BANCO NACIONAL S.A. v. TSE MUN HEI (a male)

1994, No. A42

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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Appeals from Master's decision

1. This is an appeal by the Defendent against the Order of Master Beeson made on the 13th May, 1994 whereby it was ordered that summary judgment be entered for the Plaintiff in the sum of US$9,000.00 or its equivalent in Hong Kong dollars at the time of payment, with interest thereon at the judgment rate from the date of Writ, and costs of the Action. There is also a cross-appeal by the Plaintiff asking for interest from the date of mistaken payment instead of from the date of issue of the Writ.

Issue raised on this appeal

2. The Defendant's appeal raises the issue of change of position as a defence to a claim for restitution. After hearing the parties, I said I would take time to consider and hand down my Judgment on the 8th July, 1994. This is my judgment and I release it for publication.

The Plaintiff's claim for restitution

3. The Plaintiff is and was at all material times a bank carrying on business in New York, U.S.A. On the 19th August, 1991, the Plaintiff was instructed by Interbanco S.A. to transfer a sum of US$93,000.00 into the Defendant's account at Citibank, Hong Kong, A/C No. 04523512 ("the Account"). However, the Plaintiff mistakenly made 2 transfers of US$93,000.00 each to the Account on that date. Upon discovering its error on the 9th March, 1992, the Plaintiff by a telex of that date informed Citibank of the error and asked Citibank to contact the Defendant for repayment of the sum of US$93,000.00 paid by mistake. When it became clear to the Plaintiff that Citibank was not in a position to assist, the Plaintiff, through its Solicitors, sent a letter to the Defendant demanding repayment. The Plaintiff had commenced an earlier Action against the Defendant for the same cause of action. But as the Plaintiff had discontinued the earlier Action by the 23rd February, 1994, as the Plaintiff is not relying on any doctrine of res judicata, and as nothing turns on the history of the earlier Action, I need not make any further reference to it.

4. The Plaintiff issued the Writ herein on the 4th January, 1994 claiming repayment of the sum of US$93,000.00 paid to the Defendant by mistake.

Plaintiff's application for summary judgment

5. The Defendant gave notice of intention to defend on the 25th January, 1994. On the 27th January, 1994 the Plaintiff issued a Summons under Order 14 asking for summary judgment. The Plaintiff filed and served evidence verifying the claim. The grounding Affirmation was made by Mr. Ivan Chu Kwong Ng, an Assistant Solicitor in the employ of the Solicitors for the Plaintiff, having the conduct of this Action on its behalf. Mr. Chu deposed in Paragraph 3 that:

"3. I have read the Statement of Claim and hereby confirm and verily believe the facts stated therein."

As Mr. Benjamin Chain, Counsel for the Defendant, has not taken any point on Mr. Chu's Affirmation, I shall say no more about it.

6. The learned Master ordered that judgment for the sum of US$93,000.00 claimed be entered in favour of the Plaintiff, but ordered that interest should run from the date of issue of the Writ herein, i.e. on the 4th January, 1994 instead of from the date of the mistaken payment, i.e. the 19th August, 1991.

The Defendant's case

7. Mr. Chain did not challenge the fact US$93,000.00 was paid by mistake by the Plaintiff to the Defendant on the 19th August, 1991 and credited into the Account on the 20th August, 1991.

8. The defence put forward by Mr. Chain on behalf of the Defendant is one of change of position.

Facts of this case

9. The instructions given by Interbanco S.A. to the Plaintiff were to transfer US$93,000.00 to Citibank "favor of Tse Mun Hei [i.e. the Defendant] - Account NBR: 04523512 [i.e. the Account] with themselves, by Order of Huang Hsin Hsiung ...".

10. The Account was opened and held with Citibank in the names of "Tse Mun Hei &/or Huang Hsin Hsiung" ("Huang"). Huang would appear to be the same person by order of whom Interbanco S.A. instructed the Plaintiff to make the transfer. It was a Hong Kong dollars current account. Prior to the 2 credits of (HK) $722,296.53 and $722,451.90 (representing the 2 transfers of US$93,000.00 each, and the small difference was probably due to the difference in exchange rates and bank charges) on the 20th August, 1991, the balance in the Account was $146.93. Between the 20th August and the end of that month, there were 3 further deposits by way of credit memos in the sums of $326,079.60, $217,038.81 and $496,311.24 respectively; and 25 withdrawals ranging from $1,000.00 to $270,000.00. At the end of that month, the balance stood at $1,645.01.

