FAN YUXI v. LINBIAO TANG AND OTHERS

HCA 2032/2020

[2021] HKCFI 2652

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2032 OF 2020

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DECISION

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1.  The plaintiff, a US citizen and resident, has been tricked by apparent fraud to part with a total sum of US$2,550,000 from her bank account in the USA (“the Defrauded Sum”). The Defrauded Sum was swiftly dispersed and transferred to numerous bank accounts of two tiers of recipients. The 4^th defendant is amongst the second tier of tens of recipients of the money in Hong Kong. More than 16% of the Defrauded Sum, or a sum of HK$3,179,200 (“the Sum”), now stands in his bank account in Hong Kong.

2.  The plaintiff has obtained ex parte a proprietary and mareva injunction against the second tier recipients, including the 4^th defendant in respect of the Sum in his bank account.  This is the hearing of the plaintiff’s application for continuation of the injunction by summons filed on 4 December 2020 (“the Injunction Summons”).

3.  The plaintiff has obtained default judgment against the 4^th defendant in respect of the Sum, and in enforcement of the judgment debt, a garnishee order to show cause in respect of the Sum in the 4^th defendant’s bank account subject to the injunction.  The 4^th defendant also applies by summons filed on 2 August 2021 to set aside the judgment (“the Setting Aside Summons”), which is now also before this court.

Background

4.  The plaintiff first came to be contacted on the telephone by persons identifying themselves as officials at the Chinese Embassy in Los Angeles and the police authority from Beijing in early January 2020.  These persons represented to the plaintiff that she was implicated in illegal money laundering activities in Mainland China.  She was subsequently instructed to transfer her money in her bank accounts for alleged verification, on the force of what purported to be an international arrest warrant and asset freezing order against her.  She was also brought to believe that her daily activities were being monitored.

1st Tier Recipient	Date	Amount
Lin Yijou (a/c no: 012-740-2-009941-7)	9/1/2020	US$110,000
	10/1/2020	US$230,000
	13/1/2020	US$110,000
	14/1/2020	US$100,000
	16/1/2020	US$100,000
	3/2/2020	US$360,000
	Total:	US$1,010,000
Lee Ya-hui (a/c no: 012-791-2-012202-6)	9/1/2020	US$100,000
	10/1/2020	US$230,000
	13/1/2020	US$100,000
	15/1/2020	US$100,000
	3/2/2020	US$360,000
	18/2/2020	US$250,000
	Total:	US$1,140,000
Lee Wen-hao (a/c no: 012-594-2-007443-6)	10/2/2020	US$50,000
	18/2/2020	US$250,000
	20/2/2020	US$100,000
	Total:	US$400,000

5.  In accordance with the instructions given by these people, the plaintiff eventually transferred the Defrauded Sum from her bank account maintained with the Bank of America (account no.: 0007-0382-2683) to the bank accounts under the names of the following first tier recipients held with the Bank of China (HK) Limited (“BOC”) in Hong Kong, namely:-

6.  Since late February 2020, the plaintiff has lost contact with any of these counterparts mentioned above, and became worried. Alerted by such incident, the plaintiff’s daughter helped her seek assistance from the FBI in New Jersey.  The Beijing police authority was alerted.  In March 2020, the Beijing police authority confirmed that there was no such police officer by the names of either of those mentioned above, and that she has most probably been defrauded.

7.  In the same month, the plaintiff contacted BOC and the police in Hong Kong.  The Hong Kong Police has since taken administrative step to freeze the above 1^st tier bank accounts and other relevant bank accounts which might have further received the Defrauded Sum.  The Hong Kong Police revealed that most of the Defrauded Sum had been transferred out of the above 1^st tier accounts, and they have been able to trace approximately HK$7,000,000.

