Huang Haoyu v. Kazeroun Nasir

DCCJ 5554/2019

[2026] HKDC 1726

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 5554 OF 2019

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BETWEEN

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JUDGMENT

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Introduction

1.This is the trial of the Plaintiff’s claim for the recovery of a sum of US$77,474 (the “Sum”) which is said to have been transferred to the Defendant’s bank account as a result of a telephone fraud.

The Plaintiff’s pleaded case

2.The Plaintiff is and was a national of the People’s Republic of China (“PRC”). At the material time, he was a student studying at the University of California San Diego (“UCSD”) in the United States since September 2016.

3.On 27 September 2018, the Plaintiff received a call from a person claiming to be a staff member of the Chinese Consulate General in Los Angeles. During the said conversation:

(1) It was alleged that a passport of the Plaintiff was found among other passports in the possession of a criminal suspect at the Shanghai Pudong Airport on about 20 September 2018.

(2) It was further claimed that given the seriousness of the matter, the person transferred the telephone line to what he claimed to be a branch office of the Public Security Bureau in Pudong, Shanghai so that the Plaintiff could report the matter.

4.Subsequently, the telephone line was transferred to a person identifying himself as Fu Zhang-lung (“Mr Fu”), who claimed to be a detective. After the Plaintiff explained his situation and provided his name and PRC identity card number, Mr Fu informed the Plaintiff the following:

(1) Upon inquiries, the Plaintiff was a suspect in a multi-million dollar fraud case concerning the Industrial and Commercial Bank of China (“ICBC”) and that hundreds of suspects had been arrested and detained.

(2) A credit card issued by ICBC to the Plaintiff was found at one of the hiding places of a suspect. A number of victims of fraud had their money transferred to the Plaintiff.

(3) Given the seriousness of the crime involved, Mr Fu repeatedly said that the Plaintiff needed to personally attend the office of the PRC Public Security Bureau for investigation which might last for several months. He also emphasized the harsh conditions of detention and how this matter could seriously affect the Plaintiff and his family.

5.Mr Fu sent various photos and documents to the Plaintiff, such as the alleged hiding place of a suspect, cash and hundreds of bank cards, a purported website of the Public Security Bureau containing details of the fraud concerning ICBC, and various documents purportedly issued by the Shanghai People’s Procuratorate ordering the arrest of the Plaintiff and seizure of his assets.

6.Relying on the representations of the alleged staff member of the Chinese Consulate and Mr Fu as mentioned above and without knowledge of their falsity, the Plaintiff told Mr Fu that he had about US$98,000 in his bank account in the United States upon being asked. Mr Fu told the Plaintiff not to tell anyone about this matter as it was confidential and that he would receive additional penalty if anyone found out about this.

7.On 28 September 2018, the Plaintiff received a further call from Mr Fu, during which:

(1) Mr Fu informed the Plaintiff that if he did not wish to be taken back to the PRC for investigation and detention, he had to apply to Mr Fu’s supervisor, a Mr Jiang Yin (“Mr Jiang”), for the Plaintiff’s case to be dealt with as a matter of priority and for checking of assets.

(2) The telephone line was then transferred to a person claiming to be Mr Jiang. As the Plaintiff was studying in the United States, he requested not to be taken back to the PRC. Upon hearing the Plaintiff’s request, Mr Jiang ordered Mr Fu that the Plaintiff should be taken back to the PRC.

(3) Mr Fu then informed the Plaintiff that if the Plaintiff did not wish to be taken back to the PRC, his assets should be checked and all monies deposited in his bank account should be transferred through the Independent Commission against Corruption in Hong Kong (“ICAC”). Mr Jiang eventually agreed to this.

(4) Mr Fu requested the Plaintiff to transfer his monies deposited in his US bank account to an account belonging to an ICAC investigator, Huang Hsin-feng (“Huang”) with the Bank of China (Hong Kong) Limited (“Huang’s Account).

8.Relying on all the above representations, the Plaintiff transferred US$95,000 (the “1^st Sum”) from his account with Chase Bank to Huang’s Account on 28 September 2018. The 1^st Sum was part of the Plaintiff’s tuition fees from his father.

9.Immediately prior to the said transfer, Huang’s Account had a de minimis balance of US$3.83. After the 1^st Sum was injected, the balance became US$94,996.15.[1] A sum of US$77,474, ie the Sum, was then transferred from Huang’s Account to the D’s Account with the Bank of China (Hong Kong) Limited (“D’s Account”).

10.On 29 September 2018, the Plaintiff received further calls from Los Angeles which he did not pick up. Voice messages were left, and it was suggested that the calls were from the Chinese Consulate General and that the Plaintiff did not pick up a letter intended for him.

11.The Plaintiff then searched for the telephone number of the Chinese Consulate General and discovered that he was defrauded (the “Fraud”). On the same day (29 September 2018), the Plaintiff made inquiries with Chase Bank and reported the matter to the police of UCSD.

12.On 30 September 2018, the Plaintiff reported the matter to the Hong Kong Police through the internet.

13.On 6 December 2018, the Defendant was arrested by the Hong Kong Police for money laundering in relation to the Fraud and the D’s Account. A video-recorded interview (“VRI”) was conducted on the same day.

14.Based on the aforesaid, the Plaintiff claims against the Defendant in unjust enrichment and constructive trust.

The Defendant’s pleaded case

15.The Defendant is a UK national and also an Iranian. The Defendant was born and raised in Iran and subsequently moved to the UK in 2010.

16.Since 2011, the Defendant started to do his business in the PRC with his business partners for importing lighting materials into the UK from the PRC.

17.At all material times, Guangzhou Noble Consulting Services Co, Ltd (“NCL”) is a PRC company providing consultancy services, and Mr Tim Wong (“Tim Wong”), a PRC national, was in charge of NCL.

18.The Defendant engaged NCL to set up a PRC company named Guangzhou Synergy Trading Limited (“Guangzhou Synergy”) on 27 February 2018 and a limited company in Hong Kong named Clifton Trading Limited (“Clifton”) on 17 April 2018. Guangzhou Synergy and Clifton carried on the business of, inter alia, providing one-stop service of sourcing goods in the PRC, trading, inspecting and delivering goods for customers overseas.

19.In around September 2018, with the liaison of Tim Wong, the Defendant opened the D’s Account under his personal name.

20.Also in or around September 2018, the Defendant was requested by his business partner, Babak Farshineh (“Mr Farshineh”) to remit US$145,000 to the United States for the latter’s purchase of a flat. Due to their business relationship, the Defendant held some funds for Mr Farshineh. At the time, the Defendant did not have sufficient cash in Hong Kong to make such a remittance, but he had sufficient cash in the PRC.

21.The Defendant asked Tim Wong for assistance, and it was agreed between Tim Wong on behalf of NCL and the Defendant that the Defendant would pay NCL a sum equivalent to US$145,000 in exchange for NCL to pay the Defendant US$145,000 to the D’s Account (the “Arrangement”).

22.On 29 September 2018, the Defendant transferred RMB1,004,850 from his ICBC bank account in Guangzhou to NCL’s designated account in Agricultural Bank of China (“ABC”) in Guangzhou.

23.On the same day, the Defendant received 3 sums of US$77,474 (ie the Sum), US$19,126 and US$48,400 totalling US$145,000 in the D’s Account.

24.It was subsequently transpired that, amongst these 3 sums, the Sum was transferred from Huang’s Account unbeknown to the Defendant.

