BCPE DIAMOND HOLDCO SRL v. SUNWE PLASTIC HK LTD AND OTHERS

HCA 221/2023

[2024] HKCFI 3370

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 221 OF 2023

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DECISION

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1.  This is the application of the plaintiff (“P”) for summary judgment against the 3^rd defendant (“D3”) and the 5^th defendant (“D5”).

A.  THE RELEVANT BACKGROUND

2.  According to P’s pleading and affirmation evidence:

(1)  P is the Mexico entity of Diversey Holdings, Ltd (“Diversey”), a global provider of cleaning and hygiene products.

(2)  At the material times, Mr Rodolfo Vallejo (“Mr Vallejo”) was the Chief Finance Officer and the Director of Finance in Latin America based in Diversey Argentina.

(3)  On 6 December 2021, Mr Vallejo attended a video conference with Mr Philip Wieland (“Mr Wieland”), the Chief Executive Officer of Diversey, and others. Four minutes after the video conference ended, a person purporting to be Mr Wieland contacted Mr Vallejo on WhatsApp, asking him to join a new video call on Teams. Once connected, Mr Vallejo spoke to someone who looked and sounded like Mr Wieland (“Fake Mr Wieland”) for a short while. The quality of the video call was very poor and Mr Vallejo was asked to continue the conversation on WhatsApp. During the WhatsApp discussion, the Fake Mr Wieland told Mr Vallejo that (a) a confidential foreign acquisition project was expected to be completed by 31 December 2021, and (b) a London-based lawyer (“Fake Lawyer”) would contact him to assist in the matter. Later that day, Mr Vallejo received WhatsApp messages from the Fake Lawyer with details of the alleged project and the payments that were allegedly required.

(4)  As a result, from 6 to 22 December 2021, Mr Vallejo arranged P to wire payments totalling US$6,776,876.29 on 8 occasions to two bank accounts in Hong Kong, one of which was the account of the 1^st defendant (“D1”) maintained at HSBC in Hong Kong (“D1’s Account”).

(5)  On or about 20 December 2021, a sum of US$879,543.94 was transferred to D1’s Account. This payment was approved by the Fake Mr Wieland in a disguised email to Mr Vallejo.

(6)  On 21 December 2021, a sum of HK$899,870 was transferred from D1’s Account to D5’s bank account maintained with HSBC in Hong Kong (“D5’s Account”).

(7)  On or about 22 December 2021, a further sum of US$957,266.29 was transferred to D1’s Account. This payment was approved by the Fake Mr Wieland in another disguised email to Mr Vallejo.

(8)  On 23 December 2021, a sum of US$200,000 was transferred from D1’s Account to D3’s bank account maintained with CMB Wing Lung Bank in Hong Kong (“D3’s Account”).

(9)  On 23 December 2021, Mr Vallejo received an alert from the Vice President and Chief Information Security Officer of Diversey warning that cybercriminals had been using ‘deepfake’ technology to impersonate Mr Wieland. It was then confirmed that Mr Wieland never communicated with Mr Vallejo about any confidential foreign acquisition project or approved the transfer of any funds.

(10)  On 5 January 2022, P reported the matter to the Hong Kong Police Force.

3.  On 9 February 2023, P obtained an ex parte Mareva injunction (“the Injunction”) against all the defendants herein (including D3 and D5) to restrain each of them to deal with their assets in Hong Kong, together with ancillary disclosure orders. P’s writ was issued on 10 February 2023. On 24 February 2023, the Injunction was ordered to continue until trial or further order of the court.

4.  D3 and D5 filed their respective Defence on 7 and 28 November 2023.

5.  On 22 November 2023, P obtained a default judgment against D1 (“the Default Judgment”) for, inter alia, the following orders: (1) D1 do pay P the sum of HK$14,316,752.26 (being the HKD equivalent of the sum US$1,836,818.58); (2) D1 holds the sum of HK$14,316,752.26 and/or its traceable proceeds on constructive trust for P, and (3) P has full beneficial ownership and proprietary rights in the sum of HK$14,316,752.26 and/or its traceable proceeds which are held by D1.

6.  By a summons dated 10 January 2024, P applied for, inter alia, summary judgment against D3 and D5 for the reliefs sought in the Amended Statement of Claim.

B.  THE PLAINTIFF’S CLAIMS

7.  In its Amended Statement Claim, P makes three separate claims against D3 and D5 respectively: a personal claim based on unjust enrichment, a proprietary claim, and a claim in “knowing receipt”.

8.  In its skeleton submissions for the summary judgment application,

(1)  P did not advance any submissions in relation to its “knowing receipt” claim; and

(2)  P has acknowledged that it would not pursue any proprietary relief against D3.

9.  Accordingly, for the purpose of determining the summary judgment application, it is only necessary for the court to consider (1) P’s unjust enrichment against D3, (2) P’s unjust enrichment against D5 and (3) P’s proprietary claim against D5.

10.  The principles for the summary judgment procedure are trite and it is unnecessary to recite them.

B1.  Unjust Enrichment Claims

11.  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). 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 [2021] 2 All ER 1105 at [18] (Lord Burrows).

