RPB SA (a company incorporated in accordance with the laws of Argentina) v. XINWANGYI TRADE LTD AND OTHERS

HCA 150/2020

[2023] HKCFI 1202

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 150 OF 2020

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DECISION

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A.  Introduction

1.  Plaintiff (“P”) avers that it is the victim of an email fraud, and that the 8^th defendant (“D8”) is one of the 2^nd level recipients of the defrauded funds (the “Defrauded Funds”).  By summons of 29 September 2022 (the “Summons”), P seeks summary judgment against D8 for the amount which it has received (the “D8 Sums”).  The issue is whether D8 has established triable issues on the defence of bona fide purchaser for value without notice (the “Bona Fide Purchaser Defence”).

2.  Mr Ernest Ng appeared for P.  Ms Sharon Ng appeared for D8.

B.  The pleadings, affirmations, and D8’s application to file substitution affirmation

3.  The writ herein was taken out on 12 February 2020.  The Statement of Claim was filed on 6 May 2020, subsequently amended and refiled on 18 November 2020 (the “ASOC”).  D8’s Defence is dated 9 June 2020 (“D8/Defence”). P’s Reply was filed on 29 June 2020, subsequently amended and refiled on 8 October 2021 (the “Amended Reply”).

4.  In support of the Summons, P has filed the 2^nd affidavit of Mauricio Corfield (“Corfield” and “Corfield Aff/2”).  Corfield is the Vice President of P’s Board of Directors.  In Corfield Aff/2, Corfield refers to the affidavit of Juan Alejandro Baggio filed in HCA 57/2020 (“HCA 57”, “Baggio”, and “Baggio Aff”).  Baggio is the President of P’s Board of Directors.  HCA 57 was started by P against Hong Kong HRJ Trade Limited (“HRJ”), who P claims was the first level recipient of the Defrauded Funds in this same fraud.  P has also filed the 2^nd Affirmation of Huang Sizhe (“Huang”).  Huang is the Mainland law expert P has engaged.  He has prepared an expert opinion[1] (“Huang Opinion”) on the legality of the 3 Bullion Agreements (defined below) under Mainland law.

5.  In opposition, D8 originally relied on the affidavits of Paul Yau (“Yau” and “Yau Aff/1”) of Peng Dang (“Peng”).  Yau is the solicitor acting for D8.  Peng is D8’s own expert on Mainland law and has prepared an expert opinion in reply to Huang Opinion (“Peng Opinion”)[2].

6.  In his written submissions, Mr Ng heavily criticizes D8’s reliance upon Yau Aff/1, on the basis that Yau has no personal knowledge of the facts set out therein.  In the light of that, D8 on 28 March 2023 took out a summons (the “Aff Summons”) for leave to file and serve Yau’s 2^nd affirmation (“Yau Aff/2”) which exhibits the draft affirmation of Zhou Han Ming (“Zhou” and “Draft Zhou Aff”), and the affirmation of Zhuang Jiahang (“Zhuang” and “Zhuang Aff”).  Zhou and Zhuang are respectively the director and manager of D8.

7.  Mr Ng objected to that application, on the principal basis that no good reasons for the lateness had been shown.  But despite that, I note that the proposed new affirmations are mainly confirmatory of the contents of the D8/Defence and Yau Aff/1.  Mr Ng has also fairly informed the court that apart from the lack of good reasons for the lateness, he pushed the matter no further.  He also made no application for any adjournment. 

8.  Having considered the matter, I allowed the Aff Summons.  I make a costs order nisi that D should bear the costs of the Aff Summons in any event, to be dealt with together with the costs of the Summons as ordered below.  I record that 15 minutes had been spent on the same.   I also directed that D shall cause the Draft Zhou Aff to be signed and filed within 7 days from the date hereof.  The Aff Summons together with it attachment has been accepted as hearing bundle C.

C.  P’s case against D8

9.  P is an Argentina-incorporated company.  Its case is that unknown fraudsters had through emails impersonated Baggio and defrauded personnel from P’s finance department into making 8 transfers (the “1^st Transfer” to “8^th Transfer”, and collectively the “8 Transfers”) between 9 and 18 December 2019 in the total sum of US$6,823,288 (i.e. the Defrauded Funds) into an account of HRJ with the Standard Chartered Bank (the “HRJ Account”).

