MONEX CANADA INC. v. XUPING JEWELRY CO., LTD. AND ANOTHER

HCA 1314/2023

[2025] HKCFI 4105

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1314 OF 2023

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BETWEEN

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DECISION

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Introduction

1.  By summons dated 18 July 2024, the plaintiff (“P”) applies for summary judgment against the 2^nd defendant (“D2”).

2.  P’s cause of action relates to an email fraud, in which D2 is said to be a “2^nd level recipient” of funds stolen by a fraudulent deception. It is not alleged that D2 was party to the fraud.

3.  The sole issue before me is whether D2 has raised a triable issue so as to preclude summary judgment, on the basis of its defence that it was a bona fide purchaser for value without notice (“BFP”).

Background

4.  P is a Canadian company, which is part of a group engaging in the provision of financial services. P provides foreign exchange and payment services to its clients by managing their payments to third parties including overseas suppliers.

5.  P pleads that it is the victim of a fraud at the hands of one of its customers using P’s online trading platform and “Pre-Authorized Debt” payment system. The details of the alleged fraud are unnecessary to consider for present purposes. In essence P alleges that it was deceived by the customer into executing certain foreign exchange transactions and then a series of payments during July 2023, including payments totaling US$2,809,683 to six Hong Kong companies (the “1^st Level Recipients”).

6.  P brought an action against the 1^st Level Recipients in HCA 1228 of 2023, one of whom was Serwin Worldwide Trading Limited (“Serwin”). P alleges that Serwin received US$1,327,031 (the “Serwin Sum”) into an account with ICBC in Hong Kong, which formed part of P’s stolen funds.

7.  P’s claim in the present action is against two companies said to be 2^nd level recipients of P’s funds, in that the Serwin Sum or its traceable proceeds were paid onto them by Serwin. In the case of D2, US$249,710 (the “D2 Sum”) is said to have been paid by Serwin to D2’s bank account with Chong Hing Bank Limited on 31 July 2023.

8.  Accordingly, P claims against D2 in respect of the D2 Sum on the basis of proprietary restitution and restitution for unjust enrichment.

9.  For present purposes, D2’s only defence is that it was a BFP, in that it received the D2 Sum from Serwin as payment for electronic products sold and delivered by D2 to Serwin. D2 pleads that:

(1) its business includes wholesale supply of electronic products;

(2) since December 2019 Serwin has been its customer purchasing such products on a running account basis;

(3) the D2 Sum was paid by Serwin to D2 in settlement of outstanding invoices for purchases of electronic products and for future purchases;

(4) the D2 Sum was applied to settle Serwin’s debts incurred under at least 8 specified invoices;

(5) products under the said invoices were delivered by D2 to a delivery agent, Superspeed Transglobal Limited (“STL”), for onward delivery to Serwin; and

(6) D2 had no notice of or involvement in the alleged fraud or mistaken payments made by P.

10.  In this action, P obtained injunction and disclosure orders on 17 August 2023. On 13 September 2023, the injunction granted over D2 Sum was discharged upon the D2 Sum being paid into court.

Principles: Order 14

11.  The principles applicable on an application for summary judgment are well-known. They are summarised in Hong Kong Civil Procedure 2025 at §§14/4/4, 14/4/8 and 14/4/9 – 9B, and include the following:

(1) If the application is properly constituted, the defendant must show that there are triable issues. He or she must satisfy the court by credible evidence that there is a fair probability or reasonable grounds that a bona fide defence exists. If the defendant raises credible, triable issues, the matter should go to trial.

(2) Order 14 is for plain and obviously cases only where the defendant clearly has no defence. The court will not conduct a mini-trial on affidavit, and where there are substantial disputes of fact which ought to be tried, leave to defend should be given.

(3) However, mere assertion in the defendant’s affidavit does not, ipso facto, justify leave to defend. The court will not take the defendant’s evidence at face value, but will test it against the affidavit evidence and contemporaneous documents, and any inherent improbability.

(4) The defendant’s evidence must condescend to particulars, deal specifically with the plaintiff’s claim and affidavit, and state clearly and concisely what is the defence and what facts are relied on to support it. Sufficient facts and particulars must be given to show that there is a triable issue.

Principles: Bona fide purchaser for value without notice

12.  The general requirements for the BFP defence were summarised by Au-Yeung J in Pacific Rainbow International Inc v Shenzhen Wolverine Tech Ltd & Ors [2023] 4 HKC 322, at §52.

