MJDS HOLDINGS, LLC v. G&B TRADE LTD

HCA 758/2021

[2023] HKCFI280

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 758 OF 2021

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DECISION

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A.  INTRODUCTION

1.  This is the Plaintiff’s application by summons (“the Summons”) dated 14 April 2022 for summary judgment against the Defendant pursuant to Order 14, Rule 1 of the Rules of the High Court, Cap 4A, in the sum of US$10,428,000 (or its Hong Kong dollar equivalent at the time of payment) together with interest and costs.  The factual background and each party’s position will be set out below.   In essence, the Plaintiff’s case is that the Defendant failed to supply the goods notwithstanding the purchase orders and payments made by the Plaintiff.

B.  BACKGROUND

2.  The Plaintiff is a Texas limited liability company incorporated in Texas, carrying on a business in relation to the purchase and sale of medical supplies in the United States.  It has a wholly owned subsidiary, Innovation Catalyst Group LLC, a Utah limited liability company which has traded in the name of “Flywheel Fulfillment” (“Flywheel”).

3.  Mr David Michael Andrus (“Mr Andrus”) was at all material times the procurement manager of the Plaintiff and acted on the Plaintiff’s behalf.  He made two Affidavits dated 1 April 2022 and 21 July 2022 respectively in support of the Plaintiff’s current application.

4.  The Defendant is a limited company incorporated in Hong Kong primarily engaged in the import and export of goods to and from Asia.  Ms Ma Liyan (“Ms Ma”) was the sole director and shareholder of the Defendant.  Ms Ma’s husband, Mr Steve Kim (“Mr Kim”), was the foreign trade manager of the Defendant. 

5.  In around early 2017, Mr Andrus began a business relationship with one Mr Mikel Nimori (“Mr Nimori”).  They worked on various transactions, where Mr Nimori assisted Mr Andrus in sourcing goods for the customers of the Plaintiff.

6.  In around March 2020, Mr Nimori sourced and delivered medical facemasks to the Plaintiff for a total price of US$557,000 (“the March 2020 Facemask Deal”). Pursuant to Mr Niromi’s instructions, the purchase price was paid into Ms Ma’s personal bank account at China Minsheng Banking Corporation Limited.

7.  In around mid-2020, the Plaintiff engaged Mr Nimori to provide inspection, logistics and duties clearance services in respect of a consignment of nitrile gloves in South Africa for a total price of US$1,000,000 (“the South African Deal”).  Pursuant to Mr Niromi’s instructions, Flywheel made two payments each in the sum of US$500,000 (“the Prior Payments”) to the Defendant’s bank account at HSBC Bank (China) Company Limited (“the Defendant’s Bank Account”).[1] However, the South African Deal fell through for reasons unrelated to the present action.

8.  In around July 2020, the Plaintiff provided Mr Niromi with a purchase order for 7.5 million nitrile gloves for a total price of US$500,000 (“the July 2020 Deal”). On 10 July 2020, pursuant to Mr Niromi’s instructions, Flywheel made a payment of US$500,000 to the Defendant’s Bank Account.  Later, it transpired that Mr Niromi mistakenly arranged for the supply of latex instead of nitrile gloves. Thus, the order was subsequently cancelled, and a total of US$490,000 was refunded to Flywheel.[2]

9.  On 9 September 2020, the Plaintiff, by way of an email addressed to Mr Nimori, placed a purchase order for 150 million nitrile disposable powder-free gloves (“the Gloves”) for delivery in the United States at a unit price of US$0.075, for a total price of US$11,250,000 (“the Purchase Order”).  On the same day, the Plaintiff was informed by Mr Nimori that the Prior Payments will be regarded as payment for the Purchase Order.

10.  Pursuant to the Purchase Order, the Plaintiff made the following payments to the Defendant’s Bank Account:

Date paid by Plaintiff	Paid by Plaintiff	Net received by Defendant
9 September 2020	$2,812,500	$2,812,490
10 September 2020	$1,812,500	$1,812,490
21 September 2020	$1,875,000	$1,874,990
7 October 2020	$3,600,000	$3,599,990
Total:	$10,100,000	$10,099,960

11.  Coupled with the Prior Payments (but disregarding the payments received under the July 2020 Deal), a net sum of $11,099,890 (“the Sum”) was paid by or on behalf of the Plaintiff into the Defendant’s Bank Account.