25.On 30 September 2018, the Defendant attempted to transfer the money from the D’s Account to Mr Farshineh via online banking, but found that the D’s Account was frozen.

26.On 6 December 2018, the Defendant attended the Tai Po Branch of the Bank of China as per the bank’s request and was accompanied by Tim Wong. The Defendant was then arrested by the Hong Kong Police and a VRI was conducted. So far, no criminal charge has been laid against the Defendant by the Hong Kong Police and the bail was returned to the Defendant in July 2019.

27.The Defendant denies knowledge of the Fraud and any relationship with the Plaintiff and the alleged fraudsters. He received the US$77,474 as part of the Arrangement and he has a legitimate reason to receive the same.

28.The Defendant relies on the defences of bona fide purchaser for value without notice and change of position.

29.In the opening submissions, the Plaintiff described the Arrangement as an underground currency exchange arrangement but Mr Ian Yu, counsel for the Plaintiff, confirmed that his client does not rely on any allegation of illegality to defeat the Defendant’s defences.

The witnesses

30.Both the Plaintiff and the Defendant gave oral evidence in court. Neither of them called any other witness in the trial.

The Plaintiff

31.The Plaintiff’s witness statement essentially repeats the matters stated in his Statement of Claim. During examination-in-chief, the Plaintiff corrected a number of errors in his witness statements. For example, the “credit card” mentioned in paragraphs 6(2) and 7 should be “bank card”, it was Mr Jiang (not Mr Fu) who sent him the document referred to in paragraph 8(g) and it was Mr Jiang (not Mr Fu) who required the Plaintiff to transfer the sum of US$95,000 from his bank account.

32.The Plaintiff was extensively cross-examined on the errors in many of the documents from the alleged fraudsters and that there were a lot of gaps in his account of the Fraud. Mr Kevin Lau, counsel for the Defendant, also criticised the Plaintiff for having a number of internal inconsistencies in his evidence. Mr Lau argued that the Plaintiff has no good explanation for the problems in his evidence and the court should find that he is an unreliable witness.

33.As I shall explain below, while the Plaintiff’s inability to spot the errors in the documents and the internal inconsistencies (which largely concern the different dates or time of events as recalled by the Plaintiff) do demonstrate his lack of care or even sloppiness in his presentation of evidence in this case, they do not amount to evidence of dishonesty or incredibility on his part. His case is consistent with the contemporaneous documents such as his WhatsApp conversations, the documents and photos sent by Mr Fu and Mr Jiang. Moreover, his carelessness makes it all the more believable that he was susceptible to being scammed by fraudsters. On the whole, I take the view that the Plaintiff is an honest witness and I accept his evidence.

The Defendant

34.As regards the Defendant, his witness statement also largely repeats what was pleaded in the Defence. Under cross-examination, he told the court that he started doing business in the UK by importing goods from the PRC since around 2011 to 2017. During this period, he would exchange British pounds to RMB through HSBC UK or Moneycorp UK. Prior to engaging Moneycorp UK, the Defendant had checked its licence to ensure that it was a legitimate exchange. Since about 2017, the Defendant started to engage Tim Wong and NCL to assist in his business.

35.The Defendant explained that Mr Farshineh had about RMB 2.2 million in the Defendant’s PRC bank account a few months prior to the Arrangement because Mr Farshineh wanted to purchase something from the PRC. In the end, he settled RMB1 million with Mr Farshineh and the balance was returned through the latter’s designated account in the PRC.

36.A few days prior to the Arrangement with NCL, the Defendant approached a bank (possibly ICBC) about the intended exchange and transfer, and he was told that transfer by the official channel (ie through the bank) would take a long time and it would be a complicated procedure. The Defendant accepted that this is because the banks have compliance requirements to “ensure safe transactions” and money changers are “easier”. When questioned that the same “safety” could not be ensured when using money changers, the Defendant said that he had done many transactions before and there was no problem. It was then pointed out that those previous transactions were made through Moneycorp in the UK, whom the Defendant had performed due diligence. The Defendant admitted that this particular Arrangement was his first time converting RMB to other currencies in the PRC.

37.As I see it, the Defendant is clearly an experienced, sophisticated businessman who understands when compliance is required and when caution is necessary to ensure the safety and legitimacy of transactions. However, when asked to explain why he had behaved in the way he did in the currency exchange in question, his answers were contrived and unreasonable. His evidence in this regard will be discussed in greater detail below.

The issues

38.Prior to the trial, the parties did not file any list of agreed facts or list of agreed issues. At trial, counsel for the parties informed the court that while they were unable to come to a consensus as to any agreed facts, they would come up with an agreed list of issues, which would be filed together with their closing submissions.

39.The parties eventually filed an agreed list of issues with “preliminary agreement” stating the following:

(1) Whether the Fraud as pleaded in the Statement of Claim existed;

(2) Whether the Arrangement as pleaded in the Defence existed;

(3) Whether the 1^st Sum is traceable to the US$77,474 remaining in the Defendant’s hands and whether he held the same on trust for the Plaintiff;

(4) Whether the Defendant’s enrichment was unjust due to [mistake and/or][2] want of authority;

(5) For purposes of the bona fide purchaser for value without notice defence, which applies to the claims in sub-paragraphs (3) and (4) above, whether the Defendant provided valuable consideration and whether there was an absence of notice of the Defendant’s part;

(6) For purposes of the change of position defence, which applies to the claim in sub-paragraph (4) above, whether the Defendant acted in good faith and whether the requisite causative link has been established.

40.These issues will be discussed below with a slight modification to their order.

Issue (1): whether the Fraud existed

41.The Plaintiff’s case is straightforward in that the Fraud was committed against him by the syndicate comprising, amongst others, the alleged Consulate staff member, Mr Fu and Mr Jiang. He relied on their representations, believing the same to be true at the time, and transferred the 1^st Sum to Huang’s Account.

42.The Defendant, on the other hand, challenges the credibility of the Plaintiff’s case. It was pointed out that there were obvious errors and mistakes in the story and documents of the scammers, and it was unbelievable that the Plaintiff did not spot them before he transferred the 1^st Sum. For example, Mr Lau on behalf of the Defendant referred to the following:

(1) The photos sent by Mr Fu of the alleged suspects were just photos of people and identity documents, and there were no arrest records or any other relevant official documentation.

(2) The photos sent by Mr Fu of the alleged phone cards and bank cards did not contain any police signs and the Plaintiff agreed that the phone cards could in fact be SD cards but “he did not look carefully at the time”.

(3) Mr Fu did not send him any photo of the relevant ICBC bank card which allegedly got him into trouble and the Plaintiff agreed that it was a telltale sign but he repeated that he did not think that much at the time.

(4) The purported documents issued by the Shanghai People’s Procuratorate did not mention his alleged ICBC account number, they referred to the PRC Matrimonial Law and spousal assets despite the Plaintiff was not married, and they referred to freezing his assets and arresting him as from 27 August 2018 but he was able to use his money in the Mainland in August to September 2018. The Plaintiff said that he did not look at these documents in detail at the time.

(5) The Plaintiff failed to question why Mr Fu and Mr Jiang were able to use WhatsApp to communicate with him in the PRC.

(6) His birthday on the UCSD police report was wrong compared with that in his passport and he suggested in court that the police randomly put down a date as his date of birth.

(7) Mr Jiang sent an alleged ICAC asset freezing order but the Plaintiff failed to notice that the document was in simplified Chinese which he accepted in hindsight was unusual, since traditional Chinese is used in Hong Kong.

