Shenzhen Hifrozen International Logistics Development Co., Ltd v. Splendid Joy Corporation Ltd

DCCJ 3057/2021

[2024] HKDC 894

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3057 OF 2021

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DECISION

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A.  INTRODUCTION

1.This is the substantive hearing of 2 applications before the court, namely:-

(1)  The Plaintiff’s application by way of summons filed on 12 October 2023 (“the SJ Summons”) for summary judgment or, alternatively, interim payment of US$79,048, being the sum in dispute in these proceedings; and

(2)  The Defendant’s application by summons filed on 22 April 2024 for leave to amend its Defence (“the Amendment Summons”).

2.These proceedings were first commenced by the Plaintiff against the Defendant on 29 June 2021. The Plaintiff first filed its Statement of Claim on 17 September 2021. A Defence was filed by the Defendant on 15 November 2021. On 18 August 2023, with leave of the court, the Plaintiff filed an Amended Statement of Claim (“ASOC”), which simply corrected a single clerical error in the Statement of Claim, where a reference to “Defendant” was amended to “Plaintiff”. Apart from this clerical mistake, there were no other substantive amendments in the ASOC. Unsurprisingly, the ASOC did not spawn a need for the Defendant to file amendments to the Defence. By the time the SJ Summons was taken out in late-2023, both parties’ case essentially remained the same since the filing of the Defence in 2021.

3.For the purposes of the SJ Summons, the parties have filed the following evidence:-

(1)  The 3^rd Affirmation of Feng Xiaolei filed on 12 October 2023 for the Plaintiff in support of the SJ Summons; and

(2)  The 2^nd Affirmation of Li Ruolin filed on 27 December 2023 for the Defendant in opposition.

4.The parties have also agreed on the index of the hearing bundles for use at this substantive hearing. The evidence contained in the hearing bundles are the 2 affirmations referred to above (together with the exhibits contained therein) and one additional document described as “Inward Remittance Payment Advice” from the Plaintiff’s 2^nd Supplemental List of Documents. No other documents or evidence were placed before the court. However, at the hearing, it was apparent that many other documents were disclosed as between the parties which had not found their way into the hearing bundles. The court was also informed that witness statements had also been exchanged. Both the Plaintiff and the Defendant did not in their affirmations or submissions referred to the witness statements or other evidence outside the hearing bundles. In the circumstances, it is apparent that neither the Plaintiff nor the Defendant consider the witness statements and other evidence disclosed to be relevant to the SJ Summons. This court can only proceed on the basis of the evidence currently before it.

B.  PLAINTIFF’S PLEADED CLAIMS

5.The Plaintiff alleged that it was a victim of fraud, which the Defendant does not seriously challenge in these proceedings. As will be apparent below, the defence advanced by the Defendant lies in the circumstances of receipt of alleged proceeds of the fraud.

6.It is the Plaintiff’s case that on or around 25 November 2020, the Plaintiff (as purchaser) entered into a sales contract (“the DPO Contract”) with a company named DPO International Limited (“DPO”) (as seller) for the sale and purchase of 24,300 kilograms of frozen pork ears. The total amount payable by the Plaintiff to DPO under the DPO Contract is US$112,266, which was agreed to be paid by 2 instalments of US$33,680 upon signing of the DPO Contract, and US$78,586 within 7 days from the notice of arrival issued by DPO.

7.In compliance with the DPO Contract, the Plaintiff effected payment of US$33,680 to DPO on 9 December 2020.

8.Since around January 2021, the Plaintiff had been corresponding with DPO’s regional manager, a Ms Tiffany Ngui. However, on about 24 January 2021, one or more unidentified person(s) issued an email to the Plaintiff impersonating Ms Tiffany Ngui in which a false invoice was issued to the Plaintiff with payment instructions for payment to be made to the Defendant’s bank account maintained with O‑Bank Co, Ltd (“D’s Account”).

9.Unbeknownst to the Plaintiff that the email of 24 January 2021 was not from DPO, the Plaintiff continued to correspond with the fraudsters. Eventually, a sum of US$79,048 (“the Disputed Sum”) was transferred by the Plaintiff to D’s Account on about 3 February 2021.

10.The causes of action relied upon by the Plaintiff in claiming the Disputed Sum from the Defendant are not atypical in cases of this nature, namely:-

(1)  The Defendant was alleged to be part of the fraudulent scheme that induced the transfer of the Disputed Sum, such that the Defendant should be liable for fraud;

(2)  The Plaintiff relied on the beneficial interest retained in the Disputed Sum to mount a proprietary claim against the Defendant, seeking a declaration that the Disputed Sum or traceable proceeds thereof remaining in D’s Account are held on trust for the Plaintiff; and

(3)  A claim for unjust enrichment alleging that the transfer of the Disputed Sum was made by mistake.

11.The above are the causes of action relied on by the Plaintiff in seeking summary judgment against the Defendant. In passing, I also mention that in the ASOC, the Plaintiff also pleaded a cause of action in dishonest assistance. The basis of that claim is that the Defendant had knowledge of the fraud and dishonestly assisted the fraudsters in perpetrating the fraud on the Plaintiff. This does not appear to add anything in addition to the claim of fraud. At the hearing, the Plaintiff did not allege that the Plaintiff could succeed on dishonest assistance independent from its claim in fraud. In fact, no submissions on dishonest assistance were advanced by the Plaintiff at all.

C.  THE DEFENDANT’S DEFENCE

12.In the Defence filed by the Defendant on 15 November 2021, the Defendant alleged that it was at the material times carrying on the business of trading in textile, garment and/or clothing products. The Defendant did not dispute that it received the Disputed Sum on 3 February 2021. The actual amount received was US$78,988. On the evidence, it is clear that this figure was the result of deduction of bank remittance charges of US$60 to be shared between the remitting and receiving party (i.e. US$30 each). It is the Defendant’s case that the Disputed Sum was received as payment from one of its customer, Sinocell Trading Limited (“Sinocell”), to whom clothing products had been supplied by the Defendant. The Defendant further alleged that the Defendant and Sinocell had been trading since December 2019 and it was usual for Sinocell to make payments to the Defendant through third party paying agents.

