Schutz, Gilles Yves Rene v. Hong Kong Long Ding Yi Trading Co., Ltd and Others

HCA 2014/2020

[2026] HKCFI 3254

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2014 OF 2020

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J U D G M E N T

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A.  INTRODUCTION

1.In this action, the Plaintiff (“P”) claims that he was a victim of a WhatsApp fraud (“WhatsApp Fraud”) orchestrated by someone by the name of “Jin Xin” (“Jin Xin”), whom he came to know via a dating website.

2.Pursuant to the WhatsApp Fraud, P claims to have been deceived into transferring a sum of EUR 650,000 to an account held by the 1^st Defendant (“D1”) (“D1 Transfers”); and that of the D1 Transfers, a total sum of HK$5,650,000 (“D4 Transfers”) was transferred to the 4^th Defendant (“D4”) from D1 directly and also via the 2^nd Defendant (“D2”) and the 3^rd Defendant (“D3”).

3.D1, D2 and D3 have not defended these proceedings and P has already obtained default (monetary) judgment against each of them on 31 March 2021.

4.As regards D4, it had been legally represented and fully participated in these proceedings (having filed a Defence, provided discovery, filed a witness statement and an expert report) until its solicitors obtained an order to cease to act on 26 February 2026. D4 did not obtain leave from the Court to self-represent and did not attend the trial which commenced on 11 May 2026.

5.As a result of D4’s absence at the trial, its factual and expert witnesses were not called and thus the witness statement and expert report filed on its behalf are excluded from the evidence.

6.Nonetheless, P bears the burden to prove his case, having regard to D4’s pleaded defence where appropriate: see Perfect Award Holdings Ltd v. Ouyang Yida & Ors [2023] HKCFI 2498 at §6.

B.  BACKGROUND

7.The relevant background facts are not in dispute.

8.P is a retired businessman residing in Marseille City, France.

9.According to P’s evidence, which none of the Defendants have sought to dispute:

(1)  On or about 6 March 2020, P came to know a person who introduced herself as Emily/Jin Xin via a dating website; they exchanged phone numbers and communicated via WhatsApp.

(2)  Via WhatsApp messages, Jin Xin shared her experience in making profits from foreign exchange (“FOREX”) trading, and persuaded P to open an investment account (for the purpose of FOREX trading) at an Australian licensed financial company, Eternal Wealth Group PTY Ltd. (“EWG”) which she alleged conducted online FOREX trading through an online platform called “MT5”.

(3)  Jin Xin told P that (i) EWG was a multinational company and had "supervision account" in Australia; and (ii) all transactions with EWG at MT5 have to be carried out through a designated customer service agent (“Agent”).

(4)  Jin Xin then introduced the Agent to P, and suggested that P should contact him via WhatsApp, which P duly did. With the assistance of the Agent, P opened an account at MT5 with EWG on 19 March 2020 (“Trading Account”).

(5)  Initially, P was told by the Agent to remit money into the Trading Account by first remitting money into a bank account in the name of Hai Cloud Exchange (HK) Limited held with DBS Bank (HK) Limited (“HC DBS Account"), which he did for a few times. After P injected funds to the HC DBS Account, the Agent would confirm with him that the funds were deposited into the Trading Account.

(6)  On or around 27 April 2020, the Agent told P via WhatsApp that the bank account had "changed", and asked him to remit money to a bank account in the name of D1 with Hongkong and Shanghai Banking Corporation Limited (“HSBC”) (account number: 747099935838) (“D1’s Account”) instead of the HC DBS account.

(7)  Under the direction of the Agent and/or Jin Xin, on 27 April 2020 and 5 May 2020, P transferred EUR 550,000 and EUR 100,000 respectively into the D1’s Account i.e. the D1 Transfers.

(8)  There was no official statement issued by EWG or MT5 for the FOREX transactions performed by P (via the Agent) in the Trading Account, but he could see his transaction records by logging into the MT5 platform or the EWG website (www.eternalwealthfx.com).

(9)  In around mid-May 2020, the record showed that there was a balance of USD 2,349,262.13 in the Trading Account and P believed at the time that the balance was genuine and reflected the real financial situation of the Trading Account.

(10)  In around mid-May 2020, when Jin Xin repeatedly asked P to borrow money from his friends so as to raise the capital of the Trading Account so that she could earn more commission rebate, P became suspicious and decided to withdraw the money he previously deposited in the Trading Account. However, when he contacted the Agent for the withdrawal of USD 1.57 million on or about 14 May 2020, the Agent told him inter alia that (i) a transfer of funds to an overseas bank account would take about 10 working days to complete; and (ii) he would need to pay a personal income tax equivalent to 30% of the withdrawal amount, i.e. about USD 471,000.00, which would have to be paid into a designated bank account.

(11)  Upon realizing that he had been defrauded, he stopped contacting Jin Xin, and instructed lawyers in France and in Hong Kong for assistance.

(12)  When P checked the website of EWG on 2 July 2020, it showed that the Trading Account had made losses of more than US$2 million on that date despite the fact he had never conducted any transaction (whether FOREX or otherwise) which would justify the said loss.

(13)  On 5 June 2020, P authorized his solicitors in Hong Kong Messrs S T Cheng & Co (“STC”) to make a report to Hong Kong police as regards the WhatsApp Fraud and statements were provided to the police on 5 June 2020 and 10 June 2020 to assist in the police’s investigations.