12.  In around September 2020, the Defendant received a purchase order from Mr Niromi for 3 billion nitrile gloves for the total price of US$252,000,000.  Mr Niromi specifically asked for a timely delivery of 15 million gloves first to satisfy the order of an unspecified customer.

13.  On 19 September 2020, the Defendant entered into an agreement with EG Group Product and Service Co. Ltd. (“EG Group”), a glove manufacturer in Thailand, for the purchase of 3 billion nitrile gloves for a total price of US$199,200,000 (“the EG Group Agreement”).  On 22 September 2020, the price for the EG Group Agreement was revised to US$211,200,000 due to the urgent demand caused by the Covid-19 pandemic.

14.  On 22 September 2020, the Defendant made a payment of US$4,950,000 to EG Group as deposit for the EG Group Agreement.

15.  However, EG Group did not deliver any goods in accordance with the EG Group Agreement. In response, on 15 October 2020, the Defendant entered into a substitute agreement with Chau Thuan Phat Investment JSC (“CTPI”), a Vietnamese glove manufacturer, for the purchase of 3 billion nitrile gloves for the total price of US$201,000,000 (“the CTPI Agreement”).

16.  On 16 October 2020, the Defendant paid the initial deposit of US$10,500,000 according to the CTPI Agreement.  However, as there were insufficient funds in the Defendant’s Bank Account, US$5,475,000 of the deposit was paid directly from Mr Kim’s personal bank account.

17.  On 17 and 18 March 2021, the Plaintiff received a total of 6 million nitrile gloves from CTPI.  On the relevant bills of lading, the “Consignee” of the goods was stated as Flywheel, whilst the Defendant was stated to be the “Notify Party/Intermediate Consignee”. 

18.  On 8 April 2021, the Plaintiff on-sold the gloves at a unit price of US$0.1, for a total price of US$600,000.

19.  On 27 April 2021, the Plaintiff received a further 2.8 million[3] gloves from CTPI.  On the relevant bill of lading, the “Consignee” of the goods was stated as Flywheel, whilst the “Notify Party” was stated as “DK Express Inc.”.  Of the 2.8 million gloves that the Plaintiff received, the Plaintiff on-sold 1.3 million of them at approximately US$0.03 per unit, for a total value of US$40,000.[4] 

20.  On 28 April 2021, Mr Kim requested Mr Nimori to make payment in the sum of US$50,000,000 to the Defendant so that it could pay the deposit for the remaining gloves under the CTPI Agreement.  However, no payment was made.  Consequently, the Defendant was unable to pay CTPI any further sums, and CTPI refused to deliver any more gloves pursuant to the CTPI Agreement.

21.  In around April 2021, the Defendant commenced an action against EG Group in Thailand for its alleged failure to deliver any gloves in accordance with the EG Group Agreement.  On 18 August 2021, the Defendant entered into a settlement agreement with EG Group for the sum of THB120,000,000 (equivalent to approximately US$3,600,000).  To date, EG Group has not paid any sums in accordance with the settlement agreement.

22.  In around the summer of 2021, EG Group contacted the Plaintiff with a view to reaching a settlement agreement but to no avail. 

C.  THE PARTIES’ RESPECTIVE CASES

23.  The Plaintiff commenced this action by way of a Writ of Summons on 17 May 2021. In its Endorsement of Claim, the Plaintiff alleged that:

(1)  Between June and September 2020, “the Defendant, acting by Mr Nimori, represented to the Plaintiff that it was able to sell to, or purchase on the Plaintiff’s behalf, [the Gloves] from manufacturers in Vietnam and/or Thailand, at the price of about US$0.075 per glove”.

(2)  In reliance of the Defendant’s representations, the Plaintiff placed the Purchase Order on 9 September 2020 and paid a total sum of US$11,100,000 to the Defendant.

(3)  The Defendant’s representations were false. In breach of its contractual, tortious, fiduciary and/or other duties to the Plaintiff, the Defendant failed to supply the Gloves, save for about 9 million gloves, or return the said sum of US$11,100,000, or any part thereof, to the Plaintiff.