12.  It is common ground that D3 and D5 were respectively enriched by the receipt of US$200,000 and HK$899,870 in December 2021.

13.  For the following reasons, I consider that P has also established that the respective enrichment of D3 and D5 was at the expense of P.

14.  In my view, the relevant legal principles on the question of whether a defendant’s enrichment is at the expense of the plaintiff are set out in the judgment of Lord Reed JSC (with whom Lord Neuberger PSC, Lord Mance, Lord Carnwath and Lord Hodge JJSC agreed) in Investment Trust Companies v Revenue & Customs Commissioners [2018] AC 275 (“ITC”). They may be summarised as follows.

(1)  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 (ITC at [43]).

(2)  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 (ITC at [46] & [50]).

(3)  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 (a) where an agent is interposed between the plaintiff and the defendant; (b) where the right to restitution is assigned; (c) where an intervening transaction itself is a sham; (d) where a series of co-ordinated transactions are treated in substance as a single transaction; (e) where the defendant receives property from a third party into which the plaintiff can trace an interest (ITC at [47], [48] & 50]).

(4)  There is an exception to the general rule mentioned above. 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 (ITC at [49]).

(5)  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 (ITC at [51]).

15.  In the present case, P did not pay any money to D3 and D5 directly. However, upon the tracing exercise carried out at the substantive hearing by P, I am satisfied that the money which D3 and D5 received in December 2021 was the traceable proceeds of P’s money.

(1)  As to the sum of US$200,000 deposited in D3’s Account on 23 December 2021:

(a)  On 23 December 2021, a sum of US$957,266.29 and a sum of US$382,721.65 were deposited into D1’s Account (USD).

(b)  P submits that US$957,266.29 received by D1 on 23 December 2021 belonged to P. P has produced evidence to show that (i) a sum of US$957,274.64 was paid by P on 22 December 2021, and (ii) the Hong Kong Police has confirmed that a total sum of US$1,836,818.58 (of which the sum of US$957,274.64 formed part) was transferred from P to D1’s Account. In view of such evidence, the slight discrepancy between US$957,274.64 and US$957,266.29 (namely US$8.35) is likely to be the result of some bank charge for the transfer. The Default Judgment also confirms that the US$957,274.64 received by D1 belonged to P.

(c)  There is no evidence of the origin of the sum of US$382,721.65 paid into D1’s Account (USD) on 23 December 2021. For the purpose of this application, this sum is presumed to belong to D1.

(d)  It follows that there was a mixture of P’s money and D1’s own funds on 23 December 2021.

(e)  Immediately after the deposits of US$957,266.29 and US$382,721.65 into D1’s Account (USD) on 23 December 2021, various amounts totalling US$849,239.47 were withdrawn from D1’s Account (USD). Thereafter, US$200,000 was withdrawn from D1’s Account (USD).

(f)  I note that D1 is alleged to have dishonestly obtained money from P “by fraud or by participating in a fraudulent scheme”.

(g)  I further note that there are authorities to support the view that a claim in money had and received is available for payment of a sum representing the value of a benefit held by a defendant where the benefit is traceable in equity: e.g. Heperu Pty Ltd v Belle (2009) 76 NSWLR 230 at [144] & [153] (Allsop P), relying on Banque Belge pour l’Etranger v Hambrouck [1921] 1 KB 321 at 330 (Scrutton LJ), 333, 335-6 (Atkin LJ); Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 at 566 (Lord Templeman). A money had and received claim is now regarded as a common law restitutionary claim based on unjust enrichment: Westdeutsche Bank v Islington LBC [1996] AC 669 at 683B (Lord Goff) & 710E-G (Lord Browne-Wilkinson); Cheong Shing Ltd v Yu Kwan (2008) 11 HKCFAR 594 at [54] (Litton PJ).

(h)  If a fund is made up of a mixture of the plaintiff’s money and that of the alleged wrongdoer, the initial withdrawals are presumed to be made with the wrongdoer’s own funds: Re Hallett (1880) 13 Ch D 696. Applying the rule in Re Hallett, by the time the sum of US$200,000 was withdrawn from D1’s Account (USD) on 23 December 2021, all of the funds which are presumed to belong to D1 in that account had already been completely withdrawn. Therefore, the sum of US$200,000 withdrawn from D1’s Account (USD) is presumed to be P’s money.

(i)  Accordingly, the sum of US$200,000 deposited into D3’s Account on 23 December 2021 was P’s money.

(2)  As to the sum of HK$899,870 deposited in D5’s Account on 21 December 2021:

(a)  On 21 December 2021, D1 received US$879,535.59 in D1’s Account (USD).

(b)  P submits that US$879,535.59 received by D1 on 21 December 2021 belonged to P. P has produced evidence to show that (i) a sum of US$879,543.94 was paid by P on 20 December 2021, and (ii) the Hong Kong Police has confirmed that a total sum of US$1,836,818.58 (of which the sum of US$879,535.59 formed part) was transferred from P to D1’s Account. In view of such evidence, the slight discrepancy between US$879,535.59 and US$879,543.94 (namely US$8.35) is likely to be the result of some bank charge for the transfer. The Default Judgment also confirms that the US$879,535.59 received by D1 belonged to P.

