Badreya Habib Ali Khadem t/a Bright Star Raw Materials v. Ramstar Tech Ltd

DCCJ 3384/2014

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3384 OF 2014

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JUDGMENT

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1.This is an application by the defendant, Ramstar Tech Limited, by Summons dated 29 November 2014, for an order, inter alia, to set aside the default judgment of the plaintiff obtained on 16 October 2014, pursuant to O 13 r 9 RDC (Cap 336H). Quite apart from a determination of a dispute between 2 parties, this case is also a topical example of how email hackers and cyber con-artists may work in concert to exploit legitimate businesses and gullible victims for money laundering purposes.

The key issues

2.The factual background to this dispute and the relevant events leading up to the setting aside application, on both parties' respective versions, are not truly controversial.  Although the two versions of the facts do not cover the same ground, they have little conflict or inconsistency.  What set the parties apart are the inferences that ought to be made from the background, and the events that took place between July to October 2014.  The defendant contents that by these combined facts, it can be shown that it is as much a victim as the plaintiff, of the web of deception that someone, the fraudster or his syndicate, might have spun on both of them.  The plaintiff contends however, that although the defendant might also be a co-victim of a fraudulent scheme, it has not acted in good faith after its discovery of a possible case of fraud, and as a result, the defendant has no valid defence to the plaintiff's claim for restitution, and its set aside application should therefore be dismissed.

The plaintiff's business

3.According to Mr Khadem, who is the plaintiff trading as Bright Star Materials, he operates in the Kingdom of Bahrain the business of sourcing and supplying high density polyethylene ("HDPE") pipe fittings since 2012.  In around Apr 2014, he placed an order for HDPE pipes in 3 shipments with Chengdu Chuangrong Trading Co Ltd ("CCT"), a plastic piping supplier based in Chengdu, Sichuan.  According to para 6 of the plaintiff's affirmation filed on 30 December 2014, by July 2014, the order was changed to 5 shipments, and that it was agreed between them that the dispatch date for the last shipment would be 12 July 2014, and the payment would fall due on 7 August 204 for USD101,991.03.  All the 1^st to 4^th shipments were paid for accordingly without any mishap, by remittances to CCT's bank account at the Chengdu branch of the Shanghai Pudong Development Bank.

4.On 22 Jul 2014, the plaintiff received from CCT an invoice dated 10 July 2014 (exhibit SR-2) demanding payment for the last shipment for USD100,991.03, rather than USD101,991.03 earlier agreed.  But on the same day, the plaintiff's secretary, Ms Zainab, received an email (exhibit SR-3) from Judy, a staff of CCT, sent from Judy's Hotmail account, [email protected], informing her, inter alia, that something went wrong with [email protected], one of CCT's email accounts.  Six days later, on Monday 28 July 2014, Ms Zainab received another email (exhibit SR-3) from Judy, sent from her Hotmail account, chasing the plaintiff for settlement of the amount due under the 5^th shipment.  That day also happens to be the beginning of Eid al Fitr, known also as the Sugar Feast, which marks the end of the fasting month of Ramadan.

The plaintiff's receipt of the fraudulent email

5.On Sunday 3 August 2014, the first working day in Islamic countries after the Eid holiday, the plaintiff's manager, Mr Ramadhan, received an email from [email protected] (exhibit SR-4), requesting payment to be made to a Hang Seng Bank account of CCT's purported subsidiary, "Wiskingdon", allegedly due to newly implemented PRC tax laws.  Unbeknown to him at the time, the request was fraudulent, sent from a fake email account of Judy, in that the "j" in "judy" was deceptively changed to "i".  Even though the plaintiff did not know at the time that this email was a fabrication, Ms Zainab, in response thereto, nevertheless prudently took the caution to request the bank account details to be provided under CCT's letterhead, duly stamped and signed.  On the same day, the imposter then replied by email, attaching a scanned forged letter (exhibit ZXP-1) apparently signed by one David Zhang of CCT on CCT's letterhead, but providing the details of an HSBC bank account of the defendant instead.  On Wednesday 6 August 2014, the plaintiff instructed Ahli United Bank ("AUB") to transfer the USD100,991.03 to the defendant's bank account, which was apparently effected on Thursday 7 August 2014.

The plaintiff's discovery of the fraud and remedial action

6.On Sunday 10 August 2014, Mr Ramadhan called Judy to enquire as to when the shipping documents under the 5^th shipment would be couriered to the plaintiff.  But to his astonishment, she said that CCT had not received the payment, and had not ever made any request to be paid via the defendant's bank account.  Upon being convinced that some fraudulent schemes had been perpetrated, the plaintiff immediately called AUB after banking hours and left a message for the payment to be stopped; it then sent emails to the Hong Kong Police reporting the deception.