13.For the transaction involving the Disputed Sum, the Defendant averred that:-

(1)  On about 20 November 2020, Sinocell (as purchaser) placed a purchase order (“the Sinocell Purchase Order”) with the Defendant (as seller) to acquire 200,000 pieces of clothing products (“the Goods”) at the unit price of US$0.522. The total contract sum was thus US$104,400;

(2)  On 29 November 2020, the Goods were shipped to Sinocell’s agent at its designated destination in Nigeria;

(3)  On 3 December 2020, the Defendant issued an invoice to Sinocell for the sum of US$104,400 in respect of the Goods;

(4)  In or about late-January 2021, Sinocell made a payment of US$25,307 to the Defendant in partial settlement of the purchase price of the Goods remitted to D’s Account through its “financial partner”;

(5)  In early February 2021, Sinocell further notified the Defendant that another sum of US$79,018 had been remitted to D’s Account in final settlement of the balance of the purchase price of the Goods. As a result, a sum of US$78,988 was received by the Defendant after deducting bank charges of US$30 (i.e. the Disputed Sum).

14.The Defendant averred that it has no knowledge of any fraud perpetrated on the Plaintiff and that it was a bona fide purchaser for value when it received the Disputed Sum.

15.In the Amended Defence sought to be filed under the Amendment Summons, the Defendant raised a further defence of change of position against the Plaintiff’s claim in unjust enrichment, relying on the facts that are also common to the defence of bona fide purchaser.

D.  THE AMENDMENT SUMMONS

16.At the hearing, Mr Vincent Li, counsel for the Plaintiff, did not put up any forceful object to leave being granted for the filing of the Amended Defence. The position of the Plaintiff is that even considering the newly raised defence in change of position, this still does not, on the evidence, afford a genuine defence to the Plaintiff’s unjust enrichment claim. The Plaintiff does not object to the determination of the SJ Summons having regard to the additional defence of change of position.

17.The principles on which amendments to pleadings may be granted are trite and the court should, generally speaking, allow the amendments if they enable the determination of the real question in controversy, or of correcting any defect or error: Order 20 rule 8(1) of the Rules of the District Court; Hong Kong Civil Procedure 2024, Vol 1, §20/8/1. In the circumstances, I am minded to grant leave for the Amended Defence to be filed and to consider the same in disposing of the SJ Summons.

E.  THE SJ SUMMONS

E1.  Legal Principles: Summary Judgment

18.The principles on which the court should act in a summary judgment application are trite:-

(1)  The Statement of Claim must be complete and good in itself before any summary judgment may be entered upon it. Any defect or omission on the Statement of Claim cannot be corrected or supplemented by the plaintiff’s affidavit. If the defect is one of substance, the application for summary judgment will be dismissed: Li Chuen Kwai v Po Lam Construction Development Ltd (unrep, HCA 2376/2013, 24 September 2014), at §11; Hong Kong Civil Procedure 2024, Vol 1, §14/1/5;

(2)  Where a plaintiff’s application is properly constituted (provided that he has raised a prima facie sustainable case in the first place), he is prima facie entitled to judgment unless the defendant shows cause to the contrary: Hong Kong Civil Procedure 2024, Vol 1, §14/4/1; Supreme China Securities Ltd v Ng Wing Yip [2024] HKCFI 1196, at §35.

(3)  In responding to a summary judgment application:-

(a)  The defendant must condescend to particulars. The mere assertion in an affidavit of a given situation by the defendant does not, ipso facto, ground leave to defend;

(b)  The defendant must satisfy the court that its evidence is capable of being believed and that on the basis of such evidence, there is a fair or reasonable probability of the defendant having a real or bona fide defence. The issue is not whether the defendant is believed, but whether the assertions are believable;

(c)  In deciding whether there is a fair or reasonable probability of the defendant having a real or bona fide defence or whether the defendant’s assertions are believable, the court does not isolate each factual issue and consider whether it is possible that the defendant’s story on that issue is credible. Rather, the court must look at the whole situation;

(d)  In assessing the credibility of the defendant’s factual case, while the court will not embark on a mini-trial on affidavit, the court is not obliged to suspend its critical faculties and assume that defendant’s evidence is accurate;

(e)  If having regard to inherent plausibility, inconsistency with contemporaneous documents and other compelling evidence, the defence is not credible, the court must say so. If the defendant’s defence is incredible in any material respect, it cannot be said that there is a fair or reasonable probability that the defendant has a real or bona fide defence; and

(f)  Unless it is obvious that the defence is frivolous and practically moonshine, Order 14 ought not to apply.

See: John Joseph Mc Gee v Nold (HK) Limited [2022] HKCFI 3598, at §21; Menfond Electronic Art & Computer Design Co Ltd v Wong Wang Tat Victor [2013] 2 HKC 259, at §61.

19.Where appropriate, the court may also grant judgment on part of a plaintiff’s claim, leaving the residue to be tried. In such event, it may be convenient for directions to be given as to such residue: Hong Kong Civil Procedure 2024, §14/4/8.

E2.  Fraud

20.The Defendant’s defence to the claim of fraud is simply that it was not involved in and had no knowledge of the alleged fraud as pleaded by the Plaintiff. In the present case, it is clear that there is no direct evidence showing that the Defendant was one of the fraudsters in perpetrating the fraud against the Plaintiff. The Plaintiff’s allegation that the Defendant had knowledge of the fraud is, at best, based on circumstantial evidence. The Plaintiff pleaded the Defendant’s knowledge as follows:-

(1)  The emails from the fraudsters must have been sent by the Defendant or with their knowledge or approval, as only the Defendant stood to gain from the funds fraudulently induced to be transferred to D’s Account;

(2)  The Defendant had willfully shut their eyes to the obvious and/or willfully or recklessly failed to make such enquiries as honest and reasonable persons would have had made.