(8) The Plaintiff could not explain how asset checking would work, and what there was to check, by the mere transfer of monies.[3]

43.Mr Lau argued that even giving the Plaintiff some leeway for the situation he found himself in, a failure to spot any of these errors across two days of interaction with the scammers is simply incredible and the Plaintiff’s evidence should be rejected.

44.Mr Lau further pointed out that the Plaintiff has given his account of events through different documents and they are not only inconsistent with each other, but also contradicted by documentary evidence. For example, the Plaintiff said that he started talking to Mr Fu around 9am and they talked for about “an hour or so” before Mr Fu added him on WhatsApp but the WhatsApp record shows that Mr Fu added him at 1:18pm. Further, he said in his witness statement that he made two tables detailing his passport and ID card use after talking to Mr Fu and Mr Jiang (ie evening of 28 September 2018) but this is contradicted by his WhatsApp evidence, which shows that this occurred before talking to Mr Fu and Mr Jiang on the evening of 27 September 2018.[4]

45.Mr Lau therefore submitted that since the Plaintiff’s account of the Fraud is largely based on oral evidence, the Plaintiff has failed to come up to proof and his claims should be dismissed forthwith.

46.The Plaintiff accepted under cross-examination that with the benefit of hindsight, a lot of the documents contained errors and gaps which could have raised suspicion about the veracity of Mr Fu and/or Mr Jiang’s representations. He explained that he was unable to question the scammers because (1) he was bombarded with a lot of information and did not have time to think, (2) Mr Fu was very persuasive, (3) his ID number was actually correctly stated, (4) he tried his best to prove his innocence; (5) he did not take a close look at the documents, since he believed Mr Fu and was under a rather turmoiled mind, and (6) Mr Fu started with a straight tone and later sounded like he was trying to help. Given the Plaintiff was a young university student studying overseas, I find his explanations plausible.

47.The Plaintiff also admitted that at times he did not recall the correct timing and dates in his statements and, as such, his chronology was inconsistent with the documentary evidence. He also did not pay attention as to whether it was Mr Fu or Mr Jiang who said to him certain things as both of them were acting together. As for the incorrect date of birth in the UCSD Police statement, he was not too concerned as the purpose was to let the Hong Kong Police know that a report had been made there.

48.Having considered the totality of the Plaintiff’s evidence, my overall impression is that the Plaintiff was relatively trusting, and he believed the representors’ words and documents at face value without much thought. When preparing the various statements, he also did not pay much attention to the details and he did not cross-check the documents to ensure consistency. However, the existence of the events in his account of the Fraud is supported by contemporaneous documents. Whilst one may fairly say that the Plaintiff could have been more careful and cautious, his actions were not so unreasonable that his case of fraud should be rejected as being inherently improbable. After all, in many cases of this sort, scammers succeed because of the victims’ carelessness and their tendency to trust others easily. The fact that the Plaintiff had acted in a careless and rash manner in this incident may well indicate that he has more tendency than others to fall prey to dishonest schemes. I agree with Mr Yu that short of alleging that the Plaintiff was not in fact defrauded, whether he could have been more careful has no relevance to his claims. Moreover, I also accept that if not for the Fraud, there is simply no reason for the Plaintiff to transfer the 1^st Sum to Huang’s Account. In view of the above reasons, I accept the Plaintiff’s case and find that the Fraud existed.

Issue (2): whether the Arrangement existed

49.The Arrangement was pleaded in §4(e) of the Defence as follows:

“…It was then agreed between Tim Wong on behalf of NCL and the Defendant that the Defendant would pay NCL a sum equivalent to US$145,000, then NCL would repay US$145,000 to the BOC Account…”

50.This pleaded case of the Arrangement appears to be simple and straightforward: it entails NCL itself being the principal in the currency exchange, in that RMB would be paid to NCL and US dollars would be transferred by NCL.

51.As a matter of evidence, however, the Arrangement involved a lot more individuals whose capacities or relationships with NCL are not immediately obvious.

52.Under cross-examination, the Defendant told the court that after checking with his bank and being told that a currency exchange through the official channel would be complicated and time-consuming, he approached Tim Wong for assistance. The Defendant could not remember the exact details, but he recalled that Tim Wong told him to ask Abby Zhang (“Abby”), who was a staff member of NCL, if he needed any help. Abby “explained the procedure” and there was a phone call with Tim Wong perhaps a day before the transfers.

53.Based on the WeChat records disclosed by the Defendant, it is apparent that Abby then gave him the contact of a Mr Yang for the purpose of the currency exchange. The Defendant had never met this Mr Yang before, and he did not know his full name, but he asserted in court that Mr Yang was a staff member of NCL. The WeChat records further show that the Defendant initiated contact with Mr Yang on WeChat sometime on 27 September 2018, when he offered assurances to Mr Yang that the money he would transfer was “clean money” from his personal bank account. In response, Mr Yang said that the money from his side would be from “my client”,[5] which the Defendant understood to mean NCL’s clients from outside Mainland China.

54.Shortly thereafter, a WeChat group was formed among Abby, Mr Yang and the Defendant (Tim Wong was not in the group). On 28 September 2018, Mr Yang added another man (who appeared in a black T-shirt in his profile picture and was consequently referred to by the parties at trial as the “T-shirt Man”) to the WeChat group.[6] Again, the Defendant had never met the T-shirt Man before and did not know his true identity, yet he purportedly believed that he too was a staff member of NCL.

55.In the WeChat group, the T-shirt Man at different times on 28 September 2018 named different individuals’ personal accounts as designated accounts for receiving RMB from the Defendant.[7] On 29 September 2018, the actual date of the money exchange, the T-shirt Man at 08:57 named the account of a Niu Xiaojun (“Niu”) with ICBC as the designated account for the receipt of RMB.[8] However, at 09:20, the T-shirt Man listed another account of Niu with ABC[9], and both Mr Yang and Abby repeated this number.

56.Under cross-examination, the Defendant told the court that later on the same day, he went to the NCL office where Tim Wong and the T-shirt Man were present. The T-shirt Man accompanied the Defendant to the bank, where the latter made a payment of RMB 1 million to Niu’s ICBC account.[10] He then went back to the NCL office where all parties reconvened and then, upon receipt of US$145,000 in D’s Account, he made an online payment of RMB4,850 at 16:02 to Niu’s ABC account.[11] The Defendant did not know who Niu was and he had never dealt with Niu before.

57.Meanwhile, at 14:10, D’s Account received US$48,400 from one account. At 14:12, D’s Account received US$19,126 from another account. At 15:48, D’s Account received the Sum (US$77,474) from Huang’s Account.

58.Neither the Defence nor the Defendant’s witness statement mentioned Mr Yang, the T-shirt Man, Niu, Huang or even the existence of these individuals as part of the Arrangement. In the Defence, the Defendant simply averred that “[p]ursuant to the Arrangement, on 29 September 2018, the Defendant transferred RMB1,004,850 from this ICBC bank account in Guangzhou to NCL’s designated account in Agricultural Bank of China in Guangzhou.” Such a statement is factually incorrect because, as mentioned above, the sum of RMB1,004,850 was transferred in two tranches, one to Niu’s ICBC account in the sum of RMB1 million, and the other to Niu’s ABC account in the sum of RMB4,850. In any event, in order to make good his case in the Defence, the Defendant must show that Mr Yang, the T-shirt Man, Niu and Huang were agents[12] acting on behalf of NCL.

