ARNOLD MANHEIMER v. ZHILI TRADING CO., LTD AND OTHERS

HCA 401/2022

[2022] HKCFI 3614

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 401 OF 2022

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DECISION

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1.  This is the plaintiff’s application for the continuation of an injunction granted by Deputy High Court Judge Kenneth Wong on 24 June 2022 prohibiting the 3^rd defendant’s disposal of assets.

A.  THE RELEVANT BACKGROUND

2.  According to the plaintiff:

(1)  he is a resident of the USA and met a person by the name of Yang Li (“YL”)  on around 2 April 2021 through the internet who persuaded him to make purported investments with a Hong Kong company called HK Kaiser International Ltd (“Kaiser”);

(2)  on around 15 April 2021, the plaintiff through YL’s introduction met another person through the internet who called herself Lillian Chen (“LC”)  and who claimed to be the plaintiff’s customer service representative of Kaiser;

(3)  the plaintiff was asked by LC to transfer money to several remittance accounts for the purpose of depositing money into an alleged account (“Alleged Investment Account”)  under the plaintiff’s name for investments with Kaiser and another Hong Kong company called Caesar Capital Management Ltd (“Caesar”);

(4)  on 8 June 2021, pursuant to LC’s instructions, the plaintiff transferred a sum of US$100,000 to the 1^st defendant’s bank account in Hong Kong;

(5)  on or around 12 July 2021, pursuant to LC’s instructions, the plaintiff transferred a sum of US$300,000 to the 2^nd defendant’s bank account in Hong Kong (“D2’s Account”);

(6)  the plaintiff believed that the balance of the Alleged Investment Account as of 23 July 2021 was US$1,359,746 and demanded LC to return such balance to him but LC refused;

(7)  the plaintiff reported the matter to the Hong Kong Police on 5 October 2021;

(8)  in March 2022, the Hong Kong Police informed the plaintiff’s solicitors that the 3^rd defendant received in its Hong Kong bank account (“D3’s Account”)  a total of around US$300,000 by two transfers from the 2^nd defendant on 13 July 2021.

3.  The 3^rd defendant is a Hong Kong private company.  According to the company search of the 3^rd defendant carried out by the plaintiff, (1)  the 3^rd defendant’s registered address is Block F, 8/F, Century Industrial Building, 1 Tsing Yeung Circuit, Tuen Mun and (2)  the 3^rd defendant’s sole director and shareholder is Xie Weiping who has a PRC identity card and an address in Shenzhen.

4.  On 17 May 2022, the Hong Kong Police told the plaintiff’s solicitors that a “Letter of No Consent” had been issued to the 1^st defendant’s bank and the 3^rd defendant’s bank, and that if the plaintiff did not apply for a civil injunction against the relevant account holders by 30 June 2022, the Police might withdraw the “Letter of No Consent” without further notice.

5.  On 7 June 2022, the plaintiff issued an inter partes summons against the 3^rd defendant seeking, amongst other things, a Mareva injunction.  On 24 June 2002, Deputy High Court Judge Kenneth Wong, amongst other things, (1)  entered judgment against the 1^st and 2^nd defendants, (2)  adjourned the plaintiff’s application for injunction against the 3^rd defendant for substantive argument, and (3)  granted an injunction against the 3^rd defendant up to HK$2,857,000 (which comprised the equivalent of US$300,000, interest in the amount of HK$117,000 and the plaintiff’s anticipated costs in the amount of HK$400,000)  until further order of the court.

B.  WHETHER INJUNCTION SHOULD CONTINUE

6.  It is trite and not disputed between the parties that for the grant or continuation of a domestic Mareva injunction, the plaintiff must show that:

(1)  he has a good arguable case on a substantive claim over which the court has jurisdiction;

(2)  there are assets within the jurisdiction;

(3)  the balance of convenience is in favour of grant;

(4)  there is a real risk of dissipation of assets, or removal of assets from the jurisdiction, which would render the plaintiff’s judgment of no effect;

(5)  he must comply with a strict duty of full and frank disclosure.