21.Essentially, the Plaintiff is asking the court in this summary judgment application to draw an inference of fraud on the basis that the Defendant was the direct recipient of the Disputed Sum. The Plaintiff submitted that where there is no discernible reason why proceeds of fraud was paid directly to a defendant’s account, the irresistible inference must be that the defendant was a fraudulent recipient controlled by the fraudsters, relying on Pacific Rainbow International Inc v Shenzhen Wolverine Tech Ltd [2023] 4 HKC 322, at §20 and RPB SA v Xinwangyi Trade Limited [2022] HKCFI 2541 at §12(2). However, it is important to examine the circumstances under which the court drew such an inference of fraud in these 2 cases. Both of these cases concerned recovery against 2^nd-tier recipients where the direct or 1^st-tier recipient did not participate in the proceedings and the participating parties had no knowledge of the fraud such that no other evidence concerning the receipt by the direct recipient was before the court. In the complete absence of evidence from the direct recipient and evidence of any other discernible reasons of the direct receipt, the inference drawn by the court was clearly appropriate.

22.In the present case, the Defendant, being the direct recipient from the Plaintiff, denied that it was involved in the fraud and had adduced an affirmation deposing to the same. The Defendant avers that it was a clothing trading company (and some evidence in this regard had been adduced) and had no reason to and in fact no contact or communications with the Plaintiff, DPO, or the alleged fraudsters. Even if this court rejects the Defendant’s case that the Disputed Sum was received specifically under the Sinocell Purchase Order, this conclusion does not automatically lead to an irresistible inference that the Defendant must have knowledge of the fraud.

23.In light of the denial from the Defendant, the court must at this stage assess whether this is believable (rather than assessing whether it is to be believed). I am of the view that the Defendant’s denial of knowledge of the fraud is at least believable. There are clearly many possible reasons why the fraudsters might procure the Disputed Sum to be transferred to the Defendant, notwithstanding that the Defendant had no knowledge of the fraud. The fraudsters might, for example, have been engaged as paying agent for which they had received money from a third party. This is not uncommon in remittance of money involving the underground banking system. I am not satisfied that the sole fact that the Defendant had received the Disputed Sum directly from the Plaintiff and the scarce evidence adduced by the Plaintiff is sufficient, in the present case, for the court to grant judgment in fraud summarily. As Millet LJ (as he then was) stated in Armitage v Nurse [1998] Ch 241, 256-257:-

“The general principle is well known. Fraud must be distinctly alleged and as distinctly proved… It is not necessary to use the word ‘fraud’ or ‘dishonesty’ if the facts which make the conduct complained of fraudulent are pleaded; but, if the facts pleaded are consistent with innocence, then it is not open to the court to find fraud…

“… an allegation that the defendant ‘knew or ought to know’ is not a clear and unequivocal allegation of actual knowledge and will not support a finding of fraud. It is not treated as making two alternative allegations, i.e. an allegation (i) that the defendant actually knew with an alternative allegation (ii) that he ought to have known; but rather a single allegation that he ought to have known (and may even have known – though it is no necessary to allege this).

“… In order to allege fraud it is not sufficient to sprinkle a pleading with words like ‘wilfully’ and ‘recklessly’ (but not ‘fraudulently’ or ‘dishonestly’). This may still leave it in doubt whether the words are being used in a technical sense or merely to give colour by way of pejorative emphasis to the complaint.”

See also: Hong Kong Civil Procedure 2024, Vol 1, §18/8/19.

24.I am far from convinced that the Plaintiff is entitled to judgment on the basis that the Defendant is implicated in the fraud in a summary manner. The Defendant’s denial of knowledge of the fraud in these circumstances could not be said to be practically moonshine. Whether or not the Plaintiff could prove fraud against the Defendant by evidence is a matter that will have to be left to trial.

E3.  Proprietary claim

25.The defence sought to be raised against the Plaintiff’s proprietary claim is the bona fide purchaser defence. Before I consider the defence of the Defendant, it is important to examine the Plaintiff’s case and the legal principles for establishing a proprietary claim to money standing in D’s Account.

26.In order for a constructive trust to be imposed on money traceable under a proprietary claim, it is necessary for a plaintiff to identify the assets held by the defendant and identify by the tracing process that those assets represent the original trust property. The principles were considered by Recorder Eugene Fung SC in Milestone Electric, Inc v Meihoukang Trading Co Limited [2020] HKCFI 2542, at §14-15:-

“14. Constructive trusts provide proprietary relief. To obtain proprietary relief in relation to the US$850,000 transferred to the defendant or assets derived from it, the plaintiff must establish that the assets claimed can be identified by the tracing process as representing the original trust property. In Federal Republic of Brazil v Durant International Corpn [2016] AC 297, Lord Toulson at §17 said:-

‘The doctrine of tracing involves rules by which to determine whether one form of property interest is properly to be regarded as substituted for another. It is therefore necessary to begin with the original property interest and study what has become of it. If it has ceased to exist, it cannot metamorphose into a later property interest. Ex nihilo nihil fit: nothing comes from nothing.’

15. For reasons given below, I am not satisfied that the plaintiff can now seek proprietary relief in relation to the US$850,000.

(1) It is well-established that a plaintiff who seeks a proprietary remedy must usually prove that the property to which he lays claim is still in the ownership of the defendant (Boscawen v Bajwa [1996] 1 WLR 328 at 334H (Millett LJ).

(2) Given that over US$600,000 of the US$850,000 had already been withdrawn from D’s Account as at July 2020, it is no longer possible for the plaintiff to assert its rights in the US$850,000. The statement in P’s Statement of Claim that D retains the benefit of the US$850,000 therefore appears to be incorrect.

(3) Whether or not the plaintiff can assert its rights in the remaining credit balance in D’s Account is not something that the Court is currently in a position to determine. The question depends on a number of considerations including (but not limited to) whether or not there has been any mixing of money in D’s Account, and whether the intermediate balance has fallen to or below zero, since the deposits of the three sums of money transferred form the plaintiff in May 2020, none of which has been pleaded by P in its Statement of Claim.”

See also: Zief Incorporated v Tekchandani Ajai Mohan [2021] HKCFI 38 ([2021] 3 HKC 69), at §§47-49; Wong Chi Leung v Xhao Trading Co Ltd [2024] HKDC 537, at §§21-24.

27.Neither in the ASOC nor in the Plaintiff’s affirmation in support of the SJ Summons did the Plaintiff refer to any matter in respect of the transactions within D’s Account after receipt of the Disputed Sum. Although it is common ground that a sum of over US$120,000 was frozen in D’s Account by the Hong Kong police, the court is not at present in a position to determine whether the Plaintiff can assert its rights in the money now standing in D’s Account. The Plaintiff’s pleadings (which did not plead to the transactions within D’s Account) and its evidence do not at present show a prima facie entitlement for a constructive trust to be imposed over the balance standing in D’s Account pursuant to its proprietary claim. If necessary, this is a matter that the Plaintiff will have to prove at trial.