(c)  On 21 December 2021, a sum of US$179,800.68 was withdrawn from D1’s Account (USD). P submits that this sum was converted into HK$1,400,000 (using an exchange rate of US$1 = HK$7.7864), which was deposited into D1’s Account (HKD) on 21 December 2021. When such a sum was so deposited, the balance of D1’s Account (HKD) as at 18 December 2021 was only HK$1,371.53, which is presumed to belong to D1.

(d)  Thereafter, after various sums totalling HK$361,897 were withdrawn, the sum of HK$899,870 was withdrawn from D1’s Account (HKD) on 21 December 2021.

(e)  Applying the rule in Re Hallett, by the time the sum of HK$899,870 was withdrawn from D1’s Account (HKD) on 21 December 2021, all of the funds which are presumed to belong to D1 in that account had already been completely withdrawn. Therefore, the sum of HK$899,870 withdrawn from D1’s Account (HKD) is presumed to be P’s money.

(f)  Accordingly, the sum of HK$899,870 deposited into D5’s Account on 21 December 2021 was P’s money.

(3)  It is significant to note that neither D3 nor D5 made any submissions to dispute the validity of the tracing exercise carried out by P during the substantive hearing.

(4)  Be that as it may, insofar as tracing of assets is relied upon to contend that a defendant’s enrichment is at the expense of the plaintiff, it is incumbent on the plaintiff to clearly and methodically demonstrate how the relevant asset of the plaintiff may be traced into the defendant’s hands by reference to the underlying evidence and the applicable tracing rules.

16.  P has further relied on two other situations mentioned by Lord Reed in the ITC case to satisfy the “at the expense of” enquiry, namely that (1) the intervening transaction itself is a sham and (2) where a series of co-ordinated transactions are treated in substance as a single transaction. In particular, P asks the court to treat D1’s Account as a “mere conduit” and to infer that the transactions were all co-ordinated. At the present Order 14 stage, I do not believe the court is in a position to make such inferences, especially when P’s suggestions are not pleaded and there is no sufficiently clear evidence adduced by P upon which such inferences may be properly grounded. Further, there is no basis to conclude at this stage that the transactions between P and D1 were shams. Accordingly, I am not prepared to rely on the “sham intervening transactions” and “co-ordinated transactions” heads in the ITC case to find that the respective enrichment of D3 and D5 was at P’s expense.

17.  I conclude that the sum of money which D3 and D5 respectively received on 23 and 21 December 2021 was at the expense of P.

18.  In concluding that the respective enrichment of D3 and D5 was at the expense of P, it is right to make it clear that I have not placed reliance on the test formulated in Bank of Cyprus UK Ltd v Menelaou [2016] AC 176 at [27], namely whether there is a sufficient causal connection between the loss to the plaintiff and the benefit received by the defendant. This is the primary approach relied upon by P in this application which P submits is binding on this court by virtue of the Court of Appeal’s decision in Lee Yuk Shing v Dianoor International Ltd (in liq) [2016] 4 HKC 535. I do not believe the Court of Appeal in the Lee Yuk Shing case decided on the applicable test for determining whether an enrichment is at the expense of the plaintiff.

(1)  Lee Yuk Shing was not an unjust enrichment case. After a trial, the plaintiff succeeded in his claim of fraudulent misrepresentation, negligent misrepresentation under section 3 of the Misrepresentation Ordinance (Cap 284), and breach of contract for total failure of consideration. On appeal, the defendant raised a number of issues on the various causes of action, including a general issue of whether the plaintiff was entitled to any remedy.

(2)  Kwan JA briefly dealt with that general issue towards the end of the judgment. The defendant argued that the plaintiff did not pay for the subject matters, and therefore should not be entitled to the restitution of benefits ([109]). The plaintiff referred to the Bank of Cyprus case for the proposition that a sufficient causal connection is required to establish enrichment at the plaintiff’s expense, and submitted that there was a sufficient causal connection on the basis of the trial judge’s findings ([110]). Her Ladyship agreed with the plaintiff’s submission, referred to specific findings of fact, and said that there was no substance to the arguments that the plaintiff was not entitled to the remedy claimed ([111]-[112]).

(3)  On my reading of the Lee Yuk Shing case, I do not believe Kwan JA had decided on the test for determining whether an enrichment is at the expense of the plaintiff. That was simply not an issue in the appeal.

(4)  In any event, I note that the test in the Bank of Cyprus case was subsequently criticised by the UK Supreme Court in the ITC case at §37 on the ground that it left unanswered what degree of connection was sufficient.

19.  As far as the ground of restitution (or the unjust factor) is concerned, P submits that it parted with its money under a mistaken belief as to (1) the identity and authority of the person giving instructions to P’s representative (Mr Vallejo) and (2) the objectives of the payments. In its pleading, P has pleaded that D3 and D5 are unjustly enriched as there was “no legitimate basis, or any basis at all” for them to receive any money from P.

