Shibaura Electronics Hong Kong Co., Ltd v. Microstart Group Ltd and Others

HCA 705/2022

[2025] HKCFI 1283

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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BETWEEN

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J U D G M E N T

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I. INTRODUCTION

1.This is a trial of the Plaintiff’s claim against the 1^st Defendant as a second layer defendant in a telephone-cum-email fraud case.

2.At the outset of the trial, I had to deal with two summonses filed by the 1^st Defendant returnable on the first day of the trial, both for adducing additional documentary evidence.  Having heard counsel’s arguments:-

(1)  Upon the Plaintiff’s non-opposition, I allowed the summons filed by the 1^st Defendant on 11 March 2025 for leave to adduce bank statement of the 1^st Defendant dated 15 April 2021 as well as two credit advices of deposits in relation to some of the subject sums; and

(2)  Upon the Plaintiff’s opposition, I dismissed the summons filed by the 1^st Defendant on 10 March 2025 for leave to adduce the financial statements of the 1^st Defendant dated 15 November 2016, 15 January 2018, 30 May 2020, 1 June 2021 and 2 December 2021 (collectively, the “intended financial statements”).

3.For both summonses, I ordered that the 1^st Defendant shall pay the Plaintiff the costs of the summons, to be taxed if not agreed. 

4.My reasons for the dismissal of the latter summons were:-

(1)  The delay was inordinate.  The explanation for the delay was given not by the 1^st Defendant’s officer or staff, but by a partner of its solicitors.  Be that as it may, according to the partner, the 1^st Defendant’s director Ji Jianguo (who would be the only witness for the 1^st Defendant at trial)  told him, upon the latter’s confirmation of instructions on 4 March 2025 (just two weeks before the commencement of the trial), that the 1^st Defendant located these documents only lately because the relocation of the 1^st Defendant’s office.  However, the supporting affirmation contained no explanation why instructions were confirmed so late, and contained neither evidence of when the office was relocated nor evidence of when the 1^st Defendant started to locate the documents.  I did not accept the explanation for the delay;

(2)  On such inordinate delay without acceptable explanation alone, I dismissed the application;

(3)  In any event, the relevance of the intended financial documents would be peripheral only.  The 1^st Defendant submitted that the intended financial documents would show that the 1^st Defendant did carry out business.  However, the salient issue for trial, as shall be seen below, is whether the alleged transactions in question existed at all.  While evidence that the 1^st Defendant did carry out business may enhance the probability that the transactions in question existed, such evidence is in my view peripheral only.  As such, if the 1^st Defendant would suffer any prejudice (of which it is its author)  if the documents would be disallowed, the prejudice would not be significant;

(4)  On the other hand, the Plaintiff would be significantly prejudiced.  The Plaintiff would be deprived of the opportunity to deploy the procedural devices properly or at all in relation to these new documents (for example, interrogatories, discovery of the underlying documents, challenge to authenticity, etc), which would have been available had these documents been disclosed in the normal course of events; and

(5)  Therefore, when also considering the relevance and prejudice, I would still dismiss the application.

II.  BACKGROUND

5.The 1^st Defendant put the Plaintiff to prove the fraud.  I have considered the relevant evidence which the 1^st Defendant is not in position to challenge.  I accept the evidence, and make the findings set out in this Part accordingly as a background to the Plaintiff’s claim against the 1^st Defendant.

6.The Plaintiff is a company incorporated in Hong Kong carrying on the business of sale of electronic parts and products.  The Plaintiff’s parent company is Shibaura Electronics Co., Limited (the “Parent Company”)  in Japan.  Mr Taira Hiromichi was at the material times a director of the Plaintiff.  The President of the Parent Company was at the material times Mr Kasai Akira.

7.On 12 April 2021 at around 11:15am, Mr Taira Hiromichi received a call at his office from a male person (the “Male Person”)  who purported himself to be Mr Kasai Akira.  The Male Person spoke fluent Japanese and in a voice resembling Mr Kasai’s voice.  The Male Person told Mr Taira that was a merger and acquisition project (the “Purported Project”)  relating to the Plaintiff was underway, and he told Mr Taira that the project would require the Plaintiff’s payment of USD997,000.

8.The Male Person further told Mr Taira that the Purported Project should be kept confidential between himself, Mr Taira and an international lawyer named Tom (“Tom”).

9.For the required payment, the Male Person instructed Mr Taira to make the payment of USD997,000 from the Plaintiff’s bank account to a designated bank account.  The Male Person told Mr Taira that to obtain the particulars of the designated bank account, Mr Taira should send an email from his own office email account to Tom at [email protected] (“Tom’s Email Account”).  In reply, Mr Taira requested an email confirmation to be sent to him.  In response, the Male Person said that he did not want to send such confidential information to Mr Taira’s office email account and asked for his personal email address.