E4.  Unjust enrichment and Defendant’s defences

28.In my view, the Plaintiff has established a prima facie claim against the Defendant in unjust enrichment, where the Disputed Sum (being proceeds of the fraud) was transferred to the Defendant. In response, the Defendant raised the defences of bona fide purchaser and change of position.

29.In relation to its bona fide purchaser defence, the Defendant’s case, in a nutshell, is that it has received the Disputed Sum in the course of its genuine business in a transaction with Sinocell, where it had provided consideration in the form of the Goods for the receipt of the Disputed Sum that was paid by paying agent for and on behalf of Sinocell in circumstances where the Defendant had no knowledge of the alleged fraud.

30.The same factual bases were also relied upon as informing the defence of change of position. The Defendant avers that, in anticipation of receiving the Disputed Sum (that was in fact subsequently received), it had changed its position by shipping the Goods to Sinocell. The shipment of Goods on 29 November 2020 was causally linked to the receipt of the Disputed Sum on 3 February 2021, which it had received without knowledge of the alleged fraud.

31.The linchpin for both defences is the transaction with Sinocell and the circumstances of receipt of the Disputed Sum. This is an aspect of the Defendant’s factual case that the Plaintiff vigorously challenged.

E5.  The bona fide purchaser defence

32.The first point that the Plaintiff made against the bona fide purchaser defence is that this defence is inapplicable on the facts of the present case. The Plaintiff submitted that this defence does not apply to a two-party scenario. The Plaintiff’s contention is that since the Defendant received the Disputed Sum directly from the Plaintiff, the present case falls within the ambit of a two-party situation.

33.The inapplicability of the bona fide purchaser defence to a two-party scenario was discussed by Recorder Eugene Fung SC in Zief Incorporated v Tekchandani Ajai Mohan [2021] HKCFI 38 ([2021] 3 HKC 69), at §33:-

“33. Insofar as D4 seeks to rely on bona fide purchaser as a defence to P’s proprietary claim, there is a further reason why I am not convinced that D4 can establish such a defence in this case.

(1) The defence of bona fide purchaser for value without notice is an exception to the general rule of nemo dat quod non habet (no one gives what they do not have) to grant the defendant good title to a property in situation where the title would otherwise be defective. For example, when X steals P’s property and sells it to D, D will obtain title to the property if he is a bona fide purchaser for value without notice, even though X (being a thief) would not otherwise be able to confer title which he does not have.

(2) This is why the defence has been described by Professor Andrew Burrows as ‘bona fide purchaser from a third party’ (The Law of Restitution (3^rd Ed, 2011), p 573).

(3) In his article ‘Restitution and Bona Fide Purchase’ in The Limits of Restitutionary Claims: A Comparative Analysis (1997), Professor William Swadling at p 94 said:

‘… the defence of bona fide purchaser has no work to do in the standard two-party situation. As we have seen, the defence forms an exception to the normal rule of nemo dat. It operates to allow a transferor to confer a title which he does not have. By contrast, two-party restitution cases are concerned with transfers by persons who had a good title to the enrichment concerned. Although their intent to give may be in doubt, their capacity to do so is not in question. And since the transferor in the two-party restitution case starts with a good title to the enrichment in question, there will be no need for the transferee to invoke any exception of nemo dat. The fact that the defendant gave value in exchange for what he received should not blind us to this fundamental fact.’

(4) In A Burrows, A Statement of the English Law of Unjust Enrichment (2012), the defendant is said to have a defence in good faith, for value and without notice, if he/she ‘(a) is a purchaser in good faith of the benefit for value, without notice, of the claimant’s right to restitution, from a person other than the claimant, and (b) can rely on an exception to the rule that no person can give a better title than the person has.’ (section 27(1)) [emphasis added]

(5) Similarly, Justice James Edelman and Professor Elise Bant describe the defence as operating in ‘cases including those brought for unjust enrichment where more than two parties are involved’ and state that the ‘requirement for more than two parties is because in the simple two-party case the transferor usually has good title’. They further state that in ‘unjust enrichment, the bona fide purchaser defence operates only in relation to a three-party situation in which the defendant is a subsequent purchaser from a third party whose title to an asset is defective’. See Unjust Enrichment in Australia (2^nd Ed, 2016), pp 372-373.

(5) D4 has not produced any authorities to demonstrate how a defendant in a two-party situation (namely a direct recipient of the enrichment) can rely on the defence of bona fide purchaser for value without notice to defeat a plaintiff’s claim in unjust enrichment.”

34.Despite the dicta of the learned Recorder, the principle does not appear to be completely settled amongst academics. In Goff & Jones on Unjust Enrichment (10^th Ed), §§29-15 to 29-17, it was stated that:-

“Two versions of this explanation of the bona fide purchase defence have been advanced by legal scholars. On the one view, its purpose is to prevent claims in unjust enrichment from stultifying the choices made by the law when deciding the correct balance to be struck between the rights of property owners and the public interest in protecting particular classes of transaction in the interests of market efficiency. On this view the defence is a narrow one and is confined to those cases where an exception to the nemo dat principle needs to be preserved …

“On another view, the defence has the wider purpose of preventing claims in unjust enrichment from subverting the contractual arrangements made by the defendant and vendor from whom the defendant received the claimant’s property. Understood in this way, the defence is a manifestation of the principles … that contracts can operate as a justifying ground not only in two-party cases where the claimant and defendant agree that the defendant should receive a benefit from the claimant, but also in three-party cases where a third party agrees with the defendant that the defendant should receive a benefit emanating from the claimant. If this understanding of the bona fide purchaser defence is correct, there is no reason to limit the availability of the defence to those situations where an exception to the nemo dat principle is engaged. However, while there may be situations where the court should hold that a contract between third party and a defendant overrides the claimant’s rights in unjust enrichment, there are others where the contract should not have this effect. The courts must investigate the relationships between all the parties, their intentions and the surrounding circumstances, to decide which is the appropriate outcome.”