59.Mr Lau argued that Mr Yang and the T-shirt Man were both staff members of NCL because of the following:

(1) Abby was actively involved in the WeChat group, and the proposals of Mr Yang and the T-shirt Man in the group, including in particular the designation of accounts for receiving RMB, were confirmed and approved by Abby. It is argued that this is a clear sign of NCL’s involvement.

(2) With regard to the use of Niu’s account(s) for the receipt of RMB, the Defendant stated that it should be “common knowledge”, namely that it was very common in China for companies to use personal, and not company, bank accounts for their business. Mr Lau refers to a previous transaction where Abby gave the account of a “Mr Huang” to the Defendant for the purpose of settling certain fees to NCL.

(3) The actual money exchange on 29 September 2018 heavily involved NCL – the Defendant went to the NCL office first where Tim Wong was present, and after he made a transfer of RMB1 million at the bank, he went back to the NCL office and then transferred the balance of RMB4,850.

60.Mr Lau therefore submitted that it was quite reasonable for the Defendant to think that he was doing the money exchange through NCL, a trusted company with whom the Defendant had a good relationship at the time. He further submitted that there were no red flags or improprieties which would have put the Defendant on inquiry of any possible interest of the Plaintiff in the monies he received.

61.Having considered the Defendant’s evidence and all the contemporaneous documents, I am not satisfied that, on a balance of probabilities, that any of Mr Yang, the T-shirt Man, Niu or Huang were employees of NCL or otherwise acting on behalf of NCL. Nor do I think it was reasonable for the Defendant to have such an understanding at the time. My reasons are as follows.

62.Firstly, there is no evidence (whether documentary or otherwise) that these individuals held any position at NCL.

63.Secondly, the Defendant’s evidence is silent on precisely how Mr Yang and the T-shirt Man were introduced to him so as to give rise to his understanding that they were “NCL people”. Although the Defendant had stated to Mr Yang that “[Abby] sent your contact”, he did not produce any screenshot of his messages with Abby in which Mr Yang’s contact was sent to him.

64.Thirdly, the way the Defendant initiated contact with Mr Yang by saying “[m]y accountant from Noble Consulting Guangzhou gave me your contact detail” is inconsistent with the Defendant’s assertion that Mr Yang was part of NCL. Rather, it is a strong indication that Mr Yang was an external party introduced by Abby. When asked why he phrased it this way, the Defendant sought to explain that an individual could work part-time, possibly for multiple companies simultaneously, and that he was just trying to avoid a mistake. In my view, this explanation appeared to contrived and resembled an afterthought. Even if Mr Yang was working part-time, a more natural and probable introduction would have been “your colleague [name] from Noble Consulting gave me your contact detail” or words to that effect. The use of “my accountant” suggests a separation between the Defendant and NCL on one side and Mr Yang on the other. While Mr Lau argued that this is a mere matter of semantics and wordplay, I disagree. A person’s spontaneous choice of words, interpreted in their natural and ordinary meaning, can often shed light on their understanding and intention at the time. In this instance, the phrasing demonstrates that the Defendant did not understand Mr Yang to be part of NCL.

65.Fourthly, contrary to the Defendant’s submission that NCL was heavily involved in the money exchange, the messages in the WeChat group paint a wholly different picture. In the WeChat conversations, it was Mr Yang, rather than Abby, who requested the Defendant’s his personal bank account details. It was also Mr Yang who added the T-shirt Man to the group, and designated the exchange rates. Importantly, following his introduction to the group, the T-shirt Man designated Niu as the payee and subsequently sent the screenshots confirming the payments received by the Defendant. What Abby did was not giving her approval, but merely repeating the T-shirt Man’s messages and responding to the T-shirt Man’s request to confirm the D’s Account number. As such, the WeChat group messages convey a clear impression that Mr Yang and the T-shirt Man, rather than NCL, were the individuals in charge of the currency exchange.

66.The Defendant argued that Abby made a confirmation after the T-shirt Man designated Niu as the recipient and it should be taken as NCL’s designation. He also relied on the fact that he attended NCL’s office on the day of the exchange. But what Abby/NCL did was no more than attempting to assist in the process, eg repeating the messages, confirming the accuracy of the D’s Account number, and allowing its office to be used as a meeting place. These acts are insufficient to constitute NCL’s designation and/or affirmation of Niu / Huang as its agents.

67.Fifthly, as confirmed by the Defendant under cross-examination, Tim Wong and Abby did not designate an account on their own motion. Indeed, no NCL or Tim Wong’s bank account was involved in the entire currency exchange. In contrast, when NCL itself required payments from the Defendant, (i) Abby provided a QR code of “Noble” / “Tim Wong”, (ii) Abby designated Tim Wong’s bank account for the receipt of money and (iii) NCL issued invoices and referred to a HSBC bank account in Hong Kong and an account with the ABC in the PRC. Mr Lau referred to an account of a “Mr Huang” previously given by Abby to the Defendant for the payment, but that account was that of Tim Wong. In short, the currency exchange under the Arrangement is wholly different from the usual arrangement for the payment of NCL services.

68.Sixthly, it is relevant to note that the Defendant has not produced a single screenshot with Tim Wong and/or Abby about NCL’s agreement to the Arrangement, what fees (if any) would NCL charge for the service, and his complaints to Tim Wong when his account was frozen. The Defendant has alleged that Abby had “explained the procedure” prior to introducing Mr Yang to him but, again, there is no contemporaneous record of such explanation or introduction. On the other hand, there is a WeChat record that the Defendant asked Mr Yang about the procedure as soon as he made the first contact with the latter.[13] Given that the parties seemed to have relied heavily on WeChat as their primary method of communication (likely due to its instant Chinese-and-English translation feature), if the Arrangement really existed, it is highly improbable that there is not a single screenshot relating to NCL’s agreement. The Defendant confirmed in cross-examination that if there were screenshots that corroborated his case, he would have adduced the same. In the circumstances, one may reasonably infer that the Arrangement as pleaded did not exist and any remaining screenshots with Tim Wog and Abby, if produced, would not have supported the Defendant’s case: Li Lap Wai v Lee Tin Choi & Anor [2021] HKCFI 3923 §21.

69.Seventhly, Mr Lau submitted in his closing submissions that Niu and Huang were not general agents who could bind NCL to many other transactions and they were engaged by NCL for the narrow purposes of receiving and sending money. Leaving aside that this suggestion was only raised for the first time in the closing submissions, it is in any event not borne out by the evidence (whether documentary or oral). There was no manifestation of assent between NCL and Niu/Huang that could give rise to any agency relationship, however narrow it was; see Bright Gold Ltd v Mega Well Development [2020] 4 HKLRD 26 §§94-100. Moreover, Niu and Huang were not involved in any of the WeChat discussions and there is nothing to suggest that they had consented to any agency arrangement.

70.Based on all the evidence before me, I find it more likely than not that NCL was acting as a middleman, introducing the Defendant to Mr Yang and/or the T-shirt Man for the purpose of the currency exchange, while Abby was present to assist in the process. It is unnecessary for me to reach a finding as to what exact arrangements were in place between the Defendant and Mr Yang (and/or the T-shirt Man). It is sufficient that I have found, on a balance of probabilities, that Mr Yang, the T-shirt Man, Niu and Huang were not agents of NCL, and the Arrangement as pleaded in the Defence did not exist.