10.Since the Male Person talked to him in fluent Japanese in a voice resembling Mr Kasai, Mr Taira believed that the Male Person was indeed Mr Kasai.  He gave his personal email address to the Male Person. 

11.Further, on 12 April 2021:-

(1)  In reliance on his belief that the Male Person was indeed Mr Kasai, at around 11:27am, Mr Taira sent an email from his office email account to Tom’s Email Account;

(2)  At around 12:31pm, the Male Person, via [email protected], emailed Mr Taira’s personal email account mentioned above.  In the email, the Male Person confirmed his instructions earlier on over the phone;  

(3)  At around 12:35pm, Tom replied to Mr Taira’s email in (1)  above and provided the bank account particulars of, among others, a bank account maintained with the Bank of China for USD (the “BOC USD Account”); and

(4)  Soon thereafter, Mr Taira received a call at his office mobile phone (“Taira’s Office Mobile”)  from the Male Person, whose number was shown to be the number of the Parent Company previously saved to the contact list of Mr Taira’s Office Mobile as “SD 本社＂.

12.As a result of the above, on 12 April 2021, Mr Taira trusted that the Male Person was indeed from Mr Kasai.  Mr Taira then instructed the accounts clerk, namely, Mr Lam Wing Ho (“Lam”), to proceed with the payment by two tranches, one USD300,000 and the other USD697,000 from the Plaintiff’s bank account (the “Plaintiff’s Bank Account”)  maintained with Mizuho Bank, Ltd. (HK branch)  (“Mizuho Bank”).

13.At around 4pm, the Male Person called Mr Taira’s Office Mobile.  This time, the caller’s number was shown to be +(81)486154000 (the “Male Person’s Mobile Number”).  The Male Person told Mr Taira that he did not receive the payment of USD997,000.

14.On 13 April 2021, Mizuho Bank informed Mr Taira that the payments were rejected and thus the USD997,000 was remitted back to the Plaintiff’s Bank Account.

15.On 13 April 2021 at around 11am, the Male Person called Mr Taira’s Office Mobile using the Male Person’s Mobile Number.  The Male Person told Mr Taira that he did not receive the USD997,000 because Tom gave Mr Taira the wrong bank account information.  At around 12:22 noon, Mr Taira received an email from Tom’s Email Account containing the details of another bank account (“Vancii’s Account”)  in the name of Vancii Investment Holding Company Limited (“Vancii”), maintained with ICBC, and requested a payment of HK$7,750,775.

16.Still believing that the request for the payment was genuine, on 13 April 2021, Mr Taira instructed Mr Lam to proceed with the payment of HK$7,750,775 to the Vancii’s Account.  Later at 4pm, the Male Person called Mr Taira’s Office Mobile using the Male Person’s Mobile Number again.  This time, the Male Person confirmed that he had received the HK$7,750,775.

17.On 14 April 2021 at about 11:50am, the Male Person called Mr Taira’s Office Mobile again using the Male Person’s Mobile Number.  The Male Person said that he would need a further and the last payment of HK$12,357,455 to the Vancii’s Account.  This was followed by an email from Tom at about 11:56am requesting a payment of HK$12,357,455.  Believing that the request for the payment was genuine, Mr Taira instructed Mr Lam to do so. 

18.Later that day, at around 4pm, the Male Person called Mr Taira’s Office Mobile using the Male Person’s Mobile Number.  He confirmed the receipt of the payment of HK$12,357,455.

19.On 15 April 2021 at about 1:45pm, the Male Person called Mr Taira’s Office Mobile using the Male Person’s Mobile Number.  The Male Person requested Mr Taira to pay HK$4,660,000 to the Vancii’s Account.  Believing that the request for the payment was genuine, Mr Taira instructed Mr Lam to do so.

20.Seeing that there was not much money left in the Plaintiff’s Bank Account after the above payments, Mr Taira became suspicious and therefore called the Parent Company for clarification on 15 April 2021.  A staff member of the Parent Company informed Mr Taira that Mr Kasai had been working from home due to the COVID-19 pandemic.  Mr Taira then realised that he had been defrauded.  He immediately asked Ms Ho of Mizuho Bank to stop the latest payment of HK$4,660,000.  The bank managed to do so.

21.Thereafter, on the same day, Mr Taira called Mr Kazuo Hosoi (“Mr Hosoi”), a director of the Parent Company for clarification.  Upon clarification, Mr Taira realised all the requests were frauds.  He therefore reported the matter to the Hong Kong Police Force.  The Hong Kong Police then asked the bank to freeze the Vancii’s Account.

22.On 7 May 2021, the Plaintiff issued a Writ of Summons in HCA 706/2021 (the “2021 Action”), and obtained final judgment against Vancii on 21 June 2021 for a sum of HK$20,108,230 (that is, the aggregate of HK$7,750,775 and HK$12,357,455).  Pursuant to a garnishee order absolute obtained on 23 August 2021 therein, ICBC remitted a sum of HK$222,513.20 to the Plaintiff.

