo dat rule invalidates many purported conveyances of property to which the vendor has no valid title, but the bona fide purchase exception operates in one frequently occurring case, namely where money passes into currency. When a bona fide purchaser provides goods or services in exchange for stolen money he acquires legal title to the money, and the original owner loses his legal title, even where the notes and coins are still identifiable in the purchaser’s hands. An early decision to this effect is Miller v Race, where Lord Mansfield emphasised that ‘trade and commerce … would be much incommoded by a contrary determination’. Hence the policy of the rule is to preserve the effectiveness of money as currency in the interests of maintaining an efficient market economy.

Constructive notice is not known at common law and so a purchaser of money who acts honestly will take clear legal title even where a reasonable person would have known that the vendor’s title was defective; if, however: ‘… there be anything which excites the suspicion that there is something wrong in the transaction, the [purchaser] is not acting in good faith if he shuts his eyes to the facts presented to him and puts the suspicions aside without further inquiry’ (London Joint Stock Bank v Simmons [1892] AC 201 at 221 per Lord Herschell).”

28.The recipient’s liability in unjust enrichment is “strict” (subject to defences). Unlike the equitable liability for “knowing receipt”, it does not depend upon knowledge of the recipient that the receipt was improper in some way, so as to affect his conscience (Goff & Jones, para 8-03).

29.In this particular case, the parties agree that the plaintiff’s claim for unjust enrichment and the defendant’s defence of bona fide purchase are interrelated and would just be one flip-side issue for the court to decide. The defendant’s counsel accepts that if the court finds against his bona fide purchase defence, it means that the plaintiff would succeed on her unjust enrichment claim. As there is no dispute about the flow of the transfer money, the parties agree that the only issue that remains for the court to decide is whether the defendant is entitled to his bona fide purchase defence.

30.Therefore, the defendant, relying on the defence of bona fide purchase as a purchaser of money, needs to prove all three elements that he has given value, and acted in good faith and without notice. And if there was anything which excited the suspicion that there was something wrong in the transaction, he has to show that he did not shut his eyes to the facts presented to him and put the suspicions aside without further inquiry.

THE DEFENDANT’S EVIDENCE

31.According to the defendant’s case, the defendant conducted the relevant transactions with Chan Wai Lit. Wong Chun was supposed to testify in respect of how he started his cryptocurrency trading business and invited the defendant to join as a partner. He was also supposed to explain in general how an end user would conduct any buy and sell orders on a cryptocurrency trading platform, particularly on Huobi. And nothing else. This is the impression I gathered from his witness statement, the pleadings, and the defendant’s opening of his case.

32.In his oral evidence, Wong Chun explained how he got the defendant’s interest in investing in cryptocurrency. He recounted that, in 2015, when he was unemployed, a mutual friend introduced him to the defendant. The defendant often treated him for dinners and might have lent him some money. When asked how much the defendant lent to him, he answered that it was only for the drinks they had together, and it would be difficult to give an exact figure as the cost varied each time. However, he stated in his testimony that his relationship with the defendant was friendly and strong because the defendant had helped him when he was in financial difficulties. I do not believe that paying for a few glasses of wine would constitute “helping him in financial difficulties”. It seems to me that he was being evasive and dishonest from the outset.

33.In fact, I have heard Wong Chun’s evidence for two days. I find that he was lying throughout his testimony. The only evidence of his that I might accept, as confirmed by the defendant, would be the fact that the transactions relating to Chan Wai Lit were traded under his own Huobi account (not the defendant’s) and the USDT in question did not belong to the defendant, which was devastating to the defendant’s defence. I used the word “might” is because ultimately, I find it difficult to accept that the relevant USDTs were owned by Wong Chun either. Nevertheless, this is how his evidence continued.

34.It was Wong Chun’s evidence that he would frequently discuss with the defendant various businesses, eg the LED lighting industry in China, and various investment opportunities for profits. He said that he would share his insight with the defendant and their relationship was akin to a senior and junior relationship. It is, I think, embarrassing for him to inform the court that he was in fact the senior sharing his insight into business and investment, but he did not have enough money to pay for the drinks. As his evidence began to lose sense, I find that the “friendly” encounters he described with the defendant were nothing more than the usual trick used by a crook to lure people into joining his criminal operation scheme. I shall revert to this later in this judgment.