11. The Defendant's case is that Country Rich Investment Ltd. ("CR") was a private company owned and controlled by him and his enstrangled wife. Huang and the Defendant had known each other for years and they trusted each other. The Account was opened in their joint names because Huang would sometimes ask the Defendant to make payments for him in Hong Kong and although it was originally contemplated that Huang might wish to draw cheques on the Account, this had never happened. Huang purchased watches from CR and paid for them by remitting various sums to the Account, Huang would sometimes remit more than what was due to CR, but, more often than not, less than what was due to CR. All remittances made to the Account were made by Huang. The Defendant deposed that:-

"16. It was never a practice of Huang to draw my attention to any specific remittance and the 2 remittances of US$93,000.00 each were received and treated by me as money received from Huang for the use of [CR] in the ordinary course of businesses. 17. Relying on that, [CR] had continued to supply watches to Huang throughout 1991 until business with Huang ceased in about March 1992. In early 1992, Huang's business failed and he closed down his business. Huang was at that time indebted to [CR] for over HK$4 M but he managed to repay [CR] some HK$1 M odd leaving an outstanding and practically irrecoverable by [CR] as at [the 4th August, 1993] due to the difficulty of successfully suing and/or enforcing any judgment against Huang in Paraguay.

18. As far as [the Account] is concerned, it is almost used exclusively for the purpose of [CR]:

All remittances into this account were from Huang and no one else. One of the reasons why payments made by Huang were paid into this account was because remittance from Paraguay will take less time to clear if they go through Citibank (via their New York Office); and save for a very short period of time [CR] does not have any account with Citibank.

19. The 2 sums of US$93,000.00 each were duly accounted by me to [CR]. There is at all material times a running account between [CR] and me.

20. Further, as a matter of fact, of the 25th withdrawals totalling HK$2,482,680.00 (from the money received from Huang) between 21st August 1991 and [30th] August 1991 (when the credit balance was reduced to HK$1,645.01), I am able to say that they were all payments made to or on behalf of [CR]."

The Defendant went into details of the 25 withdrawals from the Account between the 20th and 31st August, 1991 and exhibited relevant documents to show that all payments were made to CR or on behalf of CR. The payments made on behalf of CR were in discharge of the ordinary trade or business debts of CR, including $18,000.00 paid to the Defendant himself as salary for August, 1991. The Defendant went on to say that:-

"22. I am advised by my legal advisers and verily believe that I do have a good defence to the Rlaintiff's claim since I received the money as agent for [CR] and I had paid the money to [CR] before any knowledge of the alleged mistake. I am further advised that I also have a good defence based on [change] of position."

The law on change of position

12. I accept Mr. Chain's contention that change of position has authoritatively been recognised as a defence by the House of Lords in Lipkin Gorman v. Karpale Ltd. [1991] 2 A.C. 548 at pp. 577 - 580, and that Lord Goff was most anxious that, in recognising this defence to actions of restitution, nothing should be said at that stage to inhibit the development of the defence on a case by case basis, in the usual way (at p. 580C).

13. The recovery of money in restitution is not, as a general rule, a matter of discretion for the Court. A claim to recover money at common law is made as a matter of right; and even though the underlying principle of recovery is the principle of unjust enrichment, nevertheless, where recovery is denied, it is denied on the basis of legal principle: per Lord Goff at p. 578 D - E.

14. Lord Goff then went on to state the basis upon which recovery is to be denied.

"The anrwer must be 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 outweighs the injustice of denying the plaintiff restitution. If the plaintiff pays money to the defendant under a mistake of fact, and the defendant then, acting in good faith, pays the money or part of it to charity, it is unjust to require the defendant to make restitution to the extent that he has so changed his position. Likewise, on facts such as those in the present case, if a thief steals my money and pays it to a third party who gives it away to charity, that third party should have a good defence to an action for money had and received. In other words, bona fide change of position should of itself be a good defence in such cases as these", at p. 579 F - G.

15. While recognising change of position as a defence, Lord Goff stressed that mere expenditure of money was not by itself sufficient. Lord Goff stated the principle at p. 580 F-H in these terms:-

"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 things. I fear that the mistaken assumption that mere expenditure of money may be regarded as amounting to a change of position for present purposes has led in the past to opposition by some to recognition of a defence which in fact is likely to be available only on comparatively rare occasions. In this connection I have particularly in mind the speech of Lord Simonds in Ministry of Health v. Simpson [1951] A.C. 251, 276."

