Taihei Dengyo Kaisha Ltd v. Zhao Yizhe and Another
Read the full judgment text of DCCJ 1436/2022 on BabelCite. This District Court judgment was delivered on 11 March 2024.
1. There are four summonses before the court:
Cited by 1 case · Cites 24 cases
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DCCJ 1436/2022 [2024] HKDC 222 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO 1436 OF 2022 ————————
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———————— JUDGMENT ———————— Introduction 1.There are four summonses before the court:
2.Mr Peter Zhu, counsel for D1, indicates in his written submissions that:
3.I will first deal with D1’s Admissibility Application, followed by P’s O14 Application, and then I will discuss the issue of costs in all four applications. P’s case and procedural history 4.On 5 January 2022, Mr Fukura Motohiro (“Mr Fukura”) (a Project Manager of P) received a phone call wherein the caller (“Caller”) purported to be Mr Nojiri, who was one of the directors of P and the Representative Director, President and Chief Executive Officer of P. 5.The Caller told Mr Fukura that P’s Japan branch was going to acquire an overseas company and he instructed Mr Fukura to contact by email one Mr James who was said to be a lawyer handling the acquisition. Mr Fukura believed that the Caller was indeed Mr Nojiri from P’s headquarters. 6.Between 5 and 10 January 2022, on the instructions of the Caller and Mr James, Mr Fukura transferred a total sum of HK$49,773,787.32 (“Transferred Sum”) from P’s bank account with MUFG Bank Limited to an account numbered 41510860646 (the “Bok Joeng Account”) under the name of Bok Joeng Hong Kong Co., Limited (“Bok Joeng”) with Standard Chartered Bank (Hong Kong) Limited (“SCB”). 7.It was only on 12 January 2022 that Mr Fukura discovered that this was actually a scam, and he reported the matter to the police immediately. 8.On 20 January 2022, P obtained an ex parte Mareva injunction on the Bok Joeng Account from the Honourable Mr Justice K Yeung in HCA 88/2022, [2022] HKCFI 2377. The injunction order was continued by the Honourable Madam Justice Lisa Wong on 28 January 2022. 9.Subsequent investigations and discoveries revealed that there have been further transfers of part of the Transferred Sum to other accounts held by different entities. The following transfers are relevant to the present proceedings:
10.It is not disputed that P (whether through its parent companies and/or its associate companies) does not have any business relationships or dealings with D1 to justify the payment of the Two Sums. 11.On 29 April 2022, P commenced the present proceedings in the District Court against D1 and D2 for, inter alia, constructive trust, unjust enrichment / money had and received, dishonest assistance, and conspiracy to injure. P also obtained from HH Judge MK Liu a Mareva injunction against D1 and the SCB Account has been frozen since then. The injunction order was continued until the substantive hearing of the injunction application, which is yet to be fixed by the parties. 12.On 28 July 2022, P obtained default judgment against Bok Joeng in HCA 88/2022, [2022] HKCFI 2377. 13.On 28 April 2023, P obtained final judgment against D2 herein for the sum of HK$530,000. D1’s case 14.D1’s case is that she has no knowledge of any fraudulent scheme. 15.According to D1, she has engaged her high school classmate, Ms Sarah Cheng Chen (“Ms Cheng”), who is a licensed individual insurance agent in Hong Kong, to purchase and maintain an insurance policy (the “Policy”) with Prudential Hong Kong Limited since around 18 January 2019. For the purpose of facilitating her payments of annual insurance premium and tuition fee for her master’s degree studies at the Hong Kong Polytechnic University, she opened the SCB Account with the assistance of Ms Cheng. 16.As of 15 December 2021, D1’s Bank Account had a closing balance of HK$181,823.54. In or around January 2022, when the premium for the Policy was about to be due within a month, D1 realised that her SCB Account might not have sufficient money in Hong Kong currency. However, D1 was given to understand from Ms Cheng that:
17.Believing that the exchange transaction was legal and in reliance on Ms Cheng’s instructions, on 10 January 2022 D1 remitted RMB500,000 from D1’s bank account with China CITIC Bank (the “CITIC Account”) to a designated PRC bank account of an individual named羅立燊(“Mr Luo”)maintained with Industrial and Commercial Bank of China Limited Suzhou Branch (the “ICBC Account”). There is no dispute that this Mr Luo does not hold a valid licence for the exchange of foreign currencies in the PRC. 18.On the same day, D1 made another transfer of net RMB160,000 from her CITIC Account to ICBC Account. 19.On 10 and 11 January 2022, D1 received the Two Sums in exchange for her RMB660,000 remitted to Mr Luo. 20.On 11 January 2022, D1 was informed by Ms Cheng that the premium of the Policy due on 1 February 2022 was HK$779,839.164. D1 subsequently transferred a total sum of HK$779,840 to settle the premium (by transferring HK$500,000 and HK$279,840 respectively on 11 and 12 January 2022). 21.It was only in early April 2023 that D1 discovered that her SCB Account was frozen and subject to the ex parte injunction order mentioned in paragraph 11 above. 22.D1 then immediately contacted her relationship manager at SCB who then provided her with the contact details of Messrs. Oldham, Li & Nie (“OLN”), P’s legal representatives. She called OLN on 6 April 2023 and attended OLN’s office on 11 April 2023 to meet with Ms Lam Choi Yuk (“Ms Lam”) and Mr Dexter Yuen (“Mr Yuen”). D1 alleges that at that meeting, she was induced to send to OLN all relevant information and supporting documents to prove her innocence. This gives rise to the existence of the Contested Materials and D1’s Admissibility Application. D1’s Admissibility Application 23.There is apparently some confusion as to the grounds upon which D1 seeks to expunge the Contested Materials. In D1’s affirmation, the following reasons are stated:
24.Based on these allegations, one would think that D1 is relying on the privilege against self-incrimination as the ground of her application. 25.However, in his written submissions, Mr Zhu states that D1’s Admissibility Application is actually based on three different grounds:
26.At the hearing, D1 changes her case again. In his oral submissions, Mr Zhu informs the court that instead of relying on breach of professional conduct, D1 is now alleging procedural unfairness as a ground for her application. Essentially, D1 repeats the same factual allegations and say that OLN had obtained her information and documents in a procedurally unfair manner. The words “procedural unfairness” are never mentioned in any of the affirmations or Mr Zhu’s written submissions. 27.With no surprise Mr Edward Ng, counsel for P, objects to D1’s late advancement of this ground and argues that D1 is simply precluded from raising it. He cites the case of Kaefer A.G. v Winfield Marine Services Co., LTD [2022] HKCA 807: para. 18 and 33 in support of this argument. 28.Since D1 is relying on the same factual allegations, I allow Mr Zhu to make oral submissions on this new ground. However, I do not think this last-minute change assists D1’s present application. 29.Although D1 has raised a number of complaints that she did not know her rights when she met with OLN, there is no evidence of how OLN’s representatives allegedly misled or deceived her to the provision the information and documents. 30.From the attendance notes prepared by OLN (which is the only available documentary evidence of what took place at the meeting on 11 April 2023), the meeting was quite short and was recorded to take place from 10:02am to 10:15am. Ms Lam and Mr Yuen had from the outset stated that P was their client, who was the victim of a fraud, and P’s money had been transferred into D1’s bank account. When D1 explained her remittances, she volunteered to provide the transaction records but Ms Lam immediately replied and told D1:
31.Mr Zhu suggests (but does not explain why) that the state of mind of D1 had always remained that OLN was “on the same camp” with D1 and D1 could seek legal assistance from OLN. Given the conversation mentioned above, I do not think there is any basis for such a suggestion. Moreover, towards the end of the meeting, D1 specifically asked Ms Lam and Mr Yuen how much it would cost to hire a lawyer, and the latter reminded D1 that OLN could not represent her:
32.At around 1:29 pm that day, D1 emailed Ms Lam some transaction records of her remittances and screenshots of her WeChat conversations with Ms Cheng. Thus, the documents were provided to OLN after the meeting when she had already been told that OLN was acting for P, that they could not represent D1, and that she should obtain her own legal advice if necessary. It is simply not open for D1 to now assert that she was somehow misled to do so. 33.In any event, even if there was somehow procedural unfairness in the way OLN obtained the information and documents from D1, Mr Zhu accepts (and I agree) that the Contested Materials are not automatically liable to be struck out. Instead, the court retains a discretion to decide whether the materials in question are so prejudicial to D1 that they should be excluded as a matter of fairness. 34.Having scrutinised each of the Contested Materials, I conclude that the Contested Materials are not materially different from D1’s evidence filed in these proceedings. In gist, in the Contested Materials, D1 was just saying that she had acted in accordance with Ms Cheng’s instructions, and she exchanged RMB to Hong Kong dollars through this unlicensed individual Mr Luo for the purpose of paying her insurance premium. She said that she had no idea about the legality of the transaction and no liability can be assumed for any violations of applicable laws and regulations. This is essentially the defence put forward by D1 in her affirmation filed in opposition to P’s O14 Application and, importantly, there is nothing prejudicial to D1 insofar as the present action is concerned. 35.Mr Zhu does not seem to dispute such a conclusion on the nature of the Contested Materials, but then he tells the court that there is yet another reason for D1’s application. He says that there is an existing threat by OLN to use the Contested Materials and report the matter to the PRC authorities, and OLN should not be allowed to do so. This in effect turns D1’s Admissibility Application into one for an injunction prohibiting OLN from using the evidence in these proceedings for other purposes. There is no such application before me (and it is certainly not stated in D1’s Summons dated 24 November 2023) and I refuse to consider this issue. 36.As regards the second ground on WPP, there is no dispute that communications are protected by this privilege and deemed inadmissible if (1) a dispute is in existence and (2) there must be a genuine attempt at settlement: Secretary for Justice v Wong Lai Yin [2022] 1 HKLRD 258. 37.Mr Zhu submits that the genuine intention on the part of D1 to resolve and settle the case can be inferred as Ms Lam indicated that her client can “settle the matter” with her after she provided OLN with her evidence and documents (see the conversation quoted in paragraph 31 above). 