20.  In the skeleton submissions filed before the substantive hearing, D3 and D5 did not challenge P’s submission that mistake was a proper ground of restitution for P’s claims. Upon this Court’s invitation to the parties to make additional submissions before the hearing on the question of whether mistake is an appropriate unjust factor, D3 and D5 simply asserted that P could not be labouring under a mistake.

21.  Whilst mistake may be the correct ground of restitution in P’s unjust enrichment claim against D1 (being a direct recipient), it does not seem to me to be an appropriate unjust factor in P’s claims against D3 and D5 (being indirect recipients).

(1)  It must be borne in mind that the unjust factors address the question of whether the enrichment at the plaintiff’s expense is unjust. As Lord Reed JSC said in ITC ([39]), 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 expense as legally unjust.

(2)  In the present case, P and D3/D5 were total strangers at the material times. P was unaware of the identity of D3 or D5, and did not know that part of the money that it paid would end up in the respective bank account of D3 and D5. P 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, P could not be under a mistaken belief in relation to the respective enrichment of D3 and D5. In Pitt v Holt [2013] 2 AC 108, Lord Walker at [108] considered that mere causative ignorance as insufficient to constitute a mistake.

(3)  In its formulation of the “mistake” (see paragraph 19 above), P has not referred in any way to D3 or D5, or their respective enrichment. Without attempting to make any connection between its “mistake” and the receipt of D3 and D5’s enrichment, I do not consider that P has sufficiently demonstrated that mistake is the appropriate unjust factor in its claims for unjust enrichment against D3 and D5.

22.  Nonetheless, the court must not lose sight of the need to answer the question of whether the defendant’s enrichment was unjust, which is part of what the Court of Final Appeal described as the unjust enrichment framework. In the present case, the circumstances under which P made the payments to D1 are adequately set out in its pleading and the supporting affidavit evidence, which D3 and D5 are not in a position and do not seek to dispute. In particular, in support of its unjust enrichment claims, P state that there was “no legitimate basis, or any basis at all” for D3 and D5 to receive the misappropriated funds from P. The facts suggest that P transferred its money to D1 without proper authority: the person who had the proper authority was Mr Wieland but Mr Vallejo received ostensible authority from a person who impersonated Mr Wieland through disguised emails. There are authorities to suggest that in a claim for unjust enrichment against an indirect recipient for the value of the plaintiff’s asset or its traceable proceeds, the defendant’s enrichment may be unjust on the ground of want of authority. For the purpose of the present application for summary judgment, it is sufficient for me to refer to the following authorities. In particular, I note that other than suggesting P was not labouring under a mistake, D3 and D5 did not suggest that their respective enrichment was not unjust.

23.  In Relfo Ltd (in liquidation) v Varsani [2012] EWHC 2168 (Ch), Relfo made a payment of £500,000 to the bank account of Mirren Ltd in Latvia at the direction of its controlling director and shareholder (Mr Gorecia). On the same day, a payment of the USD equivalent of £500,000 was made from the Lithuanian account of Intertrade Group LLC to the account of Mr Varsani in Singapore. Relfo’s liquidator sought to recover the payment made by Relfo on the basis of knowing receipt by tracing it into Mr Varsani’s bank account, or on the basis of unjust enrichment. The claim for unjust enrichment succeeded before the trial judge. At [88], Sales J (as he then was) said:

“In my view Bhimji Varsani was clearly enriched by the Intertrade payment at the expense of Relfo. That is so even if the Intertrade payment cannot be identified with the Relfo/Mirren payment according to the rules of tracing. Relfo had its funds diverted by Mr Gorecia in breach of his fiduciary duty as a director of Relfo and acting outside the scope of his authority from Relfo. In my judgment, that establishes a proper ground for an in personam claim by Relfo under the law of unjust enrichment against Bhimji Varsani for repayment of a sum equivalent to the extent of his enrichment, namely the amount of the Intertrade payment. If Relfo had paid those monies to Bhimji Varsani by mistake it would have had a right to restitution of them. The position can in my view be no different where the matters which have affected Relfo’s consent to the transfer of value from itself to Bhimji Varsani involve instead a breach of fiduciary duty and of authority by its director and controller, Mr Gorecia, acting to perpetrate a fraud on the company.”

24.  The English Court of Appeal affirmed Sales J’s decision: [2015] 1 BCLC 14. The issue on unjust enrichment in the appeal focused on the question of whether a claim in unjust enrichment could succeed even if Mr Varsani did not receive the benefit of a payment directly from Relfo. There was no discussion on the ground of restitution.

25.  In Torbay Holdings Ltd v Napier [2015] NZHC 2477, the plaintiffs operated a rest home and one of their directors (Mr Napier) misappropriated company funds to himself, his wife and their family trust without proper authority. In the context of the plaintiffs’ claim for money had and received and the question of whether an enrichment was unjust, Woolford J said:

“[167] … the unjustness assessment is focused on determining whether the retention of the money would unjustly enrich the defendant, who has no real right to the money. To this extent, the claim is complete when the money is received, if retaining the money would be unjust, as the defendant has no right to retain it. Heath J, in a recent case, saw some element of unconscionability or unjustness as being a key requirement to make out money had and received claims. This recognises the underlying focus of money had and received claims, in unjust enrichment.