23.Subsequently, it is discovered that a sum of HK$5,778,000 (the “Sum”)  was transferred from the Vancii’s Account to the 1^st Defendant’s bank account maintained with Bank of Communications, in the name of the 1^st Defendant.  Thus, on 13 June 2022, the Plaintiff issued the Writ of Summons herein.

III.  PLAINTIFF’S CLAIM AGAINST THE 1^ST DEFENDANT

24.Against the above backdrop, the Plaintiff raises the following claims against the 1^st Defendant:-

(1)  In reliance on JP Morgan SE Luxembourg Branch v LV Guangxin Trade Co Ltd [2023] 2 HKLRD 893 at §18, the 1^st Defendant held the Sum on constructive trust by reason of the 1^st Defendant’s knowledge that the Sum was a payment under mistake.  The particulars of such knowledge are:-

“(a)  there was no genuine dealing between the 1^st Defendant and Vancii, and there was no legitimate basis for the 1^st Defendant to recive the [Sum];

(b)  the Hong Kong Police’s administrative freezing of the [1^st Defendant’s Account] due to suspected case of obtaining property by deception and money laundering; and

(c)  the receipt of the Writ of Summons and the Statement of Claim (and the contents therein).”

(2)  Further or alternatively, the 1^st Defendant was unjustly enriched by the Sum at the expense of the Plaintiff: see Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004)  7 HKCFAR 79 at §66; JP Morgan SE Luxembourg Branch v LV Guangxin Trade Co Ltd, supra at §19.

IV.  1^ST DEFENDANT’S DEFENCE

25.The 1^st Defendant’s Defence is, in essence, that the Sum was transferred to the 1^st Defendant as a result of some genuine transactions.  This is a defence of bona fide purchaser for value without notice and a defence of bona fide change of position.  In summary:-

(1)  The 1^st Defendant has been carrying out the business of manufacturing and supplying computer parts and accessories;

(2)  In or around late December 2020, in a showroom of the 1^st Defendant in Jiangsu, one Mr Cheung Shing Yu (“Mr Cheung”), purported to be the director of Vancii, approached and orally enquired with Ms Sun Lanlan, (“Ms Sun”)  general manager of the 1^st Defendant about purchasing electronic products for resale purpose.  Mr Cheung purported that Vancii was a Hong Kong company carrying out the business of electronic goods trade and wholesale;

(3)  Upon Mr Cheung’s oral enquiry, the 1^st Defendant, interested in the potential business opportunities, invited Mr Cheung to visit the 1^st Defendant’s factory in Jiangsu, PRC;

(4)  On 2 January 2021, Mr Cheung and Mr Yong Yuk Lun allegedly representing Vancii visited the 1^st Defendant’s factory in Jiangsu, accompanied by Ms Sun of the 1^st Defendant.  During the visit, Vancii agreed to purchase and the 1^st Defendant agreed to sell 231,120 wired mice at HK$25 each.  A written agreement was signed accordingly;

(5)  On 6 January 2021, the 1^st Defendant issued an invoice to Mr Cheung of Vancii accordingly, for 231,120 wired mice (the “Products”)  for a total sum of HK$5,778,000;

(6)  By 26 March 2021, manufacturing and packaging of the Products were completed in Jiangsu.  By 11 April 2021, the Products were transported to and received by the 1^st Defendant’s warehouse in Shenzhen (the “SZ Warehouse”);

(7)  On 12 April 2021, the 1^st Defendant informed Mr Cheung of Vancii that the Products had arrived in the SZ Warehouse and requested Vancii to make the payment for the Products; and

(8)  On 14 April 2021 and 15 April 2021, the 1^st Defendant received from Vancii a total of HK$5,778,000, against which a Mr Huang Rongzhen (“Mr Huang”)  of the 1^st Defendant released the Products to a Mr Wong of Vancii.

V.  ISSUE

26.The single issue for determination is the factual question of whether there existed the transaction between the 1^st Defendant and Vancii as alleged by the 1^st Defendant.  The burden lies upon the 1^st Defendant to prove his defence.

VI.  WITNESSES

27.The Plaintiff filed Mr Taira’s witness statement solely on the matters set out in Part II – Background above.  However, he did not attend court for cross-examination because he resigned on 22 February 2024 and left Hong Kong. In the circumstances, I do not take his failure to attendance in such circumstances as any basis for drawing adverse inference.  Mr Hoshinoya Yukihide, an Executive Officer of the Parent Company, became the Plaintiff’s only witness in Mr Taira’s stead.  His evidence adopts Mr Taira’s witness statement.  Although he has no personal knowledge of the events, he has perused the documents like the email communication between Mr Taira and the Male Person, has been fully informed of the matters and has been handling the present litigation.  The fact that the matter was reported to the Hong Kong Police and statements were made by Mr Taira to the police near the time of the incident, consistent with his witness statement adopted by Mr Hoshinoya Yukihide, lends force to the truthfulness of the Plaintiff’s case.  I accept his evidence.

