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DCCJ 1665/2021
[2022] HKDC 817
IN THE DISTRICT COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
CIVIL ACTION NO 1665 OF 2021
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BETWEEN
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TIAN, MANLI also known as MANLI TIAN |
Plaintiff
(Judgment Creditor) |
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and |
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LIN CHUN HSIEN also known as CHUN HSIEN LIN |
1st Defendant |
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AU WING LING |
2nd Defendant
(Judgment Debtor) |
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and |
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CITIBANK (HONG KONG) LIMITED |
Garnishee |
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Before: Deputy District Judge Joseph Vaughan in Chambers
Date of Hearing: 18 July 2022
Date of Judgment: 12 August 2022
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JUDGMENT
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THE APPEAL
1. By a generally indorsed writ dated 15 April 2021, the plaintiff claims for:-
“USD$90,000 (the “Defrauded Sum”) being money payable by the 1st and 2nd Defendants to the Plaintiff as money had and received by the 1st Defendant on 29 May 2018 and was then transferred to the 2nd Defendant without the Plaintiff’s knowledge and/or consent whereby the Plaintiff was fraudulently deceived into believing that the Defrauded Sum transferred to the 1st Defendant was for fulfilling the 1st Defendant’s requests…”
2. On the same day, the plaintiff purported to serve the 2nd defendant with a sealed copy of the writ by inserting it through the letter box of Flat E, 8/F, Kam Fung Building, Nos 6-8 Cleverly Street, Sheung Wan (“the Kam Fung Flat”). No acknowledgment of service of the writ having been filed, the plaintiff obtained default judgment against the 2nd defendant on 26 May 2021 for the sum of US$90,000 with interest and costs.
3. Subsequently on 20 July 2021, the plaintiff obtained a garnishee order to show cause made in respect of the 2nd defendant’s bank account no 0048199664 held with Citibank (Hong Kong) Limited (“the Citibank Account”).
4. On 18 November 2021, the 2nd defendant applied to set aside the default judgment and garnishee order to show cause. On 20 May 2022, The application was heard by Master June Cheung, who dismissed the 2nd defendant’s application and granted a garnishee order absolute.
5. This is the 2nd defendant’s appeal against the decision of the master, on the grounds that:-
(i) The default judgment was obtained irregularly, as the writ had not been properly served on her;
(ii) The 2nd defendant has a real prospect of success on the merits.
LEGAL PRINCIPLES
On an appeal before a master’s decision
6. No issue arose at the hearing that an appeal from the decision of a master is in the nature of a re-hearing, as though the matter has come before the judge hearing the appeal for the first time. Although the judge hearing the appeal may adopt the reasons of the master, his decision is in no way fettered by the previous exercise of the master’s discretion – see Hong Kong Civil Procedure 2022, Vol 1, at paragraph 58/1/2.
On setting aside a default judgment
7. Insofar as an application to set aside a default judgment is concerned, the principles are well settled. Under O 13, r 9 of the Rules of the District Court (“RDC”), the court may, on such terms as it thinks just, set aside or vary any default judgment entered in default of acknowledgment of service of the writ.
8. Mr Jiang for the 2nd defendant has referred to the case of Goldteam Group Ltd v Qin Hui [2021] 5 HKC 708, where Linda Chan J summarised the principles at paragraphs 26-27:-
“26. Where a default judgment was obtained irregularly, the judgment would be set aside as of right, and the Court does not have to consider the merits of the proposed defence although the Court will not shut its eyes to the surrounding circumstances and why things went wrong and has a residual discretion to impose terms for setting aside an irregular judgment having regard to the parties’ conduct. In particular, the Court may set aside an irregular judgment on condition that the monies owing should be paid into Court where there has been substantial delay in making the application and the defendant has not shown any defence on the merits to the plaintiff’s claim (Po Kwong Marble Factory Ltd v Wah Yee Decoration Co Ltd [1996] 4 HKC 157 (CA); Hong Kong Civil Procedure 2021, Vol 1, §13/9/4(2)(d), §13/9/10 and §13/9/18).
27. By contrast, in an application to set aside a regular default judgment, the major consideration is whether the defendant has shown a defence on the merits. For this purpose, the defendant must show that he has “a real prospect of success”. In the exercise of the discretion under the rule, the Court will have regard to all relevant circumstances in order to see where the justice of the case lies. The factors include why the default occurred, the defendant’s conduct after he had notice of the proceedings, an explanation for the time taken where there has been delay in making the application, and any prejudice that would be caused to the plaintiff or to third parties if the default judgment were to be set aside (Hong Kong Civil Procedure 2021, Vol 1, §§13/9/13, 13/9/14).”
9. Pursuant to O 10, r 1(2)(b), (3)(a) of the RDC, where a copy of the writ is inserted through the letter box of the defendant’s last known address, the writ is deemed to be served on the seventh day after the date on which the copy was inserted. The presumption is displaced if the defendant can show that he did not have notice of the writ. Ultimately, the “test for service of a writ was whether it had been brought to the defendant’s notice and not whether it had been delivered to the defendant’s last known address”: see Sinokawa Investment (Holdings) Ltd v Li Chun [2006] 3 HKLRD 441 at paragraph 15 per Sakhrani J.