13.  In order to succeed, a defendant must prove that: (i) there was a purchase for value; (ii) of the legal estate in property; (iii) in good faith; (iv) without notice; (v) at the time of transfer of the legal estate.

D2’s evidence

14.  D2’s substantive evidence opposing summary judgment comprised:

(1) an affidavit of Frank Serwin, a director of Serwin (“Serwin Aff”); and

(2) the 3^rd affirmation of Khan Rajmohammed Gulamjilani, a director and shareholder of D2 (“Khan 3”).

15.  The said evidence included the following:

(1) D2 is a wholesaler of mobile and personal electronic equipment, incorporated in 2017. D2’s customers include local and international businesses. D2 exhibited audited financial statements from 2018 to 2024, to support this and significant annual turnovers ranging from around HK$113 million to HK$623 million.

(2) Serwin has been a customer of D2 since December 2019[1]. Whilst for most customers, D2 would demand full payment before shipping, for about six trusted or larger customers including Serwin, D2 sold products on a running account basis, giving credit (usually less than US$100,000).

(3) D2 produced a trading account with Serwin, showing orders placed, payments made, and a balance statement as between D2 and Serwin, ranging from December 2019 to August 2023. D2 said trading with Serwin was always conducted on a running account basis, with payments from Serwin being advance payments or payments for arrears, not necessarily matching individual orders from Serwin. At times D2 would ship orders before receiving full payment, giving credit to Serwin.

(4) D2 exhibited various of its bank payments showing deposits by Serwin into D2’s bank accounts, in support of certain items in the trading account.

(5) On Serwin’s instructions, D2 delivered all of Serwin’s purchases to a forwarding agent, STL, based in the New Territories. D2 understood that STL would then make periodic shipments to Serwin of D2’s goods together with goods that Serwin purchased from other suppliers in Hong Kong.

(6) The Serwin Aff gave evidence that payment of the D2 Sum on 31 July 2023 related to 7 specific invoices. A rough figure of USD249,710 was transferred by Serwin to D2 in relation to these 7 invoices. D2 duly provided electronic goods in return; all the goods in question were received by STL, as evidenced by the chop or receipt of STL impressed on shipper’s instruction forms.

(7) The Serwin Aff and Khan 3 exhibited various invoices, packing lists, shipper’s instructions, and photographs, said to demonstrate the delivery of goods relating to the D2 Sum. Khan 3 referred to 8 invoices, and stated that all of the goods were delivered to STL, and then delivered on to Serwin.

(8) Khan 3 exhibited certain WhatsApp exchanges, said to be between D2 and Serwin, and said to evidence the sending of invoices and packing lists, and negotiations over price.

16.  D2’s Skeleton Submissions set out D2’s position that:

(1) There were 9 invoices relevant to the D2 Sum;

(2) The invoices, together with the trading account document, showed that by 26 July 2023 Serwin incurred a deficit of US$60,556.83 on its running account with D2.

(3) The D2 Sum (US$249,710) was paid on 31 July 2023, after which the running account was in credit by US$189,153.17.

(4) The running account then dropped to a deficit again by 16 August 2023 as Serwin incurred debits in respect of various of the invoices.

(5) The various supporting documents (invoices, packing lists, shipper’s instructions, photographs, WhatsApp messages) showed that goods under the 9 invoices were in fact delivered, and an annexure was produced illustrating that this was by way of four deliveries.

(6) Accordingly, the D2 Sum was paid on 31 July 2023 partly to settle a deficit incurred by orders sold and delivered under 3 invoices (ie deficit of USD60,556.83). The resulting surplus was then applied to orders sold and delivered under four more invoices until the balance of the running account became negative again by 16 August 2023.

(7) The earliest date on which D2 could have known of P’s claim was 17 August 2023, ie the date on which the Court granted an ex parte injunction in these proceedings; by which time, the US$189,153.17 surplus from the D2 Sum had already been applied to invoiced goods sold and delivered to Serwin.

(8) Accordingly, D2 was a BFP in respect of the D2 Sum received from Serwin.