Since the commencement of legal proceedings

8.  On 27 July 2020, the plaintiff commenced legal proceedings in Hong Kong.  First there was the action against the 1^st tier recipients (HCA 1248/2020).  She further obtained a mareva and proprietary injunction against them together with an ancillary disclosure order against BOC.  The disclosure made by BOC revealed that the Defrauded Sum has been further transferred by the 1^st tier recipients mentioned above to tens of 2^nd tier recipients.  Of them, the Sum has landed on the 4^th defendant’s bank account maintained with Standard Chartered Bank (“SCB”) in 9 tranches as follows:

#		1st Tier Transfer		Currency Exchange			Transfers to the 4th defendant
	1st Tier recipient	Date of receipt (Date of transfer)	Amount (US$) net of bank charge (original sum)	Date	From Amount (US$)	To Amount (HK$)	Date	Amount
1	Lee Ya-hui	10.1.2020 (9.1.2020)	99,972.30 (100,000.00)	10.1.2020	99,998.01	775,279.57	10.1.2020	HK$50,000.00
2								HK$50,000.00
3								HK$138,000.00
4								HK$200,000.00
5		11.1.2020 (10.1.2020)	229,972.30 (230,000.00)	11.1.2020	229,980.00	1,782,747.47	11.1.2020	HK$341,200.00
6								HK$1,000,000.00
7	Lin Yijou	11.1.2020 (10.1.2020)	229,972.30 (230,000.00)	11.1.2020	230,000.00	1,782,902.50	11.1.2020	HK$100,000.00
8								HK$300,000.00
9								HK$1,000,000.00

9.  On 3 December 2020, the plaintiff obtained ex parte an injunction against the 2^nd tier recipients whereby the 4^th defendant is restrained from dealing with the Sum and his assets up to the amount of the Sum (“the Injunction”).  On the same day, the plaintiff filed the writ of summons herein and the summons for continuation of the injunction against these 2^nd tier recipients (“the Injunction Summons”).

10.  The injunction has since been continued against the majority of the defendants herein, including the 4^th defendant[1].

11.  On 8 January 2021, Messrs. MM Wong & Co (“MMWC”) filed a notice to act for the 4^th defendant.  On 14 January 2021, MMWC accepted service of the court documents.  On the last return day of the Injunction Summons, 29 January 2021, the 4^th defendant appeared by counsel.  Directions were given, and a total of three affirmations have since been filed on his behalf for the purpose of opposing the Injunction Summons.

12.  The plaintiff then sought final judgment in default of notice of intention to defend against the defendants, including the 4^th defendant who has somehow failed to file his notice of intention to defend.  The plaintiff obtained the Judgment on 5 July 2021 whereby the 4^th defendant shall return the Sum or pay her HK$3,179,200 representing the Sum, together with interest (“the Judgment”).

13.  The plaintiff proceeded to enforce the Judgment, and obtained a garnishee order nisi on 16 July 2021 (the “Garnishee Order Nisi”) in respect of the Sum in the 4^th defendant’s account with SCB.  The hearing for the 4^th defendant is supposed to appear to show cause why the nisi order should not be made absolute was scheduled to take place on 7 September 2021 also before this court.

14.  On 2 August 2021, the 4^th defendant filed the Setting Aside Summons.

The claim

15.  In its general indorsement of claim, the plaintiff framed her claim against all the defendants on constructive trust, dishonest assistance, knowing receipt, unjust enrichment and/or unlawful conspiracy in respect of the Defrauded Sum that was transferred to the defendants by mistake and without consent, authority or legal basis.  As mentioned, the claim against the 4^th defendant is for the Sum, which he is said to be holding on trust for the plaintiff.

The defence

16.  The 4^th defendant is a Cambodian national, but came from Fuzhou, China.  He allegedly does trading business in Mainland China and maintained assets including RMB accounts in the Mainland. According to him, he and his mother met a bank manager in SCB during their trip to Hong Kong in late 2018 when he was persuaded to open a bank account and to make investment.  He had to arrange the necessary funds to Hong Kong for the purpose of such investment.  However, all his assets in the Mainland were in RMB.

17.  In January 2019, a friend and fellow businessman of the 4^th defendant, Li Yunbiao (“Li”), recommended to the 4^th defendant a currency exchange and transfer agency which could handle the transfer of significant sum of RMB from the Mainland into Hong Kong dollars to Hong Kong, which would suit the 4^th defendant’s purpose at the time.  In his affirmations, Li admitted that he made the suggestion, and agency was an underground bank.