Issue (3): Whether the 1^st Sum is traceable to the US$77,474 remaining in the Defendant’s hands

71.It is a well-established principle that where fraud is perpetuated, equity imposes a constructive trust on the fraudulent recipient of the stolen property which is recoverable and traceable in equity: Star Therapeutics, Inc v Leabon Technology (HK) Limited & Anor [2021] HKCFI 1715 §16.

72.The Plaintiff’s case is that as a result of the Fraud, Huang held the 1^st Sum on constructive trust and, accordingly, he is entitled to trace into its proceeds.

73.The Plaintiff further argued that the 1^st Sum is traceable to the Sum received by the Defendant and he made the following submissions:

(1) Immediately prior to the transfer of the 1^st Sum, Huang’s Account had a de minimis balance of US$3.83. The 1^st Sum was then transferred by the Plaintiff to Huang’s Account.

(2) Without any other intervening transactions taking place, the Sum of US$77,474 was then transferred from Huang’s Account to the D’s Account. Thus, ignoring the de minimis balance of US$3.83, the entirety of US$77,474 could only have come from the 1^st Sum alone.

(3) But even if one were to take into account the US$3.83, the entirety of the Sum is nevertheless traceable to the 1^st Sum. Huang is a wrongdoer. The Re Oatway presumption presumes that where the wrongdoer has used the money from the mixed fund to purchase an asset and dissipated the remaining balance, the presumption is that he intended to purchase the asset using the plaintiff’s money: Welly Grace Limited v Keung Yee Man [2023] HKCFI 3082 §61(3)(a).

(4) Though the Plaintiff is not tracing into any profitable investments in the hands of Huang, the presumption should similarly apply. Huang should be presumed to have resorted to the 1^st Sum before resorting to the de minimis balance of US$3.83, so as to enable the Plaintiff to maintain a claim.

74.Mr Lau on behalf of the Defendant told the court that while he would not make any positive submissions in relation to tracing, he had no formal instruction to concede the point.

75.I accept the Plaintiff’s submissions on tracing. Subject to the defence of bona fide purchaser for value without notice (“BFP defence”), which will be discussed in the next section, the 1^st Sum is traceable to the Sum of US$77,474 which was received by the Defendant and is being held on constructive trust for the Plaintiff.

Issue (4): The BFP defence

76.The BFP defence, if established, has the effect of defeating proprietary claims in restitution. The defendant is considered to have obtained good title to the property so that the plaintiff’s property rights are extinguished and the proprietary claim is defeated absolutely. The burden of establishing the defence is on the defendant: Tam Ying Man v Leung Ka Chun & Others (unreported, HCA 2166/2011, 31 August 2016) §107; applied in BR C.A.T. International Co Ltd v Hongkong Proof Import and Export Trading Co Limited & Others (unreported, HCA 1023/2014, 22 September 2017) §23.

77.To establish the defence, the defendant must prove that (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 has no notice of the prior equity: BCPE Diamond Holdco SRL v Sunwe Plastic HK Ltd & Ors [2015] 2 HKC 451 §45.

78.In the present case, the parties’ disputes concern the latter two requirements, ie whether the Defendant has given valuable consideration and whether he has notice of the Plaintiff’s proprietary rights.

Issue (4)(i): Without notice?

79.The relevant test for notice can be found in the judgment of Lord Clarke in Papadimitriou v Credit Agricole Corp and Investment Bank [2015] 1 WLR 4265 §13, where his Lordship adopted the conclusion of Lord Neuberger MR in Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd [2012] Ch 453 §109 as follows:

“a reasonable person with their attributes (i.e. those of a responsible large bank with the benefit of highly experienced insolvency practitioners as their appointed administrative receivers) should either have appreciated that a proprietary claim probably existed or should have made inquiries or sought advice, which would have revealed the probable existence of such a claim.”

80.In relation to scenarios that can give rise to notice, Lord Clarke at §§14-15 again applied what Lord Neuberger MR said in Sinclair and distinguished the following 3 types of circumstances:

(1) The first is where the defendant in fact appreciates that a proprietary right in the property probably exists, so that he has actual notice of the right.

(2) The second is where a reasonable person with the attributes of the defendant should have appreciated based on facts already available to him that the right probably existed, in which case the defendant has constructive notice of the existence of the right.

(3) The third is where the defendant should have made inquiries or sought advice which would have revealed the probable existence of such a right. In this case, the defendant would have constructive notice of the right.

81.With regard to the third scenario, Lord Clarke further explained at §20 that a defendant’s knowledge of facts indicating the mere possibility of a third party having a proprietary right would not be enough to put him on inquiry but, on the other hand, it is not necessary for the defendant to conclude that it probably had such a right. The test is somewhere in between: the defendant must make inquiries if there is a serious possibility of a third party having such a right or, put it another way, if the facts known to the defendant would give a reasonable person in the position of that particular defendant serious cause to question the propriety of the transaction.

82.The parties agreed that these principles from Papadimitriou are applicable to this case.

83.The Defendant submitted that the “without notice” requirement is satisfied because there is no actual or constructive notice along the first or second scenarios described in the case of Papadimitriou.

84.I accept that the facts before the court are not sufficient to give rise to actual or constructive notice in the first and second scenarios as described in Papadimitriou.

85.As to the third scenario, it is important to first discuss the Defendant’s background as a businessman and his experience in currency exchange. As mentioned above, the Defendant is a seasoned businessman with years of experience in the trading of goods from China to the UK market. Between 2011 and 2017, he would exchange British pounds for RMB through HSBC UK or Moneycorp. Importantly, as Moneycorp was not a bank, the Defendant had checked its licence to ensure that it was a legitimate exchange before engaging its services. Since about 2017, the Defendant started to engage Tim Wong and NCL to assist in his business.

86.According to the Defendant, the currency exchange in question was the first time he had to convert RMB into another currency. He held accounts with 3 banks in the PRC and had made inquiries with one of them (likely ICBC), where he was told that it would take a long time and the procedure would be complicated. When asked what he understood to be the rationale for the “complicated procedure”, the Defendant acknowledged that it was related to regulatory compliance, and the purpose was to ensure that the transaction was safe. In contrast, he recognised that no such protective measures would be in place for unofficial or underground exchanges. While he understood that the procedures for such unregulated channels would be a lot simpler, he accepted that they entailed greater risks and a greater degree of caution was required. In view of the above evidence, it seems to me that the Defendant was generally a cautious businessman, and he had a sophisticated understanding of the potential risks involved in unregulated exchange operations.

87.On the facts of this case, Mr Lau submitted that there were no red flags which warranted the Defendant’s making inquiries or seeking advice on the propriety of the transaction. To the Defendant’s understanding, everything was done under the auspices of NCL, a trusted business partner on whom KYC (“know-your-client”) has been duly performed. There was also face-to-face contact with all relevant parties at NCL’s offices, which could not be further away from the usual scenarios involving shady or unlicensed business operators. Mr Lau further submitted that the facts of this case are similar to those in BR C.A.T. International, where B Chu J held that a bona fide purchaser defence was made out in the context of the defendant (D7), being a mere recipient of funds remitted through an underground banking system, was “not sufficient in itself to find guilt and it has to be proved that the recipient knew or had reason to believe that the money had an illicit source”.

88.I have considered all the relevant evidence before me and I do not accept Mr Lau’s submissions. In BR C.A.T. International, the defendant conducted the exchange with a licensed money changer with whom her company had regular currency exchange transactions for many years and there had been no problems in the past. The learned Judge held that, on the facts, there was insufficient evidence to show that the defendant had wilfully turned a blind eye to how or what sort of money was remitted into her account.