[168] The law recognises certain categories of cases in which it is considered to be unjust for the claimant to retain the benefit of the money. In the case of a benefit obtained through wrongdoing, the wrongdoer’s enrichment at the expense of the claimant is clearly seen as unjust. The unjust factor can be conceptualised as the transferring party’s ignorance of a transaction, or the transferring party’s actions being outside of their authority, but on either view the taking of an asset without permission, and passing it on to a third party creates the necessary unjustness for an unjust enrichment claim. Although liability in money had and received directly against the initial taker is unusual, a person who misappropriates money can also be liable in money had and received directly.”

26.  In Great Investments Ltd v Warner (2016) 243 FCR 516, the liquidators of Bellpac Pty Ltd obtained judgment against the defendants for the delivery up and retransfer of bonds, which had been transferred to the defendants by one of Bellpac’s directors (Mr Wong). The transfers were made, purportedly pursuant to a power of attorney, to discharge Mr Wong’s personal debts. The first instance judge held, inter alia, that the defendants were, subject to any defences, liable to make restitution of the bonds, there having been no authority to transfer them. The Federal Court of Australia (comprising Jagot, Edelman and Moshinsky JJ) said:

“[60] This appeal is concerned with an even simpler scenario where a benefit is transferred to a recipient from the company, without the authority of the company and without a contract. As we explain below, in this scenario the company may be entitled, subject to defences, to a proprietary claim if the recipient still has the specific benefit. Even if the recipient does not retain the benefit, the company will have a personal claim against the recipient, again subject to defences. These principles apply with at least the same force where the person making the transfer is a director who owes fiduciary obligations to the company. In the exclusive jurisdiction of the Court of Chancery, where a decree was sought of restitution of property affected by a fiduciary obligation it was said “Let the hand receiving it be ever so chaste, yet, if it comes through a polluted channel, the obligation of restitution will follow it”: John v Dodwell & Company Ltd [1918] AC 563 at 576 (Viscount Haldane LC quoting Huguenin v Baseley (1807) 14 Ves Jun 273 at 289; 33 ER 526 at 532 (Lord Chancellor Eldon)).”

[67] … a transfer of title by a joint venturer without authority renders the transferee liable to make restitution of the benefit received, subject to defences such as bona fide purchase for value without notice.

[68] This selection of cases illustrates the substantial authority that supports strict liability, subject to defences, for the receipt by a respondent of a company asset transferred without authority. Some of the cases were brought in equity for specific restitution of the rights transferred. Other cases were brought in equity as personal money claims for restitution. Others were brought at common law for restitution, sometimes still described as a count of money had and received in indebitatus assumpsit. The difference between whether the personal claims are described as “equitable” or as “common law claims” is not a difference of principle because although the claim for money had and received is a common law claim, it has equitable roots: Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 at [83]-[89] (Gummow J).”

27.  In High Commissioner for Pakistan in the United Kingdom v Prince Muffakham Jah [2020] Ch 421, the former finance minister of the Government of Hyderabad transferred a sum slightly in excess of £1m to an account at a United Kingdom bank in the name of the High Commissioner of Pakistan in the United Kingdom, who received it on the instructions of the Foreign Minister of Pakistan. The transfer was ostensibly made on behalf of the ruler of Hyderabad, the seventh Nizam. Shortly thereafter, the Nizam instructed the bank to reverse the transfer on the ground that it had been made without his authority, but in the absence of the account holder’s agreement, the bank refused to comply with the instruction. Proceedings were brought in 1954 by the Nizam against the High Commissioner and the bank, but were stayed following Pakistan’s assertion of sovereign immunity. In 2013 Pakistan waived that immunity when it commenced proceedings against the bank, through its High Commissioner, asserting that it was absolutely entitled to the fund. The Union of India, the eighth Nizam and the eighth Nizam’s brother, all of whom claimed to be the seventh Nizam’s successor in title, were joined to the proceedings as interpleader claimants. They contended, inter alia, that the transfer had been unauthorised, which provided the basis for a claim against Pakistan in restitution. This case did not involve indirect receipt of the enrichment by the defendant. Marcus Smith J, inter alia, allowed the interpleader claim in restitution. He found at [132] that seventh Nizam had not authorised the payment to be made. At [271], he said:

“The Transfer is - self-evidently - an enrichment of Pakistan. For a claim in unjust enrichment to succeed, the enrichment must also be “unjust”, which generally means that the claimant must bring him- or herself within one of the accepted categories of “unjust” enrichment. In this case, the “unjust” factor is the fact that the transfer was not authorised by Nizam VII. That, according to India’s written submissions, is a “classic case for restitution” …, and this was not seriously contested by Pakistan. I have found that the Transfer was indeed an unauthorised one and, accordingly, the restitution claim ought to succeed.”

28.  Further, I note that the learned editors of Goff & Jones: The Law of Unjust Enrichment (10^th ed 2022) also 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.