18.  The 4^th defendant was apparently aware that he would be using an underground bank too.  In his affirmation, he explained that there was no government bank which would provide service to private money exchange and remittance from the Mainland to Hong Kong.  His friends who went to Hong Kong for investment had either to smuggle huge sums of RMB across the border or employ such private agencies to do the exchange and remittance.  Not wanting to take the risk of forfeiture and prosecution for violating currency control by bringing the cash that he needed across the border, the 4^th defendant decided to make use such kind of agencies, according to him, as everybody else did.

19.  According to the 4^th defendant, he agreed to make use of this underground bank recommended by Li because he felt assured by the manner in which that particular underground bank handled the remittance.  According to him and Li, the bank quoted an exchange rate for the remittance.  Upon agreement to such rate, the bank would first remit the money in Hong Kong dollar to his bank account in Hong Kong.  Upon confirming receipt of such money in Hong Kong, the 4^th defendant would then arrange the equivalent amount in RMB to be paid to the underground bank at the agreed rate.  That, the 4^th defendant felt, would save him from having to take any risk of having to part with his money until he has first received from the underground bank the money he wanted in Hong Kong.

20.  According to the 4^th defendant, he was outside of the Mainland at the relevant time, but his mother had full control of his assets including his bank accounts in the Mainland.  He provided his bank account number with SCB in Hong Kong to Li.  Li then informed him of the exchange rate for transfer of RMB to Hong Kong dollars.  Upon his agreement, the underground bank remitted the money to the 4^th defendant’s account.  The 4^th defendant’s mother then handed cash to two accountants in Guangdong engaged by Li, who then forwarded the same to the underground bank.  The various remittances were conducted in this manner.  The 4^th defendant was subsequently alarmed by the Injunction and the present action against him.  He claims no participation or knowledge whatsoever about the fraud on the plaintiff.

Setting aside the Judgment

21.  There is no question that the Judgment was one obtained regularly.  As mentioned, MMWC accepted service of the writ, amongst other court documents. All they could explain was that it was due to their neglect that no notice of intention to defend was filed within the following 7 months.  The 4^th defendant has to set aside the Judgment on the basis of merits.

22.  The parties confirmed during the hearing that the affidavit evidence so far filed and before this court, albeit mostly for the Injunction Summons, could equally be relied on for the purpose of the Setting Aside Summons.

23.  As to merits, it is trite that the 4^th defendant, as the applying party, has the burden of showing by potentially credible evidence that his defence has a real prospect of success.  This is more than merely arguable, but one that carries some degree of conviction, a likelihood that it will succeed on the facts: see Premier Fashion Wears Ltd v Li Hing-chung [1994] 1 HKLR 377 (CA)at 383.

24.  On behalf of the 4^th defendant, it is argued that the plaintiff does not have a valid claim against him for constructive trust, knowing receipt, dishonest assistance or unlawful conspiracy.  As to the claim for unjust enrichment, the 4^th defendant raises the defence of (i) bona fide purchaser without notice of the fraud and (ii) change of position.

Constructive trust, knowing receipt, dishonest assistance, unlawful conspiracy

25.  The punch of the 4^th defendant’s case is that he was but a 2^nd tier recipient of the Sum without knowledge about the fraud.

26.  Insofar as a fraudulent recipient of the victim’s property is concerned, equity imposes a constructive trust on him so that the property is recoverable and traceable in equity: see Westdeutsche Landesbank Gironzentrale v Islington London Borough Council [1996] AC 669 (at 716C-D); 巨展皮具香港有限公司 v 上海兄弟海運有限公司 [2018] HKCFI 53 at §27.  The plaintiff raises suspicion that the 4^th defendant might not be as innocent as he claims. As far as the evidence reveals, she probably may not be able to put it higher than that.

27.  However, even where the recipient is not a party to the fraud, if his state of knowledge is such as to make it unconscionable for him to retain the money, equity still imposes a constructive trust over the property in favour of the victim.  Knowledge can be acquired subsequently while the money is in the recipient's hands: see Guaranty Bank and Trust Company v ZZZIK Inc Limited & Anor HCA 1139/2016 (18 July 2016) (at §§32-35).