28.The 1^st Defendant has one witness, namely, Ji Jianguo, a director of the 1^st Defendant.

VII.  1^ST DEFENDANT HAS NO WITNESSES WITH PERSONAL KNOWLEDGE

29.Ji Jianguo says that he set up the 1^st Defendant in 2014 and he has been mainly responsible for the daily operation and overall strategic development of the 1^st Defendant.  However, it must be noted that he has no personal knowledge of the alleged dealing and communications between the 1^st Defendant and Vancii.

30.Ji Jianguo’s evidence is that for both of the meetings with Mr Cheung in December 2020 and 2 January 2021 respectively, it was Ms Sun who dealt with Mr Cheung personally.  However, Ms Sun did not give any written statement or give evidence, although Ms Sun is still the general manager in the 1^st Defendant’s employment.  Ji Jianguo explained that because Ms Sun had already made written records of narratives the relevant events and he had read such records, he did not see any need to ask Ms Sun to give evidence.  The “written records” had not been disclosed.  When asked why they had not been disclosed, Ji Jianguo’s explanation was that he did not know they should have been disclosed and shifted the blame onto the Plaintiff saying that such documents had not been requested for.  I reject such explanation – each party has the obligation to disclose all the relevant documents.  I find that that there were no such records, because if they really existed, they would have been disclosed given the obvious significance of such records in support of the 1^st Defendant’s case.  In any event, whether there exist such records or not, I reject Ji Jianguo’s explanation for failure to produce Ms Sun to give evidence because it is only Ms Sun who is still in the 1^st Defendant’s employment and has the personal knowledge of the matters.

31.In the circumstances, I draw an adverse inference that Ms Sun would not be able to stand up to scrutiny in cross-examination in respect of the 1^st Defendant’s case concerning the events between the 1^st Defendant and Vancii in the showroom and the factory.

32.In respect of the releases of the Products by the 1^st Defendant to Vancii respectively on 14 and 15 April 2021, according to the 1^st Defendant’s Defence (set out above)  and Ji Jianguo’s evidence, it was Mr Huang of the subsidiary in Shenzhen of the 1^st Defendant who released the Products to Mr Wong of Vancii.  Therefore, Mr Huang would have the personal knowledge of the release of the Products, which would then be probative of whether the transaction between the 1^st Defendant and Vancii did exist as alleged.  However, Mr Huang did not give evidence or any written statement, although Ji Jianguo said Mr Huang was actually not employed by the 1^st Defendant but its subsidiary in Shenzhen, he still described Mr Huang (among the staff in the subsidiary in Shenzhen)  as “our people” and Mr Huang is still working in the subsidiary in Shenzhen.  Ji Jianguo’s explanation for failure to produce him is that Mr Huang was only relevant to releases of the Products and in any event there were written records.  If there were such records, they would have been produced.  So, I find that there is no such record.  There is therefore no good explanation for the failure to produce Ji Jianguo.  If the written records refer to Courier Voucher of 德邦快遞 dated 28 March 2021 for the delivery of the Products from the factory in Jiangsu to the SZ Warehouse and/or Vouchers for releasing the Products dated 14 and 15 April 2021 respectively issued by the 1^st Defendant, they are, as explained below, subject to non-admission of authenticity, which I shall find against the 1^st Defendant. 

VIII.   PLAINTIFF’S NON-ADMISSION TO AUTHENTICITY OF 1^ST DEFENDANT’S DOCUMENTS

33.In support of the 1^st Defendant’s Defence, among others, the following documents which one would expect of such transactions as alleged by the 1^st Defendant have been discovered:-

(1)  Sales Order purportedly issued by the 1^st Defendant dated 2 January 2021 signed by the 1^st Defendant but not by Vancii;

(2)  Commercial Invoice issued by the 1^st Defendant dated 6 January 2021 signed by the 1^st Defendant;

(3)  A sample photo of the Products with a handwritten date of 3 January 2021;

(4)  Courier Voucher of 德邦快遞 dated 28 March 2021 for the delivery of the Products from the factory in Jiangsu to the SZ Warehouse; and

(5)  Vouchers for releasing the Products dated 14 and 15 April 2021 respectively issued by the 1^st Defendant.

For convenience, I shall refer to the above as “Item (1)”, “Item (2)” and so on until “Item (5)”.