7.On Monday 11 August 2014, AUB sent a SWIFT message (ie, a message sent under the Society for Worldwide Interbank Financial Telecommunication system) (exhibit SR-7) to HSBC accusing the beneficiary of fraud, whereupon HSBC replied on the same day, stating that "we are contacting beneficiary … for debit authority to refund".  AUB then requested, on the same day, "Since the beneficiary is a fraudster, we would appreciate if you could kindly arrange to freeze the beneficiary's account for … USD100,961.03 for the time being …".  By another SWIFT message of the same day, AUB informed HSBC that:-

"the email address of the actual beneficiary … has been hacked by fraudsters.  Accordingly, they altered beneficiary account details and forwarded them to the remitter. …  Furthermore, the remitter is currently raising the case to the authorities in Hong Kong and once the remitter has the case reference … we will immediately update you."

It cannot be ascertained from the chain of SWIFT communications themselves, all made in quick succession on 11 August 2014, whether indeed HSBC had complied with AUB's request to make contact with the defendant to seek a refund or to freeze the account.  But according to the defendant, HSBC had done so.  The details can be gained from the defendant's account set out below.

8.By 20 August 2014, Mr Ramadhan had come to Hong Kong, and had personally given a statement to the Hong Kong Police about the alleged fraud (exhibit SR-8).  On 28 August 2014, the plaintiff's Hong Kong solicitors, Wong Poon Chan Law ("WPCL"), issued a demand letter posted to the defendant's registered address demanding repayment of the remitted sum.  As there was no reply, the plaintiff issued a writ of summons on 2 September 2014, and WPCL served it on the defendant at the same registered address.  But upon WPCL's clerk arriving at the location pursuant to that address, he discovered that the entire floor was occupied by Chan Wong & Yip ("CWY"), a firm of solicitors.  He presented the papers to the receptionist, who, after checking the address on the writ, cursorily machine-stamped on WPCL's covering letter to acknowledge receipt.  Since no notice of intention to defend was ever returned, on 16 October 2014, the plaintiff obtained a default judgment against the defendant for, inter alia, the claimed amount of USD100,991.03, or HKD789,790.25, at the exchange rate of HSBC at the close of business that day.

The defendant's corporate set up

9.The defendant is a Hong Kong company incorporated not too long ago in December 2013.  It does not dispute that on the defendant's Incorporation Form (NC1) (exhibited by the plaintiff in THK-1), filed at the Companies Registry on 17 December 2013:-

(1)  the registered address is stated as "Room 301-7A, 3/F, Hong Kong Trade Centre, 161-167 Des Voeux Road";

(2)  its corporate secretary as well as the presenter of the form, is stated to be "HK Haixin Business Consulting Limited" ("Haixin"), bearing the same address, and that its email address is stated to be "[email protected]".

(3)  Ms Lin Hua Juan [林華娟] ("Ms Lin"), having an address in Guangxi, is its sole director and founder member.

10.According to Ms Lin, the defendant is a subsidiary and an integral part of a Mainland China company called [深圳市三利多貿易有限公], which she refers to as "Ramstar China".  It is not disputed that she also happens to be the registered legal representative [法定代表人] of this parent company incorporated in the Mainland in July 2013, as per exhibit LHJ-1.  Ms Lin explained in her 1^st affirmation filed on 29 November 2014, that Ramstar China trades in computer chips domestically and internationally, but with no production capacity of its own.  It buys computer chips from Chinese suppliers, and for international sales, it mainly sells RAM memory chips and flash memory cards online, through its web-based retail stores maintained with trading platforms such as Alibaba, Google Shopping, and eBay etc.

11.Ms Lin said she believes that the defendant's registered address is also an office address of Haixin.  However, she also said that the defendant has never itself engaged Haixin as its company secretary, and that it is Ramstar China, who has all along engaged an agent based in Shenzhen [深圳市正中財務代理有限公司] ("SZ"), to take care of the defendant's secretarial matters, and that at all material times, it was SZ who had directly engaged Haixin.  She also said that whenever Haixin receives mail, faxes or calls directed to the defendant, Haixin forwards the same to SZ, and that in the case of mail, she personally attends SZ's office to pick it up.

12.As evidence of such indirect engagement, the defendant produced exhibit LHJ-16, which shows that as early as August 2013, soon after Ramstar China's incorporation, this mother company had already entered into a service agreement with SZ for RMB200, for what appears to be the first month's service fees [首月服務費] for some annual jobs relating to accounting [代理記悵] and tax services [財稅咨詢], commencing August 2013.  Presumably, the defendant's point behind the exhibition of this agreement is that there is at least some evidence that Ramstar China did engage SZ as an agent who in turn must have retained Haixin as agent.  However, this service agreement does not in fact mention anything about SZ's sub-contractorship with Haixin, or even the defendant's name.  Given that Ms Lin was undeniably the defendant's founder member on its Incorporation Form, and that Haixin prima facie might be involved with the incorporation from the very start as corporate secretary, it is highly perplexing why the defendant cannot produce in its affirmations, any documentary evidence of any dealings with Haixin in around December 2013.