28.  It should be noted that as mentioned, the major reason the 4^th defendant chose to engage this underground bank as recommended by Li was that he did not have to make any payment for the money he needed until after the bank has first remitted to his bank account in Hong Kong such money he needed.  In other words, he expected the underground bank to remit to him money from its own source.  He consciously took the chance that the funds that the underground bank remitted to him might have come from all sorts of sources including illegitimate source.  As a businessman he so claims, to say that he did not know the chance of that in these circumstances would be no truer than that he did not care and simply took his chance.  Since the Injunction has landed on him, the 4^th defendant became aware of the reality that the Sum that stands in his bank account undoubtedly originated from the plaintiff as a result of fraud.

Unjust enrichment

29.  Insofar as that for unjust enrichment is concerned, the plaintiff must establish that the defendant has been unjustly enriched at the plaintiff’s expense: see Goff & Jones: The Law of Unjust Enrichment (9^th ed) (at §1-09); 巨展皮具 (above) at §27.

30.  The plaintiff parted with the Defrauded Sum by mistake to the 1^st tier recipients, who transferred the Sum to the 4^th defendant even before he allegedly parted with his own money.  There is a sufficient nexus or causal connection between the loss to the plaintiff and the benefit received by the 4^th defendant at the expense of the plaintiff.  He would not have received the Sum, but for the underground exchange arrangement that he consciously chose to adopt that facilitated the fraud on the plaintiff: see for instance Lee Yuk Shing v Dianoor International Ltd CACV 185/2015 (23 May 2016) (at §§110-111).

31.  To resist the plaintiff’s recovery of the Sum, the 4^th defendant indeed puts forward the defence of bona fide purchaser for value without notice and change of position.  The plaintiff argues that such defence is bound to fail in the circumstances of this case.

Bona fide purchase for value without notice

32.  The plaintiff argues that in the circumstances of this case, the 4^th defendant’s defence is tainted by the illegality of his very receipt of the Sum, which originated from the Defrauded Sum.  As mentioned, he had knowledge about the nature of the money exchange transaction through the agency being an underground banking establishment to circumvent the currency exchange control restrictions.  The plaintiff argues that the 4^th defendant cannot be considered to have provided value for the currency because the exchange transaction was illegal, alternatively that the illegality of the exchange transaction itself goes to negative good faith on his part.

33.  In the written submission on his behalf, the 4^th defendant accepted that the illegality arose out of the use of the underground bank for the exchange and remittance to Hong Kong, which could be breach of the Mainland law or policy regarding currency control.  In court, it was however raised on his behalf the issue of the effect of such illegality, and argued that there is no legal expert evidence of that under the Mainland law.

34.  In DBS Bank (HK) Ltd v Pan Jing [2020] 4 HKC 395, the defence of bona fide purchaser without notice was raised in opposition of an application for summary judgment by an apparently innocent recipient of money, obtained by fraud, through an underground banking transaction.  The facts were similar to those of the present case, save that the recipient in that case provided his money before the underground bank remitted money to him.  Expert evidence was adduced by both parties as to the applicable Mainland law dealing with exchange transactions.  The court (at §§36-40) found no triable issue as to the fact that the defendant’s exchange transaction breached the Mainland law, and would render him liable to an administrative penalty, albeit none had been imposed.

35.  As to the effect of such illegality on the defence, the court in Pan Jing (at §41) accepted the argument that illegality, when raised as a defence to a claim for unjust enrichment, is concerned with acts which are contrary to public law and engage the public interest, and may extend to the infringement of rules attracting civil sanctions of a penal character, which is not unusual.  The Mainland law provisions relating to exchange transactions applicable in the case might fall within such category.

36.  In this respect, the court specifically cautioned about the consideration of the particular position of underground banking transaction as a form of illegality in other cases.  One of those cases was HKSAR v Yan Suiling (2012) 15 HKCFAR 146, which the 4^th defendant does rely on in the present case.  Suffice to say that Yan Suiling did not concern the legality of underground banking exchange transactions under the Mainland law itself (but whether the defendant dealt with property which she knew or had reasonable grounds to believe represented the proceeds of crime), and thus, as the court found, differing from Pan Jing: see Pan Jing at §§42-43; 55.  That I find also differs from the present case.