35.Even accepting, which I do on the basis of Zief Incorporated v Tekchandani Ajai Mohan (supra), that the bona fide purchaser defence does not apply to “two-party” situation, it is important to examine what is meant by “two-party” situation. I have trouble accepting that what constitute a “two-party” situation is dictated by whether the enrichment was transferred directly between the plaintiff and the defendant regardless of the relationships of the parties, their intentions or the surrounding circumstances:-

(1)  In the passage of Goff & Jones on Unjust Enrichment (10^th Ed) quoted above, it seems to suggest that a “two-party” case is where the claimant and defendant agree between themselves that the defendant should receive a benefit, whereas a “three-party” situation entails a third party agreeing with the defendant that the defendant should receive a benefit emanating from the plaintiff. Viewed in this way, it is the relationship and intentions of the parties that determine whether the case is a two-party or three-party case, regardless of whether there was a direct conferment of benefits from the plaintiff to the defendant;

(2)  A classic formulation of a two-party situation, it seems to me, is where the plaintiff and the defendant agree to confer a benefit on the defendant, usually by contract, which was subsequently found to be void. There is a complete absence of third-party involvement of any kind. In this type of case, it is perfectly understandable why the defence does not operate, for its operation is tantamount to enforcing the transaction that gives rise to the obligation to make restitution. In this regard it is instructive to examine what the Full Court of the Federal Court of Australia said in Great Investments Ltd v Warner [2016] 243 FCR 516, at §105-106:-

“105. However, the defence of bona fide purchase applies in equity in cases where the purchase is of an applicant’s rights from a third party. The doctrine might be better described as ‘bona fide purchase from a third party for value without notice’ because it ‘logically applies in those cases in which a defendant has received a benefit under a contract with a third party’…

106. No case of which we are aware of has decided that the doctrine cannot be applied in equity where the purchase is of the applicant’s rights from the applicant. However, the reasons for the existence of the defence support its availability being restricted to purchases from a third party. One reason for the defence has been said to be that the defence operates as an exception to the rule of nemo dat quod non habet. In other words, it has the effect of creating a good title where a defendant would not otherwise have received one for the purposes of transactional security. In cases where the applicant has good title to give there is no role for the exception… Another view was that the defence only operates in equity to show that the recipient has a right to retain the benefit. A defendant could not assert a right to retain a benefit based on the very transaction which requires the benefit to be given back….”

It must be abundantly clear that the Full Court took the view that what constitutes three-party situations in which the defence logically applies are those cases “in which a defendant has received a benefit under a contract with a third party”. The important consideration is from whom the defendant had contracted the benefit. The distinction between two-party and three-party situations was not drawn by whether the benefit was obtained by the defendant directly from the plaintiff. The defence is said to be unavailable in a two-party situation where “the purchase is of the applicant’s rights from the applicant”, consistent with the view expressed in Goff & Jones on Unjust Enrichment (10^th Ed), namely a two-party situation is where the claimant and defendant agree between themselves that the defendant should receive a benefit. In such a case, both the plaintiff and the defendant understood at the time the benefit was conferred that the plaintiff (rather than any other party) was conferring it on the defendant through a transaction between them, and it is apparent that the defence should not be available to a defendant enabling him to retain the benefit based on the very transaction which requires the same to be disgorged.

(3)  To axiomatically classify a case as two- or three-party (and hence the availability or unavailability of the defence) based on whether the benefit was conferred directly by the plaintiff appears to me to be too blunt a tool to use. Suppose a fraudster defrauded the plaintiff to handover a valuable asset, which the fraudster collected from the plaintiff and subsequently sold to the defendant. In this case, the defence would clearly be available to the defendant as a subsequent purchaser. Take the same example, but the fraudster sold the valuable asset to the defendant before collecting it from the plaintiff and instead asked the plaintiff to hand it over to the defendant as its receiving agent. I do not see how the culpability of the fraudster or the innocence of the defendant could have been so affected in a way for equity to allow the defendant the defence in the former scenario, but deny him in the latter. The availability of the defence would be subject fortuitously to the way the fraudster organized the fraudulent scheme.

(4)  Assuming a defendant is a bona fide purchaser in all other respects, I do not see why the law should impose as an additional requirement before the bona fide purchaser defence is available that the defendant must make certain that he has not received money directly from victim of fraud, or from a party that may have an unjust enrichment claim, most often as a result of a mistake and/or failure of consideration in respect of the paying party’s dealings vis-à-vis other third parties. Such a requirement is tantamount to insisting that the defendant do make those inquiries even in the absence of matters that would put the defendant on inquiry. Contrast the situation where the unavailability of the defence is limited to truly two-party cases, where any restitutionary claim is confined and incidental to the dealings between the two immediate parties.

(5)  In Dextra Bank v Bank of Jamaica [2002] 1 All ER (Comm) 193, the appellant (a Cayman Islands bank) drew a cheque in favor of the defendant, Bank of Jamaica, in the sum of US$2,999,000. The appellant drew its cheque intending to lend the sum to Bank of Jamaica. The Bank of Jamaica for its part intended to buy the sum of US dollars in exchange for the equivalent in Jamaican dollars, which it paid to individuals understood to be nominated on behalf of the appellant. Each party was deceived as to the intention of the other and the Jamaican dollar sums paid by the Bank of Jamaica were received not by the appellant but by others, including those responsible for the deception. Although the cheque was drawn in favour of the Bank of Jamaica directly by the appellant, the Bank of Jamaica was entitled to rely on the bona fide purchaser defence since the benefit was conferred on the Bank of Jamaica by a third party fraudster who has no authority to do so. The consideration of whether the defence applies clearly involves more than determining whether the benefit emanated directly from the plaintiff to the defendant. The Privy Council, though only orbiter, said at §47 of the judgment:-

“In the Court of Appeal, both Forte JA and Patterson JA dismissed Dextra’s appeal not on the ground of change of position by the BOJ, but on the ground that the BOJ was a bona fide purchaser of the Dextra cheque. It is commonly accepted that the defence of bona fide purchaser is only available to a third party, which includes an indirect recipient, ie a person who received the benefit from somebody other than the plaintiff or his authorised agent. Here the BOJ received the cheque from Beckford, who was acting without authority from Dextra in selling the cheque to the BOJ, so that the BOJ can properly be described as an indirect recipient… In agreement with the majority of the Court of Appeal, their Lordship can see no reason why the BOJ should not be entitled to invoke the defence of bona fide purchase in answer to Dextra’s restitutionary claim …”

(6)  Where a defendant validly contracts with a third party to receive a benefit, it most often is the case that it is the third party who is attempting to confer the benefit on the defendant as a discharge of the third party’s obligation under the contract, notwithstanding that the benefit, for one reason or another, emanated directly from the plaintiff. The defendant has obtained the benefit indirectly through the third party under the contract with that third party, but for which it would not have so obtained. In the event that the third party does not have good title to the benefit conferred on the defendant or the authority to so confer, the defence should be available to the defendant as there is no apparent reason to say that the exception to the general rule of nemo dat was not engaged. To insist that such is a two-party situation is to turn a blind eye to the obvious three-party nature of the case.