13.I also find the defendant's engagement of a company secretary under such a purported sub-contractorship, and its logistics for communications through such a purported chain rather perplexing to say the least.  They definitely do not make practical business sense to most if not all Hong Kong corporate entities with PRC parental connections.  However, what is even more problematic is that Haixin's address, at Rm 301-307A Hong Kong Trade Centre, officially does not exist, and that CWY's official address is "3/F, Hong Kong Trade Centre" (exhibit THK-4), and that the law firm has no present or past connection with the purported secretarial entity whatsoever.  This problem is baffling, also because Ms Lin has even gone so far to depose that the defendant has never engaged CWY for any work, and that she has never been to Haixin's office.

14.According to Ms Lin, for the defendant's business, the defendant maintains only one bank account, a US dollar bank account opened at a Sheung Shui branch of HSBC, #582-285961-838 ("HSBC Account"), for the purpose of receiving overseas payments for Ramstar China's international sales in US dollars; as it was Ramstar China's policy to be paid by overseas customers only in US currency, the defendant's US dollar account is essential. It is also alleged that this method of payment to the defendant would be considerably more convenient for overseas customers than their remitting Renminbi directly to Ramstar China, a proposition which might well be true.

15.Ramstar China, on the other hand, operates 3 bank accounts in Mainland China, including a bank account at China Merchants Bank ("CMB Account"), which is not a corporate bank account but one held in the name of Ms Lin's younger sister, Lin Hua Zhi [林華枝] ("Sister Lin"), Ramstar China's "accounting personnel".  According to Ms Lin, at all material times, she had perceived such a banking arrangement as being fiscally less onerous and practically less cumbersome, and that irrespective of whether this perception is valid or not, the use of personal accounts for corporate purposes is fairly common in the Mainland as a social phenomenon.

The defendant's acquaintance with the fraudster

16.Ms Lin also deposed that in or about mid-2014, Ms Truly Xiong [熊丁], a sales representative of Ramstar China, became acquainted with one "Susan Rise", through Alibaba's TradeManager, which is a chat-room utility for buyers and sellers.  Ms Xiong was given to understand that her cyber chatter was a sales manager of Sunrise Trading Co Ltd ("Sunrise"), purportedly based in Washington DC, and bearing an address which is not too far to the west of the Whitehouse.  Ms Lin claimed that on Sunrise's profile pages, it appeared to be a legitimate trading company. However, I notice that Susan Rise, in exhibit LHJ-9, is depicted in a photograph as a blonde Caucasian female but described in Chinese as [男], a male.  The defendant contends that unbeknown to Ms Xiong at the time, Rise is in fact a fraudster.

17.Ms Xiong's acquaintance with Rise could be traced back to 9 Jul 2014, when she disseminated a mass email (exhibit LHJ-10) to the defendant's potential customers including Sunrise, regarding a 4GB DDR3 memory chip.  According to Ms Lin, by August 2014, Rise had learned that it was possible to pay Ramstar China in US dollars through the defendant's HKBC Account in Hong Kong, obviating the need to remit Renmenbi to Ramstar China in Mainland China. Sometime later, Rise placed an order with Ramstar China for a batch of secure digital ("SD") cards.  Ms Lin also said Rise had requested a special arrangement whereby Rise would remit to the defendant's HSBC Account, an amount substantially in excess of the purchase price for the batch of memory chips ordered, and that upon the receipt of the overpaid amount, Ramstar China would: (1) deliver the chips to a consignee designated by Rise; and (2) remit the excess payment to a bank account in the Mainland to designated destinations.

Ms Lin said Sunrise had some difficulties with remitting foreign currencies into Mainland China to pay its suppliers or agents due to stringent PRC money inflow controls, and therefore would want the defendant to do a favour.  Since the defendant has not claimed that it charged Sunrise anything for what amounts in effect to be a kind of banking facility, I can only construe that this service was rendered for free.

The fraudster's remittance on 8 August 2014

18.According to the defendant, sometime on the following day, 8 August 2014, a spate of activities rapidly took place.  Firstly, Ms Xiong provided Sunrise with Ramstar China's pro-forma invoice dated 8 August 2014 (exhibit LHJ-11), for 3,700 pieces of Samsung micro SD cards at a total price of USD10,002 inclusive of delivery cost, to be despatched to an address in Chungking Mansion, Tsimshatsui, to the attention of one Austin Dre.  Some strange features of this invoice are that now, instead of Rise the Washingtonian, the contact person of Sunrise becomes "Mr Katrina Bowden" of 229 Bourke St, Docklands, Victoria, 3009, Australia, a Melburnian of uncertain gender. Secondly, the pro-forma invoice does not show any signatures on the part of Sunrise nor Ms Xiong, despite a space at the bottom of the invoice, stating "Customer Signing back" and "SIGNED BY: Truly Xiong".