29.  It remains necessary to refer to one final authority which has established that a defendant is, subject to defences, liable in unjust enrichment for money received which belongs to the plaintiff, even if not directly from the plaintiff. In the well-known case of Lipkin Gorman v Karpnale Ltd [1991] AC 548, Cass (a partner of a firm of solicitors), without authority, had drawn on the firm’s bank account to gamble. The firm brought proceedings for money had and received against the casino where Cass had spent the money. The House of Lords held that the casino came under a personal liability in unjust enrichment to the firm for the sum of money received, even though the money was received from a third party (Cass). When discussing the firm’s right to recover from the casino in unjust enrichment, it appears that Lord Goff focused more on the firm’s ability to assert title to the money which the casino received, rather than Cass’ want of authority. At 572B-F, Lord Goff said:

“…here the money had been paid to the respondents by a third party, Cass; and in such a case the appellant has to establish a basis on which he is entitled to the money. This (at least, as a general rule) he does by showing that the money is his legal property. … If he can do so, he may be entitled to succeed in a claim against the third party for money had and received to his use, though not if the third party has received the money in good faith and for a valuation consideration … in these cases the action for money had and received is not usually founded upon any wrong by the third party, such as conversion; nor is it said to be a case of waiver of tort. It is founded simply on the fact that, as Lord Mansfield said, the third party cannot in conscience retain the money – or, as we say nowadays, for the third party to retain the money would result in his unjust enrichment at the expense of the owner of the money.

So, in the present case, the solicitors seek to show that the money in question was their property at common law. But their claim in the present case for money had and received is nevertheless a personal claim; it is not a proprietary claim, advanced on the basis that money remaining in the hands of the respondents is their property.”

30.  In the light of the above authorities, I am of the view that the respective enrichment of D3 and D5 was unjust. Accordingly, I am satisfied that P has established a good cause of action in unjust enrichment against D3 and D5.

B2.  Proprietary Claim against D5

31.  It is well-established that a plaintiff who seeks a proprietary remedy must prove that the property to which he lays claim is still in the ownership of the defendant (Boscawen v Bajwa [1996] 1 WLR 328 at 334H (Millett LJ)). For the purpose of establishing a proprietary claim against D5, P must demonstrate that the sum of HK$899,870 which it seeks by way of a proprietary claim represents P’s property and is still in D5’s Account, or in D5’s ownership.

32.  I repeat paragraph 15(2) above which demonstrates how the sum of HK$899,870 can be traced from P when it was deposited into D5’s Account on 21 December 2021. At the time of deposit, the credit balance of D5’s Account was HK$2,321,457. D5’s Account was “frozen” by the Hong Kong Police’s “letter of no consent” on 8 August 2022. Between 21 December 2021 and 8 August 2022, a total of HK$706,794.50 was withdrawn from D5’s Account. The relevant tracing rule or presumption needs to be applied to determine whether the withdrawn sums were attributable to D5 or P.

33.  There is no allegation in P’s pleading that D5 is a wrongdoer. For the purpose of tracing, D5 is therefore to be treated as an innocent third party. The rule in the Clayton’s case is applicable and it is presumed that the money first withdrawn from the account is drawn against the contribution of the party whose money was first deposited: Snell’s Equity (34^th ed, 2020) §30-059. Applying the first-in first-out rule, the total sum of HK$706,794.50 is presumed to have been drawn from D5’s funds in the bank account. Therefore, when D5’s Account was “frozen” on 8 August 2022, the entirety of HK$899,870 which represented P’s money in that account remained to be attributable to P. It follows that P has also established a prima facie proprietary claim against D5.

C.  THE 3^RD DEFENDANT’S DEFENCE

34.  I now turn to the question of whether D3 has shown cause against P’s unjust enrichment claim on the merits.

35.  D3 filed a 3-page Defence on 7 November 2023 and a 4-page Affirmation dated 27 February 2024 to oppose P’s summary judgment application.

(1)  In her Defence, D3 pleaded, inter alia, that (a) he did not know P, Mr Vallejo, Mr Wieland, the Fake Lawyer or any of the other defendants, (b) there was a loan (“the Loan”) from a Mr Shen Hongyu (“Mr Shen”) to D3 on 1 December 2021 for US$300,000 with interest at 6% per annum and the maturity date to be 18 months from the date of the Loan, (c) the money transferred to D3’s Account was part of the drawdown of the Loan, and (d) he denies he had actual or constructive knowledge of the alleged fraud involving P, was unjustly enriched or held any money in his account on trust for P.

(2)  In his Affirmation, D3 stated, inter alia, that (a) he needed funding for his investment in securities (b) he met with his friend (Mr Shen) on or about 1 December 2021 and entered into an oral agreement with him to obtain the Loan of US$300,000 with interest rate of 6% per annum and the maturity date of 1 June 2023, (c) on or about 23 December 2021, D3 made a drawdown of the Loan in the sum of US$200,000 which was transferred to D3’s Account, (d) Mr Shen confirmed to D3 that the sum of US$200,000 transferred to D3’s Account was a drawdown of the Loan, (e) after D3’s bank account became to be under investigation, Mr Shen did not pay D3 the remaining sum of US$100,000 of the Loan, (f) Mr Shen orally demanded repayment of US$200,000 on 1 June 2023 but D3 was unable to repay him, (g) he was a bona fide recipient for value without notice of the sum of US$200,000.