35.Wong Chun went on to talk about his success in the cryptocurrency business. He began by saying that, a few years ago (he could not remember the exact time), he first worked as a personal secretary for a Chinese Mainlander named Chen Wen Zi. He said that he learned about cryptocurrency trading at that time and assisted in closing a HK$200 million cryptocurrency transaction for Chen, with contracts drawn up by a solicitors firm in Hong Kong. He said that, by the time he started his own cryptocurrency trading business, he had accumulated approximately 140,000 to 150,000 USDTs, worth about HK$1 million, either from commissions earned (paid by Chen in USDT) or through his previous investment in Bitcoin. He said it was virtually no need for him to put up any money from his own bank account.

36.As it did not occur to me that a person with that sort of experience would be able to close a deal of HK$200 million and earn a million dollars in commission for the start-up capital, I asked Wong Chun to clarify. He then told the court that the HK$200 million transaction had nothing to do with the HK$1 million he put up for the USDT business (earning of commission). He agreed that he only earned some commissions on other transactions. When asked again how he came up with the USDT in the first place, he answered convolutedly that he had contributed some money to purchase those USDT from Chen when he worked for him. This is in my opinion completely contradictory to what he said about earning the USDT by commission without putting up any of his own money. It is also contradicted by his own witness statement that he used his own savings to buy USDT in order to start his own business. He also said in court that it was because even before he started the USDT business, he had already accumulated a lot of profit by speculating mainly the Bitcoin so he did not need to put up any money. I find that he has been evasive and has attempted to conceal the source of the USDT. Coupled with other reasons I will set out in the latter part of this judgment, I find that neither Wong Chun nor the defendant owned the USDT put up for trading on the Huobi platform.

37.Wong Chun described his cryptocurrency trading business as more akin to a money exchange business, despite USDT being pegged to the US dollar. I understand from him that he made profits by taking advantage of the spread between the bid price and the asking price. He said that, by placing the advertisements following the queues on the platform, he could buy the USDT (if someone was willing to sell to him) at the bid price and sell the USDT (if someone was willing to buy from him) at the ask price. He estimated that the profit margin would be around 1%-4% of the transaction amount, but he would have to deduct the transaction fee (approximately 0.01%) charged by the Huobi platform if someone was willing to trade with him. He said that, in the year and a half from February 2020 to September 2021 when he operated the business, he traded a total of 20,000 to 30,000 transactions and there were only two days when he traded at a loss. He said that he opened an account with Huobi and Binance (幣安) with an initial capital of HK$2 million (HK$1 million in USDT from him together with HK$1 million from his partner, not the defendant) and the value in his accounts had reached HK$10 million (HK$5-6 million in USDT with the rest in other Cryptos) at peak in September 2021. However, he provided no documents in support. As pointed by Mr Ngai, the alleged profit Wong Chun could make in respect of the five transactions concerned in this case was only 0.6%. Wong Chun then conceded that he had never done a statistic of how much profit in total for the exchange of USDT, as it would be incomparable to the profits he could make by speculating on Bitcoin. When asked what happened next, he said he was arrested by the police in March 2021.

38.There should be no surprise to hear that he was arrested as he was still very proud of, by giving evidence in court, the fact that he had controlled and operated more than 200 bank accounts provided by his “team members” (團隊), including the defendant’s two bank accounts at ZA Bank and Airstar Bank, for the so-called USDT exchange business. The transactions amount covered by him (paid in and out through those bank accounts) was up to HK$1.4 billion for that period of one and a half year. He said that the holding charge for his arrest was money laundering and he was on police bail of $10,000. He said that the police had closed the investigation and released his bail money in July 2022, but the equipment taken from him had not been returned. At this juncture, I should say that there is no evidence before the court the closure of the police investigation, other than Wong Chun’s own assertion. However, it is apparent from his evidence that he at least continued to have operated the said USDT exchange business until September 2021 even though he was arrested and had been on police bail.

39.Meanwhile, the only thing that surprised me is that, after hearing his evidence for two hours, it was the first time he positively (though reluctantly) pointed out that the USDT allegedly sold to Chan Wai Lit belonged to him, not the defendant’s, and all the buy and sell transactions with Chan Wai Lit were conducted by him through his Huobi account, not the defendant’s; hence, he was the key witness in this case, not the defendant.