34.These are documents disclosed in the 1^st Defendant’s List of Documents served on the Plaintiff on 12 October 2023.  After that, on 13 October 2023, the Plaintiff demanded inspection of the originals.  By letter dated 25 October 2023, the 1^st Defendant’s solicitors said that the 1^st Defendant only had the original of Item (5)  above, but not others.  On 3 November 2023, the Plaintiff issued a Notice under Order 27 Rule 4(2)  not to admit the authenticity of Items (1)  – (5)  above.  As such, the burden lies upon the 1^st Defendant to prove these documents.  To determine whether the burden is discharged, like in all fact-finding exercise, the Court should examine the evidence produced by the parties and the absence of evidence produced by the challenging party: see Hu Lan v David Golden [2024] 1 HKLRD 1252 at §58 per Kwan VP.  I also bear in mind that a finding that a party fails to prove authenticity of a document does not mean that the document is forged or some fraud is involved: see Hu Lan v David Golden, supra at §60.  It is simply not necessary for me to go that far, especially when the Plaintiff has not made any such allegation here.

35.Despite the Notice, in Ji Jianguo’s witness statement, which was dated 12 December 2023, he made no attempt to explain the provenance of any of the documents.  Nor did he make any attempt to explain why the 1^st Defendant only keeps copies of Items (1)  – (4), but not the originals. 

36.Specifically, in respect of Item (1), that is, the Sales Order, while Vancii’s company chop was stamped on it with a blank for “authorized signatory(ies)”, there was no signature on the blank.  Ji Jianguo explained that the chop was in his view a signature, and it was usual for PRC businesses to use company seals only.  However, there was a signature on the 1^st Defendant’s company chop in the Sales Order, and the Vancii’s chop on the Sales Order is not the usual company seals used in the PRC, but rather a chop usually used by Hong Kong company for the authorised signatories to sign on.  Further, the 1^st Defendant actually does not confuse signing with stamping a company chop, as shown by the contrast between its pleading in §6(c)  of its Further and Better Particulars (which specifically used “company chop and stamp”)  and §2(c)  (which specifically used “signed”).  Therefore, I do not accept Ji Jianguo’s explanation, and in any event, he has no personal knowledge of this Sales Order, given that according to his evidence, it was his brother who signed on behalf of the 1^st Defendant there and who has not made any statement, let alone give evidence in Court.  Further, there is no explanation why despite the Notice not to admit authenticity, he has not asked his brother to give evidence on the provenance of this document.

37.Also, in Item (1), it stated that the mice sold were all black in colour.  This is contrary to Ji Jianguo’s evidence in cross-examination that they were selling mice of about 10 different colours.  When asked about the discrepancy, he explained that the majority of the mice were in black, and the Sales Order just stated the majority.  A similar discrepancy features in Item (2), that is, the Commercial Invoice, which also stated that the mice sold were all black in colour.  

38.This discrepancy is not merely technical.  The vendor and the purchaser would check the features of the products according to the sales order and the invoices.  When there was dispute over the features, the parties would go to such documents as a starting point.  Further, I see no difficulty in specifying the colours of the mice the 1^st Defendant was selling.  In any event, these documents were not prepared by Ji Jianguo, and as mentioned above, he has no personal knowledge of what were discussed between the 1^st Defendant and Vancii.

39.In the light of such state of evidence, the 1^st Defendant has failed to prove the authenticity of the originals and even the copies of the Items (1)  and (2), and that the contents of the copies did not reflect accurately what actually happened or what actually did not happen.

40.In respect of Item (3), that is, the photo taken of the mouse, Ji Jianguo confirmed that the mouse in the photo was not of any mouse sold to Vancii.  I do not see any significant value in such photo.  In any event, despite the Notice not to admit authenticity, there is no evidence from the 1^st Defendant as to how this photo or copy of the photo was produced.  There is no explanation as to why there is no such evidence.  I find that there is no original of the photo, and the copy of the photo was not authentic either.

41.In Item (4), that is, the Courier Voucher, the number of boxes was stated to be 93 and the weight was stated to be 1,000kg.  During cross-examination, when Mr Byron Chiu (counsel for the Plaintiff)  pointed out to Ji Jianguo that this would mean that each mouse would be even lighter than a piece of A4 paper, Ji Jianguo explained that the delivery was only domestic delivery, but not international delivery, and so the information there need not be that accurate.  I do not accept such explanation because such information would affect the delivery fee and even how the delivery would be carried out, irrespective of whether the delivery is domestic or international.  Further, in the cross-examination, he still confirmed that the 93 boxes represented all mice being sold.  However, the figures do not come up to 231,120 mice, even assuming that each of these 93 boxes each contained 50 boxes each of which contained 1 single mouse.  During re-examination, for the first time, Ji Jianguo alleged that the 93 boxes did not represent all the mice and that there were some other delivery notes but the 1^st Defendant had not been able to locate the same.  He explained that due to lapse of time, and due to relocations of office, the 1^st Defendant has not been able to locate all the relevant documents including the other Courier Voucher for that delivery.  I reject such explanation because:-

(1)  There is no lapse of time – the event took place in 2021, and the action was commenced in 2022, and in any event, the 1^st Defendant, a Hong Kong company, is supposed to keep documents related to its financial matters for 7 years;

(2)  The relocation of office finished in 2023 according to Ji Jianguo’s latest evidence (though not in the evidence in support of the late application for evidence mentioned at the outset), and there would still be the whole 2024 for the 1^st Defendant to locate the relevant documents.  If there were really such documents, I cannot see why the 1^st Defendant could not have located them for the whole year; and

(3)  It is inherently improbable that for the single delivery, there would be more than one Courier Voucher for all the Products.