(14)  On 3 July 2020, P further sent an email to “[email protected]”, stating that he was advised by his lawyers to file a criminal complaint and demanded immediate refund of the whole amount of the balance of the Trading Account i.e., USD 2,349,262.00. However, no reply was received.

(15)  On l8 September 2020, STC received a letter from the police stating, inter alia, that the monies deposited to the HC DBS Account and D1’s Account were further transferred to three bank accounts, namely (i) D2’s account at HSBC (account number: 143129567838) (“D2’s Account”); (ii) D3’s account at HSBC (account number 691082440838) (“D3’s Account”); and (iii) D4’s account at DBS Bank (HK) Limited (account number 478000020650 or 000020650344) (“D4's Account”).

(16)  P’s deposits in D1's Account were subsequently transferred to the D2, D3 and D4's Accounts in just three days from 6 to 8 May 2020. To the best of P’s knowledge, the transfers that took place were as follows:

Date of Transfer	Transferred from	Amount Transferred	Transferred to
6 May 2020	D1’s Account	HKD 950,000	D4's Account
7 May 2020	D1’s Account	HKD 1,000	D2's Account
7 May 2020	D1’s Account	HKD 1,999,000	D2's Account
7 May 2020	D2’s Account	HKD 1,500,000	D4's Account
8 May 2020	D1’s Account	HKD 1,000,000	D2's Account
8 May 2020	D1’s Account	HKD 1,000,000	D3's Account
8 May 2020	D1’s Account	HKD 10,000	D3's Account
8 May 2020	D1’s Account	HKD 690,000	D3's Account
8 May 2020	D2’s Account	HKD 1,500,000	D4's Account
8 May 2020	D3’s Account	HKD 1,700,000	D4's Account

10.P’s case on the D1 Transfers and the subsequent transfers to D2, D3 and D4 can be illustrated in the diagram below (“Diagram”):[1]

11.There is no dispute by D4 that it had received the various sums from D1, D2 and D3 during the period from 6 to 8 May 2020, in the total amount of HK$5,650,000 i.e. the D4 Transfers.

C.  PLEADED CASE OF P AND D4

12.P’s case against D4 are based essentially on the following pleas in his Statement of Claim (“SOC”):

(1)  The D1 Transfers were made by mistake and/or induced by fraud and/or the consideration of which had wholly failed, as a result of which D1 was unjustly enriched and liable to provide restitution to P; alternatively, the D1 Transfers are held by D1 on constructive and/or resulting trust for P.

(2)  The subsequent transfers by D1 of the D1 Transfers to D2, D3 and D4 were made by D1 in breach of fiduciary duties, and D2, D3 and D4 are knowing recipients of the sums transferred to them, which they hold on trust for P.

(3)  The further transfers by D2/D3 (of the sums received from D1) to D4 were made by D2/D3 in breach of fiduciary duties, and D4 is a knowing recipient of the sums transferred to it, which it holds on trust for P.

(4)  In particular, D4 is a licensed institution under the Anti-Money Laundering Ordinance (Cap. 615) (“AMLO”) and has a duty to conduct appropriate customer due diligence, and must therefore have known or ought to have known about the various suspicious features of the D4 Transfers (pleaded at §41 of the SOC).

(5)  In the circumstances, P avers that D4 willfully shut its eyes and/or recklessly failed to make inquiry relating to the source or purpose of the D4 Transfers; further or alternatively, D4 had been put on enquiry as to the source or purpose of the D4 Transfers, and failed to discharge such enquiry such that it has constructive notice of P’s interest therein.

(6)  P avers that D4 holds the D4 Transfers on trust for P; alternatively, D4 is liable to P for the D4 Transfers by way of damages and/or equitable compensation.

13.D4’s pleaded defence (“D4’s Defence”) is in summary as follows:

(1)  D4 does not dispute having received the D4 Transfers from D1, D2 and D3 in the aggregate amount of HK$5,650,000, but alleged that it was an innocent third party implicated in this matter in its normal course of regulated money service business.

(2)  D4 claims to be a licensed money service provider in Hong Kong, and that it was only a receiving agent of a related company, Golden Credit Investment Development (HK) Co., Limited (“Golden Credit”), also a licensed money service provider in Hong Kong. D4’s Account is duly registered with the Customs and Excise Department (“C&E”) for use by Golden Credit in its normal course of business.

(3)  The circumstances under which the D4 Transfers were remitted to D4 between 6 to 8 May 2020 were as follows:

(i)  Golden Credit was instructed by a Mr Yau Pui Yeung (“Mr Yau”) on behalf of D1, D2 and/or D3 (as the case may be) to convert sums of Hong Kong Dollars into Renminbi (“RMB”) and then remit the converted sums to various designated accounts in Mainland China (“Mainland”)  held by various individuals.

(ii)  Pursuant to Golden Credit’s request, D1, D2 and/or D3 (as the case may be) deposited the relevant sums of Hong Kong Dollars into D4’s Account for the purpose of carrying out the said money service transaction.

(iii)  Upon confirmation of receipt of the relevant sums of Hong Kong Dollars in D4’s Account, Golden Credit arranged with its agent in the Mainland to effect payment of the agreed sum of RMB to the designated bank accounts in the Mainland, thereby completing the money exchange and remittance transaction.