PC: At page 151, this Huobi account was not under your name, right?

Wong: It was under my name.

PC: It was under Mr Fan’s name.

Wong: Under my name.

PC: It was under your name. But the bank accounts stated there for receiving payment were Mr Fan’s.

Wong: Yes.

…

PC: Then this transaction was made under your name?!

Wong: Transaction under my name?

PC: Because you said this is your account.

Wong: This account was mine. Ah. Yes.

PC: At page 152, it stated five transactions. Are all these done through your account opened with the Huobi platform? Your own account, not Mr Fan’s.

Wong: As to this, I am not sure whether it was talking about the Huobi platform. If it was from the Huobi platform, then the account was mine.

PC: Did Mr Fan have any account with Huobi?

Wong: I can’t remember. But it seems that he had.

PC: But you said that these five transactions were done under your account.

Wong: Yes.

PC: So, for these 100,000 USDT, were they owned by you?

Wong: I have a partner.

PC: Was the partner Mr Fan?

Wong: You mean …

PC: The ownership.

Wong: The ownership did not belong to Mr Fan. It belonged to me and my partner.

40.In this regard, Mr Ngai submitted, and I agree, that there should be the end of the defendant’s defence as the USDT did not belong to him and he did not provide any consideration or value as pleaded. However, I consider that it is necessary for this court to deal with all three elements of the defence despite adding some length to this judgment.

Bona fide (in good faith)

41.There are quite a number of significant features in the operation of Wong Chun’s USDT exchange business leading to my conclusion that neither Wong Chun nor the defendant had acted in good faith. As confirmed by the defendant, he would only follow the instructions given by Wong Chun to operate his bank accounts. Therefore, I will examine the evidence of Wong Chun in detail.

42.First, I find no legitimate reason for Wong Chun to access other people's bank accounts, as he reportedly did with as many as 200 accounts. Wong Chun claims that he had to use multiple accounts because his accounts were frequently frozen by banks for unknown reasons. From March to April 2020, he opened 8 to 9 bank accounts in his name with different banks, as each bank account would have its dollar limit for transfer. He first knew that one of his bank accounts was frozen was as early as in May 2020, and the remaining 7 or 8 bank accounts were also frozen by the time of June or July 2020. He expressed confusion over the banks' explanation for freezing his newly opened accounts, citing the reason as 'updating customer information.' He even suspected that his public housing status may have played a role in the bank's scrutiny of the frequent HK$1 million transactions in his account. As a result, he asked his friend Li Pak Hin, from an affluent family, to open bank account for him to use. He said that, since then, Li Pak Hin and Wong Cheung (his elder brother) had joined to become the core members of his team and Li Pak Hin would operate an account in Binance for his behalf. He later discovered that personal bank accounts could not be used for business activities. But he said that money laundering had never been on his mind.

43.It was also the evidence of Wong Chun that, in order to maintain the prosperity of his business and the need for sustainability, he started to invite “friends” to join in as “partners” (合作伙伴). He would then ask the partners to provide opening different bank accounts, and to pass him the login password so that he could use their bank accounts for the USDT exchange business. In return, he would give them a “remuneration” of approximately 10% to 15% of the exchange profit, based on the amount transferred through that individual’s bank account. He said that these applied to the defendant as well and that he gave the defendant 15% of the profit for the money passed through his bank accounts. In fact, the defendant opened two bank accounts at ZA Bank and Airstar Bank for Wong Chun to use. It was Wong Chun’s evidence that, in total, he had recruited more than 100 people to join in to provide bank accounts (more than 200 bank accounts) for him to use. He repeated that there was a genuine need for his business to use other people’s bank accounts because each bank account has a daily limit for money transfers, and his business had been successful, and a large sums of money would often be involved.

44.I reject Wong Chun’s evidence. It may be true that the bank sets certain transfer limit for each individual account. However, it is also common knowledge that the bank would raise the limit if there was a genuine need of the customer based on the net worth of each individual customer with the bank. There is no justification for Wong Chun to open 8 or 9 bank accounts at the beginning of his so-called trading business, let alone the use of other people’s 200 bank accounts. I find that he knew right from the outset that he would be engaging in activities that would lead to his bank accounts being blocked. I consider that the freezing of the bank accounts was the consequence rather than the cause for him to invite more “partners”. As pointed out by the plaintiff’s counsel, Mr Ngai, the defendant was also living in public housing and apparently was not from a wealthy family like Li; there was no justification for using the defendant’s bank account as the witness suggested. I find that the recruitment of “partners” was well planned by Wong Chun (or someone behind him) from the beginning of his operation, and he (they) knew that the use of the bank accounts would involve receiving money from illegal activities which cause the accounts to be blocked by the banks.