42.In the circumstances, I find that the 1^st Defendant has failed to prove the authenticity of the original of the Courier Voucher.  I also find that the copy of the Courier Voucher is not authentic, and does not reflect what actually happened or did not happen.

43.Item (5), that is, vouchers for releasing the Products dated 14 and 15 April 2021, are the only documents the 1^st Defendant is able to produce their originals.  Such documents are prepared by the 1^st Defendant itself, and in this sense, they are self-serving.  There is no explanation why there is no evidence on the provenance of these vouchers, despite the notice not to admit authenticity.  In the circumstances, I find that the originals are not authentic, and in any event, authentic or not, I do not accord any significant weight to these self-serving documents.

IX.  JI JIANGUO’S EVIDNECE ITSELF INCREDIBLE

44.So much so about the 1^st Defendant’s failure to produce relevant witnesses and the authenticity of the above documents.  However, I bear in mind that the unsatisfactory state of the evidence above does not necessarily mean that there is no evidence of the transaction between the 1^st Defendant and Vancii as alleged.  There is still Ji Jianguo’s own evidence.  Although he does not have personal knowledge of the matters, his hearsay evidence is of course admissible and whether the Court should accept such evidence is a matter of evaluation of evidence.

45.Having heard the evidence, I take the view that in all material aspects, Ji Jianguo’s evidence is unsatisfactory.

46.First, the transaction.  In particular, the 1^st Defendant did not require any deposit or any kind of guarantee from Vancii that the 1^st Defendant would be paid before the 1^st Defendant started to arrange for packaging and delivery from its factory in Jiangsu to its warehouse in Shenzhen.  In cross-examination, Ji Jianguo accepted that there would be chance that Vancii would refuse to purchase and pay for the mice, but then explained that in that event, the 1^st Defendant could arrange for ready sale of the mice in Shenzhen.  However, when pointed to his own evidence that the mice had been in the factory in Jiangsu since 2015 or 2016 for almost 5 years until the sale to Vancii and confronted with the suggestion that the 1^st Defendant would have arranged for such ready sale much earlier, Ji Jianguo answered that if no one would want the mice, they could dispose of the mice readily.  This answer, obviously, did not address the suggestion at all.  In re-examination, however, when asked about the terms of delivery in Item (1)  (that is, the Sales Order), Ji Jianguo, inconsistent with his apparent causal attitude towards no requirement for deposit as appeared in the cross-examination, said that the 1^st Defendant’s practice was that it would proceed with sale of products only upon receipt of money. 

47.In my view, it is inherently improbable that the 1^st Defendant would have kept the mice for 5 years or so in its factory if it could have arranged for such ready sale as alleged.  It is also inherently improbable as against commercial sense and against its own practice that the 1^st Defendant would have entered into such a transaction where it had not received any money but would incur expenses in arranging for delivery. 

48.Second, in §6 of Ji Jianguo’s witness statement, there was no description of the negotiation between the 1^st Defendant and Mr Cheung or Vancii that led to the Sales Order.  It is not surprising because Ji Jianguo has no personal involvement in the matter.  However, in his oral evidence, for the first time, he said that his colleague told him that initially, the 1^st Defendant quoted HK$30 each mouse, and then after negotiation, the parties agreed at HK$25 each mouse.  I see no reason why his colleague would only have told him all this now, if it were true.  Or if his colleague had told him earlier, I see no reason why he would just tell the Court only during the trial.  Either way, I would reject his such evidence.

49.Third, again in §6 of Ji Jianguo’s witness statement, it is clear there that the parties agreed to HK$25 each mouse and then Mr Cheung raised that because Vancii’s funds were in Hong Kong and Mr Cheung could only use Vancii’s Hong Kong company to sign a contract with the 1^st Defendant.  In cross-examination, when asked why both the 1^st Defendant and Vancii there and then doing business in the PRC would agree to a price in Hong Kong dollar, Ji Jianguo for the first time said that in fact, back in December 2020, Mr Cheung already mentioned to the 1^st Defendant that he had to use Hong Kong dollars for any purchase.  However, in his witness statement, he mentioned nothing about the December 2020 event.  It is only in the 1^st Defendant’s Defence and Further and Better Particulars that the December 2020 event was mentioned, and unusually, Ji Jianguo was asked in examination-in-chief to adopt also these pleadings as his evidence.  Be that as it may, even in these pleadings, nothing is mentioned about Mr Cheung intimating that he would have to use Hong Kong dollars in December 2020.  In any event, Ji Jianguo does not have any personal knowledge of the matters.  I reject his evidence that Mr Cheung had told the 1^st Defendant back in December 2020 that the transaction had to proceed in Hong Kong dollars.  Thus, the remaining evidence is the strange account that the parties agreed to Hong Kong dollars without good reason.