(4)  D4 was not aware of any abnormalities relating to the D4 Transfers, which were amongst the numerous money service transactions processed by Golden Credit and D4 every day. In any case, D4 had duly complied with the due diligence requirements under the AMLO, including obtaining the identity cards of Mr Yau and the beneficial owners of D1, D2 and D3, as well as copies of the latest annual returns and/or incorporation forms of D1, D2 and D3, which were then screened through a due diligence screening platform called “Refinitiv World-Check One” (“World-Check One”), which did not reveal any abnormal results.

(5)  Based on the above pleaded facts (i) D4 denies that is a knowing recipient of any of the subject monies; (ii) D4 asserts a defence of ministerial receipt (“Ministerial Receipt Defence”), and (iii) D4 further claims that it is a bona fide purchaser for value without notice and/or has changed its position in good faith, by reason of having conducted money exchange business in the Mainland (“BFP / COP Defence”).

14.In P’s Reply to D4’s Defence, he raised a further issue that D4’s money exchange business (if genuine) was illegal under Mainland foreign exchange laws and regulations; and by reason of such illegality, the BFP / COP Defence fails for want of bona fides  (“Illegality Issue”).

D.  ISSUES

15.Based on P and D4’s respective pleaded cases, the issues for determination at this trial are as follows:

(1)  Is D4 a knowing recipient of the D4 Transfers (“Issue 1”)?

(2)  Is D4 entitled to rely on the Ministerial Receipt Defence (“Issue 2”)?

(3)  Is D4 entitled to rely on the BFP / COP Defence (“Issue 3”)?

(4)  What relief (if any) is available to P (“Issue 4”)?

E.  WITNESSES AND ADVERSE INFERENCES

16.Only P’s witnesses were called at the trial, being P himself, and his expert on PRC law, Mr Yang Lei (“Mr Yang”).

17.This Court granted leave for P to give evidence by way of video-link[2], by reason of his cardiac condition (supported by medical records) which prevents him from travelling to Hong Kong to give evidence in person. In any case, P’s evidence regarding the WhatsApp Fraud which led to his transfer of funds to D1’s Account is not disputed (and which is supported by documentary evidence), and the credibility of his evidence in this regard is not in issue in this trial.

18.P has given evidence via video-conferencing facilities on 15 May 2026, and adopted his witness statement dated 5 August 2022 as his evidence-in-chief.

19.Mr Yang gave evidence in person on 12 May 2026 and adopted the contents of his report dated 19 May 2023 and his part of the joint expert report dated 20 July 2023. As D4 has not called its expert on PRC law, Mr Yang’s evidence is uncontradicted.

20.Given D4’s decision not to call its witnesses at this trial (and without any explanation), Mr Martin Lau (Counsel for P) invites this Court to draw adverse inferences against D4 based on the following principles set out in Tullet v. Tokyo International Securities Ltd v. APC Securities Ltd [2001] 2 HKLRD 356 at 365 per Le Pichon JA:

(1)  “The failure to bring before the tribunal some circumstance, document, or witness, when either the party himself or his opponent claims that the facts would thereby be elucidated, serves to indicate, as the most natural inference, that the party fears to do so; and this fear is some evidence that the circumstance or document or witness, if brought, would have exposed facts unfavorable to the party”; and

(2)  “The non-production of evidence that would naturally have been produced by an honest and therefore fearless claimant permits the inference that its tenor is unfavorable to the party’s cause.”

21.I will consider the issue of adverse inferences in the analysis of the issues and the evidence below.

F.  DOCUMENTARY EVIDENCE FROM D4

22.Although D4 has not called any witnesses and has not participated in the trial, this Court has considered the documentary evidence adduced by D4 and the impact of such evidence (if any) on P’s claims and/or D4’s pleaded defence. The main aspects of documentary disclosure provided by D4 to support its pleaded case are as follows.

23.First, D4 has disclosed documentary evidence to show that at the material time of the D4 Transfers, (i) both D4 and Golden Credit were licensed under section 30 of the AMLO to conduct money service in Hong Kong; and (ii) D4’s Account was registered by both D4 and Golden Credit with the Customs & Excise Department (“C&E”) as one of the accounts used for their respective licensed money service.

24.Second, in terms of due diligence materials, D4 disclosed copies of (i) incorporation forms and/or annual returns of D1, D2 and D3, (ii) identity cards of Mr Yau and the respective founder members of D1, D2 and D3 (namely, Dong Xiaofeng, Wang Xinhui and Tan Jun) (“Founder Members”), and (iii) “Case Reports” generated by World-Check One in relation to D1, D2, D3, Mr Yau and the Founder Members (“Case Reports”).

25.Third, D4 disclosed various application forms for remittances dated 7-11 May 2020 titled “匯款申請書” (and which all have the header “Hui’s Brothers Exchange and Remittance Company” and the company chop “For and on behalf of Hui’s Brothers Exchange and Remittance Company”) which purport to record Mr Yau’s instructions (on behalf of D1, D2 and D3) to remit specified sums of RMB to the bank accounts of designated individuals on the Mainland (“Remittance Application Forms”), together with corresponding transaction notices headed “轉賬結果交易成功” purportedly confirming the successful remittances to such designated individuals’ bank accounts on the same day (“Transaction Notices”).

26.Based on the Remittance Application Forms and the Transaction Notices, it can be seen that (i) Mr Yau was stated to be the “Applicant” in all of the Remittance Application Forms; (ii) the RMB sums were remitted from various individual payees in the Mainland (“Mainland Remitters”) to the individual recipients in the Mainland specified in the Remittance Application Forms (“Mainland Recipients”).