P’s first line of argument: D2’s factual case not capable of belief

17.  Mr Ernest Ng, appearing for P, levelled detailed arguments to the effect that D2’s factual case is not capable of belief. It was argued that, for example:

(1) the Serwin Aff and Khan 3 gave inconsistent evidence as to the time at which the trading relationship between Serwin and D2 started;

(2) the alleged running account was contrary to commercial commonsense since it showed large credit balances at various points in time even exceeding US$1 million;

(3) the running account was internally prepared and self-serving, and many of the entries could not be objectively verified by reference to the bank statements supplied by D2;

(4) there was no other objective evidence to show the existence of the running account such as demands to satisfy a deficit or instructions to use a credit balance;

(5) there was a total lack of evidence as to Serwin’s business and alleged other customers of D2; and evidence showed that other “3^rd party suppliers” referred to by D2 were not genuine;

(6) there were inconsistencies in D2’s case as to the particular invoices and number of invoices which related to the D2 Sum, as between D2’s pleading, its affidavits and its Skeleton Submissions;

(7) there was no evidence to show actual delivery of products to Serwin as opposed to STL;

(8) the shipper’s instructions produced by D2 were said to appear to be homemade with a raft of dubious features; in oral argument it was suggested that they were concocted for these proceedings.

18.  I have considered these points, but I am not persuaded that I can resolve them in P’s favour on a summary basis.

19.  I do not think it necessary to include very detailed reasoning on this line of argument. D2 has produced quite a lot of documentation in support of its case that there was a genuine trading relationship with Serwin and that the D2 Sum related to goods sold or to be sold: see §15 above. I do not see that I can fairly reject D2’s account - including a conclusion that various of the documents produced are fabrication - without P’s criticisms being explored with D2’s witnesses in oral evidence, such that they have an opportunity to respond.

20.  Accordingly, I conclude that the truthfulness or otherwise of D2’s factual case that the D2 Sum related to goods sold to Serwin under an ongoing trading relationship conducted on a running account basis, raises triable issues.

P’s second line of P’s argument: in any event, D2 is not a BFP

21.  Mr Ng’s second line of argument is that in any event, D2 is unable to fulfil the requirements for the defence of BFP, since D2 cannot have provided valid consideration for the D2 Sum without notice.

22.  The argument relies substantially on the reasoning of Cheng J in Holy AG v BMW Ltd & Ors [2022] HKCFI 798. In that case, a transfer of Holy AG’s funds was induced by an unknown fraudster. Part of the sum was traced to the bank account of a 2^nd layer recipient, Touki Trading (“TT”). TT said that it was in the business of importing and distributing second-hand electronic goods; and that it had a running account with a customer, Mr Tsang, who had ordered some goods from it and arranged for the proceeds to be paid to TT. The funds were received into TT’s account on 5 February 2020, at which point the running account was said to be already in credit to Mr Tsang, and after which the running account was adjusted to increase the credit balance.

23.  Cheng J granted summary judgment to Holy AG, rejecting TT’s defence of BFP. Her Ladyship’s reasoning included the following:

(1) By the time the goods in question were released to Mr Tsang, TT could no longer claim not to have notice of Holy’s AG’s claim that the funds constituted proceeds of a fraudulent scheme, as TT had by then already been served with an injunction obtained by Holy AG and accompanying papers (§21).

(2) The mere crediting of the funds to the running account with Mr Tsang (on 5 February 2020) could not amount to the provision of value for receipt of the funds (§23).

(3) Her Ladyship considered and rejected the alternative argument that the act of debiting two amounts from the running account on 6 March 2020 (the day after receipt of the funds) constituted payment for amounts due under invoices and therefore amounted to provision of value for the funds. (§§24 to 27).

(4) In order to rely on the defence of BFP, the purchaser must have given value in the form of executed, and not merely executory consideration. A purchaser’s promise counts as value only to the extent that the purchaser has completely performed it. (§25)

(5) In the instant case, the mere making of entries unilaterally by TT in its record of the running account on 6 March 2020 did not amount to the giving of value for receipt of the funds on 5 February 2020. There was nothing to suggest that any entry made on 6 March 2020 could not have been simply amended or reversed by TT, at least at any time prior to communication to Mr Tsang that his debts had been discharged. There was no evidence of any communication of this to Mr Tsang at any time prior to 16 March 2020 (when TT had notice of the injunction); and indeed one of the relevant invoices had not even been issued by that date. (§26).

(6) Accordingly, the Court did not consider that TT had a real defence of BFP. (§27).

24.  In broad terms, P argued that applying this approach, D2 had not given executed consideration prior to having notice of P’s claim because: (i) entries in a running account do not amount to the giving of valid consideration, at least prior to communication to the business counterpart (and there was no evidence of communication of the running account entries to Serwin); and (ii) there was no evidence of delivery of the goods in question to Serwin (as opposed to STL) at a time before D2 had notice of P’s claim (or at all).