19.On the same day, pursuant to the special arrangement, Sunrise remitted a sum of USD100,952 to the defendant's HSBC Account.  This amount is borne out by the defendant's bank statement dated 5 September 2014, exhibited as LHJ-42.  There is no dispute that this slightly discrepant deposit reflected the plaintiff's remittance of USD100,991.03, as one and the same transaction.  Ms Lin said that Sunrise had subsequently but on the same day, provided Ms Xiong with a "transfer note" "showing the said transfer".  However, a cursory reading of the note (exhibit LHJ-12) reveals a bewildering feature, which, by any ordinary commercial standard, ought to have alarmed a conscientious trader to doubt the remitter's integrity.  It states that the purpose is for "Invoice 20140710" suggesting an invoice of 10 July 2014, rather than the defendant's pro-forma invoice of 8 August 2014; it should be recalled at this juncture, that the CCT invoice for the 5^th shipment was also dated 10 July 2014.  Hence, the note, far from advancing the defendant's case that it is a wholly innocent victim, rather casts doubts on its purported stature as such.  

20.Ms Lin also said that on the very same day, Rise had instructed Ms Xiong to exchange into Renminbi, the excess payment in the sum of USD90,938, being the difference between USD100,940 and USD10,002, and which was equivalent to a balance of RMB556,540.56.  I understand that insofar as Ms Xiong was concerned, she did not mind the small discrepancy between USD100,940 and USD100,991.03.  In this purported communication, presumably made orally, Rise also told Ms Xiong specifically to remit the excess amount in 2 separate remittances to one David Nelson in Shenyang [沈陽]; one remittance should be made to a specified bank account of his at China Construction Bank ("CCB Account") at a Shenyang branch, and the other should go to another specified bank account at Bank of Communications ("BOC Account"), also in Shenyang.  As documentary evidence of such instructions from Rise, Ms Lin produced exhibit LHJ-13, which appears to be an email from Ms Xiong to Rise transmitted at 12:24 hours on 8 August 2014, setting out some of Ms Rise's instructions. However, again the defendant's documentation creates far more problems than alleviates them. Firstly, it is rather strange that given that the 2 remittances were so laden with particulars, there is no explicit indication on this email, nor in the entire body of Ms Lin's 2 depositions, as to when Rise wanted the 2 remittances to be made by.  Secondly, stranger still, there is also no explicit indication as to how much RMB Rise wanted Ramstar China to remit to each bank account, as if to suggest, incredibly, that Ms Xiong was given carte blanche to remit in whatever arbitrary amounts she deemed fit, so long as the total sum amount to the excess balance of RMB556,540.56.  Thirdly, the email shows that Ms Xiong specifically made a parting remark, "waiting for kindly reply". However, there was no evidence tendered by the defendant that any email came back from Washington or from Melbourne down under.  The best that Ms Lin could depose was a bold self-serving deposition, without condescending to particulars as to time and manner, that "the 2 sums of money remitted … were made under the express instructions of the Fraudster".

The defendant's knowledge of its frozen bank account

21.Ms Lin also said that sometime thereafter, she had personally directed Sister Lin to make the remittances from the "personal accounts" of Ramstar China.  Very clearly, this evidence shows that although so far, communications between Sunrise and Ramstar China appears to be confined to Rise and Ms Xiong only, Ms Lin herself must also have been somewhat involved with them or otherwise intimately briefed.  To her credit, Ms Lin must be truthful in her admission in para 18(1) of her 2^nd affirmation that:-

"Ms Xiong … reports to me directly. In this connection, not only does Ms Xiong report to me about how many items she was able to sell, she will also report to me negotiations which were on-going at any given time. …  I … oversaw the transaction between Ramstar China and the Fraudster from the information proffered by Ms Xiong."

22.Ms Lin also admits that on 11 August 2014, RMB 300,000 was remitted to David Nelson's BOC Account.  However, it is more plausible than not, that even before when this 1^st partial remittance was made, leaving a remainder of USD256,540.50 yet to be remitted in the indefinite future, Ms Lin had already known that the defendant's HSBC Account had become inoperative, because she had attempted to operate it that day but to no avail.  In para 22(4) of her 2^nd affirmation, she gave an account of her encounter on 11 August 2014 with an HSBC staff over a hotline as follows:-

"On 11 August 2014, I noticed that the HK Bank Account could not be operated.  At that time, I was not overly worried but I tried to contact HSBC through their hotline with a view to find out what was wrong.  I was able to speak with an HSBC representative over the telephone on 11 August 2014 who advised that a remitting bank had requested to cancel a payment and a hold had been placed on the HK Bank Account.  But she was not able to tell me which payment she was talking about and why the remitting bank had requested a cancellation.  I was further advised by the representative that if I agreed to the cancellation, I was to sign a form which was to be posted to me in Shenzhen, and upon receipt of my signed form, the payment was to be cancelled and the HK Bank Account was to be unfrozen".