See Hong Kong Civil Procedure 2022 vol 1, §29/1/65.

B1.  A good arguable case?

7.  In order to show a “good arguable case” for the purpose of a Mareva injunction, the plaintiff must show that his case is one that is more than barely capable of serious argument, and yet not necessarily one which the judge believes to have a better than 50% chance of success; he need not go so far as to persuade the judge that he is likely to win: Grupo Pacifica Incorporada v Worldwide Marine Product Ltd (unreported, CACV 217/2015, 28 January 2016)  §5.1 (Cheung JA).

8.  Although the plaintiff has pleaded a variety of different causes of action against the 3^rd defendant, Ms Yiu on behalf of the plaintiff submitted that the plaintiff was content to rely only on his claim for unjust enrichment to establish a good arguable case against the 3^rd defendant.  She also confirmed to the court at the hearing that the plaintiff was not seeking a proprietary injunction against the 3^rd defendant.   Accordingly, it is unnecessary for the court to consider whether the plaintiff has a good arguable case on his claims for dishonest assistance, knowing receipt and conspiracy, or his proprietary claim, which have been pleaded against the 3^rd defendant.

9.  It is well-established that the following framework is adopted in determining the validity of a claim in unjust enrichment: (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 at §67 (Ribeiro PJ)  and Yukio Takahashi v Cheng Zhen Shu (2011) 14 HKCFAR 558 at §26 (Ribeiro PJ).  If the first three matters are established by the plaintiff, it is then for the defendant to prove that there is a defence: Samsoondar v Capital Insurance Co Ltd [2020] UKPC 33 at §18 (Lord Burrows).

10.  Enrichment requires the obtaining of a benefit.  It is not in dispute that the 3^rd defendant has been enriched. 

11.  A defendant’s enrichment is unjust if it is caused by a mistake of fact or law made by the plaintiff.  It is prima facie unjust for a recipient of money to retain the payment when, if the payer had known the true state of affairs, he would not have paid: see Kleinwort Benson Ltd v Lincoln CC [1999] 2 AC 349 at 399C-D (Lord Hoffmann).  In this case, on the basis of the affidavit evidence filed by the plaintiff, there is in my view a good arguable case that the plaintiff would not have paid if he had known the true state of affairs.

12.  However, the plaintiff has not put forward any serious argument to contend that the 3^rd defendant’s enrichment was at the expense of the plaintiff.

(1)  There is no dispute that the 3^rd defendant did not receive US$300,000 directly from the plaintiff.  The undisputed evidence is that (a)  the plaintiff transferred US$300,000 to the 2^nd defendant’s account on 12 July 2021 and (b)  the 3^rd defendant received 3 sums of money totalling US$444,996.13 (comprising US$9,998.71, US$144,998.71 and US$289,998.71)from the 2^nd defendant’s account on 13 July 2021.

(2)  The question of whether a plaintiff is entitled to claim restitution where the benefit has been rendered on the defendant by a third party is not straightforward.  The issue depends on whether the defendant’s benefit can be at the plaintiff’s expense where rendered by a third party. 

(3)  Neither the plaintiff nor the 3^rd defendant has advanced any submissions to contend why the receipt of US$444,996.13 by the 3^rd defendant was (or was not)  at the expense of the plaintiff.  The court was also not provided with any authorities on this issue.

(4)  Nonetheless, in order for the court to come to a view on whether the plaintiff has shown a good arguable case on his personal claim based on unjust enrichment, it is necessary to have regard to the following general principles on whether the enrichment of a defendant can be said to be at the expense of the plaintiff. 

(a)  The reversal of unjust enrichment is premised on the defendant having received a benefit from the plaintiff such that the plaintiff has incurred a loss as a result of the provision of the benefit.  See Investment Trust Companies v Revenue & Customs Commissioners [2018] AC 275 at §43 (Lord Reed JSC).