37.  Yan Suiling was cited by the court in Arrow ECS Norway AS v Xin Cheng Holdings (International) Co Ltd, HCA 239/2016 (12 May 2016).  In discharging the injunction against the defendant who has received part of the traceable proceeds of fraud as a result of his use of the underground foreign exchange system, the court in Arrow found that a mere recipient of funds remitted through an underground banking system is not sufficient in itself to find guilt.  However, it was noted that the emphasis in Arrow was not on any illegality arising out of the use of the underground foreign exchange system either: see Pan Jing (at §§50-51).

38.  The court in Pan Jing also referred to DBS Bank (HK) Limited v Tian Wen Quan, HCA 3228/2016 (12 October 2017), which the 4^th defendant also relies on in the present case.  That was another claim by the bank against the second tier recipient through the underground bank in respect of the same fraud in Pan Jing. The court at the first instance (at §37) actually saw no answer to the illegality point, which would defeat the bona fide purchaser claim.  The court on other grounds discharged the injunction.  The bank sought leave to appeal (CAMP 79/2017 (1 February 2018)).  The appellate court refused leave to appeal on the judge’s rejection of the bank’s case as to the requisite knowledge for a knowing receipt constructive trust case, and accepted as correct that the mere use of underground money exchange is not sufficient to establish such requisite knowledge.  As such, the point that the appellate court upheld did not concern the cause of action advanced in the summary judgment application before the court in Pan Jing, namely, unjust enrichment (or money had and received): see Pan Jing at §§53-55.

39.  Likewise, in the present case, insofar as the cause of action of unjust enrichment is concerned, the question arises as to the effect of the illegality itself, not whether or not the 4^th defendant knew or had reason to believe about the origin of the funds that he received from the underground bank.  In the circumstances, as mentioned, it is not simply that the 4^th defendant did not know but more that he did not care and took his chance about the source of such funds from the underground bank.

40.  The court in Pan Jing (at §§56-60) held that breach of exchange control is a form of illegality that has come before the courts relatively frequently.  In principle, the courts will not enforce an exchange contract which is contrary to exchange controls under the governing law.  Acknowledging the discussion and controversy about the effect of such illegality in restitution, the court held that the correct view is that the defendant cannot be considered to have provided value for the property if it was transferred pursuant to an illegal transaction.

41.  Another noteworthy issue raised in the defence in Pan Jing is that the exchange was said to be handled by a trusted friend, and that there was no reason to believe that it would not be executed lawfully.  Such contention was squarely rejected.  The reason was that there was no evidence to show that the defendant could believe that the transfer would be effected otherwise than by an underground currency exchange arrangement.  That he might have entrusted to a friend to handle the matter did not suffice to rebut the conclusion that he was aware how it was effected (see §§57-60).  The same observation, in my view, could be made in the circumstances of the 4^th defendant here.  The fact is the 4^th defendant was not only aware of the engagement of an underground exchange agency but also made a conscious decision to choose it for the terms it offered for his purpose.

Change of position

42.  Whilst the defence of change of position is mentioned during the hearing, it is unclear precisely what it was that the 4^th defendant suggested as a matter of fact that constituted his change of position, be it by way of affirmation or submission in court.  The submission in court essentially concerned the availability of such defence, which is said to be a developing point of law.

43.  Specifically, it is submitted on behalf of the 4^th defendant that the authority in this respect, Barros Mattos Junior v General Securities & Finance Ltd [2005] 1 WLR 247, has been criticised as rigid approach in that all kinds of illegality, except for minor ones that could be ignored on the de minimus principle, would deny the defence of change of position.

44.  The defence of change of position was also raised and discussed in Pan Jing.  So was the state of the law in this respect.  The court discussed, amongst other cases[2], Barros.  The court also noted that the defendants in cases such as Barros received and distributed the stolen funds in the course of a business whereas the defendant in the case before it received the funds as the final leg of the exchange transaction.  However, the court found that the cases were otherwise not distinguishable in that the courts would refuse to allow a change of position defence where the relevant acts were illegal, as they were in the case before it.  The defendant’s submissions failed for the same reasons that ruled out the bona fide purchaser defence, namely, that it is not necessary for the plaintiff to show that the defendant knew of the fraud because the money transferred pursuant to a transaction that was itself illegal, and that the court rejected the assertion that he did not know how the exchange would be effected (see §68).