23.Basically, by this admission, the defendant was well aware at the very least, that someone had claimed to have made a mistake with a remittance on or before 11 August 2014.  In my judgment, Ms Lin was driven by the plaintiff's SWIFT messages of 11 August 2014 to admit, in her affirmation in reply filed on 6 February 2015, the above timing of her first knowledge of the plaintiff's accusation of fraud possibly tainting the defendant.  In her paras 29 and 30 of her 1^st supporting affirmation filed on 29 November 2014, she appears to be extremely careful not to give away any potentially prejudicial piece of information unnecessarily, for she said:-

"29.   On or about 21 October 2014, I tried to operate the HK Bank Account and have noticed that the HK Bank Account was frozen by the bank.  Accordingly, I made enquiries with the bank as to why that is so.

"30.   At that time, I was informed that a remitter, which later transpired to be the plaintiff herein, had requested the bank to cancel the payment to the defendant at the HK Bank Account.  For this reason, the HK Bank Account was frozen."

24.I therefore have good cause to find that initially, in her 1^st affirmation of November 2014, the impression that she was attempting to convey was that she only came to know about the freezing of the bank account as late as 21 October 2014. But by the time she filed her 2^nd affirmation of February 2015, the plaintiff had already in an affirmation in opposition filed on 30 December 2014, exhibited a host of SWIFT messages of 11 August 2014, highly suggestive of the possibility that HSBC must have made contact with the defendant at around that time.  She tried to explain away the discrepancy, albeit unconvincingly, by deposing in para 22(1) of her 2^nd affirmation that:-

"I confirm that it was not until 21 October 2014 that I was aware of the present proceedings by having information that a Writ has been filed".

The defendant's 1^st and 2^nd remittances on 11 and 12 August 2014

25.Notwithstanding the suspension of the HSBC Account on 11 August 2014, it appears that such an unusual turn of events had no impact on Ms Lin's reservation to go ahead with the 2 remittances that Ms Xiong had promised Rise.  The exhibit she produced (exhibit LHJ-15) show that they were made respectively on 11 and 12 August 2014, in the respective sums of USD300,000 and USD256,540.50, totalling USD556,540.50.  It has not escaped my notice that in para 22(4) of her 2^nd affirmation, Ms Lin has actually surprisingly characterized her reaction to the suspension as "not overly worried", and that she was not sure which incoming transaction caused such a hiccup.  However, such purported confusion is questionable, for the bank statements of HSBC covering the month of August 2014 (exhibits LHJ-41 and LH-42) show that the only incoming transaction in August 2012 is the infusion of funds from the plaintiff on 8 August 2014.  In this day and age, where money laundering must have become a notion familiar to most if not all normal business people, Ramstar China's highly expeditious remittances to David Nelson cannot be explained away in terms of Ms Xiong's sense of moral duty to Rise, or Ms Lin's misconceived tranquillity and reckless folly.

The defendant's post-remittance conduct

26.On or after 12 August 2014, Ramstar China had also couriered the Samsung SD cards to Chungking Mansion.  But on 15 August 2014, the defendant received a letter from HSBC dated 11 August 2014 (exhibit LHJ-20), not directed to Haixin's office, but posted directly to an address of the defendant in Shenzhen, at Futian, Yan Nan Lu, Jia Le Da Sha, A607 Shi, Shenzhen Shi, [深圳市福田区燕南路家乐大廈A607室].  In such a letter, HSBC specifically referred to a remittance dated 8 August 2014 for USD100,952.63, and informed the defendant unequivocally that the remitter had requested a cancellation.  HSBC even requested for authorization to debit the account with the amount.  However, the defendant decidedly turned down such a request.  Two points should immediately be apparent from this letter directed to Shenzhen: (1) in the exceptional case of communications between HSBC and the defendant, a more direct Shenzhen address rather than the arguably phantom Hong Kong registered address was deemed expedient; and (2) Ms Xin must have already known by 15 August 2014 at the latest, the exact transaction paralyzing the HSBC Account, and the purported reasons why.

The defendant's discovery of the default judgment

27.As mentioned above, the writ was issued on 2 September 2014, whereby the plaintiff claimed against the defendant USD100,991.03, which is identical in amount to the figure on Rise's transfer note of 8 August 2014.  Since no notice of intention to defend was given, on 16 October 2014, the plaintiff obtained a default judgment against the defendant in the amount of USD100,991.03, or HKD789,790.25, at the exchange rate of HSBC at the close of business that day.  According to Ms Lin, she was not made aware at the time of such a judgment obtained by default, which might well be true.

28.Ms Lin also said that in about October 2014, she came to Hong Kong from the Mainland on a two-way permit, to find out more about the freezing of the defendant's HSBC Account.  Upon arrival, she had also immediately approached the Hong Kong Police to file her complaint of the freezing.  She then learned from the Police that the plaintiff-remitter had already filed a complaint of a fraud. Subsequently, she sought consultation with the defendant's solicitors, Laracy & Co ("L&C"), and on 23 October 2014, a Notice to Act was filed on the defendant's behalf.  Further, by a letter dated 23 October 2014 from the defendant to the Police (exhibit LHJ-4), submitted through L&C, Ms Lin also indicated her resolve to come to Hong Kong sometime again in November 2014, to deal further with the investigation.  She also exhibited LHJ-5, an extract of a conversation log apparently dated 24 October 2015 between one "Linda", a representative of Ramstar China, and one [馬宁果] ("Ma") of SZ, in which Ma was chided for SZ's dereliction of duty.