36.I also note that the facts before the learned Recorder in Zief Incorporated (supra) were quite removed from the facts of the present case. There, the plaintiff was a victim of an email fraud where fraudsters impersonated the owner of the plaintiff and procured a transfer of HK$3,120,000 to the 4^th defendant’s bank account. The 4^th defendant was a diamond trader unaware of any fraud and was approached by a Mr Leo who alleged to be acting on behalf of the plaintiff in negotiating a purchase of diamonds from the 4^th defendant. The 4^th defendant subsequently entered into a contract with Mr Leo purportedly on behalf of the plaintiff. Upon receiving payment of HK$3,120,000 from the plaintiff, the diamonds were delivered to Mr Leo again purportedly acting on the plaintiff’s behalf. The 4^th defendant advanced a case that it had a contract with the plaintiff and thus it was a bona fide purchaser having given the diamonds to the plaintiff through Mr Leo. Hence, even on the 4^th defendant’s case, it had acquired the benefit under a contract with the plaintiff (as opposed to a third party) that was found by the court to be void. The 4^th defendant did not allege that it had acquired the beneficial interest in the money through a contract with a third party. It was on those facts that the learned Recorder took the view that the case was a two-party case and the defence of bona fide purchaser was unavailable.

37.Mr Li also referred to the case of Nelson Martayan v Hancheng Industrial Co Limited [2022] HKDC 1400, at §§33-34, where the court accepted the principles stated by the learned Recorder in Zief Incorporated (supra) and concluded that the defendant in that case was the direct recipient of the sum in dispute. In the Decision of the court, there was however no discussion on the facts and the circumstances of the defendant’s receipt. It is therefore uncertain how the court, in rejecting the bona fide purchaser defence, came to the view that the defendant in that case was a direct recipient of the disputed sum.

38.The facts of the present case are different from Zief Incorporated (supra). The Defendant’s case is that, by reason of the Sinocell Purchase Order, it had a contract with Sinocell. The Disputed Sum was paid on behalf of Sinocell to discharge its obligation under the Sinocell Purchase Order. The beneficial interest in the Disputed Sum was thus conferred on the Defendant by Sinocell. Leaving aside the question whether the Defendant can establish its factual case by evidence, I am not persuaded that the present case, properly analyzed, is a two-party case such that the defence of bona fide purchaser is unavailable to the Defendant as a matter of law. Nevertheless, the court will still have to consider whether the Defendant’s factual case is a believable one.

39.In assessing whether the Defendant’s case is believable, I should look at the Defendant’s case as a whole rather than individual factual averment in a piecemeal manner. As discussed below, the evidence adduced by the Defendant in support of its factual case was quite unsatisfactory. I accept the Plaintiff’s submissions that when looked at as a whole, the Defendant’s case (namely, that it had a transaction with Sinocell and that the Disputed Sum was paid pursuant to that transaction) is incapable of belief, for all of the reasons below.

The Sinocell Purchase Order

40.In the Sinocell Purchase Order, the Goods were described generically as “Different kinds of new clother”. Despite a reference to “different kinds” a standard price of US$0.522 per piece was stated in the Sinocell Purchase Order. At the hearing, Mr Ken Cheng, appearing for the Defendant, suggested that the Goods were priced by weight instead of by pieces such that the price per piece worked out to be US$0.522. No evidence was adduced by the Defendant in this regard and I do not consider that Mr Cheng has any evidential basis to make that suggestion. If the price was indeed agreed by weight rather than by pieces, there is no reason why this could not be stated in the Sinocell Purchaser Order.

41.The Plaintiff further submitted that the Defendant and Sinocell were separate business entities, yet the Sinocell Purchase Order borne the same format and layout as the Defendant’s purchase order placed with its supplier, Zhejiang Zhouheng Import and Export Co. Ltd (“Zhouheng”). However, I consider that this fact alone does not suggest that either or both of the purchase orders were not genuine.

42.The mode of business described by Mr Li Ruolin (a director of the Defendant) in his affirmation is that after Sinocell placed an order, the Defendant would source the same from a supplier. The Defendant would then arrange (through the supplier) loading of goods onto containers (sealed with a packing list) and the containers would then be shipped to Sinocell through a shipping agent retained by the Defendant. Thereafter, Sinocell will pay for the goods upon delivery. Mr Li Ruolin is essentially describing a situation where the Defendant is responsible for arranging shipment to Sinocell in Nigeria. It is difficult to understand, if that was the case, why the Sinocell Purchase Order stated the terms of trade to be “FCA Ningbo”, which denotes that the Defendant should only be responsible for making the goods available in Ningbo, and Sinocell should thereafter be responsible for shipment to Nigeria at Sinocell’s own expense. There is no explanation from the Defendant as to why the trading terms of “FCA Ningbo” was not adhered to in its dealings with Sinocell;

The Packing List for the Goods

43.In a WeChat conversation between the Defendant and Zhouheng on 23 November 2020, Zhouheng referred to a packing list of clothing involving 357 bags corresponding to 6,040 pieces of clothing. According to Mr Li Ruolin, the conversation was in respect of the Goods. The Plaintiff pointed out that this is nowhere near the contracted quantity of 200,000 pieces. Mr Cheng in response submitted that the “packing list” referred to in the WeChat conversation was never meant to be an exhaustive list of all the items that were actually shipped. Given the Defendant’s evidence is that all 200,000 pieces were shipped on 29 November 2020, there is no evidence of the communication for the packing list of 193,960 pieces of the Goods prior to shipment.

