RESTAURANT PRODUCTS GUILD, INC v. XU, AIQIN t/a TAIDE ELECTRONICS CO

DCCJ 3103/2014

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3103 OF 2014

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DECISION

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INTRODUCTION

1. This is the plaintiff’s application for a summary judgment against the defendant for the payment of US$27,970.61 (“the Sum”) on the ground that the Sum was deposited into the defendant’s bank account under a mistaken belief, and the defendant, to whom the plaintiff has no payment obligation, was unjustly enriched by the payment at the expenses of the plaintiff.

2. The defendant said that there was a genuine transaction which the defendant believed, at the material times, to be the reason for the payment, and further that, there was a defence of change of position.

SUMMONS TO EXPUNGE THE DEFENDANT’S AFFIRMATIONS (“EXPUNGE APPLICATION”)

3. Before I deal with the application for summary judgment, there was before me a Summons taken out by the plaintiff to expunge the Affirmation of Chen Zhihua and paragraphs 1 to 4 and 7 to 8 of the 2^nd Affirmation of Xu Aiqin, (“Relevant Paragraphs”) both filed by the defendant on 26 May 2015.

4. By way of background, the hearing of the summary judgment application first came before me on 4 May 2015.  In the beginning of the May hearing, the plaintiff, having noticed certain mistakes in its affirmations on the identity of the supplier, sought leave to file affirmation for clarification.  The defendant accepted that there was no prejudice against them apart from the costs of the May hearing if leave was granted.  The defendant has not seriously contested the application for leave. She asked for costs of the May hearing and time to file affirmation in reply if leave was granted to the plaintiff.

5. I granted leave to the plaintiff with a specific scope, that is to file an affirmation from Lo Kar Yu and an affirmation from Feng Zhi Hang on matter in relation to the identity of the supplier as set out in paragraph 4 of Lo Kar Yu’s earlier affirmation.  The defendant was given leave to file an affirmation in reply and was awarded costs of the May hearing as summarily assessed.  The summary judgment application was adjourned to be heard on 12 June 2015. 

6. Pursuant to my order made in May, the plaintiff filed a 2^nd Affirmation of Lo Kar Yu and a 2^nd Affirmation of Feng Zhi Hang (“plaintiff’s Further Affirmations”), by which the plaintiff clarified the identity of the supplier and explained the reason for the mistake.  The defendant then filed two affirmations, the Affirmation of Chen Zhihua and the 2^nd Affirmation of Xu Aiqin.

7. The plaintiff’s grounds for the Expunge Application was that the Relevant Paragraphs in the affirmations filed by the defendant in May are outside the scope allowed in the May order.  The Relevant Paragraphs are not replies to the plaintiff’s Further Affirmations, but cover new evidence on the relationship between the defendant and an entity named Dongguan Taide Industrial Co Ltd (“Dongguan Taide”).  There was no application from the defendant for leave to file new evidence and there was no explanation for the lateness in filing new evidence.

8. As the defendant has fairly accepted, the Relevant Paragraphs contained new evidence which are outside the scope of the order in May.  They could not be filed pursuant to that order. To allow the filing of new evidence in the pretext that they are evidence in reply would be an ambush on the other side and should not be allowed. (Sze Ching Lok v China Resources Power Holdings, HCMP 1655 of 2013, unreported, 31 December 2013)

9. Counsel for the defendant, Mr Li, submitted in court that the issue on the relationship between the defendant and Dongguan Taide was only raised in the plaintiff’s skeleton submission filed for the hearing in May.

10. I do not agree with Mr Li.  The plaintiff has in fact clearly put in the Affirmation of Jenny Fang filed on 26 March 2015 that they took issue on the relationship between the defendant and Dongguan Taide.  Paragraph 12 of the Affirmation of Jenny Fang reads as follows:

“The Defendant, i.e. HK Taide and Dongguan Taide are obviously separate and distinct entities. The Defendant is a Hong Kong unlimited company. Dongguan Taide is a group of limited companies in the PRC. There is no evidence in Xu’s Affirmation to suggest that HK Taide and Dongguan Taide are related companies in any way. Furthermore, no evidence has been produced to link up Xu and her purported position in Dongguan Taide, if indeed she holds a position there.”

11. Mr Li has also made detailed response in his submission filed for the May hearing on the relationship between the defendant and Dongguan Taide without making any mention of the need to file further evidence on this point.