Defendant's Submission

16. Mr. Chain was at pains to emphasize that CR was a separate legal entity from the Defendant.

17. He contended that the Defendant was the agent of CR and the Defendant accounted to CR before the Defendant knew of the Plaintiff's mistake. The fact of payment to CR, as rightful owner, must be detriment. The capacity in which the agent dealt with the payor was irrelevant. Mr. Chain conceded that as between the Defendant and Citibank in relation to the Account, the Defendant was dealing with Citibank as principal, but contended that the Defendant had never had any dealing with the Plaintiff at all. Mr. Chain further contended that Paragraphs 19 and 20 quoted above was evidence of detriment to the Defendant.

The agency point

18. Mr. Chain's submission raises 2 main points. The first is that of the agent accounting to his principal before knowledge of the mistake. There is not a shred of evidence to support Mr. Chain's contention that CR was the rightful owner of the sum of US$93,000.00 paid by the Plaintiff into the Account by mistake, and I have no hesitation in rejecting it. Mr. Robert Whitehead, Counsel for the Plaintiff, drew my attention to Newall v. Tomlinson (1871) L.R. 6 C.P. 405, Kleinwort, Sons & Co. v. Dunlop Rubber Co., (1907) 97 The Law Times 263, and United Overseas Bank v. Jiwani [1977] 1 All E.R. 733, and contended that the Defendant dealt with the Plaintiff as principal and that the Defendant had not changed his position in such a way which would make it inequitable to require him now to repay the money.

19. For the purpose of the present appeals, I accept, without deciding, that the Defendant opened, maintained and operated the Account and paid out the money mistakenly paid into the Account, as agent for CR. I do not decide this point because there is evidence against it. Firstly, the account holder is the Defendant ar/and Huang. Secondly, the Defendant stated in Paragraph 18 that the Account was "almost used exclusively" for the purpose of CR, which must mean that there were times when the Account was not used for the purpose of CR.

20. The 2nd sum of US$93,000.00 was received by the Defendant and paid by the Plaintiff, via the Citibank, probably also via Manufacturers Hanover Trust Co., New York. In my judgment, the Defendant did deal with the Plaintiff by receiving the 2nd sum of US$93,000.00 paid by the Plaintiff. The question is - what was the capacity in which the Defendant received this sum. As the Plaintiff paid the 2nd sum in error, the Plaintiff was paying its own money. For reasons best known to the Plaintiff's legal advisers, a copy of the Plaintiff's own instructions to Manufacturers Hanover Trust Co. or Citibank to pay the 2nd sum has not been exhibited. I have pondered whether there is a triable issue by reason of such omission. After careful consideration, I have come to the conclusion that there is none. There is nothing in the instructions given by Interbanco to the Plaintiff to suggest that the sum was to be remitted to the Defendant as agent for CR or any other person, legal or natural. It was to be remitted to the Account "favor of" the Defendant. On the Defendant's case, the Defendant had no dealing whatsoever with the Plaintiff. Thus there is in my judgment no ground for any suggestion (and none has been made by Mr. Chain) or doubt that the Plaintiff might have in its own instructions stated that the 2nd remittance was to be made to the Defendant as agent for CR. So far as the receipt of the 2nd remittance by the Defendant is concerned, for reasons best known to the Defendant's legal advisers, a copy of the relevant credit memo has not been produced. It is not open to the Defendant to suggest that something may turn on a document which was in the power, custody or control of the Defendant to produce but was not produced by the Defendant. No explanation has been offered for its non-production and no allegation of inability or difficulty to produce has been made. Mr. Chain conceded that the Defendant dealt with Citibank in relation to the Account as principal. In my judgment, the mistaken payment was made by the Plaintiff and received by the Defendant, both as principal, and neither the Plaintiff nor Citibank knew that the Defendant was acting as agent for CR.