G.  ISSUE 1 – IS D4 A KNOWING RECIPIENT OF THE D4 TRANSFERS?

27.The analysis as to whether D4 is a knowing recipient of the D4 Transfers involves the following sub-issues:

(1)  Whether the WhatsApp Fraud existed and if so, whether it caused/induced P to make the D1 Transfers;

(2)  D1’s role when receiving the D1 Transfers, and whether D1 held the D1 Transfers on constructive and/or resulting trust for P;

(3)  Whether D1 used the D1 Transfers to make the subsequent transfers to D2, D3 and D4 (as shown in the Diagram);

(4)  The role of D2 and D3 when receiving the transfers from D1 (as shown in the Diagram), in particular, whether they were knowing recipients of such sums holding the same on constructive trust for P;

(5)  Whether D2 and D3 used the sums they received from D1 to make the transfers to D4 (as shown in the Diagram);

(6)  D4’s role when receiving the transfers from D1, D2 and D3 (i.e. the D4 Transfers), in particular, whether D4 was a knowing recipient of such sums holding the same on constructive trust for P.

28.This Court’s analyses and findings on the above 6 sub-issues will be set out in turn below.

29.It is well-established that, where property was obtained by fraud, equity imposes a constructive trust on the fraudulent recipient and the property is recoverable and traceable in equity: see Joel Enrique Viveros Galindo v. Tan Zhirong & Ors [2026] HKCFI 1616 at §41 (per Au-Yeung J). The defrauded claimant will still have a tracing claim even if the recipient was not a party to the fraud, so long as his state of knowledge is such as to make it unconscionable for him to retain the money: see Dezun Trade Company Ltd v. Sehai Trading Ltd [2026] HKCFI 2201 at §8(1) (per DHCJ Grace Chow).

30.In Empire Summit International Ltd v Sun Hongmei [2024] 2 HKLRD 646 at §5, DHCJ Reyes SC held that:

“…HK$40 million does not suddenly turn up in one’s bank account. Sun must have realised that he was not entitled to the transferred monies. If he were truly innocent of complicity with Wang, he should at least have conducted reasonable inquiries to ascertain the source of the transferred monies. He would have known or ought to have realised that the monies had been transferred to his ICBC account in breach of Wang’s fiduciary obligation to Empire Summit. Accordingly, as a matter of law, Sun held the monies not just on resulting, but also on constructive, trust.” (emphasis added).

31.First, I have no hesitation to find that P has proved his case on the existence of the WhatsApp Fraud, and that as a result of such fraud, he was induced into transferring EUR 650,000 (i.e. the D1 Transfers) to D1. P’s case in this regard is supported by cogent documentary evidence produced by him (including, amongst others, WhatsApp records with “Jin Xin” and the Agent, as well as various remittance records). None of the Defendants have sought to contradict P’s evidence.

32.Second, as regards D1’s role when receiving the D1 Transfers, and whether D1 can be regarded as a fraudulent recipient of the funds as contended by P, I have taken into account the following:

(1)  D1 never had any dealings with P, commercial or otherwise;

(2)  There was no apparent commercial reason for D1 to receive the D1 Transfers from P, being substantial amounts;

(3)  Public records show that D1 is unlikely to be a company with any substantial operations or business, given it only has nominal share capital and its registered office is its company secretary’s address; and

(4)  D1 was specified by the Agent as the recipient of the monies transferred by P as a result of the WhatsApp Fraud, and thus likely to be connected with the fraudsters.

(5)  D1 has chosen not to come forward to defend these proceedings.

33.Based on the above, I find that P has shown, on the balance of probabilities, that D1 was a fraudulent recipient of the D1 Transfers, and that D1 held the D1 Transfers on constructive and resulting trust for P.

34.Third, as to whether D1 used the D1 Transfers to make the subsequent transfers to D2, D3 and D4 (as shown in the Diagram), although P has not produced any bank documents to show a concrete tracing link, I have taken into account the following:

(1)  According to the available public records, there is no evidence that D1 had substantial operations or business, or any assets other than the D1 Transfers;

(2)  The subsequent transfers made by D1 to D2, D3 and D4 took place very shortly after D1 received the D1 Transfers from P (as shown in the Diagram);

(3)  In a letter from the Hong Kong Police to P dated 18 September 2020, it was stated that D1 Transfers received into D1’s Account were “further transferred” to the accounts of D2, D3 and D4.

(4)  It is also recorded in a letter from P’s solicitors to the Hong Kong Police dated 25 September 2020 that P’s solicitors were previously informed by investigating officers of the Hong Kong Police that the D1 Transfers were subsequently transferred by D1 to D2, D3 and D4 on the dates and in the amounts  as set out in the Diagram (save that the two smallest sums of HK$1,000 and HK$10,000 transferred by D1 to D2 and D3 respectively were not mentioned in the letter, but P confirmed in his oral evidence that the details of these two sums were only provided to his lawyers by the Hong Kong Police in late 2020 i.e. after the said letter). The Hong Kong Police’s subsequent reply letter dated 30 September 2020 did not seek to contradict the accuracy of such record.

(5)  D1 never sought to deny that it had used the D1 Transfers to make the subsequent transfers to D2, D3 and D4.

35.Based on the above, I find that P has shown, on the balance of probabilities, that D1 used the D1 Transfers to make the subsequent transfers to D2, D3 and D4 (as shown in the Diagram), and in breach of its fiduciary duties as trustee of such sums (as such transfers were made without P’s consent).