45.  The court in Pan Jing was not unaware of the apparent strictness of the approach in Barros, which has been the subject of contrary commentaries.  However, the court held that whether or not those commentaries were accepted, the result was still justifiable on the basis of public policy considerations regarding breach of exchange control regulations (see §69).  Such view of the matter applies equally, if not more so, in the present case.

46.  In the circumstances of the present case, which are similar to Pan Jing, and when the 4^th defendant made the conscious decision to make use of the underground banking exchange mechanism and received the Sum in the manner that he did into his bank account, I have all the reason to come to the same conclusion in rejecting the change of position defence.

Legal expert evidence on the issue of illegality

47.  The above analysis in Pan Jing was endorsed in Idemitsu Chemicals (Hong Kong) Co. Ltd v. Brilliant One Shipping Co Ltd, HCA 148/2020 (28 April 2021) (at §37).

48.  Section 59 of the Evidence Ordinance, Cap 8 governs evidence of foreign law and provides:

“(2) Where any question as to the law of any country or territory outside Hong Kong with respect to any other matter has been determined … in any proceedings as are mentioned in subsection (4), then in any civil proceedings (not being proceedings before a court which can take judicial notice of the law of that country or territory with respect to that matter) –

(a) any finding made or decision given on that question in the first-mentioned proceedings shall, if reported or recorded in citable form, be admissible in evidence for the purpose of proving the law of that country or territory with respect to that matter; and

(b) if that finding or decision, as so reported and recorded is adduced for that purpose, the law of that country or territory with respect to that matter shall be taken to be in accordance with that finding or decision unless the contrary is proved;

Provided that paragraph (b) shall not apply in the case of a finding or decision which conflicts another finding or decision on the same question adduced by virtue of this subsection in the same proceedings.

(3) Except with the leave of the court, a party to any civil proceedings shall not be permitted to adduce any such finding or decision as is mentioned in subsection (2) by virtue of that subsection unless he has in accordance with the rules given to every other party to the proceedings notice that he intends to do so.

(4) The proceedings referred to in subsection (2) are the following, whether civil or criminal, namely-

(a) proceedings at first instance in the High Court…

(b) appeal arising out of proceedings as are mentioned in paragraph (a);

…

(5) For the purposes of this section a finding or decision on any such question as is mentioned in subsection (2) shall be taken to be reported or recorded in citable form if, but only if, it is reported or recorded in writing in a report, transcript or other document which, if that question had been a question as to the law of Hong Kong, could be cited as an authority in legal proceedings in Hong Kong.”

49.  The corresponding O38, r7(1) of the Rules of High Court, Cap 4A provides that the party intending to adduce in evidence finding or decision on a question of foreign law by virtue of section 59 of Cap 8 (above) shall have to give notice of that to the other parties to the proceedings.  Specifically:

“(2) The notice shall specify the question on which the finding or decision was given or made and specify the document in which it is reported or recorded in citable form.

(3) in any cause or matter in which evidence may be given by affidavit, an affidavit specifying the matters contained in paragraph (2) shall constitute notice under paragraph (1) if served within the period mentioned in that paragraph.”

50.  Reliance on Pan Jing and Idemitsu Chemicals was expressly stated in the affirmation of the plaintiff’s solicitors in reply dated 5 July 2021 with copies of such decisions exhibited as notice for the purpose of the above provisions.  It is therefore surprising that suggestion was made on behalf of the 4^th defendant for the first time during the hearing about the lack of legal expert evidence on the issues of illegality arising out of the underground banking exchange and remittance transaction and its effect on the defence of bona fide recipient for value without notice and change of position.  In view of his burden in respect of the Setting Aside Summons, it would have been for the 4^th defendant to adduce contrary evidence.  Yet, as mentioned, the parties confirmed to this court that they were prepared to proceed on the basis of the affirmation evidence before this court for the purpose of both summonses.  The 4^th defendant did not seek to adduce such legal expert evidence for his purpose.