21. In Kleinwort's case, Lord Atkinson stated the law at p. 265 in these terms:

"Many authorities were cited to your Lordships, the decisions in which are little more than applications of the broad principle laid down by Lord Mansfield, C.J. in Butler v. Harrison (2 Cowp. 565). They seem to establish that, whatever may in fact be the true position of the defendant in an action brought to recover money paid to him under a mistake of fact, he will be liable to refund it if it be established that he dealt as a principal with the person who paid it to him. Whether he would be liable if he dealt as agent with such a person will depend upon this, whether, before the mistake was discovered, he had paid over the money which he received to the principal, or settled such an account with the principal as amounts to payment, or did something which so prejudiced his position that it would be inequitable to require him to refund. In Holland v. Russell (1 B. & S. 424; 4 B. & S. 14) the case is rested on the ground that the defendant, who received the money, was agent for a foreign principal; that the plaintiffs knew this, paid him in that capacity, and with the intention that he should pay over the money to his principal. The defendant was therefore held not to be liable. In Newall v. Tomlinson (25 L.T. Rep. 382; L. Rep. 6 C.P. 405) both the plaintiff and the defendant were cotton brokers in Ltverpool. Each was in fact agent for an undisclosed principal, but they dealt with each other as principals, that being customary amongst such brokers in Ltverpool. It was urged that, both being brokers, each must have known that the other was acting for an undisclosed principal. The defendant, before the mistake was discovered, had made advances to and settled an account with his principal, and when the latter suspended payment a balance of 20001. was owing by him to the defendant on the footing of these transactions, yet, as the plaintiff and the defendant had dealt with each other as principals, it was held that the latter was liable, the determining consideration being not what the defendant in fact was, but the character in which he purported to deal with the person who paid him the money."

22. Mr. Chain argued that old cases regarding undisclosed principals had to be looked at in the light of Lipkin's case, and that the law is developing. Lipkin's case cannot and does not have the effect of overruling every previous case and ruling out summary judgment in every subsequent case. With respect, I accept that Lord Atkinson was correctly stating the law when he said that the determining consideration was not what the Defendant in fact was, but the character in which he purported to deal with the Plaintiff who paid him the money. The Defendant dealt with the Plaintiff as principal in receiving the Plaintiff's money. Thus, in my judgment, the mere fact that he was agent of CR is no defence.

The detriment point

23. That brings me to the 2nd point in Mr. Chain's submission, that the Defendant suffered a detriment.

24. Not every change in position is a defence. The position must be "so changed that he will suffer an injustice if called upon to repay or repay in full" or "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 have repeatedly asked Mr. Chain for assistance on the evidence of injustice and inequity and I believe I have set out above under "Defendant 's Submission" every point which he relied on.

25. All that Paragraphs 19 and 20 say is that the Defendant accounted to CR by paying to CR or on behalf of CR. The documentary evidence shows that the payments made on behalf of CR were in discharge of the ordinary trade or business debts of CR. These are debts which in my judgment would or might be incurred by CR in the ordinary course of things. As pointed out by Mr. Whitehead, the Defendant has never asserted that he would not have provided monies to enable CR to discharge these existing liabilities; he has never said that he would have acted differently if he had not mistakenly believed that he was richer than he was.

26. In my judgment, the facts stated in Paragraphs 19 and 20 do not in my judgment amount to a change of position as a defence to the Plaintiff's claim for restitution, per Lord Goff in the 2nd passage quoted above.

27. There is neither any suggestion nor any evidence that the Defendant will have any difficulty in recovering from CR, which the Defendant was at pains to remind me was a different legal entity.

28. In my judgment, nothing relied on by Mr. Chain shows that the Defendant has an arguable case that the Defendant's position was so changed that it would be inequitable in all the circumstances to require him to make restitution.

29. I am inclined to think that it would not be equitable to require the Defendant to make restitution in US dollars in the sum of 93,000.00. The bank charges and any gain by the bank or banks in converting US dollars into HK dollars were incurred or brought about entirely by the Plaintiff's own error which the Defendant was in no way responsible. The money which the Defendant received was in HK dollars and in the sum of 722,451.90. As Mr. Chain has not taken this point and I have not heard Mr. Whitehead, I do not propose to vary the Master's decision on this point.

30. For the reasons given above, I dismiss the Defendant's appeal.

Plaintiff's cross-appeal

31. I see no reason why interest should not run from the 20th August, 1991, the date when the money was credited to the Account. I allow the Plaintiff's appeal by varying the learned Master's decision and judgment by substituting "the 20th August, 1991" for "the date of the Writ" as the date from which interest started to run.

Order Nisi on costs

32. I make an Order Nisi, to be made absolute within 14 days, that the Defendant pay the Plaintiff the costs of both appeals.

33. Before I leave this case, I would like to thank both Counsel for sending in advance of the hearing their respective written submission and a copy of the authorities they relied on, without which the hearing could not have been concluded in 1/2 day.