36.Fourth, as to the role of D2 and D3 when receiving the transfers from D1 (as shown in the Diagram), P contends that they were knowing recipients of such sums holding the same on constructive trust for P.

37.The essential requirements of knowing receipt are:

(1)  First, a disposal of assets in breach of fiduciary duty;

(2)  Second, beneficial receipt by the recipient of assets which are traceable as representing the assets of the plaintiff; and

(3)  Third, knowledge on the part of the recipient that the assets he received are traceable to a breach of fiduciary duty.

See BCCI v. Akindele [2001] 1 Ch 437 at 448B-C per Nourse LJ.

38.In Goff & Jones on Unjust Enrichment (10^th Edn) at §8.197, the learned authors stated as follows:

“Where trust assets are misapplied by trustees in breach of trust, a recipient of the misapplied assets or their traceable proceeds may incur an equitable personal liability to the trust beneficiaries for “knowing receipt”. A recipient will do so if he received the misapplied assets or their traceable proceeds beneficially, in circumstances where he cannot take free of the beneficiaries’ interests, and if he knows that the assets have been transferred to him in breach of trust at the time he receives the assets, or if not, at some later time whilst he still holds the assets or their traceable proceeds. As currently defined “knowledge’ refers here to a state of mind that includes but is not limited to dishonesty, which is such as to make it unconscionable for [the recipient] to retain the benefit of the receipt…” (emphasis added)

39.In Predicine Holdings Ltd v. Bianchi (Hong Kong) Ltd [2021] HKCFI 123 at §79, Coleman J referred to similar observations in the previous version of Goff & Jones and further stated at §80 that:-

“There is a single test of knowledge for knowing receipt. The recipient’s state of knowledge must be such as to make it unconscionable for him to retain the benefit of the receipt. In the context of a commercial transaction, constructive knowledge would only suffice if on the facts actually known to the defendant, a reasonable person would either have appreciated that the transfer was probably (as distinct from possibly) in breach of trust or would have made enquiries or sought advice which would have revealed the probability of breach of trust.” (emphasis added)

40.Having considered the available evidence, I find that, on the balance of probabilities, all the elements to a claim in knowing receipt are made out against D2 and D3:

(1)  The transfers of funds from D1 to D2 and D3 (as shown in the Diagram) were made in breach of D1’s fiduciary duties (see §35 above);

(2)  D2 and D3 received the transfers from D1 beneficially as the sums were deposited into bank accounts held under their respective names i.e. D2’s Account and D3’s Account; and D2 and D3 never denied that those bank accounts do not belong to them. Further, when P commenced garnishee proceedings against D2 and D3, D2 and D3’s bank (i.e. HSBC) also complied with the garnishee order and never suggested that those accounts did not beneficially belong to D2 and D3.

(3)  I also find that D2 and D3 had actual or constructive knowledge that the sums transferred to them by D1 were traceable to a breach of fiduciary duty given that:

(i)  D2/D3 never proffered any explanation as to why they received the respective sums from D1 despite P’s demand letters sent to them on 25 September 2020, the Hong Kong Police having issued “letters of no consent” against them, and the commencement of these proceedings and garnishee proceedings against them;

(ii)  there is no evidence of any business or commercial relationship between D1 and D2/D3 or any commercial reason for D2/D3 to receive such large sums from D1;

(iii)  Public records show that D2 and D3 are unlikely to be companies with any substantial operations or business, given that they only have nominal share capital and their registered office is their company secretary’s address; 

(iv)  there is no evidence of D2/D3 ever making inquiries as to why they received the sums from D1 or the source thereof;

(v)  D2 and D3 have chosen not to come forward to defend these proceedings.

41.Based on the above, I find that P has shown, on the balance of probabilities, that D2 and D3 were knowing recipients of the funds transferred to them by D1 (as shown in the Diagram), and they held such funds on constructive trust for P.

42.Fifth, as to whether D2 and D3 used the sums transferred to them by D1 to make the subsequent transfers to D4 (as shown in the Diagram), although P has not produced any bank documents to show a concrete tracing link, I have taken into account the following:

(1)  D4 does not dispute having received the exact sums from D2 and D3 on the exact dates as pleaded by P (and as shown in the Diagram), which is also supported by bank documents produced herein; 

(2)  The transfers from D2/D3 to D4 took place almost immediately after D2/D3 received the transfers from D1 (and as shown in the Diagram);

(1)  The amounts which D2 and D3 transferred to D4 also matched with the amount which D2 and D3 each respectively received from D1; 

(2)  P also explained in his oral evidence that he was informed of these transfers by the Police after he asked the Police to investigate into this case. It is unlikely that the Police would have supplied false information; and

(3)  D2 and D3 have not suggested that the transfers which they made to D4 came from other funds in their bank accounts.

43.Based on the above, I find that P has shown, on the balance of probabilities, that D2 and D3 used the sums transferred to them by D1 to make the subsequent transfers to D4 (as shown in the Diagram) in breach of their fiduciary duties as trustee of such sums (as such transfers were made without P’s consent).

44.Sixth, as to the role of D4 when receiving the transfers from D1, D2 and D3 i.e. the D4 Transfer (as shown in the Diagram), P contends that D4 was a knowing recipient of such sums holding the same on constructive trust for P. As mentioned above, in D4’s Defence, it does not deny receiving the D4 Transfers in the exact sums and on the exact dates as contended by P (and as shown in the Diagram), but raises the Ministerial Receipt Defence and the BFP / COP Defence.