45.I also find that Wong Chun has overlooked one fallacy in his explanation. If the transaction amount was above the daily limit, it would simply not get through, and it would not cause his account to be blocked. The blocking or freezing of the bank account must be attributed to some transactions tainted with illegal activity and the police would request the account to be put on hold (either by the police’s own investigation or through a report from the bank).

46.Secondly, whenever a large sum of money was to be deposited in, there would be very often a small sum of money ($10 or $100) being deposited immediately in advance of that transaction. I find that the $100 deposit was an ante to test whether the account had been blocked due the previous deposited money. Contrary to Wong Chun’s suggestion, it cannot be used to prove whether the account had exceeded the transfer limit because it was a mere insignificant sum. Wong Chun said that it could be trying to test the FPS function. In any case, he could not explain why he (or his team members) had made a $100 deposit before depositing any large sums. In fact, he told lies that he himself could not bear. In the end, he could only manage to say that what had happened was a bit funny. The inference that I can draw is that he knew any large sum of paid-in money (as shown in the bank statements over HK$100,000) was very likely tainted money during the entire process of using these bank accounts, including the defendant’s bank accounts. I hold that Wong Chun knew that the defendant’s bank accounts would be blocked at any time during the period that they were used for any of those money transactions.

47.Thirdly, at the end of each day at 12:00 midnight, any remaining funds in the defendant’s bank accounts would be transferred to the bank account of one Chen Xiao Rui. Wong Chun explained that this was for better management to group all the funds into one account and to see the total balance. He finally revealed that Chen Xiao Rui was the other partner he had mentioned. He also said that Chen Xiao Rui’s bank account would not be used for any buy and sell transactions nor would it be used to directly receive any customer’s money. On the evidence about this feature (clearing at midnight) alone, I can reject Wong Chun’s claim that all the USDT belonged to him. Wong Chun testified that he sold the USDT and received the equivalent fund in Hong Kong dollars. However, I do not believe that a genuine owner of the funds would be willing to part with the funds to another third party every midnight. In view of the flow of the money, I find that it is more probable that the said Chen Xiao Rui is in a superior position to Wong Chun in the whole scheme and that the USDT would belong to Chen Xiao Rui or anther person who ultimately received the funds. I will elaborate more on this in the next feature.

48.Fourthly, as demonstrated by both of the defendant’s Airstar Bank and ZA Bank statements, almost all the money received is immediately transferred to Li Pak Hin after the transactions. For instance, as to the money tranches (the five transactions involved in this case) transferred from Chan Wai Lit’s account to the defendant’s ZA Bank account, each of those tranches would be promptly transferred either to Li Pak Hin’s bank account or first transferred by the defendant from his ZA Bank account to his Airstar Bank account and then immediately onward transferred to Li Pak Hin’s bank account. Wong Chun tried to explain that Li Pak Hin may have needed to use the funds in his Binance account to complete transactions for other customers who had placed orders for USDT. Alternatively, it could also be the case that Wong Chun needed to refill the stock of USDT on Huobi and therefore asked Li Pak Hin to purchase USDT on Binance for him.

49.However, I cannot accept Wong Chun’s explanation. During the short lifespan of his ZA Bank and Airstar Bank accounts, there were 296 transactions over 18 days (from 8 August 2020 to 25 August 2020) and 145 transactions over 5 days (from 16 August 2020 to 20 August 2020), respectively. It is unlikely that every time the defendant sold USDT on Huobi, there was a coinciding purchase order on Binance by another customer. I also reject Wong Chun’s explanation that he needed to make payments to refill the stock of USDT from Binance. If restocking was the issue, it contradicts his previous statement that he needed to place advertisements on both sides of the queues for the bid price and the ask price. His explanation of hours long on how he could buy low and sell high and how he could constantly obtain USDT by queuing up to repurchase it on the bid side within the Huobi platform was a waste of the court’s time and beyond the point. It is also impossible to reconcile with his admission that the USDT could be transferred directly from Li Pak Hin’s digital wallet on Binance to his digital wallet on Huobi without payment, except for a minimal fee. Furthermore, he claimed to “own” the USDT in Li Pak Hin's wallet and therefore should not be required to pay for it. Therefore, the possibility of a direct purchase at Binance by using the defendant’s bank account for payment can also be ruled out. In any event, the bank statements showed that almost all of the money received was immediately paid out to Li Pak Hin. However, there is no evidence to suggest that any USDT was purchased on the Binance platform, whether for the five transactions in question or otherwise.