(4)  The Defendant continues to hold the said sum of US$11,100,000 as constructive trustee for the Plaintiff, and/or has been unjustly enriched at the expense of the Plaintiff.

24.  Hence, in its Endorsement of Claim, the Plaintiff expressly pleaded the following causes of action: (1) breach of contract; (2) tort of misrepresentation; (3) breach of fiduciary duty; and (4) unjust enrichment.

25.  On 30 June 2021, the Plaintiff filed its Statement of Claim (“SOC”) containing the following allegations:

(1)  On 9 September 2020, the Plaintiff issued the Purchase Order to the Defendant. 

(2)  The Plaintiff, either by itself or through Flywheel, paid a total sum of US$11,100,000 to the Defendant.

(3)  The Plaintiff had received from the Defendant a total of 9 million of the Gloves (6 million between 17 and 18 March 2021; 3 million[5] on 27 April 2021).  They had a total value of US$672,000.[6] 

(4)  By reason of the above, “the consideration for the payment of US$10,428,000 has wholly failed” (the figure appears to be arrived at by deducting US$672,000 from US$11,100,000).  The Plaintiff is accordingly entitled to payment of US$10,428,000 or, alternatively, damages.  

26.  In its SOC, the Plaintiff did not expressly refer to any causes of action, save and except its allegation as mentioned above that “the consideration for the payment of US$10,428.000 has wholly failed”.  The Plaintiff has, however, pleaded: (1) the existence of an agreement between the Plaintiff and the Defendant in the form of the Purchase Order; (2) the Plaintiff’s performance of its obligations under the Purchase Order by making payments to the Defendant; and (3) the Defendant’s breach by making only part-delivery of the Gloves. 

27.  As I will explain further below, one of the Defendant’s arguments is that the Plaintiff’s claim for unjust enrichment is contradicted by the Plaintiff’s own case that there was a contractual relationship between the Plaintiff and the Defendant.  

28.  In its Defence filed on 3 September 2021, the Defendant responded as follows:

(1)  At all relevant times, there did not exist any contractual relationship between the Plaintiff and the Defendant.  There were no dealings between the two, whether through agents or otherwise.

(2)  The Defendant had never seen the Purchase Order until it was given a copy of it by the Plaintiff’s solicitors in these proceedings.

(3)  The address stated in the Purchase Order was not the Defendant’s address.

(4)  The Defendant had never received any payments from the Plaintiff.  Alternatively, any payments made to Defendant were made on behalf of Mr Nimori for goods purchased by him under various agreements between Mr Nimori and the Defendant.

29.  It is noted that the Defendant has pleaded alternative cases as to whether it had received any payments from the Plaintiff.  I should, nonetheless, point out that according to the evidence of Ms Ma (filed for and on behalf of the Defendant after the present application was taken out) which will be mentioned below, it is now confirmed by the Defendant that payments were actually received from the Plaintiff. 

30.  On 14 April 2022, the Plaintiff took out the present Summons for summary judgment.

31.  On 28 June 2022, Ms Ma filed her Affirmation in opposition to the Summons, whereby she clarified the following aspects of the Defendant’s case:

(1)  The address stated in the Purchase Order was in fact the Defendant’s address. The mistake was caused by miscommunications between Ms Ma and the Defendant’s legal team.

(2)  The Defendant had received the Sum from the Plaintiff.  The Defence mistakenly stated otherwise because Ms Ma had always believed that the payments the Defendant received were paid by Mr Nimori instead of the Plaintiff.

32.  Thus, the Defendant’s receipt of the Sum is no longer in dispute.

33.  Significantly, in Ms Ma’s Affirmation, she had, for the very first time in these proceedings, mentioned the existence of the EG Group Agreement and CTPI Agreement.  This has important implications on whether the Defendant has a good defence against the Plaintiff’s claim in unjust enrichment. 

34.  The following points were raised in the Plaintiff’s Skeleton Submissions:

(1)  The Defendant’s primary defence is that Mr Nimori was not its agent and there was no contract between the Plaintiff and the Defendant.  This is untrue.  In any event, it does not matter, as the unjust factor of failure of basis applies regardless of whether there was a contractual relationship between the Plaintiff and the Defendant.