50.Fourth, nothing in the Sales Order or the Commercial Invoices provided that Vancii may or would make the payment of the purchase price by tranches. However, as a matter of fact, Mr Cheung or Vancii made the payment by three tranches: the first one in the sum of HK$1,798,000 on 14 April 2021 and the second and third in the sum of HK$1,500,000 and HK$2,480,000 respectively on the same day 15 April 2021.  This, in my view, looked very unusual when there was no such provision in the agreement and in any event when two tranches were made on the same day.  The 1^st Defendant did not demand any explanation from Mr Cheung or Vancii, and Ji Jianguo did not say anything about the 1^st Defendant’s reaction when on 14 April 2021, the 1^st Defendant only received partial payment.  Instead, without demanding an explanation for the partial payment, the 1^st Defendant, according to Ji Jianguo, released part of the Products on 14 April 2021.  In my view, payment of the price in such way in such circumstances without the 1^st Defendant’s any demand for explanation or any kind of action is inherently improbable as against common sense, if the transaction was genuine.

51.Fifth, in cross-examination, for the first time, Ji Jianguo said that the 1^st Defendant had contact with Cheung in December 2019.  This is inconsistent with the 1^st Defendant’s Further and Better Particulars §1(e), where it is pleaded that the 1^st Defendant had not heard of Vancii or Mr Cheung prior to December 2020.

52.Sixth, according to §1(c)  of the 1^st Defendant’s Further and Better Particulars, Mr Cheung approached the 1^st Defendant in December 2020 at the 1^st Defendant’s factory in Jiangsu, but according to §9 of the Defence, Mr Cheung was invited to visit the factory later.  While I accept Ji Jianguo’s evidence that the showroom in the factory and the factory itself are separate, and so Mr Cheung was actually in the showroom first, I find it inherently improbable that the 1^st Defendant would wait till another occasion to take Mr Cheung to visit the factory, which is just on the same floor.  Ji Jianguo simply does not have any personal knowledge of the matter.  I reject such account of the event.

53.Seventh, in §2 of his witness statement, Ji Jianguo alleged that in the main bank account of the 1^st Defendant, the balance always maintains 7-digit.  This is clearly contradicted by the bank statement of the 1^st Defendant dated 15 April 2021 produced under the leave I granted upon the 1^st Defendant’s late application, which shows an open balance of HK$478.26, RMB478.26 and US$2,389 as at 16 March 2021.  In cross-examination, Ji Jianguo confirmed that the bank account in this bank statement is the 1^st Defendant’s main bank account, and in re-examination, re-confirmed this.  In other words, his oral evidence about the 7-digit deposit in the bank account is flatly contradicted by documentary evidence.  This reflects adversely on Ji Jianguo’s credibility in general.

54.Questions were also asked of Ji Jianguo on the various transactions in the bank statement, and suggestion was made that those transactions were for money laundering.  However, to be fair to the 1^st Defendant, the bank statement was produced late (though upon the 1^st Defendant’s own fault), and while the Plaintiff was entitled to ask such questions, it would be unfair for the Court to accept such suggestion when obviously Ji Jianguo or the 1^st Defendant had not been alert that such a serious allegation would be raised.

55.Mr Chiu (for the Plaintiff)  also highlights other areas of Ji Jianguo’s evidence which he submits are incredible.  I would think that those areas are not as clear cut as those mentioned above.  For example, Mr Chiu submits that in the Sales Order, the term of delivery was stated to be 30 days after invoice and this would inconsistent with the last shipping date stated to be 31 May 2021, and he said that the 1^st Defendant ought to have removed either term or else the Sales Order would be internally inconsistent.  Ji Jianguo explained that that was a period of the COVID pandemic and the delivery date could hardly be met.  Such evidence sounds some truth during the pandemic back then.  I do not think that Mr Chiu’s such submissions takes the Plaintiff’s case any further.

56.Having considered the above material aspects of his evidence, while I would not go so far to say that the 1^st Defendant in fact did not have any substantial business or even in fact laundered money, from such contradictory evidence, I would have no hesitation to find that Ji Jianguo is not a credible witness.  Coupled with the fact that he has no personal knowledge of the matters, I do not accept his evidence on the alleged transaction between the 1^st Defendant and Mr Cheung or Vancii.