45.Having considered the available evidence, I find that, on the balance of probabilities, all the elements to a claim in knowing receipt are made out against D4:

(1)  The D4 Transfers were made by D1, D2 and D3 in breach of their fiduciary duties (see §§35 and 43 above).

(2)  D2 and D3 received the transfers from D1 beneficially as the sums were deposited into D4’s Account held under its own name. As to D4’s pleaded case that it received the D4 Transfers as receiving agent of Golden Credit, I find that such contention cannot be established on the evidence and D4’s Ministerial Receipt Defence is rejected for the reasons explained in Section H below.

(3)  As regards the issue of knowledge, Mr Lau confirmed that P’s case against D4 for knowing receipt is based on D4’s constructive knowledge of the breach of trust involved in the D4 Transfers i.e. that a reasonable person would either have appreciated that the D4 Transfers were probably in breach of trust or would have made enquiries or sought advice which would have revealed the probability of breach of trust (see §39 above). For the reasons set out in §§46 to 50 below, I find that D4 had constructive knowledge that the D4 Transfers were traceable to a breach of fiduciary duty.

46.First, it appears from the evidence that D4 has not complied with the statutory requirements under the AMLO to conduct the necessary due diligence in respect of the D4 Transfers.

(1)  As a licensed money service operator, D4 is a “financial institution” under Sch. 1, Part 2, s. 1 of the AMLO.

(2)  Under Schedule 2, Part 2, s. 2 of the AMLO, the requirements of customer due diligence applicable to a financial institution include, inter alia:

(i)  Identifying the customer and verifying the customer’s identity (see s. 2(1)(a)); and

(ii)  If a person purports to act on behalf of a customer, verifying the person’s authority to act on behalf of the customer (see s. 2(1)(d)(ii)).

(3)  Under Schedule 2, Part 2, s. 3 of the AMLO, customer due diligence had to be carried out:

(i)  Before[3] establishing a business relationship with the customer (see s. 3(1)(a)); and

(ii)  Before carrying out for the customer an occasional transaction[4] involving an amount equal to or above HK$120,000 (see s. 3(1)(b)).

(4)  Under Schedule 2, Part 2, s. 13 of the AMLO, for remittance transactions involving an amount equal to or above HK$8,000, the money service operator has to: -

(i)  Identify the originator (see s. 13(2)(a));

(ii)  Verify the identity of the originator by reference to the originator’s identification document (see s. 13(2)(b)); and

(iii)  Record the originator’s name[5], identification document, address, currency and amount involved, the date and time of receipt of instructions and the recipient’s name and address and the method of delivery (see s. 13(2)(c)).

47.In the present case:

(1)  The Case Reports have limited evidential value as D4 has not called any witness to explain their reliability and/or how they came about.

(2)  The Remittance Application Forms not only do not show that adequate client due diligence was conducted, they contain obvious anomalies which have not been explained:

(i)  There is no evidence as to how these forms were completed, how they came about or who verified these forms.

(ii)  Significantly, at the signature block of the Remittance Application Forms, instead of the signature of the Applicant (i.e. Mr Yau on behalf of D1, D2 and D3) and company chop of the Applicant (i.e. that of D1, D2, D3), it was written “Wtsapp 客”. So it appears that Mr Yau did not himself sign the form, nor was D1, D2 or D3’s company chop provided as authorization.  

(iii)  On the Remittance Application Forms, there is a footnote stating that the company had already received (inter alia) a copy of the client’s business registration and authorization from the board of directors of the corporate client, but such documents were not produced by D4 in these proceedings. There is thus no evidence that Mr Yau’s authority had been verified (contrary to Schedule 2, Part 2, s. 2(1)(d)(ii) of the AMLO).

(iv)  If the remittance instructions from Mr Yau were provided via WhatsApp, no such WhatsApp messages were disclosed by D4.

(v)  On their face, many of the Remittance Application Forms post-date the date of D4’s receipt of the relevant monies. It is thus reasonable to infer that D4 must already have accepted the business beforethese forms were even completed.

(vi)  In all Remittance Application Forms, the address of Mr Yau was incomplete (Rm 30, Block 4, Lei Muk Shu Estate – and no floor number was stated).

(vii)  Contrary to the requirements under Schedule 2, Part 2, s. 13 of the AMLO, in all the Remittance Application Forms, no address of the remitter was recorded; in some instances, the name of the remitter was not even mentioned; and the recipient address in each case was not recorded, except in some cases, generically as “中国”.

48.Second, as Mr. Lau points out, the overall circumstances pertaining to the D4 Transfers are also suspicious and ought to have put D4 on enquiry:

(1)  All instructions for remittances were given within a short period of time between 6 May 2020 and 11 May 2020.

(2)  Although D1, D2 and D3 appear from the annual returns and incorporation forms to be unrelated companies and owned by different individuals, but (i) Mr Yau was the Applicant in all the Remittance Application Forms purportedly acting on their behalf; and (ii) the applications for remittances of D1, D2 and D3 involve some overlapping Mainland Recipients.

(3)  The purpose of the remittances was only generically described in the Remittance Application Forms as “往來” or “往來款”, without further explanation.

49.Third, given that D4 has chosen not to call any factual witnesses to give evidence in relation to its state of knowledge and the due diligence steps it had taken in relation to the D4 Transfers, I consider that adverse inferences should be drawn against D4 that if it had called such witness evidence, it would not have supported D4’s pleaded case that it was unaware of abnormalities relating to the D4 Transfers and that it had duly complied with the due diligence requirements under the AMLO.