89.In contrast, the exchange in the present case was the first time when the Defendant had to change RMB into another currency. It was not a straightforward transaction between the Defendant on one hand and NCL or Tim Wong on the other. Rather, it involved layers of strangers whose backgrounds and sources of funding were unknown to the Defendant and no explanation was given to him as to why they were involved in the first place. In my view, they were all red flags that should have warranted a reasonable person in the position of the Defendant to seek advice or make inquiries into the propriety of the transaction:

(1) Mr Yang was only introduced to him by Abby. The Defendant had never met him, did not know his full-name or background, and did not know what position (if any) he held at NCL.

(2) The T-shirt Man was not even introduced to the Defendant as a staff member of NCL – he was just added to the WeChat group by Mr Yang without any introduction. The Defendant had never met the T-shirt Man, and he did not know his name or background and whether (and if so, how) he was related to NCL.

(3) There is no suggestion that Mr Yang or the T-shirt Man was a licensed money changer. Mr Yang only mentioned that the funds for the exchange would come from “his clients” but no information was given on the identity or legitimacy of those clients.

(4) Critically, despite the Defendant’s assertion that the exchange was made with NCL, neither the recipient nor the transferor in the exchange was NCL or Tim Wong (or even Mr Yang or the T-shirt Man). Instead, it was yet another layer of strangers, ie Niu, Huang and two other unknown entities, who effected the receipt and transfers. There was no evidence of any information given to the Defendant as to who they were, the transferors’ sources of funding, or why they were involved in the first place.

(5) The Defendant received the sum of US$145,000 in 3 tranches from 3 different accounts, one of them was Huang’s Account. Again, there is no evidence of any information given to the Defendant as to why the sum of US$145,000 had to be split and transferred in this particular manner.

90.It is therefore demonstrably clear that the exchange in question was anything but a typical currency exchange performed by banks and licenced money changers, such as Moneycorp. These red flags highlight the inherent risks that the transaction might have been compromised by criminal activities or the proceeds of crime, unless and until proper inquiries were made into its propriety. Yet, despite his understanding that there would be greater risks, the way the Defendant handled the exchange in question stood in stark contrast to his established practice in the UK and his otherwise cautious approach.

91.In particular, as Mr Yu rightly pointed out, the Defendant took no steps to verify the reliability or identity of Mr Yang and the T-shirt Man. The Defendant admitted that he did not ask for the full names of Mr Yang or the T-shirt Man or their background, nor did he ask about the T-shirt Man’s occupation. Furthermore, he did not conduct any independent searches, nor did he ask whether other clients of NCL had worked with them before. Moreover, immediately after the Defendant initiated contact with Mr Yang, he made clear that his funds were “clean money.” This demonstrated his appreciation that it was important to assure the legitimacy of the funds when engaging in this type of exchange with a stranger. It is therefore surprising that he did not demand the same assurance from Mr Yang or the T-shirt Man.

92.The Defendant admitted that he did not ask NCL about the source of the funds. The WeChat group conversations reveal no inquiry by the Defendant as to Niu’s identity or why he was designated as the recipient of his funds. Likewise, he also did not ask who would be transferring the US dollars to his Hong Kong account and/or what the origin of those funds was. When asked whether he had any responsibility to question Mr Yang or the T-shirt Man regarding the source of money, the Defendant answered, “we usually do not ask.” He further stated that the origin of the money did not matter, and he saw no obligation or responsibility to ask.

93.It was argued on behalf of the Defendant that his behaviour was justified and reasonable because he vouched for NCL. As the Defendant confirmed under cross-examination, the only basis upon which he decided to entrust Mr Yang and the T-shirt Man was his belief that they were staff members of NCL. He made it clear that if Mr Yang and the T-shirt Man were not part of NCL, he would not do any transaction with them without proper “KYC”. Similarly, if NCL introduced another company to him, he would have done the same search as he did for NCL initially.

94.But as I have held under Issue 2, there was insufficient evidence to show that Mr Yang and the T-shirt Man were employees of NCL or otherwise acting on its behalf. I also take the view that no reasonable person in the Defendant’s position would have considered that to be the case. In this regard, I agree with the Plaintiff’s submissions that any reasonable person in the Defendant’s position would have appreciated that Mr Yang was only introduced by Abby, but was not necessarily part of NCL itself. That the Defendant was likely aware of this is indicated by the fact that he referred to Abby as “[m]y accountant from Noble Consulting Guangzhou” when he initiated his contact with Mr Yang.

95.In any event, even if the Defendant was somehow unclear as to the relationship of Mr Yang and the T-shirt Man with NCL, a reasonable person with the Defendant’s attributes would have asked Abby or Tim Wong who they were and what positions they held at NCL. However, the Defendant confirmed that he did not ask who Mr Yang was. There is also no evidence that he ever asked about, or was told, the identity of the T-shirt Man. Consequently, there was simply no proper basis for him to assert that they were part of NCL and it was unreasonable for him to hold such a belief.

96.In view of the red flags and the lack of a sufficient basis to believe that Mr Yang and the T-shirt Man were employees of NCL, one would reasonably expect the Defendant, who was generally cautious and aware of the potential risks inherent in unregulated exchanges, to conduct some due diligence or make certain inquiries which would have revealed a serious possibility of tainted funds being involved in the transaction. The fact that he did not even ask a single question about these warning features, nor seek any assurance of the legitimacy of the funding, demonstrates that that he had wilfully turned a blind eye to the risks that a third-party proprietary right in the funds probably existed.

97.In conclusion, I find that, on a balance of probabilities, the Defendant was fixed with constructive notice in the third scenario described in Papadimitriou.

Issue (4)(ii): Valuable consideration?

98.In the event that I am wrong in my conclusion on notice, it is necessary to consider whether the Defendant has given valuable consideration to make good his BFP defence.

99.The Plaintiff referred to BCPE §45 and argues that consideration given by the Defendant must in fact pass to the transferor (Huang) or others nominated by Huang:

“45. D5 expressly admits in her Defence (§8(1)) that the sum of HK$899,870 was transferred from D1’s Account to D5’s Account on 21 December 2021. 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. This is consistent with what the Federal Court of Australia said in Great Investments Ltd v Warner (2016) 243 FCR 516 at [108] that “there would, at least, need to be evidence that value has passed to the transferor, or has passed to another at the transferor’s request”. 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.” [emphasis added]

100.BCPE was concerned with an impersonation fraud committed against the plaintiff company that led to the transfer of certain funds to the first layer recipient (D1), an onward transfer from D1 to the second layer recipient (D5), and there was a similar underground currency exchange engaged by D5.

101.The Plaintiff argued that since the Defendant is unable to prove either limb of (1) consideration having passed to Huang or (2) Huang having nominated Niu, it cannot be said that he has given valuable consideration.

102.The Defendant, on the other hand, argued that the formulation adopted by the court in BCPE is unduly narrow because it assumes that the first layer recipient is the principal dealing with the defendant, and fails to account for the possibility that the first layer recipient is an agent of another person. The Defendant’s argument goes as follows:

(1) In the present case, to the Defendant’s understanding, NCL was the counterparty of the Defendant for the purposes of the Arrangement. Huang was NCL’s payment party, and Niu was NCL’s receiving party.