(3)  D3 did not exhibit any documents to his Affirmation.

36.  In D3’s skeleton, apart from paraphrasing what has already been stated in his Defence and Affirmation, D3 submits that “there are at least triable issues as to whether D3 was a bona fide recipient for value without notice of the US$200,000”. No authorities have been cited by D3 to support his defence of bona fide purchase for value without notice. Moreover, D3 has not explained in his written or oral submissions as to how each of the elements for a defence of bona fide purchase for value without notice is satisfied (see paragraph 43 below).

37.  To establish a defence of bona fide purchase, an element which D3 needs to establish is that he has provided valuable consideration for the sum of US$200,000 which was deposited into D3’s Account on 23 December 2021. However, there is clear documentary evidence to show that the sum of US$200,000 paid into D3’s Account came from D1’s Account. D3 has failed to produce any cogent evidence to raise any triable issue on the identity of the person who paid the sum of US$200,000 into D3’s Account. The assertion in D3’s Affirmation “[Mr Shen] confirmed that the sum of USD200,000 transferred to [D3’s Account] on or about 23 December 2021 was a drawdown of the Loan he advanced to [D3]” is a bare assertion unsupported by any particulars or cogent evidence, and is contrary to the documentary evidence adduced by P. Such an assertion is insufficient to create any triable issue.

38.  Further, insofar as D3 submits that he provided valuable consideration pursuant to the alleged oral loan agreement between him and Mr Shen, it is necessary for D3 to establish a valid and binding contract between D3 and Mr Shen: Zief Incorporated v Tekchandani Ajai Mohan [2021] 3 HKC 69 at [32]. Although D3 has asserted that an oral agreement was made, no further particulars have been provided on how the alleged contract was subsequently performed. In particular, D3 himself stated in his Affirmation that he has not been given US$100,000 under the alleged contract and has not said anything about how any interest had been paid by him. I do not believe D3 has raised a triable issue on the validity of the alleged loan agreement.

39.  In these circumstances, I consider that D3 has wholly failed to raise any triable issue to demonstrate that he has provided valuable consideration for the sum of US$200,000, or any arguable defence to P’s unjust enrichment claim.

40.  Accordingly, P is entitled to summary judgment against D3.

D.  THE 5^TH DEFENDANT’S DEFENCE

41.  From her Defence and her 3 Affirmations, D5’s factual case may be summarised as follows.

(1)  D5 was a resident in the Mainland and moved to Hong Kong in about September 2019 with her child. Her child’s father is Mr Fu Cexun (“Mr Fu”). For the purpose of the move to Hong Kong, D5 needed Hong Kong dollars.

(2)  In around April 2020, D5 came to know Ms Yeung Pik Man Jenny (“Ms Yeung”). On 17 May 2021, Ms Yeung first informed D5 that she could assist D5 in the exchange of HKD from RMB. Having discussed with Mr Fu, D5 and Mr Fu decided to entrust Ms Yeung for the exchange of RMB into HKD. They understood from Ms Yeung that RMB would be transferred to designated accounts in the Mainland and HKD would in turn be received in Hong Kong.

(3)  From 29 November to 2 December 2021, Mr Fu arranged for sums totalling RMB 3,900,000 to be deposited into the account of a Mr Li Yue Shi (“Mr Li”) in the Mainland. Mr Li was and is still an employee of Mr Fu. The total sum of RMB 3,900,000 belonged to Mr Fu but was for D5’s disposal. Mr Fu and D5 treated the money as belonging to D5 and for her to deal with.

(4)  In December 2021, D5 received Ms Yeung’s instructions to transfer money to 4 designated accounts in the Mainland.

(5)  On 9 December 2021, Mr Li transferred 4 sums of money totalling RMB 3,900,000 (RMB 990,000, RMB 982,000, RMB 978,000 and RMB 950,000) to the bank accounts in the Mainland of 4 different individuals (“4 Mainland Individuals”).

(6)  In December 2021, D5 eventually received HK$4,242,954.48 in Hong Kong, which comprised the sum of HK$899,870.

42.  Based on the above, D5 contends that (1) she is a bona fide purchaser for value without notice, or alternatively Mr Fu is a bona fide purchaser for value without notice and D5 received good title to the money, and (2) she changed her position in anticipation of the receipt of money which eventually reached D5’s Account.

D1.  Bona Fide Purchase for Value without Notice

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

44.  D5’s defence of bona fide purchase is formulated on two alternative bases. The first basis is that D5 has personally given value for the receipt of the sum of HK$899,870 which was deposited into D5’s Account on 21 December 2021.

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.

46.  Moreover, I am not satisfied that D5 has provided sufficient details on the circumstances under which Mr Fu’s RMB 3,900,000 came “to be treated” as belonging to D5 and, in particular, whether it was so treated before or after the same was given by Mr Fu to Mr Li “in or about November 2021”. D5 has also adduced nothing to explain who was considered to be the owner of the 4 sums totalling RMB 3,900,000 which Mr Li transferred to the 4 Mainland Individuals. I do not think D5 has adduced sufficient evidence to raise a triable issue on the ownership of the RMB 3,900,000 at the material times.