(2)  To the extent that the Defendant’s evidence regarding the lack of any prior dealings between the parties is relevant to any defence it had, it should not be given any credence because of the inconsistencies and evasions in the Defendant’s case.  There is ample evidence showing that there were dealings between the Plaintiff and Defendant even before the Purchase Order (this aspect of the Plaintiff’s case will be further explained below).  

(3)  The Plaintiff has raised a prima facie case for unjust enrichment in that: (1) the Defendant has been enriched by the receipt of monies deriving from the Plaintiff; (2) the enrichment was at the expense of the Plaintiff; and (3) the retention of the enrichment was unjust, based on failure of basis.  Therefore, the burden has shifted to the Defendant to satisfy the Court that summary judgment should not be given.

35.  The Defendant responded as follows in its Skeleton Submissions:

(1)  The basis of the Plaintiff’s unjust enrichment claim is inconsistent with the evidence adduced by it in support of its contention that there was a contractual relationship between the Plaintiff and the Defendant.  The existence of such contractual relationship would bar an unjust enrichment claim.    

(2)  Alternatively, the Defendant’s version of events is at least believable on the evidence.  If the Defendant’s version of events is accepted, the Plaintiff’s claim for unjust enrichment would be barred because it would be inconsistent with the allocation of risk and benefit in the contract between the Defendant and Mr Nimori (citing Goff & Jones, The Law of Unjust Enrichment, 10^th Ed, 2022, §3-83).

(3)  In any event, even if the Defendant’s enrichment was unjust, it had changed its position in good faith as a direct result of the benefits received from the Plaintiff.  The vast majority of the Sum received from the Plaintiff had already been paid to EG Group and CTPI.

36.  At the hearing, Mr Allen, who appeared on behalf of the Plaintiff, expressly disclaimed reliance on any alleged contractual relationship between the Plaintiff and the Defendant.  He submitted that the Plaintiff’s claim is only based on unjust enrichment.

37.  The Plaintiff had gone to considerable lengths in its Skeleton Submissions in addressing a range of factual issues, in particular whether there were any prior dealings between the Plaintiff and the Defendant.  The Plaintiff was adamant that there were such prior dealings.  It submitted that the Defendant’s case that Mr Nimori had been a customer instead of an agent of the Defendant is inherently improbable for, inter alia, the following reasons:

(1)  Despite the Defendant’s position that Mr Nimori usually placed orders with the Defendant via email or other instant messaging services, the Defendant produced only one email from Mr Nimori to the Defendant dated 14 August 2019 and an incomplete WeChat thread.

(2)  It “beggars belief” that in September 2020, the Defendant would have accepted an order from Mr Nimori, an individual, for 3 billion nitrile gloves at US$252,000,000, without any written contract, letter of credit, or other security.

(3)  The Defendant denies having entered into the March 2020 Facemask Deal with the Plaintiff, claiming that it was one between the Defendant and Mr Nimori in his personal capacity.  However, the invoice produced by the Defendant does not identify the Defendant as seller, and the quantity therein does not correspond to the March 2020 Facemask Deal (being 1 million, not 100 million). 

(4)  The Defendant’s case that the Plaintiff’s Prior Payments were made in respect of Mr Nimori’s mistaken order for latex gloves instead of the South African Deal was inconsistent with its own evidence. The Defendant’s own bank statements identified the Prior Payments as being for “inspection and freight forwarding services for nitrile gloves”, not for the purchase of latex gloves.  According to the Defendant, after receiving the Prior Payments, it paid a deposit of US$350,000 to a Malaysian manufacturer in two instalments for the purchase of latex gloves.  The two instalments were paid to two entities, “Hung Kee Development Trading Limited” and “Tianjin Textile Group Import and Export”, neither of which was obviously Malaysian.

38.  On the other hand, the Defendant submitted that its version of events is at least believable and highlighted the following matters:

(1)  It was the Plaintiff’s own evidence that Mr Nimori was its only point of contact in respect of the prior transactions and the Purchase Order.  There was no evidence to show that the Plaintiff and the Defendant had any direct communications at all.

(2)  There was no mention of the Plaintiff in the Defendant’s correspondence with Mr Nimori between 27 September 2020 and 4 August 2021.

(3)  The Defendant had produced various documents, including its communications with Mr Nimori, its agreements with EG Group and CTPI, and its bank statements for the period between August 2020 and November 2020 in support of its factual case.