38.In response, Mr Ng argues that the words “settle the matter” are quoted out of context and there was in fact no genuine attempt to settle the dispute. I agree. 39.First, the meeting on 11 April 2023 was a short first meeting where each party was still gathering information for their own purposes. There is nothing in the attendance notes which suggests that parties were engaged in a settlement discussion. 40.Secondly, as rightly suggested by Mr Ng, no legally trained person would seriously intend that the provision of documents would somehow constitute negotiations for settlement, particularly when such provision is imbedded as a mandatory process in civil litigation. 41.Thirdly, the word “settle” can bear different meanings. While it could mean “to end or resolve a disagreement” or “to bring to a conclusion what has been disputed”, it could also mean “to decide on a course of action or to resolve what one is going to do”: Black’s Law Dictionary (11th ed., Thomson Reuters 2019). Viewed in proper context, it seems to me that what Ms Lam said is more consistent with the latter meaning of the word, i.e., that her client will decide on the course of action to take going forward, rather than resolving the matter with D1. 42.Thus, D1 also fails in her second ground of WPP. 43.On the third ground of privilege against self-incrimination, Mr Ng accepts that the privilege applies in civil proceedings. However, he contends that the privilege is only available when there is a “risk of incrimination under Hong Kong law”, citing section 65(1) of the Evidence Ordinance (Cap. 8) and Salt & Light Development Inc & Others v SJTU Sunway Software Industry Ltd [2006] 2 HKLRD 279 per Recorder McCoy SC at §42. As there is no suggestion that D1 has committed any offence under Hong Kong law, Mr Ng argues that privilege against self-incrimination in the “traditional” sense is inapplicable. 44.With regard to an offence under foreign law, the court retains a residual discretion at common law to exclude evidence on the risk of incriminating the witness under foreign law. However, such discretionary power is very limited and it would only be exercised in favour of the witness if the offence in question is one that would expose an individual to a lengthy sentence of imprisonment or worse, under foreign law: Salt & Light at §83. 45.The potential offence in question here is the use of unauthorized exchange agents for the exchange of RMB into other currencies, in breach of the PRC exchange control regulations (more discussion on this below). There is no evidence before me that the Contested Materials would expose D1 to a lengthy sentence of imprisonment or worse. Indeed, in D1’s expert opinion, such transactions on the facts of the present case would most likely lead to administrative penalties only. 46.Mr Ng, on the other hand, argues that by making the present application, D1 must have accepted that her behaviour would expose her to a lengthy sentence of imprisonment or worse. I do not understand the logic of such an argument, as it is contradictory to P’s opposition to this application. In any event, there is nothing before me to support such an inference. 47.Having considered all the arguments before me, I am not satisfied that the Contested Materials should be expunged on any of the grounds mentioned above. D1’s Admissibility Application is dismissed. 48.In any event, as will be demonstrated below, it is unnecessary for me to take into account the Contested Materials when deciding P’s O14 Application. Therefore, the result of D1’s Admissibility Application has no bearing on the merits or otherwise of her opposition to P’s O14 Application. P’s O14 Application 49.In the Summons dated 18 July 2023, P seeks summary judgment against D1 for, inter alia, (1) a declaration that D1 holds the Two Sums on trust and/or constructive trust for P; (2) an order for D1 to repay the total sum of HK$803,897 on the ground of money had and received; (3) equitable compensation for dishonest assistance, and (4) damages for conspiracy to injure. 50.At the hearing on 19 January 2024, Mr Ng tells the court that for the purpose of P’s O14 Application, P no longer pursues relief for dishonest assistance and conspiracy to injure, and will only seek summary judgment for constructive trust, money had and received / unjust enrichment. 51.The fact that D1 has received the Two Sums from P is not disputed. The main thrust of D1’s argument is summarised by Mr Zhu as follows:
Status of evidence on PRC law 52.P has filed the expert opinion of Wu Yijun dated 18 April 2023 (“Wu’s Opinion”) on the issue of whether “根據中華人民共和國相關的法律、法規，[ ] 通過 [ ] 以資金跨境對敲方式換匯的行為非法嗎?”. 53.The [ ] in the issue quoted above represent the individuals or entities that have been redacted in Wu’s Opinion filed in this action because that opinion was originally prepared in support of P’s claim in HCA 88/2022 against certain other defendant(s) therein. 54.At the hearing I raise the question of whether Wu’s Opinion is admissible for the purpose of P’s O14 Application here because it is expressly stated to have been prepared solely for the purpose of HCA 88/2022 and cannot be used for any other purpose. To that Mr Ng answers that such a statement only relates to P’s legal privilege attached to the opinion and, by filing the opinion herein, P has waived its privilege. 