(2) The Defendant made payment to Niu at the request of NCL (the principal counterparty), and thus satisfied the requirement that consideration moved as per the request of the principal counterparty: Chitty on Contracts, 36^th ed., §6-41.

(3) One may rhetorically ask: BCPE as read by the Plaintiff would force the Defendant to make inquiries of Huang. But why should this be the case, when on the Defendant’s understanding Huang was not even the principal counterparty?

103.Thus, Mr Lau submitted that the BFP defence is possible even if the second layer defendant provides consideration not to the first layer defendant directly, so long as there is, to the second layer defendant, a relationship between the first layer defendant and the actual recipient.

104.First of all, leaving aside the issue of whether the decision in BCPE is binding on this court, I see no reason to depart from the approach taken by the learned Recorder (as he then was) in that case when considering whether the Defendant had given valuable consideration. The facts in that case are analogous to those in the present case (as opposed to the facts in BR C.A.T. discussed above), and the approach is consistent with established authorities such as Great Investments Ltd v Warner (2016) 243 FCR 516 and Chitty on Contracts, 36^th ed., §6-41. Moreover, after conclusion of the trial hearing, the Plaintiff’s solicitors by a letter dated 3 June 2026 drew to the court’s attention that a recent case of Schutz, Gilles Yves Rene v Hongxiao Trading Co., Ltd [2026] HKCFI 3254 applied BCPE, and held that the defendant (D4) had not given any valuable consideration because no consideration passed from D4 to the earlier recipients or their nominees. After receipt of the letter, I gave directions to the Defendant’s solicitors that if they wished to file any submissions in reply, they should do so within 14 days. However, they did not give any reply.

105.Secondly, and critically, the Defendant’s argument is predicated on proving that Niu and Huang were agents of NCL in the transaction. As I have rejected the Defendant’s case on agency, his argument that he made payment to Niu as NCL’s nominated receiving party is bound to fail.

106.It is clear that the Defendant has adduced no evidence that his funds were paid to Huang, or that Huang had nominated Niu to receive those funds. In the circumstances, the Defendant has failed to show that he has given valuable consideration.

Issue (5): Unjust enrichment

107.In respect of unjust enrichment, it is well-established that the issue can be approached by asking the following four questions: (1) was the defendant enriched? (2) was the enrichment at the plaintiff’s expense? (3) was the enrichment unjust? (4) are any of the defences applicable? See: Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79 §67.

108.If the first three matters are established by the plaintiff, it is then for the defendant to prove that there is a defence: BCPE §11.

109.It appears that the Defendant does not seriously take issue with questions (1) and (2). In any event, I accept the Mr Yu’s submissions[14] that the Defendant was enriched and the enrichment was at the expense of the Plaintiff.

110.As regards whether the enrichment was unjust, the parties’ dispute concerns the relevant unjust factor(s) in this case. Specifically, the Plaintiff relies on “mistake” and “want of authority” as the applicable unjust factors. On mistake, the Plaintiff’s case is essentially that he was misled by the false representations of Mr Fu, Mr Jiang and the alleged Chinese Consulate staff member into transferring the 1^st Sum under a mistake of identity. However, in the Plaintiff’s Opening Submissions at §34(1), Mr Yu stated that in BCPE, it was held that mistake was not an applicable unjust factor as against a second-tier recipient, as one could not be labouring under a mistake with reference to someone whom he was not aware of: BCPE §21. Nonetheless, he argued that BCPE §§22-30 made it clear that “want of authority” could be an applicable unjust factor in cases such as the present, where a claim is brought against a second-tier recipient of whom the Plaintiff has no knowledge. Mr Yu further referred to Chan Ting Ting v Guo George & Ors [2025] HKDC 1928 §§60-62, where a victim of fraud brings a claim in unjust enrichment against a second-tier recipient and “want of authority” was considered an applicable unjust factor.

111.The Defendant objected to any reliance on mistake as an unjust factor because it was “abandoned” in the Plaintiff’s Opening Submissions and the Defendant’s counsel prepared his cross-examination of the Plaintiff (which took place on Day 1 without any adjournment) on the basis that mistake was not a ground relied upon. It was argued that the Defendant would be prejudiced if the Plaintiff was allowed to rely on mistake.

112.I do not believe the Plaintiff can be taken to have abandoned his case on mistake. While the Plaintiff stated the legal position in BCPE in his Opening Submissions, Mr Yu clarified his client’s case and specifically put the Defendant on notice regarding the issue of mistake in the oral opening. If, as a result of this clarification, the Defendant’s legal representatives saw a need to revise the cross-examination of the Plaintiff, it would have been open to them to request for an opportunity to do so. Under these circumstances, I do not find that the Plaintiff’s reliance on “mistake” would prejudice the Defendant.

113.That being said, it appears to me that the more critical question is whether mistake is an applicable unjust factor in this case. In the Closing Submissions, Mr Yu submitted that the Plaintiff would no doubt safely fall within the realm of “mistake” but for BCPE. But since BCPE was the only authority before the court on this issue, at the end of the trial I directed the parties to submit authorities and submissions (no more than one page) on whether mistake was applicable as an unjust factor for the second layer recipients. On 27 April 2026, the Plaintiff filed the 3^rd Supplemental List of Authorities, but the Defendant did not file any authorities or submissions on the issue.

114.I have considered the relevant authorities before the court. In those cases where mistake was accepted as an unjust factor for the second-layer recipients, it appears that the court accepted that since the plaintiff parted with his property by mistake to the first-layer recipients, who then made the onwards transfers to the second-layer recipients such that the plaintiff could trace an interest into the property, there was a sufficient causal link between the plaintiff’s loss and the benefit received by the second-layer recipients. In other words, the second-layer recipients would not have received the property but for the plaintiff’s mistake: see, for example, Fan Yuxi v Linbiao Tang & Ors [2021] HKCFI 2652 §30; TTI Global Resources Hong Kong Limited v Hongkong Myphone Technology [2021] HKCFI 306 §20; JSP International S.R.O. v Alacrity Limited [2022] HKCFI 977 §§18-21; RPB SA v Healthy Food Limited & Ors (unreported, HCA 399/2020, 15 August 2022) §§23-24. This approach is particularly clear in Pacific Rainbow International Inc v Shenzhen Woverine Tech Ltd & Ors [2023] 4 HKC 322 §33, where Au Yeung J held:

“33. The enrichment was unjust as I am satisfied that, but for its mistake that the Email and the Invoice had come from Ms Han, the Plaintiff would not have transferred any funds to D1 with whom the Plaintiff had had no business dealings. In turn, D2 and D3 would not have received the Sum but for D1’s fraud on the Plaintiff. Therefore, D2 and D3 are not entitled to retain the money, subject to any defence that they can establish.”

115.Therefore, it seems to me that when considering the unjust factor, the courts in these cases focused on the cause of the initial transfer; if the chain of causation was not broken, the unjust factor would apply to the subsequent transfers.