50.Regarding the transfer of the funds from the defendant’s ZA Bank account to the defendant’s Airstar bank account before transferring to Li Pak Hin, Wong Chun claimed that there was no daily limit for transfers at Airstar Bank. I reject this explanation. As Mr. Ngai pointed out, if this were the case, Wong Chun could have simply used the defenant’s Airstar Bank directly without the need to use the defendant’s ZA Bank. I agree. I find that the transfers between the said ZA Bank and the Airstar Bank were interim transfers to complicate the transactions.

51.Initially, Wong Chun refused to disclose the identity of Li Pak Hin’s bank account. Mr Ngai pointed out that the account number “884XXX006797” appeared many times in the entries of the defendant’s Airstar Bank account (as shown in the said bank statement). Wong Chun insisted that he forgot whose account it was. When asked by the court to answer the question, he finally admitted that it could be Li Pak Hin’s or Chen Xiao Rui’s or his own bank account. I do not accept that he could not remember whether it was his own account receiving almost all of the funds. In his own witness statement, he said that he clearly remembered every detail of the transactions that passed through the defendant's bank accounts because the banks froze those accounts within one week, unlike other people's accounts, which took one month. During re-examination, with the assistance of his counsel, Wong Chun confirmed that the bank account belonged to Li Pak Hin. I draw an adverse inference that Wong Chun was trying to conceal the true recipient of the funds. If the purpose was for legitimate purchasing or refilling the USDT stock as he suggested, there was no need for him to hide the identity of the account holder, Li Pak Hin.

52.In my view, the money involved in the five transactions was laundered and dispersed through multiple bank accounts, starting from Chan Wai Lit's Airstar Bank account, then to the defendant's ZA Bank, followed by the defendant's Airstar Bank account, and finally to Li Pak Hin and Chen Xiao Rui, and possibly to others. I find that the sale and purchase of USDT was only a façade in disguise of a genuine transaction. The defendant or Wong Chun has not provided any documents in support of the source, the cost, and more importantly the balance of the USDT in Wong Chun’s Huobi account. I see there was concealment and criminal activity, more than anything else.

53.In view of the whole scheme orchestrated by Wong Chun (or someone behind him), I do not find that the defendant or Wong Chun had ever acted in good faith at all. The defendant’s position can be no different where he had shut his eyes to the obvious.

For value

54.It is clear from Wong Chun’s evidence and the defendant’s own evidence that the defendant did not own the USDT concerned. By reason of my findings above, it is likely that the ultimate owner could be Chen Xiao Rui or someone else, including Li Pak Hin, or someone behind the scenes, but not the defendant or Wong Chun. Therefore, I reject the defendant’s defence that he gave any consideration or value for receiving the HK$799,970.

55.During his closing submissions, Mr Poon, at one point, attempted to suggest that there could be an employer and employee or principal and agent relationship between Wong Chun and the defendant if the USDT belonged to Wong Chun instead of the defendant.

56.With respect, I cannot accept this submission. Not only has it not been pleaded, but I cannot see how there can be any agency relationship between Wong Chun and the defendant. I find that each of them has acted in concert as a team (as Wong Chun said) and each of them is a member of that team in receiving the proceeds of fraud. Each of them has his own role: Wong Chun operated the Huobi account; the defendant provided his bank accounts for the necessary banking transactions. Notwithstanding that they may not be the ultimate owners of the USDT or the proceeds in question, their culpability is the same. Therefore, even if an agency relationship ever existed, the defendant’s liability to return the stolen money is strict (Goff & Jones, supra).