25.  Mr Ng fairly drew attention to the Judgment of Harris J in Exclusive Networks Deutschland GMBH v Wakoon Trading (H.K.) Ltd & Anor [2022] HKCFI 2966. The plaintiff (END) in that case was the victim of an email fraud, the 1^st defendant (Wakoon) was a 1^st level recipient of the proceeds of the fraud, and the 2^nd defendant (Galaxy) was a 2^nd level recipient. After trial, the Court dismissed END’s claim against Galaxy, on the basis that the defence of BFP had been established.

26.  The Court’s reasoning included the following:

(1) Galaxy carried on business of selling computer hardware, which was clearly genuine and substantial. One of Galaxy’s customers was a Chinese company (JWT), which had placed orders with Galaxy for some time. In practice, Galaxy kept a ledger (running account) for JWT, with payments made in tranches during each month rather than in a single month-end payment. Some of the payments were made by remittance agents including the 1^st defendant (Wakoon). (§§4 to 6).

(2) In order for the defence of BFP to succeed, Galaxy had to demonstrate that it received the disputed sum as consideration for something of value that it had provided to JWT. This did not require Galaxy to identify precisely in respect of which goods the disputed sum was paid. The fact that the parties operated a running account, which in most months meant it was not possible to attribute a particular payment to a particular order, did not prevent Galaxy establishing that it had given value for the disputed sum (§16).

(3) END’s argument included that Galaxy had not informed JWT that Galaxy had received payment in respect of sums owed to it, until after Galaxy became aware of the alleged fraud. Harris J rejected this on the facts, but went on to consider the soundness of the argument in any event. (§17).

(4) In Holy AG, Cheng J did not hold that a contract for the supply of goods which have been delivered only becomes completed or executed when not only has payment been made for the goods, but the supplier informs the purchaser that it has been paid by, for example, issuing a receipt. There was no reason to treat the supply of goods or payment of the price as executory consideration simply because the supplier has not informed the purchaser that the purchase price has been received. (§19)

(5) At the time that the disputed sum was credited to JWT’s ledger (on 20 March 2018), the ledger showed monies due from JWT to Galaxy. (§23).

(6) There was no reason to doubt that the disputed sum was paid in respect of goods that had already been delivered. The evidence was that JWT paid for goods in arrears. Galaxy had to establish on a balance of probabilities that the disputed sum was paid as consideration for goods that it had delivered, but not that its accounting records were perfectly accurate. (§§24 & 25). Galaxy was not required to identify the particular transactions to which the disputed was attributable to, nor did it matter that there had been some inconsistencies of explanation in this regard (§26).

(7) The fact that the Galaxy’s leger showed the running account being in credit in February and early March 2018, did not defeat Galaxy’s argument. The ledger showed the running account going into debit on 18 March 2018 (ie two days before Galaxy’s receipt of the disputed sum), and any payment made when the running account was in debit must necessarily be attributable to goods supplied. If the account had been in credit, the conclusion might be different. (§27).

(8) Chopped delivery notes showed the delivery of goods attributed to certain invoices as having taken place on 20 March 2018. If one treated the disputed sum as attributable to those invoices or any of them, it followed that the goods had been collected at the time payment was made and before Galaxy became aware of the fraud. (§28).

(9) Accordingly, the disputed sum was received in consideration of goods that had been sold to JWT and delivered to or collected by it. The issue was not the precision of Galaxy’s accounts, but whether or not the disputed sum was paid and received in respect of goods that had been delivered or collected. The Court was satisfied on a balance of probabilities that it was, and that Galaxy had demonstrated that it was a BFP. (§29).

27.  After the oral hearing, my attention was further drawn to the Judgment of the Court of Appeal in Exclusive Networks Deutschland GMBH v Wakoon Trading (H.K.) Ltd & Anor [2025] HKCA 544. The Court dismissed an appeal from the Judgment of Harris J. The following points of reasoning are noteworthy:

(1) Given the judge’s factual findings, there was no reason or logic why Galaxy was required to identify the specific goods or invoices that could be attributed to the disputed sum. JWT was indebted to Galaxy at the time of its receipt, and the debt represented outstanding payment for goods sold and delivered. (§24).