116.In contrast, the learned Recorder (as he then was) in BCPE adopted Lord Reed JSC’s speech in Investment Trust Companies v Revenue & Customs Commissioners [2018] AC 275 §39 that a claim based on unjust enrichment does not create a judicial licence to meet the perceived requirements of fairness on a case-by-case basis: legal rights arising from unjust enrichment should be determined by rules of law which are ascertainable and consistently applied. Therefore, the unjust factors are merely a list of circumstances under which the decided cases have accepted the defendant’s enrichment at the plaintiff’s expenses as legally unjust. While mistake might be the correct ground of restitution in the plaintiff’s unjust enrichment claim against D1 (being a direct recipient), where the plaintiff and D3/D5 (being indirect recipients) were total strangers, the plaintiff simply did not apply its mind to D3 and D5’s respective enrichment. Given that there was never any intention to enrich D3 or D5, the plaintiff could not be under a mistaken belief in relation to the respective enrichment of D3 and D5. Without attempting to make any connection between the plaintiff’s mistake and the receipt of D3 and D5’s enrichment, the court did not consider that the plaintiff had sufficiently demonstrated that mistake was the appropriate unjust factor in its claims for unjust enrichment against D3 and D5: BCPE §21.

117.It is well-established that if there are inconsistent decisions from a binding higher court, an inferior court is free to choose which to follow: Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp (A Firm) [1979] Ch 384, 405G. Having considered the abovementioned authorities, I prefer to follow BCPE. This is because in the cases where mistake was considered an unjust factor for the second-layer recipients, it appears that the point was either accepted without argument or not substantively argued. In contrast, the court in BCPE invited the parties to make additional submissions before the hearing on the question of whether mistake was an appropriate unjust factor for D3 and D5. Moreover, it seems to me that the approach in BCPE is more nuanced, as it seeks to compartmentalise each layer of transfer and identify the precise factor that can best describes the circumstances under which a particular enrichment is found to be unjust. On the facts of the present case, since the Plaintiff and the Defendant were complete strangers and the Plaintiff never intended to benefit the Defendant, he could not be under a mistaken belief in relation to the Defendant’s enrichment. Therefore, mistake is not applicable.

118.With regard to want of authority, the Defendant’s submission was that it only applies where the plaintiff is a company and/or must necessarily act via agents. Mr Lau for the Defendant pointed out that the cases referred to in BCPE §§23 to 29 were all company asset cases which are distinguishable from the present case. He further argued that while the case of UK v Prince Muffakham Jah discussed in §27 did not concern company assets, its precedential value on the point is low, as the lack of authority was apparently not contested, and the issue was dealt with cursorily in one paragraph of a 340-paragraph judgment.

119.Having considered the cases discussed in BCPE, I do not believe that “want of authority” as an unjust factor is limited to situations where the plaintiff is a company and/or must necessarily act through agents. While several of the cited cases happened to concern directors or agents who acted in breach of their fiduciary duties or authority, the courts’ decisions that the enrichment was prima facie unjust were simply based on the fact that the defendant obtained the benefit without the plaintiff’s proper authority. The focus here is whether the recipient had any legitimate basis to receive the funds from the plaintiff. [15]

120.In my view, this unjust factor could apply vis-à-vis a first-layer recipient if the initial transfer was made by someone acting in breach of authority; in such cases, the plaintiff is often a company or an entity that acts through agents. A lack of authority to dispose of the plaintiff’s funds in the first instance would likely lead to the conclusion that the receipts by subsequent transferees were also without the plaintiff’s authority.

121.Where the initial transfer was caused by other unjust factors, such as mistake or deceit, the same “want of authority” factor could also apply vis-à-vis a second-layer recipient if that recipient lacked the authority to receive those funds from the plaintiff. This is made clear by BCPE §28:

“28. Further, I note that the learned editors of Goff & Jones: The Law of Unjust Enrichment (10^th Ed 2022) form the view that a claim in unjust enrichment should in principle be available where a defendant obtains an enrichment from a plaintiff as a result of the actions of a third party which were neither authorised nor consented to by the plaintiff (§§8-01, 8-02). The authorities mentioned above are all referred to in this authoritative text to which the Hong Kong courts have regularly referred.” (emphasis added)

122.Indeed, if the Defendant were correct that this unjust factor should only to corporate plaintiffs or entities that must act through agents, it would produce an absurd result: while deceived companies could successfully claim restitution, individual victims would never be able to bring claims in unjust enrichment against second-layer recipients, as neither want of authority nor mistake would apply. This cannot be correct.

123.In Goff & Jones (10^th Ed, 2022) §8-02, the principle is further illustrated as follows:

“…the position is different if X is a party who owns or controls assets or controls assets subject to duties and powers to deal with them for C’s benefit. Here, if X acts within his authority, then C will have no remedy; but if X acts outside his authority, his ‘want of authority’ will itself constitute a sufficient ground for recovery by C…”

124.By analogy, it can be said that Huang (X) held the 1^st Sum on constructive trust by reason of the Fraud. He was obliged to hold the 1^st Sum for, or restore the same to, the Plaintiff (C). Instead, Huang transferred part of the 1^st Sum, ie the Sum of US$77,474, to the Defendant without authority and therefore the Defendant had no legitimate basis to receive the same.

125.In my view, therefore, want of authority as an unjust factor is applicable to the present case, and the Defendant’s enrichment is prima facie unjust.

126.The next issue for consideration is whether the Defendant has any valid defence. In this regard, he relies on the BFP defence and change of position.

127.I already held that the Defendant has failed to establish the BFP defence.

128.With regard to change of position, the defendant has to 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: BCPE §51. In addition, the change has to be carried out in good faith: Americhip Inc v Zhu Hongling [2021] 4 HKLRD 490 §59.

129.In this case, the Defendant transferred RMB1 million to Niu before receiving the Sum from Huang. Therefore, any change of position would at most (and largely[16]) be anticipatory in nature. While it is recognised that the defence can be available where the defendant has changed his position prior to receiving an enrichment, it has been held that where one does not even know of the transferor, one cannot say that there was a causative link between the defendant’s receipt of the money from the transferer and any change of position: BCPE §57, applying Kaefer AG v Winfield Marine Services Co Ltd [2022] HKCA 807 §§44, 46, 48-49. Since the Defendant did not even know of Huang, it is impossible for him to establish a causative link between his payment to Niu and his receipt from Huang.

130.As to the requirement of good faith, it has been submitted on behalf of the Defendant that the analysis on “notice” and “bona fides” in the BFP defence should apply mutatis mutandis.[17] I have also considered Americhip §59 which applied the test in Niru Battery Manufacturing Co v milestone Trading (No 1) [2004] QB 985, and I find that the Defendant did not act in good faith, as he failed to make any inquiry into the legitimacy of the transactions despite the presence of the red flags, as discussed under Issue 4(i) above. It follows that the Defendant does not have a valid defence of change of position.

131.In view of the above discussion, I find that the Defendant’s enrichment was unjust and he is liable to make restitution to the Plaintiff.

Conclusion

132.The Plaintiff is entitled to his claims against the Defendant in constructive trust and unjust enrichment.

133.Judgment should be entered in favour of the Plaintiff against the Defendant for:

(1) a declaration that the Defendant holds the Sum (ie US$77,474) on constructive trust in favour of the Plaintiff;

(2) an order that the Defendant do pay the Sum (or the Hong Kong dollar equivalent) to the Plaintiff forthwith;

(3) interest on the Sum at 1% above prime rate from 28 September 2018 to the date of this judgment, and thereafter at judgment rate until payment in full.

134.There be an order nisi that the Defendant should pay the Plaintiff’s costs of this action, with certificate for counsel, to be taxed if not agreed. This order nisi shall become absolute unless an application to vary the same is made within 14 days.

135.I thank counsel for their assistance provided to the court.

Mr Ian Yu, instructed by Ng & Shum, for the plaintiff

Mr Kevin Lau, instructed by W K To & Co Solicitors, for the defendant