12. There is no dispute that the new evidence was raised at a very late stage.  Although the defendant accepted that they are beyond the scope of the May order, they rode on the May order and inserted them in the affirmations filed pursuant to the May order.  There was no application for leave to file new evidence.  There was no explanation of the lateness in filing the same.  The plaintiff, who should have the last word in this application, was not given a chance to respond to the new evidence. 

13. To uphold due process, procedural rules ought to be followed to maintain justice and fairness to both parties.  It is incumbent on a litigant to make proper inter parte application to seek leave of the court for the filing of new evidence at a late stage and explanation for the lateness is expected from the court.  This applies both pre-CJR and post-CJR.

14. In the context of late discovery, the court has held on a number of occasions that a litigant who gave late discovery under the guise of voluntary discovery without seeking leave of the court is impermissible.  (Hong Lok School Limited & anor v Chow Sai Yiu & anor, HCA 17139 of 1999, unreported, 7 July 2003; Guangzhou Green-Enhan Bio-Engineering Co Ltd & anor v Green Power Health Products International Co Limited & ors, HCA 4651 of 2002, unreported, 21 August 2004; Liu Chen v Chan Poon Wing, HCPI 1779 of 2003, unreported, 7 October 2009; Kinetics Medical Health Group Company Limited & ors v Dr Tse Ivan Cheong Yau, HCA 1115 of 2010, unreported, 8 May 2013 )

15. The same principle, in my view, should equally apply to the filing of evidence in a summary judgment application.  A late inclusion of new evidence shortly before the hearing, whether by riding on the order made in May or under the guise of voluntary submission of relevant evidence before the court, are not allowed without proper application for leave, at which the court shall take a balancing exercise and consider matters including the relevance of the new evidence, the reason for the lateness and any prejudice against the other side as a result of the late filing of new evidence.  The court can then make appropriate order to do fairness to the parties. 

16. I have indicated at court to the defendant that notwithstanding that application for leave should be made by way of Summons, I was prepared to hear oral application for leave to file the Relevant Paragraphs in the absence of a Summons if the defendant was minded to make the application.  I have also indicated that in considering an application for leave, the court will have to consider whether there shall be an adjournment to allow the plaintiff to file evidence in reply and the issue of costs.

17. The defendant confirmed that she would not make any application for leave to include the Relevant Paragraphs as evidence for the hearing of the summary judgment application. 

18. That remains for this court to determine the Expunge Application.  Having considered the submission of both parties, I made an order to expunge the Relevant Paragraphs.  I order that the defendant shall pay the plaintiff costs of the Expunge Application summarily assessed at HK$18,000.

19. I shall then deal with the summary judgment application.

Legal Principles on Summary Judgment

20. The legal principles for a summary judgment application under Order 14 are well established.  The salient principles can be summarised as follows:-

(1)   The purpose of a summary judgment is to enable a plaintiff to obtain a quick judgment where there is plainly no defence.

(2)   The test at the summary stage is whether the defendant’s assertion is believable.

(3)   The mere assertion by a defendant of a given situation does not, ipso facto, provide leave to defend the case.  The onus is on the defendant to show that the defence is real and bona fide and not “frivolous or practically moonshine”.  Sufficient facts and particulars shall be given to show that there is a triable issue.  Bare allegations are not sufficient.

(4)   In considering whether there are triable issues, the court will test the defence against the evidence disclosed in the affidavits, the contemporaneous documents, and consider any inconsistence or inherent probabilities in the defence put forward.

(5)   Where it is satisfied not only that there is no defence but no fairly arguable point to be argued on behalf of the defendant, the court shall give judgment to the plaintiff.

(6)   Where there is a serious dispute of law or fact, or complex issues or voluminous evidence is involved, a summary judgment application is not appropriate.  However, it will not do the trick by the mere production of hefty affidavits and voluminous exhibits to create an illusion of complexity where none exists.  Where there are substantial issues of genuine complexity, the case shall go for trial but not to be determined summarily.

(7)   A summary judgement application should not become in substance a rehearsal of the trial or a trial on affidavit evidence.  The court is only to consider whether the defence is believable, but not whether the defence is to be believed.

(8)   Where the circumstances are such as to require close investigation, there ought to be a trial.