51.  Finally, the 4^th defendant relies heavily on the recent decision of Solyda SRL v Wu Ge and Anor, HCA 161/2019 (23 June 2021), where the defence of bona fide purchaser without notice and change of position was raised in similar circumstances as the present case.  However, that case, in my view, does not lend assistance to the 4^th defendant in changing the pointer of the above discussion on the merits of the defence.

52.  The court in Solyda, and not without grave reservation, found triable issue as to whether the defendant could be said to acting in good faith and genuinely did not believe that she was engaging in any use of underground banking exchange transaction.  This was also why the court distinguished the case before her from Pan Jing where, as mentioned, the court rejected a similar assertion as incredible or triable. Indeed, the court in Solyda found it inappropriate for the change of position defence to be decided summarily because of what appeared to be a developing point of law.  Notwithstanding that, the court concluded that the defence was extremely shadowy so that leave to defend was granted on condition of full payment of the sum in question in court.

53.  In the context of the present case, where the 4^th defendant consciously engaged the underground bank for his purpose and came to receive the Sum the manner he did, as well as where he is applying to set aside the Judgment, a defence which is less sustainable than the shadowy defence in Solyda hardly comes close to carrying any real prospect of success.

Conclusion

54.  Analysing the 4^th defendant’s case, I am not satisfied that he manages to demonstrate that his defence carries any real prospect of success in the circumstances of this case.  The Setting Aside Summons is therefore dismissed, and the Judgment is maintained.

The Injunction Summons

55.  The applicable principles on granting proprietary injunction are summarized in Zimmer Sweden AB v. KPN Hong Kong Ltd HCA 2264/2013 (2 May 2014) (at §76):

(1)   there must be serious issue to be tried that the plaintiff has a proprietary claim over the subject matter;

(2)   the balance of convenience is in favour of granting an injunction; and

(3)   it is just and convenient to grant the injunction. 

56.  Unlike the case of mareva injunction, it is not necessary to show risk of dissipation of assets.  Nor is irreparable damage necessary to be shown.  The Court will readily find that the balance of convenience favours the preservation of the fund that could be traced, as cash is always easier to dissipate than properties: see for instance Pacific Rainbow International Inc v Shenzhen Wolverine Tech Ltd, HCA 3023/2016 (2 May 2017) (at §37); Samtani v. Samtani[2012] 4 HKLRD 872 (at §86).

57.  To obtain a mareva injunction, the plaintiff must establish that:

(1)   it has a good arguable case on a substantive claim;

(2)   the defendant has assets within the jurisdiction;

(3)   the balance of convenience is in favour of granting the injunction;

(4)   there is a real risk of dissipation or removal of assets from the jurisdiction which would render the plaintiff’s judgment of no effect.

see Hong Kong Civil Procedure 2021 (Vol 1) at §29/1/65.  As to what amounts to good arguable case: see for instance Pacific Rainbow (above) (at §39).

58.  Importantly, the Injunction Summons will now be considered on the basis that the Judgment remains intact.  As such, there is no question of whether the plaintiff manages to establish a good arguable case against the 4^th defendant.  Further, given that there is no risk of subsequently finding that the marvea injunction was wrongly granted, hardship to the 4^th defendant is of less weight than if, at an earlier stage in the proceedings against him, it was unclear whether or not the claim against him would be successful: see Spry, Equitable Remedies (9^th ed) at p.551.

59.  Insofar as the mareva injunction is concerned, the risk of dissipation must be established by evidence, and each case depends on its own facts: see Convoy Collateral Ltd v Cho Kwai Chee & Ors, CACV 197/2020 (3 July 2020) (at §35).  The test is an objective one, instead of whether or not the defendant is proved to intend to do so for the purpose of defeating any judgment: see China Citic Bank Corporation Ltd (Quanzhou Branch) v Li Kwai Chun & Ors, HCMP 1408/2017 (3 August 2018) (at §§23-24).  Such risk may be more readily established after judgment: see Orwell Steel (Erection and Fabrication) Ltd v Asphalt and Tarmac (UK) Ltd [1984] 1 WLR 1097 (at 1100F–G).