D.  LEGAL PRINCIPLES

39.  The principles on summary judgment are well-established. Summary judgment should only be brought in cases where it is clear that the defendant cannot show a real or bona fide defence or a fair probability of reasonable grounds that a bona fide defence exists.  I also bear in mind that the Court should not embark on a mini trial of affidavits, and unless it is obvious that the defence is “frivolous and practically moonshine”, summary judgment must not be granted: Hong Kong Civil Procedure 2023 at §14/4/9.

40.  To satisfy the Court that the case is suitable for summary judgment, the plaintiff must at the outset prove his case and demonstrate that the Defendant has no defence.  Only then will the burden shift to the defendant in showing that summary judgment should not be granted in the plaintiff’s favour because of an issue or question that ought to be tried, or because there are other reasons why there ought to be a trial: Hong Kong Civil Procedure 2023 at §14/4/1.

41.  Further, summary judgment will only be granted on the merits of the plaintiff’s pleaded case.  The plaintiff has the obligation to establish that the statement of claim must be complete and good in itself.  Any defect or omission cannot be corrected by way of a supplemental affirmation: Hong Kong Civil Procedure 2023 at §14/1/5. 

E.  ANALYSIS

42.  The Plaintiff’s claim for unjust enrichment depends on the following questions as set out by the Court of Final Appeal in Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79 at §67, which involves asking the following four questions:

(1)  Was the defendant enriched?

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

(3)  Was the enrichment unjust?

(4)  Are any of the defences applicable?

43.  There is no longer any dispute between the parties over the first and second questions.  As aforesaid, since the filing of Ms Ma’s Affirmation, it is now common ground that the Defendant did receive the Sum from the Plaintiff.  What remains in dispute is the third and fourth questions, to which I now turn.

WAS THE ENRICHMENT UNJUST?

44.  The Plaintiff relies on the unjust factor of total failure of consideration.  As explained by Goff & Jones at §12-01:

“The core underlying idea of failure of basis is simple: a benefit has been conferred on the joint understanding that the recipient’s right to retain it is conditional. If the condition is not fulfilled, the recipient must return the benefit”.

45.  The unjust factor of total failure of consideration applies not only to unfulfilled contracts, but also to unfulfilled legitimate expectations which fall short of contract, or where an expected contract never materialises: British Steel Corp v Cleveland Bridge and Engineering Co Ltd [1984] 1 All ER 504; Chitty on Contracts: Hong Kong Specific Contracts, 6^th Ed, 2019, §20-072.

46.  On the other hand, it is generally accepted that a plaintiff cannot claim restitution of a sum which was paid pursuant to a subsisting contractual obligation: Portman Building Society v Hamlyn Taylor Neck (a firm) [1998] 4 All ER 202 at 208d-e.  As Ribeiro PJ said in Shanghai Tongji at §92:

“While a contract continues to subsist between the parties, one party who makes a payment to the other party in accordance with his obligations under that contract cannot be allowed to mount a claim in restitution for the return of that sum since such a claim would be inconsistent with what the parties had agreed. It is in this sense that the contract would be “undermined” or, as Professor Birks puts it, that the restitutionary claim would “subvert bargains” ([Birks, An Introduction to the Law of Restitution (1989 Rev ed.)], p.47).”

47.  Insofar as the Plaintiff’s pleaded case is concerned, it was alleged in the SOC that “the Plaintiff issued a purchase order to the Defendant to buy 150,000,000 nitrile disposable gloves […] for a total purchase price of US$11,250,000”.  This appears to be indicative of the existence of a contract between the Plaintiff and the Defendant on the terms of the Purchase Order.  Indeed, Mr Andrus (for the Plaintiff) in his 1^st Affirmation rejected the Defendant’s pleaded case that there was no contractual relationship between the Plaintiff and the Defendant as “not true”.  He went to some lengths to explain how Mr Nimori had also acted as the Defendant’s agent in prior transactions with the Plaintiff.  In his 2^nd Affirmation, he reiterated that he “understood at all times that Mr Nimori was acting on behalf of the Defendant”.