47.  In these circumstances, I do not believe that D5 has raised any triable issue as to whether she has provided valuable consideration for the sum of HK$899,870 for the purpose of the bona fide purchaser defence.

48.  This is sufficient to dispose of the defence that D5 was the bona fide purchaser for value without notice. It is unnecessary to consider P’s submission that D5 was not acting in good faith. In any event, I do not believe the affidavit evidence is such that there is no triable issue as to whether D5 has acted in good faith at the material times.

49.  D5’s alternative basis of the bona fide purchase defence is that Mr Fu is a bona fide purchaser for value without notice and D5 received good title to the money. D5 argues (in the alternative) that Mr Fu has given value for the sum of HK$899,870 and D5 was the designated recipient and had full rights or use over the same for herself and her son’s benefit. To support such an argument, D5 relies on Lewin on Trusts (20^th ed, 2020) §44-122 for the proposition that the acquisition of the legal estate requirement in the bona fide purchase defence is satisfied “if the legal estate is transferred to a nominee for the purchaser”. I have difficulty understanding how this alternative argument can afford D5 with a defence. There is no evidence to suggest that D5 was Mr Fu’s nominee in respect of anything. In any event, even if this were so, this could only form part of an argument to support a defence of bona fide purchase on the part of Mr Fu, against whom P has not made any claims.

50.  For these reasons, I believe that there is no triable issue on the defence of bona fide purchase.

D2.  Change of Position

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

52.  Further, the defendant must prove that he/she has suffered detriment that was casually linked with receipt of the relevant benefit: mere “assertion and speculation” unsupported by evidence will not do, nor will “vague generalities”: Goff & Jones: The Law of Unjust Enrichment (10^th ed, 2022) §27-08.

53.  I have difficulties in accepting that D5 has an arguable defence of change of position.

54.  First, D5 does not appear to dispute that the sum of HK$899,870 which was transferred from D1’s Account to D5’s Account on 21 December 2021 still remains in D5’s Account. This suggests that D5 remains enriched of HK$899,870 and that she will not be worse off by making restitution of the same to P.

55.  D5 argues that her change of position is anticipatory in nature, relying on Dextra Bank & Trust Co Ltd v Bank of Jamaica [2002] 1 All ER (Comm) 193. In that case, the Privy Council recognised that the defence of change of position was available where the defendant had changed his position before receiving an enrichment. At [38], Lord Bingham and Lord Goff said:

“… it is difficult to see what relevant distinction can be drawn between (1) a case in which the defendant expends on some extraordinary expenditure all or part of a sum of money which he has received from the plaintiff, and (2) one in which the defendant incurs such expenditure in the expectation that he will receive the sum of money from the plaintiff, which he does in fact receive. Since ex hypothesi the defendant will in fact have received the expected payment, there is no question of the defendant using the defence of change of position to enforce, directly or indirectly, a claim to that money. It is surely no abuse of language to say, in the second case as in the first, that the defendant has incurred the expenditure in reliance on the plaintiff’s payment or, as is sometimes said, on the faith of the payment.”

56.  However, as the above quotation makes clear, whether the defendant makes an expenditure before or after the receipt of enrichment, it is still necessary for the expenditure to be “extraordinary”. The requirement that the expenditure must be “extraordinary” was specifically recognised by Lord Goff in Lipkin Gorman v Karpnale (above). At 580F-G, Lord Goff said “the mere fact that the defendant has spent the money, in whole or in part, does not of itself render it inequitable that he should be called upon to repay, because the expenditure might in any event have been incurred by him in the ordinary course of things”. In her affirmation evidence, D5 said she needed the money “for living expenses and investment opportunities (if any)”. In the light of such evidence, I am unable to see how D5 can be said to have raised a triable issue on whether she has suffered a relevant detriment, or has incurred an extraordinary expenditure, for the purpose of the defence.

57.  Further, even assuming that D5 has suffered a relevant detriment, I do not think D5 has raised a sufficient anticipatory change of position defence. As noted above, D5 does not dispute that the sum of HK$899,870 was transferred from D1’s Account to D5’s Account on 21 December 2021, and that she did not know D1 at the material times. In these circumstances, D5 cannot say that there was a causative link between her receipt of the money from D1 and any change of position. The same reasoning was applied by Chu JA in Kaefer AG v Winfield Marine Services Co Ltd [2022] HKCA 807 at [44], [46], [48] & [49] to reject the defendant’s defence of anticipatory change of position.

58.  For these reasons, I do not believe that there is any triable issue as to whether D5 has a defence of change of position.

E.  DISPOSITION

59.  For all the reasons given above, P is entitled to summary judgment against D3 and D5. I make an order in terms of paragraphs 1(a) and 1(e) and paragraphs 2(a) to 2(e) of P’s Summons dated 10 January 2024.

60.  I also order that the Injunction be continued as against D3 and D5 as an aid to enforcement. For this purpose, I make an order in terms of paragraph 5 of P’s Summons dated 10 January 2024.

61.  As to costs, I make an order nisi that the costs of this action, including the costs of and occasioned by P’s Summons dated 10 January 2024, be to P, to be taxed if not agreed.