(b)  As a general rule, the plaintiff must have directly provided a benefit to the defendant in order for the defendant’s enrichment to be at the expense of the plaintiff.  See Investment Trust Companies (above)  at §§46 & 50 (Lord Reed JSC); Prudential Assurance Co Ltd v Revenue & Customs Commissioners [2019] AC 929 at §68 (Lord Reed DPSC, Lord Hodge JSC and Lord Mance).

(c)  There are a number of situations in which the plaintiff has not directly provided a benefit to the defendant, but the law treats the defendant’s enrichment as being equivalent to a direct transfer of the benefit from the plaintiff to the defendant.  Such situations include (i)  where an agent is interposed between the plaintiff and the defendant; (ii)  where the right to restitution is assigned; (iii)  where an intervening transaction itself is a sham; (iv)  where a series of co-ordinated transactions are treated in substance as a single transaction; (v)  where the defendant receives property from a third party into which the plaintiff can trace an interest.  See Investment Trust Companies (above)  at §§47, 48 & 50 (Lord Reed JSC).

(d)  There is an exception to the general rule in (a). Where the plaintiff discharges a debt owed by the defendant to a third party, the remedy of subrogation may apply to reverse or prevent unjust enrichment.  See Investment Trust Companies (above)  at §49 (Lord Reed JSC); Prudential Assurance (above)  at §68 (Lord Reed DPSC, Lord Hodge JSC and Lord Mance).

(e)  On the other hand, where the defendant has not received a benefit directly from the plaintiff and none of the above situations is applicable, it is generally difficult to maintain that the defendant has been enriched at the plaintiff’s expense.  See Investment Trust Companies (above)  at §51 (Lord Reed JSC).

(5)  In this case, no submissions have been advanced by the plaintiff to explain why the 3^rd defendant’s enrichment should be treated in law as a direct transfer of benefit from the plaintiff and why it should therefore be at the expense of the plaintiff.  In particular, the court notes that the plaintiff does not contend that the money which was received by the 2^nd defendant from the plaintiff can be traced into the money received by 3^rd defendant. 

13.  For these reasons, I am not satisfied that the plaintiff has raised a good arguable case on his unjust enrichment claim against the 3^rd defendant.

14.  Given that the plaintiff has not shown a good arguable case against the 3^rd defendant on his unjust enrichment claim, it is unnecessary for the court to consider the other requirements for a domestic Mareva injunction, and the injunction against the 3^rd defendant should be discharged. 

15.  A fair amount of time was spent at the hearing on whether there is a real risk of dissipation of assets on the part of the 3^rd defendant.  For the sake of completeness, I will set out my views in the next section on why the plaintiff has in my view also not satisfied the requirement of showing a risk of dissipation.

B2.  No real risk of dissipation of assets

16.  To satisfy this requirement, there is no dispute that the burden is on the plaintiff to show objectively that there is a solid basis for concluding that there is a real risk of unjustified dissipation of assets by the 3^rd defendant: Convoy Collateral Ltd v Cho Kwai Chee [2020] 6 HKC 81 at §53 (Lam VP).

17.  The question of whether or not there is solid basis for concluding that there is a real risk of dissipation involves an exercise of an evaluative and predictive judgment.  Usually, it is a matter of drawing proper inference from a holistic consideration of all the circumstantial materials that are indicative of risk.  See China NPL Holdings Pte Ltd v Mo Haidan [2021] 1 HKLRD 344 at §72 (Lam VP).

18.  The plaintiff acknowledged that he has no personal knowledge of why the money was transferred from the 2^nd defendant to the 3^rd defendant.   The approach taken by the plaintiff was to ask the court to look at the evidence produced by the 3^rd defendant and to assess the 3^rd defendant’s credibility for the purpose of inferring a real risk of dissipation.