50.By reason of the aforesaid, I find that the D4 had constructive knowledge constructive knowledge of the breach of trust by D1, D2 and D3 in making the D4 Transfers.

51.I therefore find that D4 was a knowing recipient of the D4 Transfers.

H.  ISSUE 2 – IS D4 ENTITLED TO RELY ON THE MINISTERIAL RECEIPT DEFENCE?

52.It is first necessary to consider whether D4’s Ministerial Receipt Defence has any evidentiary foundation absent any witness evidence from D4.

53.As submitted by Mr Lau, to which I agree, the documentary evidence before the Court does not establish that D4 was acting as Golden Credit’s agent in receiving the D4 Transfers, and that absent any witness from D4 coming forward to give evidence to such effect, D4 cannot establish that it was acting as Golden Credit’s agent in receiving the D4 Transfers.

54.First, the fact that D4’s Account was registered by Golden Credit with C&E as one of the bank accounts which it used for its licensed money service is not sufficient to show D4 was its agent when receiving the D4 Transfers into D4’s Account, particularly as D4 was also a licensed money service provider in its own right, and also itself registered D4’s Account with C&E as one of the accounts used for its own licensed money service.

55.Second, D4 has not disclosed any accounting ledgers (whether its own accounting ledgers or that or Golden Credit) to show the accounting treatment of the D4’s Transfers and how such sums were recognised (whether as D4’s assets or Golden Credit’s assets). Nor did D4 disclose any trust or agency agreements between itself and Golden Credit, or any instructions from Golden Credit for D4 to deploy the D4 Transfers.

56.Third, nothing in the Remittance Application Forms shows that Golden Credit was involved in the relevant remittance transactions.

(1)  The name “Hui’s Brothers Exchange and Remittance Company” on the header of those application forms is not Golden Credit’s name, but has closer resemblance to D4’s name. D4 also used “Hui’s Brothers Exchange and Remittance Company” as (at least one of) its tradenames, as evidenced by D4’s own money service licence.

(2)  The fact that the address stated at the footer of the Remittance Application Forms “Shop B, G/F, CTS Court, No.363 Portland Street, Kowloon, HK” matches the registered address of Golden Credit as stated on its license issued under the AMLO cannot be conclusive evidence that it was Golden Credit involved in the relevant remittance transactions.

57.Fourth, the Transaction Notices similarly do not show Golden Credit’s involvement in the transmission of RMB to the Mainland Recipients.

58.Fifth, it was D4 (not Golden Credit) who was the institution who obtained the Case Reports.

59.Lastly, given that D4 has chosen not to call any factual witnesses in support of its case that it was acting as Golden Credit’s agent in receiving the D4 Transfers, being a matter within its direct knowledge, adverse inference should clearly be drawn against it that if such evidence was called, it would not support D4’s case.

60.In light of the aforesaid, I find that D4’s Ministerial Receipt Defence is not established on the evidence and is rejected.

61.Given the finding above, there is no need for me to decide on the legal issue as to whether D4 is entitled to rely on the Ministerial Receipt Defence despite the absence of any evidence that it had “paid over” the D4 Transfers to Golden Credit (its alleged principal), which is a point of law that has not been decided in any Hong Kong case and is the subject of divergent views.

62.On one view, a defendant has a defence simply by reason of obtaining the benefit as agent. This view is favoured by the learned authors in Goff & Jones - see Goff & Jones on Unjust Enrichment (10^th Edn) at §28-02[6] which states as follows:

“On another view, which we prefer, an agent who receives a benefit for which he must account to his principal should be able to resist a claim in unjust enrichment whether or not he pays the value of the benefit to his principal… because his obligation to account means that he never takes the value of the benefit for himself, and that the principal alone is enriched by the transaction.” (emphasis added)

63.The alternative view, which in my view has considerable force, is that the agent only has a defence if he had transferred the benefit to the principal by payment over or something equivalent and it had done so without notice of the plaintiff’s right to restitution. This view is summarized by the Court of Appeal in England in Portman Building Society v Hamlyn Taylor Neck (a firm) [1998] 4 All ER, where it was held (obiter) as follows (at p.207 per Millet LJ as he then was):

“If the agent still retains the money, however, the plaintiff may elect to sue either the principal or the agent, and the agent remains liable if he pays the money over to his principal after notice of the claim. If he wishes to protect himself, he should interplead. But once the agent has paid the money to his principal or to his order without notice of the claim, the plaintiff must sue the principal.” (emphasis added)

64.The above view was affirmed more recently in High Commissioner of Pakistan v Prince Maffakham Jaf [2020] Ch 421 at §§286-291 (per Marcus Smith J).

65.Professor Burrows (as Lord Burrows then was) also prefers the alternative view – which he described as the “predominant” one: see Burrows on The Law of Restitution (3^rd Edn) at pp. 558-568.

66.But as I have mentioned above, there is no need for me to decide on the issue in this case.

I.  ISSUE 3 – IS D4 ENTITLED TO RELY ON THE BFP / COP DEFENCE?

67.Again, the first question is whether D4’s BFP / COP Defence has any evidentiary foundation absent any witness evidence from D4.