48.  On the contrary, the Plaintiff’s written and oral submissions sought to focus on unjust enrichment.  As mentioned above, Mr Allen, in his oral submissions, went so far as to say that unjust enrichment is the sole basis of the Plaintiff’s present claim.  At the same time, the Plaintiff nonetheless maintained its position that there was a contract between the Plaintiff and the Defendant.  This was made abundantly clear in the following passages of the Plaintiff’s Skeleton Submissions:

“43. D’s primary defence is that there was no contract or business dealings between P and D, and that Mr Nimori was acting, not as an agent for D, but as a principal dealing directly with D.

44. Even if this was true – it is not – it does not matter in circumstances where it is admitted that D received P’s money, because the unjust factor applies ‘… not just to unfulfilled contracts, but also to unfulfilled legitimate expectations which fall short of contract…’”. (emphasis added)

49.  The stance taken by the Plaintiff is, to say the least, equivocal.  On the one hand, it asserted that it had a contractual relationship with the Defendant. It would follow that the Sum, which on the Plaintiff’s own case was made pursuant to the Purchase Order, would have been made pursuant to a subsisting contractual obligation.  On the other hand, it submitted that, regardless of whether there was a contract, it is entitled to restitution on the basis of total failure of consideration.  However, as made clear by the authorities cited above, a party who makes payment to another party in accordance with his obligations under a contract cannot make a claim in restitution for the return of that sum, since such a claim would subvert what the parties have agreed in the contract.

50.  In the circumstances, the question of whether there was a contract between the parties is important in determining whether the Plaintiff was entitled to restitution. It is unnecessary for me to comment on the factual dispute as to whether the Purchase Order constituted a contract between the Plaintiff and the Defendant in view of their prior dealings.  Suffice it to say that the Plaintiff, on its own case, still maintained that it had a contractual relationship with the Defendant and this is relevant to whether the Plaintiff’s claim on unjust enrichment can stand.

51.  The Plaintiff’s submission that it does not matter because the unjust factor applies even where there has never been a valid contract between the parties, for example, where a contract is void (e.g., Cobbe v Yeoman’s Row Management Ltd [2008] 1 WLR 1752) or where an expected contract never materialises (e.g. British Steel Corp (supra)), does not answer the question. It is one thing to say that the unjust factor is not confined to a situation where there was once a valid contract.  It is quite another to say that, therefore, the unjust factor applies even though, at the time of payment, there was still a valid contract.  As Shanghai Tongji (supra)made clear, where the relevant sum was paid pursuant to a subsisting contractual obligation, any claim for the return of that sum must be made in contract.  To allow such claim to be made in unjust enrichment would have the effect of subverting the contractual bargain made by the parties and this is impermissible as a matter of law.

52.  On the basis of the above analysis, there is a triable issue of whether the Sum was indeed paid pursuant to a contract.  Even on the Plaintiff’s own evidence, it is impossible to exclude that the Purchase Order did not constitute a binding contract between the Plaintiff and the Defendant.  This will, as discussed above, have a material bearing on whether the Plaintiff is entitled to a claim for unjust enrichment.

53.  In addition, it is well-established that the unjust factor of total failure of consideration (or “failure of basis”, as the Plaintiff preferred to call it, following Goff & Jones), requires a “total” failure of consideration. This means that even if a very small part of the benefit which formed the basis for the payment has been conferred, no action will lie: Goff & Jones at §12-16. The strictness of the “total” requirement is mitigated by the doctrine of severability.  Thus, where a divisible part of an agreement has wholly failed, the portion of the consideration which can be attributed to that part of the agreement can be recovered: Goff & Jones at §12-26; Chitty on Contracts Vol. 1, 34^th ed, 2021, at §32-072.

54.  It is common ground that the Plaintiff had received delivery of some of the Gloves. On the Plaintiff’s own case, 8,800,000 (as stated in Mr Andrus’s 1^st Affirmation) or 9,000,000 (as stated in the SOC) gloves were delivered.  Contrary to the Plaintiff’s submission, this is by no means a “tiny” quantity of gloves.  It could not be simply disregarded as de minimis for the purposes of the requirement of “total” failure of consideration. 