Without notice

57.It is the defendant’s pleaded case that “he had no previous dealing with that Chan Wai Lit either on Huobi or anywhere else.” It is also confirmed by the defendant’s witness statement.

58.However, I have noted that the defendant’s ZA Bank statement showed that there were two other transactions relating to the said Chan Wai Lit on 17 August 2020 (ie two days before the incident). These were the deposits made in the sums of HK$150,035 and HK$169,090 by Chan Wai Lit into the defendant’s ZA Bank account, which were immediately transferred to the defendant’s Airstar Bank account and also immediately paid out to the same Li Pak Hin’s account. This issue was not addressed by counsel. Neither the defendant or Wong Chun had clarified it when they gave evidence in court.

59.Furthermore, the copy of the transaction history of Wong Chun's Huobi account produced by the defendant was also limited to the five transactions in question, with the top and bottom of the page covered or removed before photocopying. Wong Chun stated that if he were to produce a full account statement showing the balance of USDT he held, it would raise privacy concerns.

60.I find that the defendant has not been telling truth about whether he had any previous dealings with the said Chan Wai Lit. He is not a credible witness.

61.Meanwhile, both Wong Chun and the defendant said that they had carried out due diligence or KYC checks to ensure that they were not involved in or aware of any money laundering activities, including the five Chan Wai Lit transactions, and to ensure that the source of funds was safe. In fact, it turned out that they merely relied on the authentication process required by Huobi when a person opened an account: (1) to take a photo of your face; (2) to take a photo of the front and back of your HKID card; and (3) to hold up a self-written piece of paper declaring that “I will never carry out any money laundering. All my assets are not tainted. I will be responsible for any legal consequence myself, not the platform” and take a photograph of yourself with the written piece of paper. They said that the said Chan Wai Lit must have done this when he opened the Huobi account. The defendant also added that he believed these requirements were very severe and therefore he absolutely believed in the declaration made by the account holder. In my view, it is astonishing to hear that one would rely on such a verification process as KYC. I reject their evidence in this regard.

62.Both Wong Chun and the defendant further said that they had indeed checked that the funds of these five transactions were transferred from Chan Wai Lit's bank account as shown in the Defendant's ZA Bank account, which matched the name of the account holder of the Huobi account. They stated that they believed that these transactions were in accordance with Huobi's policies and therefore accepted the funds and completed the transactions.

63.Having considered the evidence, I see there were some obvious problems with the mere checking on the account’s name for the receipt of the funds:

(1)  The HKID card was never inspected by any staff (either of Huobi or the virtual bank) in person. It was the defendant's evidence that when opening an account with the virtual bank, it was only necessary to send the person's photo and the photo of the HKID card for online verification. So, in my view, when the defendant checked whether the money was transferred from the bank account of the same person, it would serve no real purpose if that person used a virtual bank to transfer the money. None of these procedures ever involved checking the actual HKID card or the identity in person.

(2)  TShere is a notable distinction between exchanging foreign currency at a local bank (or a regulated financial institution) and conducting a cryptocurrency exchange on an on-line platform. When exchanging foreign currency exchange at a local bank, such as converting HK dollars to US dollars or GBP, the equivalent amount in the foreign currency would be deposited within the same bank account. On the other hand, in the cryptocurrency exchange platform, when a person pays with real-world currency from his bank account to the seller’s platform account, he would get the equivalent sum in Cryptos in his platform account, not being reverted to his original bank account. The Cryptos can then be transferred to another cryptocurrency platform for further trading or exchanges. This is not a closed-circuit money exchange system.

64.Finally, the defendant acknowledged that allowing someone else to use his bank account could have serious consequences. He explained that he was unemployed at the time and saw it as a way to earn some extra income.

CONCLUSION

65.For the above reasons, the defendant has failed to establish his defence. I find against his defence on all three elements either conjunctively or disjunctively. I find in favour of the plaintiff’s personal claim for unjust enrichment.

66.It is ordered that the defendant shall pay to the plaintiff the sum of HK$799,970.

67.I make a costs order nisi that the defendant shall pay the costs of this action, and such costs to be taxed if not agreed with certificate for counsel. In absence of any application for variation, the costs order nisi will be made absolute within the next 14 days.

Mr Lawrence L K Ngai, instructed by S H Chou & Co, for the plaintiff

Mr Billy Poon, instructed by Tung & Associates, for the defendant