55.But that, in my view, does not entirely resolve the status of the document. Wu’s Opinion is based on a particular set of facts and circumstances of the transactions in HCA 88/2022. Neither this court nor D1 has been given any detailed information on the relevant transactions that took place in that case. Although Wu’s Opinion contains a brief factual summary which seems to suggest that the circumstances in that case are analogous to those herein, there is no confirmation from the expert that the same conclusions on the issue of illegality can be made on the particular facts of this case without any qualification. In these circumstances, and leaving aside the issue of admissibility, I do not think the court can safely assume that Wu’s Opinion is directly applicable to the facts of the present case. Wu’s Opinion was only received at the hearing on a de bene esse basis and I do not intend to refer to it when I deal with P’s O14 Application here. 56.But P is not left with no evidence on PRC law at all. It transpired during the hearing that P has given notice of its intention to adduce, in addition to Wu’s Opinion, the following decisions to determine the question of whether (a) “underground banking”; (b) “underground money exchange transaction”; (c) the purchase of foreign currency from an unlicensed exchange agent is illegal under PRC law:
57.The notice was given on 19 July 2023 pursuant to Order 38 rule 7(1) of the Rules of the District Court and section 59 of the Evidence Ordinance, Cap 9. In terms of timing, the relevant rule is Order 38 rule 7(1)(b), which states that such notice must be issued within 21 days after the date on which an appointment for the first hearing of the cause or matter is obtained: She Ching Yan at §49. 58.Since P took out the summons for P’s O14 Application on 18 July 2023 and obtained the appointment for the first hearing on that day, the notice was issued well within the 21-day time limit and it complies with the procedural requirements under Order 38 rule 7 and section 59. 59.In passing, however, I should note that the court was not copied on this notice and it is not contained in the hearing bundles. None of the affirmations and submissions filed for the purpose of this hearing mentions the existence of this notice. When I asked if any party has filed a notice under Order 38 rule 7, at first I was given the impression that no one did. It was only after the court stood down for the parties to deal with the issue that P’s solicitors handed in a copy of the notice. This is unsatisfactory. If parties intend to rely on decisions on foreign law, they should inform the court of the existence of such a notice in advance so that there is no ambiguity as to the scope of evidence on foreign law. 60.Moving on to D1’s side, she has filed the expert opinion of 袁敏dated 8 September 2023 (“Yuan’s Opinion”) on the issue of “根據中華人民共和國相關的法律、法規，趙一哲女士以‘對敲’方式換匯的行為的合法性”. Since D1 does not intend to adduce in evidence any finding or decision on this issue, she did not file a notice under Order 38 rule 7. Summary judgment 61.The principles relevant to an application for summary judgment are well established. See for example summary by DHCJ Lisa Wong (as she then was) in Menfond Electronic v Wong Wang Tat Victor [2013] 2 HKC 259 at §61. 62.If a claim comes within Order 14 and the plaintiff has satisfied the preliminary requirements, he will prima facie be entitled to judgment. The burden will then be on the defendant to show why judgment should not be entered. To resist summary judgment, the defendant needs to show that there is a triable issue or an arguable defence or there ought for some reason be a trial of the plaintiff’s claim: Hong Kong Civil Procedure 2023 at §14/4/9B. 63.There is nothing in Order 14 to suggest that a question of law may not be determined in the course of the usual Order 14 procedure. Where a difficult question of law is raised, leave to defend should be granted. Nevertheless, if the point is clear and the court is satisfied that it is really unarguable, leave to defend will be refused. The court will determine disputed points of law provided that the relevant facts are not in dispute. This is so even if the issue of law is complex and highly arguable, but it is otherwise if the issue of law is not decisive of all the issues between the parties or if the issue is of such a character as would not justify its being determined as a preliminary issue or if the answer to the question of law is in any way dependent on undecided issues of fact: Hong Kong Civil Procedure 2023 at §14/4/12. Money had and received / Unjust enrichment 64.A victim of fraud would prima facie have a claim in money had and received and may assert a proprietary claim against a recipient insofar as the fraudulently obtained funds are traceable into his hands, unless the recipient can establish that he is a bona fide purchaser for value without notice: Ferrari North America, Inc v Changhon International Energy Co., Limited & Others [2018] HKCFI 1063 at §12. 65.In respect of unjust enrichment, it is well-established that the issue can be approached by asking the following four questions:-
66.The relevant defences here are change of position and bona fide purchaser for value without notice. The burden of proof of establishing the defences lies on the defendant: Americhip at §22. 67.In the context of an O14 application, D1 has to establish that her defences are arguable or there are triable issues in relation to them. Change of position 68.The relevant principles are succinctly summarised by DDJ Rebecca Lee in Ling Weixian at §§23-24:
69.Presumably paragraph 24 cited above originates from Lord Goff’s speech in Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 at 580C-D, where his lordship discussed the potential limit to the defence:
Bona fide purchaser 70.To raise the defence of bona fide purchaser, the defendant has to show: (1) there was a purchase for value, (2) of the legal estate in property, (3) in good faith, (4) without notice, (5) at the time of transfer of the legal estate: TTI Global Resources at §22. 71.The defence can be defeated if:
Ling Weixian at §21. 72.Moreover, a person is not considered to have provided value if a payment is made pursuant to an illegal transaction: Pan Jing at §56 Illegality 73.Illegality in the context of a claim for unjust enrichment and/or money had and received has been discussed in great detail in a number of recent cases involving victims of fraud seeking to recover their losses from a second or subsequent tier of recipients and the latter raising the defences of change of position and bona fide purchaser. See for example: Pan Jing, Americhip, TTI Global Resources, Solyda SRL (A Company Incorporated in Italy) v Wu Ge & Anor [2021] HKCFI 1825, Lesnina H DOO, Tokić, D.O.O. v Hong Kong Shui Fat Trading Ltd & Ors [2022] HKCFI 217, Yerrid Law Firm v Qiansbaizi Trading Ltd [2023] 3 HKLRD 421, Ling Weixian, She Ching Yan. I try to summarise the courts’ approach to the issue as follows. 74.The starting point is that a distinction should be made between domestic illegality and foreign illegality. It has been held that the principles derived from cases involving domestic illegality are not relevant for the purpose of resolving cases involving foreign illegality: Ryder Industries Ltd v Chan Shui Woo (2015) 18 HKCFAR 544 per Lord Collins NPJ at §55. Domestic illegality is underpinned by ex turpi causa and consistency, whereas foreign illegality is based on conflict of laws and international comity: She Ching Yan at §§12, 86. 75.In Hong Kong, domestic illegality is governed by the line of cases led by Tinsley v Milligan [1994] 1 AC 340. According to these cases, if the recipient’s actions of changing position are illegal, there is no room for the court’s exercise of discretion and it must, subject only to a de minimis threshold, always disallow the defence of change of position. Tinsley has been overruled by the UK Supreme Court in Patel v Mirza [2017] AC 467 but it is still binding on first instance courts in Hong Kong: Arrow ECS Norway AS v M Yan Trading [2018] HKCFI 975 at §29. 76.This absolute approach in Tinsley has been applied in the context of foreign illegality and unjust enrichment in Barros Mattos Junior v MacDaniels Ltd [2005] 1 WLR 247 at §43, where Laddie J effectively held that, subject only to a de minimis threshold, any breach of foreign law would deprive the defendant of the defence of change of position. 77.In recent years, the absolute approach has been doubted or even criticised as being too rigid. For example, in Ryder at §57, Lord Collins doubted the absolute approach in Barros and said that there is no basis in authority or principle for holding that every breach of foreign law would render the contract unenforceable on the ground that it is contrary to public policy. 78.However, that does not mean that the court should exercise judicial discretion or apply a proportionality test on every question of foreign illegality. As Ma CJ observed in Ryder:
79.So if the approach in Barros is considered to be too rigid while the issue of foreign illegality should be based on firmer principle and policy, how should the court approach the enforceability of a contract (and hence the defences of change of position and bona fide purchaser) if it is suggested that the transaction is tainted with illegality? It seems that the answer is found at Ryder §39, where Lord Collins adopted the principles summarised in Johnston, The Conflict of Laws in Hong Kong (2nd ed) on the different types of foreign illegality and their respective legal effect:
80.These different scenarios described in the first to fourth principles are now sometimes referred to “type 1 case”, “type 2 case”, “type 3 case” and “type 4 case”. 81.As regards the distinguishing features of type 2, type 3 and type 4 cases, DHCJ Winnie Tsui in She Ching Yan made the following analysis:
82.Thus, when considering the effect of foreign illegality, the first task is to identify which type of illegality the case falls within. If it is a type 2 case or type 3 case, the contract will not be given effect. If, on the other hand, it is a type 4 case, the court should make a judgment as to whether comity should require it to give effect to the contract or deny its enforcement by evaluating the seriousness of the illegality and the important policies which may underlie the impugned foreign law: She Ching Yan at §109. 83.As I see it, therefore, when the court undertakes the first task, it should approach the question based on firm principle and policy. There is no room for a proportionality test or exercise of discretion in identifying which type of illegality the case falls within. Moreover, if the transaction in question is identified as one of type 1, type 2 or type 3 cases, the contract will not be given effect and the result is automatic. It is only after the court identifies the case as a type 4 case then a less rigid approach kicks in, and the court should weigh in the nature and seriousness of the illegality in the performance of an otherwise valid contract, as well as policy considerations, in deciding whether the transaction in question should be given effect or not. It seems to me that it is in this latter context that Lord Collins doubted the absolute approach in Barros (see §56 in Ryder). 84.Ryder is the highest authority in Hong Kong on foreign illegality and how it affects the enforceability of contracts. There is no question that it is binding on me, and I will adopt the approach set out therein for the purpose of P’s O14 Application. Credibility of D1’s case 85.As mentioned above, D1 does not dispute her receipt of the Two Sums from P and there are no dealings between the parties that would justify her receipt of the Two Sums. P has prima facie established its claim for money had and received / unjust enrichment. 86.The issue that follows is whether D has raised a real or bona fide defence. D1’s case is that she had no knowledge of any fraud and / or mistake or misrepresentation and, by making payments totalling RMB660,000 into the bank account of Mr Luo, she is a bona fide purchaser of the Two Sums and/or her position has changed. 87.P submits that D1’s case is wholly incredible in multiple aspects:
88.D1, on the other hand, submits that her credibility is substantiated by the following:
89.In my view, although there are parts of D1’s case that are not fully explained and Ms Cheng did not provide any evidence in these proceedings, I do not think D1’s case is so unbelievable that it is frivolous and practically moonshine. 90.For the purpose of P’s O14 Application, I will proceed on the basis that D1’s case is credible and that she had no knowledge of the fraudulent scheme against P as well as any illegality in respect of her currency exchange transactions. 91.What follows then is whether D1 has a real or bona fide defence of change of position and/or bona fide purchaser when it is argued on behalf of P that her currency exchange transactions are tainted with illegality. To answer this question, the court will first consider whether the relevant transactions are in fact illegal under PRC law and, if so, identify which type of illegality in Ryder that the transactions fall within. D1’s expert opinion and determinations in P’s PRC law cases 92.Although the parties have filed and submitted their respective evidence on PRC law in relation to the legitimacy or otherwise of D1’s currency exchange using an unlicensed exchange agent, I have found that their evidence is materially the same. 93.In Yuan’s Opinion filed on behalf of D1, the expert gives a clear opinion that D1’s currency exchange transactions are illegal in that they contravened the relevant PRC regulations and measures on foreign exchange control, and she is potentially liable to administrative penalty:
94.The above opinion and conclusion are consistent with the Hong Kong courts’ determinations of the same issue in P’s PRC law cases:
95.As mentioned above, D1 has not adduced any decisions or findings of the Hong Kong court to contradict or challenge the above determinations in P’s PRC law cases. 96.For the purpose of completeness, it is noted that Wu’s Opinion also refers to《中華人民共和國外匯管理條例》and contains similar conclusions on the illegality of the so-called “double knock” or “match-and-knock” (對敲) exchange transactions and the potential liability for administrative penalties. However, as I said, I will not rely on Wu’s Opinion in deciding P’s O14 Application. I am only making a note here to record the fact that there are no material inconsistencies in the PRC law evidence before me. 97.It is therefore abundantly clear that D1’s exchange of RMB to Hong Kong dollars through an unlicensed individual is illegal under PRC law. This is the factual finding on foreign law that I will adopt for determining D1’s defences. Effect on illegality on D1’s defences 98.The next task for the court is to determine which type of case that D1’s exchange transactions fall within and the effect on her defences. 99.Mr Zhu accepts that Ryder is binding on me. He also accepts that if D1’s currency exchange transactions are found to be a type 2 case, the defences of change of position and bona fide purchaser would not be available to D1. However, he suggests that the court should adopt the more “flexible and general” approach in Lesnina, Tokić and Solyda when categorising D1’s transactions and, under that approach, it is at least arguable that they at most belong to a type 4 case and D1 should be afforded the opportunity to make arguments about the seriousness of the illegality and policy considerations at trial. 100.I do not think what Mr Zhu suggests is the correct approach. As I have discussed above, it seems to me that there is no discretion or flexibility in identifying the type of the transaction concerned. Either the transaction falls within one of the types or it does not, and I do not read Lesnina, Tokić and Solyda as authorities establishing otherwise. 101.The relevant transactions here are D1’s exchanges of RMB into Hong Kong dollars through an unlicensed individual. The performance of these transactions or agreements necessarily involved the commission of an illegal act in contravention of the PRC law. The very essence of these transactions was to conduct the foreign exchanges in the guise of one-way remittances to avoid the PRC currency exchange controls. This makes the transactions fall squarely within the type 2 category. Following Ryder, the court is required to refuse enforcement of the contract, and it is unnecessary to consider the seriousness of the offence by reference to the PRC policies that underlie the relevant regulations. 102.Moreover, it is irrelevant even if D1 might not have intended the illegality or she might not be aware of the fact that what she had agreed would involve an unlawful act: She Ching Yan at §105. 103.Mr Zhu has relied heavily on Lesnina, Tokić and Solyda but I find that there are features in those cases that are distinguishable from the present one. 104.In Lesnina, there appears to be disputes over the applicability and/or force of PRC law (§58) but there is none here. Also, the defrauded funds were said to have been received by the 8th defendant as consideration for goods sold and delivered, which may suggest that the transaction was a type 4 case, and there was no evidence to infer that the 8th defendant had participated in any underground banking (§61). In relation to the 10th defendant there, it is unclear on the facts whether there was any illegality, as he was alleged to reside in the Philippines, and he would make remittances through qualified currency exchange agents and foreign exchange companies (§§13-14). 