(9)   Where a defence can be described as “shadowy” or there is little substance in it or the case is almost one in which summary judgment should be ordered, the court should order a leave to defend on condition of payment into court.

(Hong Kong Civil Procedures 2015, paragraphs 14/4/8-9; Re Safe Rich Industries Ltd [1994] HKLY 183 per Bokhary JA (as the learned Non-Permanent Judge then was); Mass International Ltd v Hillis Industries Ltd [1996] 1 HKC 434; Crown House Engineering v Amec Projects Ltd (1990) 6 Const LJ 141 at 154 per Bingham LJ; approved in UMG Recordings Inc v Profit Chart Development Limited, CACV 262 & 263 of 2012, unreported, 19 February 2013; Paul Y Management Ltd v Eternal Unity Development Ltd, CACV 16/2008, unreported, 12 August 2008)

The plaintiff’s case

21. The plaintiff is a limited company incorporated in the USA, carrying on the business of supplying restaurant equipment and products.

22. There was no business relationship or dealing between the plaintiff and the defendant.  It is not in dispute that the plaintiff did not owe any payment obligation to the defendant.

23. The plaintiff had transferred US$19,986.34 on 19 March 2014 and US$7,984.27 on 15 April 2014 to the bank account of the defendant at the Hongkong and Shanghai Banking Corporation (“Bank Account”).  It is the plaintiff’s case that these transfers were made under a mistaken belief that the Bank Account belonged to one of its suppliers, Guangdong Silique International Group Wintex Corp Limited (“the Supplier”).  The remittances were intended for the settlement of the then credit balance of about US$27,970.61 owed by the plaintiff to the Supplier.

24. It was only when the Supplier chased the plaintiff for payment on 29 April 2014 that the plaintiff discovered the Bank Account does not belong to the Supplier and the two payments were made by mistake.

25. The plaintiff then reported the matter to the bank and the police.  The plaintiff commenced this action against the defendant for the recovery of the sum paid into the Bank Account.  It took out an application for a summary judgment against the defendant under Order 14 of the Rules of District Court.

THE DEFENCE

26. The defendant contended that she has been operating “Taide Electronics Company” (台德電子公司) (“HK Taide”) in Hong Kong since 15 October 2004.

27. In or about early 2013, the defendant came to be acquainted with 2 Nigerian traders at a trade show held in Hong Kong.  These 2 Nigerian traders identified themselves as Jeff and Jeff’s father respectively.  No name cards were exchanged.

28. On 7 May 2013, Jeff and his father visited the defendant in Dongguan and placed an order for the supply of audio equipment in the amount of US$27,960.60 (“Initial Order”).  Thereafter, a sales representative of the defendant, Ms Sophia Chen (“Sophia”) prepared and sent a proforma invoice to Jeff at the email address supplied by him.  At that time, the Initial Order was not confirmed.

29. About 10 months later on 8 March 2014, Sophia received a telephone call from Jeff, who told her that an order was imminent. As the defendant did not have the required stock at that time, the parties agreed, during the same telephone call, to reduce the quantity of the Initial Order.  The amount under the reduced order (“Reduced Order”) is US$15,200.00.

30. On 20 March 2014, the defendant received at the Bank Account the amount of US$19,977.95.  At that time, the defendant believed that this amount was made in satisfaction of the orders placed through Jeff, and was paid directly by Jeff’s customer.

31. On the same date, Jeff instructed Sophia to retain US$2,006.34 from the sum of US$19,977.95 as deposit, and to remit the balance thereof to an account designated by Jeff.  The defendant made the remittance as instructed by Jeff on the following date, that is 21 March 2014.  On the same date, Sophia sent an email to Jeff stating that she has made the remittance with a supporting remittance slip showing that the payment was from a person named “胡曉平” to a payee whose details were given by Jeff through a text phone message.

32. About 1 month later on 21 April 2014, the defendant received an email from Jeff attaching a remittance advice showing a sum of US$7,984.27 transferred to the defendant by the plaintiff. This sum of US$7,984.27 was received by the defendant at the Bank Account.  The defendant believed, at that time, that this payment was made in settlement of the Reduced Order and was again paid directly by the end customer.  Shortly thereafter, Sophia informed Jeff that the payment was still short for the Reduced Order in the sum of US$15,200.