55.  In the SOC, the Plaintiff asserted that “the consideration for the payment of US$10,428,000 has wholly failed”.  It appears that the figure of US$10,428,000 was arrived at by deducting the alleged value of the gloves received by the Plaintiff from the gross payments that it made to the Defendant between 19 August 2020 and 7 October 2020.  However, no explanation was proffered by the Plaintiff as to why this is a satisfactory basis for severance.

56.  On the other hand, in the Plaintiff’s Skeleton Submissions, it was submitted that “the enrichment was unjust for failure of basis in respect of the price paid for each undelivered glove”.  This is clearly a different approach to severance.

57.  For the above reasons, I find that the Plaintiff has failed to establish that there is a satisfactory basis for severance, and thus a “total” failure of consideration.  Hence, I take the view that there is a triable issue as to whether the Plaintiff is able to establish a total failure of consideration.

CHANGE OF POSITION

58.  It is trite that the defence of change of position 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 restitution in full: Goff & Jones at §27-01, citing Lipkin Gorman (A Firm) v Karpnale Ltd [1991] 2 AC 548.

59.  As explained in TTI Global Resources Hong Kong Ltd v Hongkong Myphone Technology Co Ltd [2021] HKCFI 306 at §55, to raise this defence, the defendant must prove that:

(1)  There was a causative link between the receipt of the benefit and his change of position, so that, but for the receipt of the benefit, the defendant’s position would not have changed, either because the defendant no longer has the benefit received or because he has changed his position in some other way in reliance on the receipt of the benefit.

(2)  The defendant’s position was changed in circumstances which make it inequitable for him to make restitution to the plaintiff.

60.  However, the defence is not available to someone who has changed his position in bad faith or to a wrongdoer: Lipkin Gorman (supra) at p.580.

61.  It is common ground between the parties that, of the sums received by the Defendant from the Plaintiff, at least a total of US$9,975,000 were paid to glove manufacturers (US$4,950,000 to EG Group and US$5,025,000 to CTPI).  The Defendant submitted that, but for the receipt of the funds from the Plaintiff (which it mistakenly believed to have been paid on behalf of Mr Niromi), it would not have acted in furtherance of its agreement with Mr Niromi by proceeding with the EG Group Agreement and CTPI Agreement.

62.  Although the Plaintiff challenged the truthfulness of the Defendant’s factual assertions regarding the lack of prior dealings between the Plaintiff and Defendant, it did not challenge the Defendant’s account regarding its dealings with EG Group and CTPI.  In particular, there was no allegation that the Defendant had paid away the sums that it had received from the Plaintiff in bad faith, or that it would have paid away such sums regardless of whether it had received the payments from the Plaintiff. 

63.  Instead, the Plaintiff placed emphasis on the fact that the money paid to EG Group and CTPI was traceable to the Sum, apparently in support of its contention that the Defendant was enriched at its expense.  However, given it is now undisputed that the Defendant received the Sum from the Plaintiff, it is difficult to see the continued relevance of the Plaintiff’s submissions in this regard.  In any event, it is apparent from the Plaintiff’s arguments that there is at least a dispute on whether there was any causative link between the Defendant’s receipt of the Sum and the subsequent payments to EG Group and CTIPI.  Such dispute seems to reinforce the Defendant’s case that there is a triable issue as to whether it is entitled to the defence of change of position.

F.  CONCLUSION

64.  On the basis of the above analysis, I take the view that there are plainly triable issues in this case which cannot be resolved by way of affidavit evidence. Given the fact that the present application was taken out after the Defence had been filed, it is necessary to consider if the Summons should be dismissed with costs. 

65.  However, I take into account that, as explained above, the Defendant in its pleaded case has maintained the position that it had never received the Sum from the Plaintiff, but this was only corrected in Ms Ma’s evidence filed after the present application was taken out.  Further, the Defendant’s pleaded case has failed to provide particulars of its alleged dealings with Mr Nimori or disclose the existence of the EG Group and CTPI Agreements, which would have material bearing on the availability of the change of position defence.  These matters were only subsequently explained in Ms Ma’s Affirmation filed in opposition to the present application.

66.  In the circumstances, I come to the conclusion that the appropriate order to be made is that the Defendant be granted unconditional leave to defend. 

67.  In view of the above, I make an order nisi that costs of and occasioned by this application be in the cause.  The costs order nisi shall become absolute unless an application to vary the same is taken out within 14 days from the date of this Decision.