Shipment to Sinocell in Nigeria

44.The Defendant adduced a bill of lading issued on 29 November 2020 (“the Bill of Lading”) as evidence of shipment of the Goods to Sinocell in Nigeria.

45.First, it is immediately apparent that the consignee stated on the Bill of Lading is “Yaju Dynamic Ventures” with an address “20 Park Lane Apapa Lagos, Nigeria” (which is different to that of Sinocell at “No. 5 Odunuga Street, Opebi, Ikeja, Lagos, Nigeria”). Mr Li Ruolin did not explain how Yaju Dynamic Ventures was associated with Sinocell or why the Goods were shipped to Yaju Dynamic Ventures instead of Sinocell. On the face of the Bill of Lading, the Goods were simply shipped to Yaju Dynamic Ventures, rather than Sinocell.

46.Mr Cheng submitted further that Yaju Dynamic Ventures was consistently employed by Sinocell in its previous transaction with the Defendant. This again was not satisfactorily explained at all by Mr Li Ruolin. A previous bill of lading dated 8 September 2020 adduced by the Defendant simply showed that there was a shipment from “Guangdong Keziyang Trading” to “Yaju Dynamic Ventures”, without any sort of explanation or evidence showing how these parties are related to the Defendant and/or Sinocell.

47.Second, the goods referred to in the Bill of Lading were stated to be “Machinery”. It clearly did not refer to any “clothing” or “garment” that were being shipped. Mr Li Ruolin said in his affirmation that it was the shipping agent’s idea to falsely describe the Goods as “machinery” for tax purposes. Mr Li Ruolin did not adduce any evidence of the Defendant’s communication with its shipping agent where this advice was given in respect of the Goods. He simply averred that this had happened before and adduced a WeChat conversation allegedly between the Defendant and its shipping agent of an unrelated transaction in April 2021, where it was averred that the shipping agent had advised the use of “machinery” on goods appearing on the bill of lading. I do not think that conversation of an unrelated transaction is relevant in the circumstances. In any event, after reading closely the content of the conversation that was adduced, it clearly does not show that the shipping agent was asking the Defendant to falsify descriptions of goods. It is incredible that the Defendant is now accusing its shipping agent of having advised it to falsify descriptions of the Goods, essentially, in the absence of evidence.

48.Third, regardless of the description on the Bill of Lading being “machinery”, I note that it referred to the number of bags being 357. Even assuming 357 bags were referrable to the packing list in the parties’ WeChat conversation, if the transaction under the Sinocell Purchase Order was genuine, the Bill of Lading only covered a small portion of the transaction and did not cover shipment of the other 193,960 pieces of the Goods. Mr Li Ruolin deposed to the fact that, on 3 December 2020, upon the Goods having been received by Sinocell, the Defendant had issued a packing list and invoice to Sinocell. On the packing list issued on 3 December 2020, it purports to record that 200,000 pieces of clothing had been packed and shipped. There is at present no evidence of how most (if not all) of the Goods were shipped to Sinocell.

49.Fourth, Mr Li Ruolin averred that when the Defendant issued the invoice and packing list on 3 December 2020, the Goods were already received by Sinocell. It was not fully explained what he meant by the phrase “received by Sinocell”, but reading the affirmation as a whole, it tends to suggest that the Goods were received by Sinocell in Nigeria since it was the Defendant (rather than Sinocell) who arranged for shipment to Nigeria. Given the length of time typically required for shipment to be made, it is difficult to see how it was possible for the Goods to be received by Sinocell in Nigeria in just 4 days.

50.All in all, on the current evidence, I do not find it believable that the Defendant had a transaction with Sinocell under the Sinocell Purchase Order with the Goods having been shipped to Sinocell as pleaded in the Amended Defence.

Alleged payment of the Disputed Sum by Sinocell

51.The Defendant alleged that the Disputed Sum was paid on behalf of Sinocell by its paying agent. Taking into account the entire circumstances of the present case, I am not satisfied that such an assertion is believable (even if I had been satisfied that there was a genuine transaction under the Sinocell Purchase Order).

52.First, the Plaintiff pointed out that the 1^st and 2^nd instalments received by the Defendant (in the total sum of US$104,295) do not add up to the contract price under the Sinocell Purchase Order (i.e. US$104,400). There was a shortfall of US$105. Mr Li Ruolin sought to explain that this was due to “accounting adjustment concerning the previous dealings with Sinocell”. Despite making such an averment, no evidence was adduced at all in this regard and this remains a bare assertion.

53.Second, the Defendant averred that the 1^st instalment together with the Disputed Sum made up the contract price for the Goods under the Sinocell Purchase Order. However, as the remittance advice of the alleged 1^st instalment shows, the payment was made by a “Donald L Jackson” as “Investment RFB OPF3770010295”. Ex facie, this has nothing to do with the Defendant’s alleged dealings with Sinocell. Other than a bare assertion that this sum was related to the Goods, no explanation or other evidence was given why the sum was paid by “Donald L Jackson” for the purpose of “investment”.

54.Third, the Defendant’s case is that the Disputed Sum was paid by the agent of Sinocell. The Defendant averred that it was not privy to how Sinocell caused its agent (and presumably how the agent procured the Plaintiff) to transfer the Disputed Sum to the Defendant. The Defendant adduced a letter from Sinocell titled “Verification of Payment” dated 19 August 2011 confirming that Sinocell had made a payment to the Defendant (“Confirmation of Payment”). The Confirmation of Payment reads as follows:-

“As per the request from our supplier and partner Splendid Joy Corporation Ltd [i.e. the Defendant], we Sinocell Trading Limited hereby verifies that Splendid Joy Corporation Ltd is our long-term partnership of supplying us different commodities such as textile and clothes, Mobile phones etc.,

We appreciate this partnership with Splendid Joy Corporation Ltd. However, due to the lack of Forex from Nigeria, we as the exclusive distributor of Splendid Joy Corporation Ltd has to ask our financial partner STE CONVSALES NIG ENTERPRISES to make the payment directly to Splendid Joy Corporation Limited.