10.  P’s evidence is that it has had no dealings with HRJ[3].

11.  The fraud has been reported to the law enforcement agencies.

12.  Prior to the 1^st Transfer, the HRJ Account only had a credit balance of US$361.81.

13.  Relevantly, the 4^th, 5^th and 7^th Transfers in the respective sums of US$969,763, US$916,807 and US$990,655 were effected respectively on 12, 13 and 17 December 2019.

14.  On those same 3 days, 7 transfers in the total sum of US$880,010 (i.e. the D8 Sums mentioned in §1 above) were transferred from the HRJ Account to an account of D8 held with the Standard Chartered Bank (the “D8 Account”) – 3 transfers in the total sum of US$340,010 on the 12^th, 2 in the total sum of US$340,00 on the 13^th, and 2 in the total sum of US$200,000 on the 17^th.

15.  All the above transactions are evidenced by bank statements.

16.  The amounts of those 7 transfers on 12, 13 and 17 December 2019 also tally, according to D8’s own case (discussed below), the sums said to be payable by Lin to D8 under the 3 Bullion Agreements (both defined below).

17.  Whilst not admitted on the face of D8/Defence, the above facts are not subject to serious challenge.  Indeed, they are not the subject matters of any submission in Ms Ng’s written submissions.

18.  On the facts before me, subject to any defence that D8 may be able to raise, P has clearly established a prima facie case against D8 for proprietary remedy – see if necessary Westdeutsche Bank v Islington LBC [1996] AC 669 at 716C-D, Zief Incorporated v Tekchandani Ajai Mohan (t/a D’Ziner Collections (Hong Kong)) & Ors [2021] 3 HKC 69, at section H1, and Tam Ying Man v Leung Ka Chun & Ors (HCA 2166/2011, 31 August 2016) at section XII and §107. 

19.  What has to be considered next is whether D8 has, in opposing P’s application for summary judgment, discharged the onus on it to establish any triable issue in relation to any defence which it seeks to set up.

D.  D8’s case

20.  D8 seeks to set up the Bona Fide Purchaser Defence.  That can be gleaned from the D8/Defence and the affirmations which D8 has adduced.  Whether D8 is successful in raising triable legal and factual issues in this regard is indeed the only area which Ms Ng has addressed in her submissions.

21.  The nature of the Bona Fide Purchaser Defence to a restitution claim has been discussed in a number of recent authorities, which include Barros Mattos Junior v General Securities & Finance Co Ltd [2005] 1 WLR 247, DBS Bank (Hong Kong) Ltd v Pan Jing [2020] 4 HKC 395, Arrow ECS Norway ASvM Yang Trading [2018] HKCFI 975, and Lesnina H DOO v Wave Shipping Trade Co Ltd [2022] 2 HKLRD 727.  I will not repeat them.

22.  D8’s defence, as pleaded and as stated in the affirmations P has or has undertaken to file, and in gist, goes as follows:

(a)  It is a company incorporated in Hong Kong in 2018;

(b)  Its business has been the trading of gold bullions.  It buys gold bullions from different suppliers and sells them at a higher price for profits. 深圳市英倫皇室珠寶首飾有限公司 (“Ying Lun”) has been one of such suppliers;

(c)  On about 5 December 2019, a man who called himself 林尚偉 (i.e. Lin) contacted D8 and expressed interest in purchasing gold bullions from it;

(d)  Subsequently, 3 agreements were entered into between D8 and Lin, with the following particulars (respectively the “1^st Bullion Agreement” to “3^rd Bullion Agreement”, and collectively the “3 Bullion Agreements”):

No.	Date	Qty sold	Price (US$)
213903	12/12/2019	4K	220,010
213908	13/12/2019	10K	460,000
213917	17/12/2019	4K	200,000
	Total	18K	880,010

(e)  Copies of the 3 Bullion Agreements have been produced and exhibited[4]. They bear what appear to be Lin’s signature and identity particulars, and D8’s company chop;

(f)  Lin requested to pay through the HRJ Account.  The D8 Sums were subsequently transferred on 12, 13 and 17 December 2019;

(g)  Lin’s agent subsequently collected the gold bullions directly from Ying Lun in the Mainland.  What claimed to be receipts have been produced[5];

(h)  D8 at all times reasonably and honestly believed that the D8 Sums were in settlement of the purchase prices for the 3 Bullion Agreements.