The setting aside hearing

29.By a summons issued on 29 November 2014, the defendant made an application to set aside the judgment obtained by default.  At the hearing, Mr Li for the defendant rightly does not challenge the probity of the plaintiff's business or the evidence of its loss.  However, it was submitted that notwithstanding the defendant's relatively short business track record, the defendant was at all material times a genuine supplier of computer chips, as could be shown by the copious documentation submitted, that it had handled a respectable volume of transactions domestically and globally.  Counsel also submitted that the defendant was as much a victim of a fraud masterminded by the fraudster or his syndicate, and that the plaintiff could suffer no real prejudice if the judgment were to be set aside, because the HSBC Account would still be securely frozen, pending the outcome of the trial, and that this application is a suitable case in which the court ought to exercise its discretionary power to set aside a default judgment entered regularly.

30.However, it remains a valid observation that the defendant in this setting aside application has not done more to enhance its contention as a gullible victim of a fraudulent scheme rather than an integral collaborator of it. For example:-

(1)  The defendant has not revealed the chat records between Ms Xiong and the apparently bisexual Rise evidencing how Ms Xiong was coaxed by Rise to do an unusual favour, and any document purporting to be from Rise other than the transfer note: for example, Sunrise's order for the chips, or Rise's emails evidencing her remittance instructions.

(2)  The defendant has not explained how, given the plaintiff's evidence that Haixin's address does not exist and that CWY has nothing to do with Haixin, assuming it exists at all, Ms Lin could still meaningfully depose in her 2^nd affirmation that "it is confirmed that the registered address of the defendant is indeed Room 301-7A, 3/F, Hong Kong Trade Centre"; she has not attempted to rebut the plaintiff's contention of Haixin's phantom address by documentary evidence, such as exhibiting the latest annual return of Haixin, or email communications with Haixin by using the purported email address, Sunsuang2006 @163.com; and despite her alleging the intricate system of dispatches from Haixin to Ms Lin, she does not make good this story by exhibiting any Haixin bound mail that SZ had ever received from Rm 301-7A, something that she could easily have done if what she deposed about field dispatches in fact historically occurred.

31.Questions in more or less the same vein had been asked at the hearing.  But the answer of Mr Li was, as I understand him, that the defendant was minded to err on the side of caution so as not to unnecessarily create the nuisance of risking criminal investigations into its possible role in a money laundering ring.  I have no doubt that this predicament explains why the defendant's legal team have not done more to bolster up the defendant's documentation.  But the reasoning behind this caution seems to me flawed, for if the defendant is innocent, then the contemplated evidence should be more exculpatory than incriminatory, and if the defendant is felonious, then a trial with no holds barred would be even more ruinous than a fully-charged affidavit.  In any event, by having made a conscious strategic choice not to be more informative, the defendant must accept that such an approach will have consequential adverse implications to its setting aside application.

Application of the relevant  law on setting aside a regular default judgment

32.The relevant law on the setting aside of a regular default judgment is not contentious. Counsel for the parties, Mr Li for the defendant and Mr Ko for the plaintiff, both accept that the principles are well established, and have been succinctly stated at p 398H in Young Bing Ching v Chow Yung Fong & another [2001] 2 HKLRD 394, per Recorder Ma SC, as he then was, as follows:-

"Where … a regular default judgment has been obtained, the burden on a defendant is to demonstrate that he has a defence on the merits which has a real prospect of success or carries with it some degree of conviction …"

33.Similarly, in the often cited case of Premier Fashion Wears Ltd v Li Hing Chung [1994] 1 HKC 213 at 219H-220C, Godfrey JA said:-

"… for the purposes of O 13 r 9, it is not generally sufficient for a defendant merely to show an arguable defence …  A defendant who seeks to set aside a regular judgment must at least show that his case has a real prospect of success. …  It seems to me that unless potentially credible affidavit evidence from the defendant has demonstrated a real likelihood that he will succeed on fact, he cannot have shown that he has a real prospect of success …"

34.From my analysis of the defendant's evidence, I am unable to make the inference which I am invited by Mr Li to draw, that the defendant's case generally carries with it a sufficient degree of conviction.  If it is true that the defendant ought to withhold some parts of its true story, just in case there might be adverse implications impacting possible criminal issues, I would have thought that at trial, the same Sword of Damocles would still have been dangling over the defendant's head with a greater propensity to fall from the proverbial shred of horsetail hair. Further, Mr Ko would have a field day marshalling his art of cross examination, and the possible trio of Ms Lin, Sister Lin and Ms Xiong would have much more potentially self-incriminatory evidence to worry about than here in this application behind the safer canvas of Ms Lin's affirmations.