33. On 7 May 2014, Sophia prepared a Proforma Invoice for the Reduced Order.

34. On the same date, Jeff requested Sophia to further reduce the Reduced Order to US$10,000.  Sophia prepared another Proforma Invoice in the sum of US$10,000 (“Final Order”).

35. On 9 May 2014, the defendant delivered the goods pertaining to the Final Order to a warehouse as instructed by Jeff.

36. A few days later, on or about 12 May 2014, the defendant discovered that the Bank Account was frozen.  The defendant reported the matter to the police on 25 August 2014.

37. In summary, the gist of the defence was that there was a genuine commercial transaction for the purchase of goods by a person named Jeff, whom the defendant met in a trade show. At the time when the Sum was received, it was believed that the Sum was made for the payment of the orders placed by Jeff.  Goods were supplied and delivered to Jeff or at his instruction on the belief that the Sum was deposited to the defendant for the payment of the goods.  Further, the defendant, believing that the Sum was paid by or at the instruction of Jeff, has remitted part of the money out at the instruction of Jeff.  The defendant contended that there was a change of position on her part.

LEGAL PRINCIPLES ON UNJUST ENRICHMENT

38. As held in Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79, per Ribeiro PJ at paragraph 67, a useful framework for approaching a claim in unjust enrichment involves asking the following questions:-

(1)   Was the defendant enriched?

(2)   Was the enrichment at the plaintiff’s expenses?

(3)   Was the enrichment unjust?

(4)   Are any of the defences applicable?

39. It was held in Barclays Bank v WJ Simms Ltd [1980] QB 677 that money paid under a mistake of fact was prima facie recoverable provided that the payer did not intend the payee to have the money in any event, the money was not paid for good consideration and the payee had not in good faith changed his position.

40. On the defence of change of position, Lord Goff has held in Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 at 579F – 580F that:-

“where an innocent defendant’s position is so changed that he will suffer an injustice if called upon to repay or to repay in full, the injustice of requiring him so to repay outweights 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. … In other words, bona fide change of position should of itself be a good defence in such cases as these. The principle is widely recognized throughout the common law world. ……

…… It is, of course, plain that the defence 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. …… At present I do not wish to state the principle any less broadly than this: that the defence is available to a person whose position has so changed that it would be inequitable in all the circumstances to require him to make restitution, or alternatively to make restitution in full. I wish to stress however that 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 business.”

41. To constitute a valid defence to a restitution claim, there must be some causal link between the mistaken receipt of the payment and the defendant’s change of position. (Scottish Equitable plc v Derby, [2001] 3 All ER 818).

DECISION

42. The plaintiff criticized the transactions between Jeff and the defendant as being inconsistent, not fully supported by the documentary evidence, is incredible and unbelievable.  The plaintiff further contended that the documents showed that the orders were placed with Dongguan Taide but not the defendant. 

43. The defendant contended that the defendant and Dongguan Taide are related entities.  The transactions with Jeff were made bona fide.  There was no allegation or evidence of fraud.

44. The defendant also submitted that the plaintiff’s own case was suspicious and there was no reason as to why the plaintiff would make the payment to the defendant’s Bank Account on more than one occasion.

45. The court shall not embark on a mini-trial on affidavits in a summary judgment application.  Suffice to say that there were a number of unresolved questions one may ask on the facts raised by both parties.  These factual disputes are to be resolved at trial.  I shall not express any further view on these issues at this stage.

46. As to the plaintiff’s claim on unjust enrichment, there was no dispute that the defendant had received the Sum from the plaintiff in the absence of any payment obligations by the plaintiff.  The defendant was enriched, at the expenses of the plaintiff, by the payment of the Sum.  The plaintiff relied on mistake as the unjust factor.

47. The defendant raised the defence of change of position. I do not consider it unbelievable and unarguable. But for the receipt of the Sum by the defendant, the defendant would not have remitted the amounts and delivered the goods at the instruction of Jeff.  There is no allegation or evidence of fraud on the part of the defendant. There is no evidence that the defendant has done these in bad faith.  This is an arguable defence which should be further explored at trial.  I dismiss this application.

48. Costs shall follow the event.  I made an order nisi that the plaintiff shall pay the defendant costs of this application, to be taxed if not agreed, with certificate for counsel.  This cost order nisi shall become absolute if no application to vary the same is made within 14 days from the date of this decision.