60.  At the hearing, the 4^th defendant referred to a further authority on the issue of risk of dissipation, namely, Predicine Holdings Ltd v Bianchi (HK) Limited & Ors, HCA 1195/2020 (18 January 2021).  Two points are made.  First, proprietary injunction will not be granted if a monetary award will be an adequate remedy to the plaintiff, unless there is evidence which calls into question the ability or readiness of the defendant to meet the award[3]. Second, even if the defendant used an underground banking arrangement, and is to be regarded as commercially or legally reprehensible, that cannot amount to a risk of dissipation[4]. It should be noted that at the end, the court in Predicine Holdings Ltd did continue the proprietary injunction in respect of the traced proceeds.

61.  Still each case has to be decided on its own facts, and it is for the court to take a holistic view of the matters on the basis of the evidence.

62.  The 4^th defendant is a Cambodian national.  He got himself involved because of his engagement of an underground exchange transaction for his purpose, notwithstanding his knowledge that that was unlawful being contrary to the foreign exchange restrictions.  He consciously decided to engage the particular underground banking establishment precisely because of the advantage of being able to receive the money he needed from the establishment before he had to make his payment.  As mentioned, he shut his eyes to the chance of illegitimate sources of the funds that he expected to receive, notwithstanding his own case of checking his bank account after every transfer.  That he thought the transferors unknown to him were just random accounts used by the establishment for the transfers is not impressive suggestion to be made by a businessman.

63.  The property over which the claim is asserted is cash in bank.  So are the 4^th defendant’s assets in Hong Kong.  It is true that his account balance as of the imposition of the Injunction far exceeds the Sum.  However, cash remains easy to dispose of.  The 4^th defendant resisted the claim, and sought to set aside the Judgment.  He fails that and remains liable to return the Sum in his bank account or its equivalent value.  He remains resistant to the Injunction.  There is never any indication of concession that should the Judgment remains, the 4^th defendant would have had no case for refusing to return the Sum to the plaintiff.  The circumstances were such that calls into question whether it is just and convenient to leave the plaintiff to face the risk of the Injunction not being retained.

Just and convenient

64.  Again, not only if the plaintiff asserting a proprietary claim, but has succeeded in obtaining and maintaining the Judgment against the 4^th defendant. There is hardly anything unjust to continue the Injunction to the extent of now the judgment sum.

65.  The 4^th defendant complained about the consequence of the Injunction.  Specifically, SCB, his banker, according to him, has refused to allow him to utilize the money in the account notwithstanding that the balance far exceeds the Sum being capped by the Injunction.  That, according to him, caused hardship.  However, what he complained about was unexpected and unwanted consequence.  The 4^th defendant was the victim of his banker’s administration.  For the record, the plaintiff’s solicitors have offered to write to the bank to clarify to help ease the hardship that the 4^th defendant complained about.  Insofar as the terms of the Injunction are concerned, they are clear.

66.  There is in place the Garnishee Order Nisi in respect of the money in the 4^th defendant’s bank account with SCB to the extent of the judgment debt, ie the Sum plus interest.  There is nothing unusual about the co-existence of that and the Injunction.  It is not unusual for the plaintiff to have obtained a proprietary or mareva injunction in respect of the defendant’s money in bank account to proceed to obtain judgment, and thereby further obtain a garnishee order in respect of such money in the bank.

Order

67.  I therefore make the following order:

(1)   The Setting Aside Summons is dismissed.

(2)   As to the Injunction Summons, the Injunction against the 4^th defendant do continue until further order of the court.

(3)    Liberty to the plaintiff to apply for discharge of the Injunction to the extent as may be necessary to enable the enforcement of any garnishee order absolute in respect of the 4^th defendant’s bank account with the SCB as may be granted by the court.

68.  The plaintiff should have the costs of and occasioned by the Setting Aside Summons and the Injunction Summons to be taxed, if not agreed, to avoid doubt, with certificate for counsel.  So I order on nisi basis.