Payment from STE CONVSALES NIG ENTERPRISES (address: No. 9 Eyibjo Close, Idimu, Lagos, BN 309830) to Splendid Joy Corporation Ltd transferred on 5^th Feb 2021 was USD$79,048.00

We hereby verify above matter.

Pls feel free to contact us [with contact details of a Mr Karl Zhang] for any further clarifications.”

55.According to Mr Li Ruolin, the Confirmation of Payment was sought by the Defendant from Sinocell in light of these proceedings having been commenced in June 2021. The purpose of seeking the Confirmation of Payment was to show that the Disputed Sum was paid by Sinocell through a third party. Since the commencement of these proceedings, it would have been apparent to the Defendant that the Disputed Sum in fact came from the Plaintiff. Despite the purpose of the Confirmation of Payment, it did not seek to clarify the circumstances under which Sinocell (or its paying agent) came to procure the Plaintiff to transfer the Disputed Sum on Sinocell’s behalf. On the contrary, the Confirmation of Payment are riddled with unexplained anomalies:-

(1)  The paying agent of Sinocell is stated to be “STE CONVSALES NIG ENTERPRISES” (“STE”) and Sinocell confirmed that STE had made a direct payment to the Defendant. The Disputed Sum is certainly not a direct payment from STE to the Defendant;

(2)  The date of the transfer was confirmed to be 5 February 2021. The Disputed Sum, however, was received by the Defendant on 3 February 2021;

(3)  Even accepting the content of the Confirmation of Payment, it does not appear to be referring to the Disputed Sum paid directly from the Plaintiff to the Defendant on 3 February 2021.

56.In light of the above obvious discrepancies between the Confirmation of Payment and the Defendant’s case, the Defendant did not see fit to adduce evidence to explain them. It can be seen from the Confirmation of Payment itself that a Mr Karl Zhang of Sinocell was willing to provide further clarifications. Furthermore, Mr Li Ruolin in his affirmation stated that Mr Xiang (the representative of Sinocell who dealt with the Defendant in the subject transaction) also agreed to make a witness statement concerning the dealings and payments under the Sinocell Purchase Order. Yet, it is bewildering why no evidence from them was placed before the court in opposing the SJ Summons, particularly when the present application was only brought by the Plaintiff more than 2 years after commencement of these proceedings. Mr Cheng, at the hearing, also informed the court that despite the exchange of witness statements and Mr Xiang’s apparent willingness to produce a witness statement, the Defendant has not procured the same from Mr Xiang.

57.Against all of the above inadequacies of the Defendant’s evidence, Mr Cheng’s answer was that the evidence is imperfect since no one at the time expected the documents to be scrutinized in litigation. He further submitted that much of the Plaintiff’s criticisms of the transactional documents could be explained by Mr Li Ruolin when given a chance to explain in court, presumably, at the trial. I cannot accept Mr Cheng’s submissions. The Defendant was clearly afforded the opportunity to respond to the SJ Summons and to put in whatever evidence the Defendant sees fit. To leave matters to be explained at trial entirely misses the point that the Defendant, in resisting summary judgment, must condescend on particulars and must satisfy the court that its evidence is capable of being believed such that, on the basis of the evidence, there is a fair or reasonable probability of the defendant having a real or bona fide defence.

58.In the present case, having considered the evidence adduced by the Defendant, I am of the view that the Defendant’s case is incapable of being believed for the reasons stated above. I do not consider that it is believable that the Disputed Sum was received from Sinocell as part payment of a transaction with Sinocell under the Sinocell Purchase Order for which the Goods had been delivered.

E6.  The Change of Position Defence

59.The Defendant’s change of position defence is premised on the same factual case under the bona fide purchaser defence. The change of position relied upon by the Defendant is the delivery of the Goods, which it would not have delivered to Sinocell but for its anticipatory receipt of the purchase money. The Plaintiff took the point that the delivery of the Goods predates the receipt of the Disputed Sum and hence it could not be said that the Defendant had changed its position after such receipt. However, I am of the view that anticipatory reliance, in appropriate circumstances, is sufficient to give rise to the defence: Dextra Bank & Trust Co Ltd v Bank of Jamaica [2002] 1 All ER (Comm) 193, 203h-205h.

60.However, as I have found the Defendant’s factual case underpinning the bona fide purchaser defence to be incapable of belief, I too regard it as unbelievable that the Goods were delivered to Sinocell as anticipatory reliance of receiving payment from Sinocell under the Sinocell Purchase Order or that the Disputed Sum was related to such a transaction.

61.As I have rejected the defences against the Plaintiff’s unjust enrichment claim, the Plaintiff is entitled to judgment for the sum of US$78,988, being the extent to which the Defendant has been enriched by the Disputed Sum.

F.  INTERIM PAYMENT

62.As I am minded to grant judgment on the Plaintiff’s monetary claim in unjust enrichment, I do not consider it necessary or appropriate to grant interim payment of the same (or any other sum), despite the fact that outstanding issues may still be left to trial.

G.  DISPOSITION

63.For the forgoing reasons, I make the following orders:-

(1)  Judgment be entered against the Defendant in the sum of US$78,988 (or the Hong Kong dollar equivalent at the time of payment), together with interest on the said sum at the rate of 1% above HSBC Prime rate from 3 February 2020 to date of judgment herein and thereafter at judgment rate until full payment.

(2)  Unconditional leave be granted to the Defendant to defend the residue of Plaintiff’s claim in fraud and proprietary claim against the balance in D’s Account.

(3)  The parties do attend the case management summons fixed for 2 October 2024 for further directions on the conduct of these proceedings.

(4)  Leave be granted to the Defendant to file its Amended Defence within 7 days hereof. Service of the Amended Defence be dispensed with.

(5)  I make a costs order nisi that:-

(a)  Costs of and incidental to the Amendment Summons be to the Plaintiff in any event; and

(b)  50% of the costs of the SJ Summons be paid by the Defendant to the Plaintiff with certificate for counsel to be taxed if not agreed, and 50% of the costs of the SJ Summons be costs in the cause.

64.I thank Mr Vincent Li and Mr Ken Cheng for their assistance.

Mr Vincent Li, instructed by Zhang Lawyers, for the Plaintiff

Mr Ken Cheng, instructed by Simon C W Yung & Co, for the Defendant