105.In Tokić, there was no evidence on PRC law before the court and the court concluded that there was an issue to be tried as to whether the 9th defendant’s exchange transaction was illegal under PRC law (§§26, 36). 106.In Solyda, P relied on the case of Pan Jing as evidence on PRC law. However, the court seemed to be working on the premise that the determination in Pan Jing depended on the defendant’s state of mind and held that there was a triable issue as to whether the defendant acted in good faith (§30). However, as it is clear from a number of subsequent cases mentioned above as well as D1’s expert evidence, insofar as administrative law (行政法律規定) is concerned, there is a breach of the relevant regulations regardless of whether the defendant was aware of the illegality. 107.Having found that D1’s transactions are a type 2 case, the court will not recognise the currency exchange transactions and D1 is not considered to have provided value for the Two Sums because her RMB660,000 was transferred pursuant to an illegal transaction: Pan Jing at §56. D1 therefore cannot rely on the defence of bona fide purchaser. 108.In passing, I note that Yuan’s Opinion seems to emphasise that while D1’s exchange transactions might have breached certain PRC regulations, it does not automatically mean that the transactions are void under PRC law (see section 1 in the quoted text in paragraph 93 above) and one might argue that D1 has nonetheless given value recognized by the PRC court. As I see it, this does not affect my analysis above. This is because Yuan’s Opinion in this regard is concerned with the position of D1 vis-à-vis the unlicensed exchange agent. In Pan Jing at §§46-56, it was held that while the precise effect under PRC law of the illegality on the arrangements between the defendant and the exchange agent was in dispute and such a dispute could not be resolved on a summary judgment application, the defendant was nonetheless debarred from relying on the defence of bona fide purchaser vis-à-vis the plaintiff in that case. This is also consistent with Ryder in relation to type 2 cases, where there is no requirement to look into the validity of the contract under its proper law. 109.As regards change of position, the defence is likewise unavailable to D1 because, in the words of Lord Goff in Lipkin Gorman, D1 was a “wrongdoer” such that it would not be inequitable to require her to make restitution to P. 110.Furthermore, D1 also cannot rely on her payment of part of the Two Sums as insurance premium to support her defence of change of position. As Lord Goff held in Lipkin Gorman at 580F-H:
111.Similarly, in Scottish Equitable Plc v Derby [2001] 3 All ER 818 at §35, Walker LJ held that in general it is not a detriment to pay off a debt which will have to be paid off sooner or later. 112.Under the Policy, D1 is required to pay premium every year for a period of 5 years. In other words, she had to pay the premium in January 2022 regardless of whether she had received the Two Sums. There is therefore no causal “but-for” relationship between the receipt and the payment of the premium to support the defence of change of position. 113.In conclusion, D1 is unable to raise a real or bona fide defence of change of position or bona fide purchaser against P’s claim for unjust enrichment / money had and received. Summary judgment should be given to P for the restitution of the Two Sums. 114.In coming to this conclusion, I have borne in mind the fact that illegality, and in particular foreign illegality, is a complicated and developing area of law. In some cases, for example, where there are disputes on the proper law of the transaction or where the intention of the parties is in issue, there are indeed valid justifications for the matter to be explored at trial. However, in this case, there are no material disputes on the facts and the parties’ intentions are not relevant (insofar as P’s claim for unjust enrichment / money had and received is concerned). As regards the status of PRC law, the recent cases involving internet or phone scams have fairly established that it is illegal under PRC law to engage unlicensed individuals or entities for the exchange RMB to other currencies. Thus, in the particular circumstances of the present case, I do not see what utility can be gained for P’s restitution claim to go to trial. Costs of P’s EOT Application 115.On 17 August 2023, Madam Registrar Soong ordered, inter alia, that D1 should file and serve her affirmation in opposition to P’s Summary Judgment Application within 28 days. Notwithstanding, D1’s affirmation in opposition was only filed on 18 December 2023. This affirmation of D1 was also made in support of D1’s Admissibility Application which was taken out on 24 November 2023. Meanwhile, the 3rd Affidavit of Chan Hei was filed on 7 December 2023 in support of D1’s Security for Costs Application. P’s KK 2nd was prepared for the purpose of responding to D1’s evidence in these three applications. 116.Given most of D1’s evidence for the present applications was only filed in December 2023, and it is not suggested that D1 has suffered any prejudice as a result of the late filing of KK 2nd, I do not think costs should be ordered against P. Instead, I think a more appropriate order is costs in the cause. Costs of D1’s Security for Costs Application 117.As regards D1’s Security for Costs Application, D1’s position is that given P only revealed in KK 2nd that it has liquidity of over HK$70 million in its bank account in Hong Kong, D1 should nonetheless be entitled to costs of her application up to KK 2nd dated 3 January 2024. D1’s reasons are:
118.In the context of security for costs, it is trite that a mere assertion as to where a company’s central management and control are located is unsatisfactory. All the circumstances in which the company carries on its business should be taken into account. These include place of incorporation, the place of where the company’s real trade and business is carried on, and where the company’s books are kept, the place where the company’s administration is carried out, the place where the directors are resident, the place where its chief office is or whether the company secretary is to be found, and the place where its most significant assets are: Charter View Holdings (BVI) Ltd v Corona Investments Ltd [1998] 1 HKLRD 469 at §3. 119.However, once a defendant has produced prima facie evidence that a plaintiff’s central management and control are outside Hong Kong, the evidential burden shifts to the plaintiff to rebut such evidence: Smart Trike MNF Pte Ltd v Chiu Sui Chun (unreported, HCA 847/2013, [2015] HKEC 556) at §10. 120.The question then is whether D1’s solicitors have, in their letter of 7 September 2023, produced prima facie evidence that P’s central management and control are outside Hong Kong so that P became obligated to rebut such evidence. In my view, D1’s solicitors have failed to do so. The matters relied on by D1’s solicitors in their letter are: (1) P is a company incorporated in Japan; (2) although P is a registered non-Hong Kong company and has a place of business in Hong Kong, its presence is no more than a “branch” in Hong Kong; and (3) whilst the annual return dated 30 November 2022 shows that P’s directors have a correspondence address in Hong Kong, the addresses are identical and are merely a place of business, and it is believed that the directors reside in Japan and P’s central management and control locate in Japan. 121.There may well be other factors, together with what is stated in the letter, that could have been relied upon by D1’s solicitors to support a prima facie case that P’s central management and control locate in Japan. But this is not what I am concerned with. What matters here is that the factors stated in the letter, without more, are insufficient to constitute prima facie evidence for the purpose of shifting the evidential burden to P. In the circumstances, it was not unreasonable for P to reject D1’s request for evidence of its substantial assets in Hong Kong. 122.Mr Ng submits that since the filing of 2nd KK, D1 had almost two weeks to withdraw her Security for Costs Application, but she only chose to do at the eleventh hour (via Mr Zhu’s written submissions) when all the preparation has already gone in for the purpose of the hearing of the application. Mr Ng asks for costs of the application on an indemnity basis. 123.I agree that D1 could have and should have withdrawn her application earlier. As I see it, the late withdrawal of D1’s application makes P’s position no different from that of a plaintiff having succeeded in opposing an application for security for costs. Therefore, D1 should pay P costs of the application. 124.However, despite Mr Ng’s repeated submissions, I do not think D1’s conduct was so malicious or oppressive so as to justify costs on an indemnity basis. 125.After the hearing, by a letter dated 26 January 2024, P’s solicitors make further submissions on costs of D1’s Security for Costs Application. D1’s solicitors object to such post-hearing submissions on the ground that they are made unilaterally without seeking prior leave of the court and D1’s consent. 126.The courts have repeatedly criticised the making of post-hearing submissions as an improper course to take. Unless leave of the court has been given, no further submissions should be advanced whether by counsel, solicitors or litigants in person. Moreover, even in the rare and exceptional circumstances that might justify the making of post-hearing submissions, the party who wishes to advance further submissions should, as a matter of courtesy and proper practice, approach the other parties first to see whether they agree to the lodging of the further submissions. And even if there is a consensus between the parties, they must apply for leave from the court before such further submissions are lodged: To Pui Kui v Ng Kwok Piu & Others (unreported, CACV 281/2012, 21 August 2014) at §§56, 58. 127.P’s solicitors have neither asked for leave of the court nor consent from D1’s solicitors for the filing of any post-hearing submissions. In the letter, P’s solicitors are no more than repeating Mr Ng’s submissions. There are no rare or exceptional circumstances justifying the lodging of those submissions. Such conduct on their part is abusive and highly unsatisfactory. In a letter of 29 January 2024, D1’s solicitors have asked that P should pay D1’s costs of and occasioned by P’s post-hearing submissions on an indemnity basis. I agree. Conclusions 128.P’s Application for Summary Judgment and P’s EOT Application are allowed. 129.D1’s Admissibility Application is dismissed. No order is made in respect of D1’s Security for Costs Application. 130.Judgment be entered in favour of P against D1 for:-
131.There be an order nisi that:
Mr Edward K H Ng, instructed by Oldham, Li & Nie, for the plaintiff Mr Peter Zhu, instructed by Grandall Zimmern Law Firm, for the 1st defendant | |||||||||||||||||||||||
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