E.  The issue of illegality

23.  In its Amended Reply, P avers and raises the issue that the 3 Bullion Agreements are void ab initio under Mainland law, as they (1) constituted illegal private trading of gold in breach of Articles 7 and 19 of the Administrative Regulations on Gold and Silver of the PRC (the “Administrative Regulations”), and (2) further and in any event constituted private trading of gold materials as opposed to gold products.

24.  In support of that plea of illegality, P has adduced the Huang Opinion.  In opposition, D8 has adduced the Peng Opinion wherein Peng explains why in his view the 3 Bullion Agreements were not illegal under Mainland law.

F.  Discussion

25.  This is not the trial.  This ought not even be a mini-trial on affirmations. But simply from a quick examination of the evidence and documents before this Court, I form the view that D8’s defence is at best shadowy:

(a)  D8 has given 3 versions as to what its line of business is: (1) “trading of gold bullions” in D8/Defence, (2) “trading of gold bullions, jewelry and metals” in Draft Zhou Aff §3 and Zhuang Aff §3, and (3) “買賣黃金原料生意” according to what Zhou has instructed Yau[6];

(b)  As recorded in the accounting opening form of the D8 Account, D8’s trading activities are “trading of suits and pants”[7];

(c)  According to the “Customer Due Diligence Form – For SME Banking” disclosed by the Standard Chartered Bank, and to the question as to “Is the client involved in Jewellery, Diamonds, Precious Metals and Stones industry?”, the recorded answer is “No”[8];

(d)  D8 has produced no business registration documents, licences, accounts or tax returns in respect of the alleged business, whether in Hong Kong or the Mainland;

(e)  Different versions as to how Lim approached D8 have been given: (1) “…[Zhou] … met with a man named [Lin], who expressed interest in purchasing gold bullions from [D8]” according to the D8/Defence §7(2)[9], and (2) “[Lin] contacted [D8] through [Zhuang] and expressed interest in purchasing gold bullions from [D8]” according to Draft Zhou Aff §5[10];

(f)  The terms of the 3 Bullion Agreements are, except the invoice numbers, dates, quantities and prices, the same.  They are crude and lack the usual commercial terms.  Their totality, using the 1^st one as illustration, are as follows:

“買方：林尚偉

賣方：DHUAI TRADE LIMITED

日期：2019-12-12

單號：213903

茲經買賣雙方同意，由買方購進，賣方出售下列貨物，並按下列條款簽訂本合約:

1. 賣方將4K黃金料出售給買方。

2. 價格：經雙方協商該批黃金料出售價為美金220,010元。

3. 付款方式：買方經HONG KONG HRJ TRADE LTD名下帳戶付款給賣方

4. 提貨方式：買方自提

5. 本合同自簽字之日生效。對此合同的任何更改需經雙方確認。

6.  本合同一式二份，雙方各執一份。”

(g)  There is no evidence as to what “K” stands for, whether it denotes quantity, purity or types of bullions;

(h)  According to the D8/Defence, “K” stands for “Amount”[11]. If so, there is no explanation as to why the prices fluctuated substantially from US$200,010 for 4K for the 1^st Bullion Agreement on 12 December 2019 (hence US$50,002.5 per K), down to US$460,000 per 10K (hence US$46,000 per K) on 13 December 2019, and back to US$200,000 for 4K on 17 December 2019;

(i)  There is no mention on the face of the D8/Defence of the involvement of Ying Lun as the supplier;

(j)  On the issue of collection of the alleged bullions sold and purchase, the evidence is contradictory, and is not supported by the alleged contemporaneous documents:

(i)  As said, the D8/Defence has made no mention of Ying Lun.  §7(4) thereof pleads that:

“… [Lin’s] authorized representative collected the gold bullions at an office in Shuibei, Luohu District, Shenzhen, Guangdong Province, China as arranged by [D8] …”

(ii)  According to “ZHM-4”[12], Zhou’s instructions to Yau were that:

“林生要求自行安排他一方到第八被告位於水貝的貨倉提取貨” (emphasis added)

(iii)  But according to the Draft Zhou Aff[13]:

“The original plan was to deliver the gold bullion to [Lin] in Hong Kong. Subsequent to the first transaction entered into with [Lin], It [sic] was also [Lin’s] request to collect the gold bullions in mainland China. At that time, we were of the view that this would save the time and costs of transportation in relation to delivering the gold bullions to [Lin] and therefore we acceded to his request and let him collect the gold bullions from Ying Lun, the suppliers of the gold bullions in the three transactions. There is now produced and shown to me marked ‘ZHM-2’ copies of the receipt for collection.”