X.  FINDINGS

57.In the circumstances, there is no accepted evidence before me to prove the transaction between the 1^st Defendant and Mr Cheung or Vancii as alleged.  Under the binary system of fact-finding process: see In re B [2009] 1 AC 11 at §2 per Lord Hoffmann, this amounts to a finding that the transaction between the 1^st Defendant and Mr Cheung or Vancii as alleged did not exist.

58.On the findings that there were no such transaction as alleged, I find that the 1^st Defendant received the Sum without any basis.

XI.  CONSTRUCTIVE NOTICE?

59.Upon my finding that there was no such transaction as alleged, it is not necessary for me to find that whether the 1^st Defendant had constructive notice or had not made sufficient inquiry into the transaction. Suffice to say that if the transaction did take place as alleged by the 1^st Defendant, I agree with Mr Chiu (for the Plaintiff), referring to, among others, Niru Battery Manufacturing Co v Milestone Trading Ltd [2004] QB 985 at §164 and Idemitsu Chemicals (Hong Kong)  Co Ltd v Yanqing Ltd and Others [2024] HKCFI 1075 at §§45-46, that the 1^st Defendant failure to make any inquiry at all in the circumstances (in particular, the parties negotiated the price in Hong Kong dollars for all the stock; Vancii purchased the mice in ten colours but the Sales Order and Invoices stated the colour to be black only, but Vancii did not make any comment; and Vancii made the payment on two days in three tranches)  would impose constructive notice on the 1^st Defendant. 

XII.  DEFENCE NOT ESTABLISHED

60.In the circumstances, the 1^st Defendant has failed to establish the defence of bona fide purchaser without notice and the defence of bona fide change of position.

XIII.   KNOWLEDGE OF THE RECEIPT OF MONEY WITHOUT BASIS

61.Ms Phyllis Lee, counsel for the 1^st Defendant, submits that even if the money was paid to the 1^st Defendant by mistake, the 1^st Defendant did not immediately acquire knowledge of the receipt and the mistake.  I agree with such submissions as a general proposition.  But the particulars relied upon by the Plaintiff here is not just the receipt of money.  As set out in §24(1)  above, the Plaintiff also relies upon the Hong Kong Police’s administrative freezing of the 1^st Defendant’s bank account and the 1^st Defendant’s receipt of the Writ of Summons herein on 13 June 2022.  Ji Jianguo’s evidence is that when the bank account was frozen, the bank just notified them without telling them any reason.  Not telling the reason, as I understand it, arises from the usual request made by the Police that the ongoing investigation should not be disclosed.  So, I accept Ji Jianguo’s evidence in this respect.

62.However, clearly by the time of the receipt of the Writ of Summons herein, the 1^st Defendant must have known that it received the Sum by mistake.

XIV.   REMEDIES

63.Applying JP Morgan SE Luxembourg Branch v LV Guangxin Trade Co Ltd, supra at §§17-18, the 1^st Defendant has since the acquisition of the knowledge of the receipt of the Writ of Summons on 13 June 2022 been a constructive trustee of the respective tranches. 

XV.  CONCLUSION

64.In the circumstances, I make the following order:-

(1)  A declaration that the 1^st Defendant has since the time of the receipt of the Writ of Summons herein on 22 June 2022 been a constructive trustee of HK$5,778,000 (comprised of HK$1,798,000 on 14 April 2021, and HK$1,500,000 and HK$2,480,000 both on 15 April 2021, deposited into the 1^st Defendant’s bank account A/C No 834103163801 maintained with Bank of Communication);

(2)  A declaration that the 1^st Defendant is liable to account to the Plaintiff for the said sum or such other traceable proceeds or assets now or previously in its possession acquired directly or indirectly with ay part of the said Sum;

(3)  There be all necessary accounts and inquiries to enable the Plaintiff to trace and recover the said Sum and its traceable assets or proceeds;

(4)  The 1^st Defendant do pay the Plaintiff HK$5,778,000, with pre-judgement interest accruing thereon at 1% above HSBC prime rate from 15 April 2021[1] until today;

(5)  For the avoidance of doubt, (3)  and (4)  above are subject to the rule against double compensation.

(6)  There be post-judgment interest at judgment rate until full payment.

65.I also make a costs order nisi that the 1^st Defendant shall pay the Plaintiff costs of the action as against the 1^st Defendant (including all costs reserved), to be taxed if not agreed.

66.It remains for me to thank Mr Chiu (counsel for the Plaintiff)  and Ms Lee (counsel for the 1^st Defendant)  for their assistance.

Mr Byron Chiu, instructed by Fred Kan & Co., for the Plaintiff

Ms Phyllis Lee, instructed by Yip, Tse & Tang, for the 1^st Defendant

Yung, Yu, Yuen & Co., for the 2^nd Defendant did not appear