19.  I have reminded myself that this is not the plaintiff’s application for summary judgment against the 3^rd defendant and that the relevant question for the court is whether there is sufficient evidence to infer that there is a real risk of unjustified dissipation. 

20.  Specifically, the plaintiff relied on the following matters as the bases for asking the court to draw the real risk of unjustified dissipation inference, namely that (1)  the 3^rd defendant claims to be one of the three major iPhone supplies in the industry but the plaintiff was not able to find evidence to support the 3^rd defendant’s asserted market status; (2)  the 3^rd defendant has not explained how it came to know the 2^nd defendant and how they communicated with each other before their  written contract dated 13 July 2021 (“the Contract”)  was executed; (3)  the Contract was executed before the 3^rd defendant sourced the relevant iPhones from its supplier; (4)  the Contract contained the term “CIF” but the 3^rd defendant’s evidence is that the relevant iPhones were collected from the godown in Fo Tan; (5)  the 3^rd defendant’s explanation of its willingness to cooperate with the Police’s investigation is unconvincing and is inconsistent with its current stance of opposing the continuation of the injunction; (6)  one of the 3^rd defendant’s affirmations has contained an incorrect statement regarding the effect of certain documents.

21.  Having taken a holistic consideration of all of these matters (as well as the other more minor matters mentioned in the plaintiff’s skeleton), I am not satisfied that that they are sufficient to give rise to an inference that a judgment in favour of the plaintiff may not be satisfied because of a risk of an unjustified dealing with assets on the part of the 3^rd defendant.  The cause of action that the plaintiff has chosen to rely on to support the continuation of the Mareva injunction is unjust enrichment and such a claim does not depend on any allegation of dishonesty or fraud against the 3^rd defendant.  The matters relied upon by the plaintiff are insufficient to give rise to an inference of dishonesty on the part of the 3^rd defendant.  Insofar as the plaintiff complains that the 3^rd defendant has failed to adduce sufficient evidence or provide relevant explanations or documents, such complaints are not enough because “unless an applicant has raised a prima facie case to support a freezing order, the respondent is not obliged to provide any explanation or answer any questions posed – and nor can a purported failure to do so be held against the respondent”: Holyoake v Candy [2018] Ch 297 at §51 (Gloster LJ)  (approved by Lam VP in China NPL Holdings Pte Ltd (above)  at §83).  Whilst it is true that the 3^rd defendant has misdescribed the effect of a document in one of its affirmations and has not subsequently sought to correct it, I do not regard this incident as a sufficient basis to draw an inference concerning the risk of dissipation of assets.  Nor do I regard the plaintiff’s criticisms of the evidence adduced by the 3^rd defendant concerning the terms of the Contract and the market share of its business as sufficient for me to draw any adverse inferences against the 3^rd defendant regarding the risk of dissipation of assets.

22.  Accordingly, even if (contrary to my earlier view)  the plaintiff can establish a good arguable case on his claim for unjust enrichment, I would have discharged the injunction on the ground that there is no solid basis for inferring a real risk of unjustified dissipation of assets on the part of the 3^rd defendant.

C.  DISPOSITION

23.  For the reasons given above, the injunction against the 3^rd defendant granted by Deputy High Court Judge Kenneth Wong on 24 June 2022 is discharged.   I also dismiss paragraph 1 of the plaintiff’s summons dated 7 June 2022.

24.  Having considered all matters, I consider it just to make an order nisi that the costs of and occasioned by the plaintiff’s injunction application (including all reserved costs)  be paid by the plaintiff to the 3^rd defendant.  The 3^rd defendant has sought costs to be paid forthwith by the plaintiff on the basis that the injunction application is totally baseless.  Although I have discharged the injunction, I do not however agree with the description of the plaintiff’s application and decline the 3^rd defendant’s request.   The costs that the plaintiff must pay to the 3^rd defendant as mentioned earlier are therefore to be taxed if not agreed.