35.Further, in Young Bing Ching, Recorder Ma also pointed out at p 403 C-D, that:-

"Relevant factors to be weighed against the merits factor include the defendant's explanation of why he allowed default judgment to occur, his conduct after proceedings were served on him, any delay on his part to apply to set aside and any prejudice that would have caused to the plaintiff or to third parties if the default judgment were to be set aside …"

36.Whereas the defendant's explanation of its lack of awareness of the default judgment until 21 October 2014 may well be true, I cannot subscribe to the defendant's view that the plaintiff can suffer no prejudice if the defendant is allowed to defend, just because the money is still securely frozen in the HSBC Account.  Conceivably, any decision in the defendant's favour might well put HSBC and/or the Police to the temptation of lifting the freeze so that the funds in the account could be withdrawn in a flash, long before the trial can take place.  After all, there is no offer from the defendant to put money into court or to undertake to cause HSBC to freeze the account until the outcome of the intended trial.  For I cannot be unduly impressed with the submission that once upon a time in October 2014 or even in November 2014, Ms Lin had come to Hong Kong to initiate a report to the Police, and that such conduct is not what one would normally associate with shady characters.  I have to balance that against the negating factor that it is still unclear whether the defendant has any valid registered address and real presence in Hong Kong to make itself accountable in the future at trial.

The relevant law relating to mistaken payments

37.Moreover, the principles of law that go to the heart of the issues between the parties are the governing principles relating to mistaken payments, which I shall endeavour to summarize as follows:-

(1)  The recovery of money in restitution is not, as a general rule, a matter of discretion for the court; a claim to recover money at common law is made as a matter of right; and even though the underlying principle of recovery is the principle of unjust enrichment, nevertheless, where recovery is denied, it is denied on the basis of legal principle; see Lipkin Gorman v Karpnale Ltd [1991] 2 AC 546, per Lord Goff of Chieveley, at 578D-E;

(2)  On a claim for restitution of money paid under a mistake of fact, the essential question is whether on the facts it would in all the circumstances be unconscionable or inequitable, and thus unjust, to allow the recipient of the money to deny restitution to the payer; where the recipient knew of the mistake it would generally be unconscionable or inequitable to refuse restitution; see JS Microelectronics Ltd v Achhada [2013] 1 HKLRD 334, per Deputy Judge Woo Kwok at para 17, adopting the holding of Niru Battery Manufacturing Co v Milestone Trading Ltd [2004] QB 985;

(3)  An innocent recipient of money paid by mistake who has parted with it in good faith without retaining any of the benefit has ceased to be unjustly enriched, and is therefore no longer under any liability to make restitution; see Lipkin Gorman v Karpnale Ltd [1991] 2 AC 546, per Lord Templeman at 548 and 560;

(4)  Where an innocent defendant's position is so changed that he will suffer injustice if called upon to repay, the injustice of requiring him so to repay outweighs the injustice of denying the plaintiff restitution; if the plaintiff pays money to the defendant under a mistake of fact, and the defendant then, acting in good faith, pays the money or part of it to charity, it is unjust to require the defendant to make restitution to the extent that he has so changed his position; see Lipkin Gorman per Lord Goff of Chieveley, at 579-580;

(5)  Difficulty may arise in cases where the payee has grounds for believing that the payment may have been made by mistake, but cannot be sure; in such cases, good faith may well dictate that an inquiry be made of the payer; the nature and extent of the enquiry called for, will depend on the circumstances of the case; if under those circumstances the payee fails to make inquiry of the payer before disposing of the money, he can properly be described as failing to act in good faith because he acts in the knowledge that he may be infringing the rights of another despite having the means of avoiding that consequence; see Niru Battery Manufacturing Co v Milestone Trading Ltd [2004] QB 985, per Clarke LJ at paras 164-5, approving Niru Battery v Milestone Trading [2002] 2 All ER (Comm) 705, per Moore-Bick J, paras 135 and 138;

(6)  The defence of change of position is not open to one who has changed his position in bad faith, as where the defendant has paid away the money with knowledge of the facts entitling the plaintiff to restitution; and it is commonly accepted that the defence should not be open to a wrongdoer see Lipkin Gorman per Lord Goff at 580 C-D;

(7)  Bad faith embraces a failure to act in a commercially acceptable way and a sharp practice that falls short of dishonesty; see Niru Battery per Clarke LJ at para 164, agreeing with Moore-Bick J, para 135 in the court below;

(8)  Further, if a man, suspicious of the truth, turns a blind eye to it, and refrains from inquiry so that he should not know it for certain, then he is to be regarded as knowing the truth; see Compania Maritime San Basilio SA v Oceanus Mutual Underwriting Association (Bermuda) Ltd [1977] 1 QB 49, per Lord Denning at 68; an imputation of blind eye knowledge requires an amalgam of suspicion that certain facts may exist and a decision to refrain from taking any step to confirm their existence; the suspicion must be firmly grounded; the deliberate decision must be a decision to avoid obtaining confirmation of facts in whose existence the individual has good reason to believe; see Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd [2003] 1 AC 469, per Lord Scott of Foscote at 515-517, paras 112 and 116;

(9)  Recognising the defence of change of position in good faith to actions of restitution, nothing should be said to inhibit the development of the defence on a case by case basis, in the usual way; see Lipkin Gorman, per Lord Goff at 580C.