(2) The Court rejected argument that in order for Galaxy to have given value for the sum, the reduction of the running account had to be communicated to JWT (§§27 to 31). Holy AG was distinguished on two grounds: first, the goods in that case had not been delivered until after TT had notice of the fraud. Second, the running account in Holy AG was in credit in the customer’s favour prior to receipt of the proceeds, and the credit balance was increased by receipt of the proceeds. These features distinguished Holy AG, and explained Cheng J’s reasoning that a unilateral made by TT in its record could be amended or reversed prior to communication to the customer. The Court did not see any general principle having been established by the said dictum in Holy AG (§29).

(3) The Court rejected argument that until Galaxy communicated the reduction of the running account with JWT, its consideration remained executory, not executed. Galaxy had provided executed consideration for the receipt of the sum because goods had been delivered to JWT and the payment for which was outstanding. (§32).

28.  Following receipt of the Court of Appeal’s said Judgment, I invited the parties to make supplemental submissions in writing on point, which I have now received and considered.

29.  D2’s supplemental submission included a revised annexure, setting out the details of goods shipped under the 9 invoices including references to supporting documents and their dates. D2 argued that the earliest date that it could have had notice of the injunction was 18 August 2023, the date of sealing; and the last two shipping instructions in respect of the 9 invoices were dated 18 August 2023. D2 stated that it in fact only received P’s injunction order after the goods in question were shipped, and offered to file additional affirmation evidence on point.

30.  I have considered the parties arguments on point and the authorities canvassed above.

31.  For the purposes of the application for summary judgment, I am not persuaded to accept P’s second line of argument. In essence, I consider that D2’s defence of BFP raises difficult questions of fact and law intertwined, which are unsuitable for summary resolution, but should rather be ventilated by the process of trial. For example:

(1) On D2’s account of events, the D2 Sum was received when the running account was in deficit, and part of it was used to eradicate the deficit. On the approach in Exclusive Networks, it is arguable that at least this portion must necessarily be attributable to good supplied: see §26(7) above.

(2) As to the remainder of the D2 Sum and in any event, if it relates to goods actually supplied and delivered prior to D2’s notice of P’s claim, then on the approach in Exclusive Networks (and contrast Holy AG where the goods were not delivered prior to notice), valid consideration would be given. There is a lack of clarity in the evidence as to the precise date upon which D2 had notice of P’s injunction, and factual and legal issues as to precisely when the goods under the invoices are to be treated as having been delivered (for example whether delivery to STL rather than Serwin itself, suffices). These are, in my view, triable issues.

(3) On the approach in the above authorities, I do not think that the absence of communication by D2 to Serwin of the adjustments to the running account, is necessarily conclusive in P’s favour: see eg §§27(2) & (3) above[2].

Disposition

32.  For the above reasons, I consider that there are triable issues, and I decline to grant summary judgment.

33.  The question remains whether I should grant to D2 unconditional leave to defend, or dismiss the summons; and the related issue of the appropriate costs order[3].

34.  D2 invited me to order that to the costs of the summons be: (i) in the cause prior to 21 March 2025 ie the date upon which Khan 3 was filed; and; (ii) to D2 on an indemnity basis after that date. In short, D2 argued that as from at least Khan 3, it ought to have been clear to P that there were triable issues such that the summons should have been withdrawn[4].

35.  I accept that by the time that Khan 3 was filed, it ought to have been reasonably clear that P faced an uphill struggle in challenging D2’s factual account to the threshold required for summary judgment. However, P’s legal points based on Holy AG were in my view reasonably arguable, and I further take note that there was some refinement of D2’s factual case (as to the details of the relationship between the D2 Sum, the running account, and particular invoices) as between its different affidavits and its Skeleton Arguments for the hearing.

36.  Looking at the matter in the round, I consider that the fairest order is costs in the cause.

37.  I will accordingly order that:

(1) D2 be granted unconditional leave to defend; and

(2) the costs of P’s summons be in the cause.

38.  Out of an abundance of caution - and in case there are matters relevant to costs that have not yet been drawn to my attention – the costs order will be an order nisi, which will become absolute within 14 days, in the absence of any application to vary.

39.  Any application to vary shall be made in writing within 14 days of the handing down of this Decision. The opposing party shall have a right of written reply within 10 days thereafter. The applying party shall have a right of written reply within 7 days thereafter. All of the said written submissions shall be not longer than 3 pages in length.

40.  Lastly, I thank counsel for their able assistance in this matter.