(iv)  The above versions are inconsistent as to whether the the place of collection was the godown of D8 at Shuibei, or whether it was where Ying Lun was;

(v)  “ZHM-2” are produced as “copies of the receipt for collection”. But on the face of documents, they were both “上海增值稅專用發票” issued by “上海黃金交易所” to Ying Lun.  They were not issued either by Ying Lun or D8 to Lin;

(vi)  “ZHM-2” bears no references to any of the 3 Bullion Agreements;

(vii)  There is no explanation as to how the prices and quantities thereon tally with those on the 3 Bullion Agreements, and on the face of documents they do not;

(viii)  One of the alleged receipt for collection[14] bears the issue date of 2 December 2019, which is earlier than the earliest of the 3 Bullion Agreements (namely 12 December 2019);

(ix)  There is otherwise no documentary proof of the collection of the bullions by Lin.  This makes little commercial sense, bearing in mind the sizes of the transactions, which are objectively not small.

26.  In the light of the above, the existence and veracity of the 3 Bullion Agreements are shadowy, verging on being incredible.

27.  I have considered the views of the experts.  The resolution of their competing opinions is not appropriate at this Order 14 stage.  Hence, but for my view on the existence and veracity of the 3 Bullion Agreements, I would have granted D8 unconditional leave despite the expert evidence.  But if D8 cannot establish the existence of the 3 Bullion Agreements, the expert evidence it adduces does not even start to be engaged.  The value of Peng Opinion is only as good as the instructions Peng has received from D8 on the existence and veracity of the 3 Bullion Agreements.

28.  In my view, this case is close to one where the court may dismiss the evidence adduced by D8 as being incredible and not capable of belief.  But some documents (particular the 3 Bullion Agreements) have been produced.  Whilst I am of the view D8’s case is shadowy and verging on being incredible, I cannot at this stage on affirmation dismiss those documents as being in effect forgery.

29.  In the end, having considered the matters in the round, I form the view that D8 should only be granted conditional leave to defence, and the condition being a full payment in of the D8 Sums.

30.  Arising from these matters, P on 11 February 2020 obtained a proprietary and Mareva injunction against inter alia D8 (the “Injunction”). I am given to understand that in the D8 Account frozen by the Injunction, there remains funds slightly in excess of the D8 Sums.  In the course of the hearing, I invited submissions on the imposition of terms.  Mr Ng submitted that if any leave to defend is to be conditional, the condition should be a full payment in, that the terms of the Injunction should be varied to allow that to take place, with the view of having it discharged afterwards so that P may be released from the undertakings that it has given.

G.  Disposition

31.  For the reasons set out above, I make the following order:

(a)  D8 is granted conditional leave to defend, the condition being a full payment into court within 14 days from the date when this Decision is handed down of the Hong Kong dollars equivalent (as per the exchange rate as at the date of the payment in) of the full D8 Sums in the Amount of US$880,010;

(b)  The terms of the Injunction as against D8 be varied to the extent and to the extent only that D8 be allowed through its legal advisers (or otherwise in manner which P consents) to withdraw a sum equivalent to the sum to be paid in for the purpose of and for only the purpose of effecting the payment in as ordered;

(c)  As soon as the payment in is effected, parties be at liberty to make appropriate application to this Court, preferably jointly, for discharge of the Injunction as against D8;

(d)  If D8 fails to meet the condition as aforesaid, judgment in terms of the draft order attached to Mr Ng’s written submissions be entered against D8.

32.  In terms of costs, I make a costs order nisi that:

(a)  If the condition is met, the costs of this Summons be in the cause, with certificate for counsel; but

(b)  If the condition is not met, the costs of the action including those of and occasioned by this Summons be to P with certificate for counsel, to be taxed if not agreed.