Application of the relevant law: restitution, unjust enrichment, change of position in good faith and blind eye knowledge.

38.In the light of the above relevant principles, the starting point is that the plaintiff's recovery of its USD100,991.03 paid under a mistaken belief of fact that he was paying to CCT, is not a matter of my discretion but a matter of right, based on the principle of unjust enrichment.  In the case before me, the defendant's prima facie unjust enrichment lies in the sum of USD90,938, being USD100,952, the amount actually received in its HSBC Account, less USD10,002, which is the value of the Samsung SD cards apparently sold to Sunrise and delivered to the consignee at Chungking Mansion.  However, in the defendant's summons issued on 16 December 2014, it has not sought an alternative relief for the setting aside of USD10,002 as a fall back, nor has it pursued in its affirmations or Mr Li's submissions the setting aside of at least this amount on the basis of just entitlement.  I shall therefore refrain from descending into the arena of their contest to deprive the plaintiff a portion of his judgment, given that the defendant itself does not do so.

39.I also hold that in all the circumstances, it is unconscionable, inequitable and unjust to allow the defendant to deny restitution to the plaintiff, as the facts clearly show that Ms Lin knew of the mistake as early as 11 August 2014, and not on 21 October 2014.  Although the defendant's evidence does not explicitly clarify or conclusively show whether its 1^st remittance to David Nelson on 11 August 2014 actually took place some hours or just before Ms Lin's knowledge of the suspended account on the same day, I am prepared to made a finding, which is more inherently probable than not, that the discovery was made sometime before the 1^st remittance, on the footing that it is the defendant's own evidence that Ms Lin was "not overly worried" about the freeze, which is more consistent than not, with her proceeding in a cavalier manner to cause Ms Xiong to honour Ramstar China's gratuitous promise to run some banking errands for free.  My finding is, in my judgment, justified in that the defendant does not make any distinction of its legal merit to retain at least the value of the 1^st remittance for USD300,000 on the basis of a lack of knowledge of the plaintiff's mistake, a point which the defendant is expected to pursue had the 1^st remittance occurred before Ms Lin's knowledge of the account's suspension.

40.So assuming that the defendant is indeed a victim of the deception Rise had cast on Ms Xiong, and that it has ceased to be unjustly enriched by 12 August 2014 due to a change of position when the total excess amount of RMB556,540.56 had been remitted to David Nelson, it cannot be said that the defendant has parted with the money in good faith to deny the plaintiff restitution.  In the circumstances, the injustice of denying the plaintiff restitution plainly far outweighs the injustice of requiring the defendant to repay the plaintiff.  Even if the defendant could not be sure as alleged, as to whether the plaintiff's remittance had anything to do with Sunrise's excess payment, the legal requirement of good faith dictated an inquiry to be made of the transaction of the payer before the defendant's change of position by its disposition of RMB556,540.56, because it had the means of avoiding the consequence of infringing the rights of the plaintiff-remitter.  Moreover, I also find that the defendant has changed its position in bad faith in that its conduct is commercially unacceptable and amounts to sharp practice falling short of dishonesty.

41.I also impute that Ms Lin had blind eye knowledge of Rise's fraud in that the requisite amalgam of suspicion was sufficiently grounded in the HSBC hotline conversation.  The defendant's decision to refrain from taking positive steps to verify the connection between the remitter's mistake and Sunrise's transaction before its 2 RMB remittances to David Nelson, was no less a case of blind eye knowledge than Admiral Horatio Nelson's celebrated lifting of his telescope to his blind eye, in defiance of Admiral Parker's signal flags for retreat in the Battle of Copenhagen.

42.I have also considered fully all the points made by Ms Lin in her 2 affirmations, including what are strictly superficial submissions criticizing the imperfections of the plaintiff's case or conduct, for example: (1) the plaintiff's omission to use CCT's email address other than Judy's; (2) the apparent authenticity of David Zhang's signature on the fake attachment etc.  However, in my judgment, all these attacks are lame.

Order and costs

43.For the reasons given above, I have no reservation in dismissing the defendant's application to set aside the default judgment.  I also make a costs order nisi that unless within 14 days an application is made to vary the costs order, it shall be made absolute.

Mr Tony Ko, instructed by Wong Poon Chan & Law, for the plaintiff

Mr Jeffrey Li, instructed by Laracy & Co, for the defendant