68.These defences were considered by the Court in BCPE Diamond Holdco SRL v. Sunwe Plastic HK Limited & Ors [2024] HKCFI 3370, which involved an application for summary judgment against D3 and D5, who were second layer recipients of a WhatsApp fraud, and D5 contended that it “purchased” the money in Hong Kong by remitting money to 4 individuals in the Mainland. Recorder E. Fung SC (as he then was) granted summary judgment against D5 and held that:

(1)  “The burden of establishing the bona fide purchase defence is on the defendant: Barclays Bank plc v Boulter [1999] 1 WLR 1919 at 1924G-H (Lord Hoffmann); Chan Chun Chung v PBM (Hong Kong) Ltd (2004) 7 HKCFAR 178 at [14] (Litton PJ). In particular, a defendant needs to prove the following elements in order to establish the defence: (1) he has the legal title in the property in question, (2) he has acted in good faith, (3) he has given valuable consideration for the property and (4) he had no notice of the prior equity: Snell’s Equity (34^th ed, 2020) §4-021 to §4-027.” (see §43) (emphasis added);

(2)  “…For D5 to be able to rely on the bona fide purchase defence, it is necessary for her to show that she has, inter alia, given valuable consideration for the sum of HK$899,870 which she received from D1. To do this, it seems to me that D5 must adduce evidence to show that the valuable consideration given by D5 has passed to D1, or others nominated by D1….However, taking her case to the highest, D5 can only show that she has procured payments of her money to the 4 Mainland Individuals. It is D5’s consistent position that she had no prior relationship with D1. Further there is nothing to suggest that any of the 4 Mainland Individuals had any relationship with D1.” (see §45) (emphasis added); and

(3)  “To establish the change of position defence, the defendant must prove (1) that there was a causative link between the receipt of the benefit and his/her change of position, so that but for the receipt of the benefit, his/her position would not have changed; and (2) its position has changed in circumstances which make it inequitable for him/her to be required to make restitution to the plaintiff: Zhang Kan v SPH (Hong Kong) International Trading Co Ltd [2023] 4 HKLRD 544 at [28] (Godfrey Lam JA).” (see §51) (emphasis added).

69.In the present case, on the documentary evidence before the Court, I find that D4 has not established that it is a “bona fide purchaser” or that it had “changed its position”.

70.First, I find that D4 cannot be said to be a “bona fide purchaser”:

(1)  There is no evidence that D4 had given any valuable consideration for the D4 Transfers. As no consideration has passed from D4 to D1, D2 or D3 or their nominees, this would defeat the BFP Defence.

(2)  In any event, as I have found D4 to be a knowing recipient of the D4 Transfers (see Section G above), it would follow that D4 did not act “bona fide”. As Harris J held in Exclusive Networks Deutscheland GmbH v Wakoon Trading (HK) Ltd [2022] HKCFI 2966[7] at §14:

“…the inquiry as to whether or not a recipient has acted bona fide is the same in practice as the inquiry as to whether or not the recipient had the relevant knowledge if a plaintiff seeks to establish liability for knowing receipt or assistance or for a recipient to be accountable as a constructive trustee.”

71.Second, there is no evidence that D4 had changed its position after receiving the D4 Transfers that would make it unconscionable to require D4 to return the monies. On D4’s own pleaded case, it was not D4 who made the transfers to the Mainland Recipients, but rather, it was Golden Credit who arranged for the Mainland Remitters to remit the RMB to the Mainland Recipients. Therefore, D4 could not be said to have changed its position.  

72.In light of the aforesaid, I find that D4’s BFP / COP Defence is not established on the evidence and is rejected.

73.Given the finding above, there is no need for me to decide on the Illegality Issue (although I would have no hesitation to accept Mr Yang’s evidence in full, which is wholly uncontradicted by any contrary evidence), including whether the transactions conducted by D4 are illegal under PRC law, and if so, whether such foreign illegality would impact on D4’s is entitlement to rely on the COP Defence in this case.

J.  ISSUE 4 – WHAT RELIEF IS AVAILABLE TO P?

74.Mr Lau confirmed that P will not seek declaratory relief against D4 as pleaded in the SOC, but only seeks equitable compensation.

75.Given this Court’s finding that D4 is a knowing recipient of the D4 Transfers, it is prima facie liable to P for HK$5,650,000 (being the amounts received by D4 from D1, D2 and D3). However, P will have to give credit for the recoveries which he has so far obtained from D2 and D3 in the sums of HK$183,244.87 and HK$60,238.48 respectively: see Personal Representatives of Tang Man Sit v. Capacious Investments Ltd [1996] AC 514 at 522G (per Lord Nicolls).

76.Hence, I find that D4 is liable to pay equitable compensation to P in the sum of HK$5,406,516.65 (i.e. HK$5,650,000 - HK$183,244.87 - HK$60,238.48).

K.  DISPOSITION AND COSTS

77.For the aforesaid reasons, judgment is entered in favour of P for the following:

(1)  An order that D4 do pay, by way of equitable compensation, the sum of HK$5,406,516.65 to P forthwith;

(2)  An order nisi that D4 do pay interest to P on the sum of HK$5,406,516.65 at the rate of 1% above the HSBC prime rate from the date of the writ herein (i.e. 1 December 2020) until the date of judgment, and thereafter at judgment rate until full payment; and

(3)  An order nisi that D4 do pay P’s costs of this action (including all costs reserved), to be taxed if not agreed.

Mr Martin Lau, instructed by Messrs S T Cheng & Co, for the Plaintiff

The 4^th Defendant was unrepresented and absent