10. In this regard, Mr Hon for the plaintiff highlighted to the court that where a writ has been served in accordance with the rules, a defendant who claims he has not received the writ must provide convincing evidence that the proceedings were not brought to his notice, referring to Hong Kong Civil Procedure 2022, Vol 1 at paragraph 10/1/23, and Bank of China (Hong Kong) Ltd v Cheung King Fung [2007] 1 HKLRD 462 at paragraphs 33 and 34.
WAS THE JUDGMENT REGULAR?
11. The 2nd defendant says she did not receive the writ in this case. According to her evidence, when a sealed copy of the writ was purportedly served on her by insertion through the letter box of the Kam Fung Flat address on 15 April 2021, she was no longer living there. The 2nd defendant says that her late husband, Mr Tsoi Chun Sing (“Mr Tsoi”), with whom she had been residing together, rented the Kam Fung Flat from 23 April 2016 to 14 May 2018. On 3 December 2017, Mr Tsoi entered into a lease for Flat D, 14/F, Tower A, Hollywood Terrace, No 268 Queen’s Road Central (“the Hollywood Terrace Flat”) for the period from 15 December 2017 to 14 December 2019. The 2nd defendant says she and Mr Tsoi moved out of the Kam Fung Flat and into the Hollywood Terrace Flat in December 2017.
12. The 2nd defendant also says that on 2 December 2019, Mr Tsoi signed a second lease for the Hollywood Terrace Flat for the period from 15 December 2019 to 14 December 2021 and they continued to reside at that address. However, Mr Tsoi passed away on 10 September 2020, and shortly thereafter, the 2nd defendant signed a lease for Flat B, 24/F, Po Thai Building, 9 Possession Street (“the Po Thai Flat”) for the period from 1 November 2020 to 31 October 2022. She moved out of the Hollywood Terrace Flat and into the Po Thai Flat and has lived in the Po Thai Flat since then. She has produced copies of the relevant leases signed by Mr Tsoi and herself.
13. The 2nd defendant also says that since she had moved out of the Kam Fung Flat she and her late husband had not stayed in touch with or received any communication from the landlord of the Kam Fung Flat. In other words, they had no knowledge as to the service of the writ at that address.
14. In support of her case, the 2nd defendant has also produced her bank statements for the Citibank Account for the period from 8 December 2017 to 7 January 2018 which showed that her address was the Hollywood Terrace Flat, and that her address on her statement for that account for the period from 8 November 2020 to 7 December 2020 was the Po Thai Flat. She also relies on her address stated in Mr Tsoi’s death certificate dated 11 September 2020, being the Hollywood Terrace Flat.
15. In the premises, the 2nd defendant says that by April 2021, she had already moved out of the Kam Fung Flat and was residing at the Po Thai Flat. As a result, the writ was not brought to her attention by insertion of a sealed copy into the letter box for the Kam Fung Flat on 15 April 2021, and she had no notice of the same before the default judgment was obtained. According to her, she only learned of the current action on around 22 August 2021, when she conducted a credit search on herself because her credit card application had been rejected.
16. Mr Hon submitted that the Kam Fung Flat address was supplied by the Hong Kong Police under their letter dated 10 February 2021 upon the plaintiff’s enquiry with them with respect to their records or the information they have obtained during their investigation of the fraud allegedly practised on the plaintiff. Be that as it may, it would seem to me that the 2nd defendant has produced documentary proof that the lease of the Kam Fung Flat had expired since mid-May 2018, and that subsequent leases were signed for renting the Hollywood Terrace Flat and the Po Thai Flat respectively.
17. Mr Hon also questioned the timing of the 2nd defendant’s discovery of the proceedings against her soon after the garnishee order to show cause was issued on 20 July 2021, when she claims she conducted a credit search on herself in late August 2021 because her application for a credit card was rejected. The premise or suggestion put forward by Mr Hon in that regard is that by that time the 2nd defendant did not have any choice but to respond to the claim. I do not see much force in that argument. According to the evidence of the 2nd defendant, she had been informed by the bank and had been in contact with the police since late 2018 relating to the freezing of the Citibank Account under her name. As such, the funds in the Citibank Account had already been frozen by then and she was already aware that there was an ongoing police investigation into the alleged fraud.
18. The only matter that has raised a suspicion on my part with regard to the 2nd defendant’s evidence that she has conducted a credit search on herself at TransUnion Limited, a financial institution that collects and maintains consumer credit data, on or around 22 August 2021, is that the credit report she has produced shows her credit data as at 15 November 2021, which suggests that the report produced was the result of a search conducted in November 2021 instead. She has not explained the reason why a copy of the report she claims she has obtained in August has not been produced. However, having considered this point further, I am of the view that no substantive conclusion adverse to her credibility could be drawn from this suspicion. In any event, default judgment had already been entered against the 2nd defendant on 26 May 2021, before she claims she had conducted the search at TransUnion Limited. The most important consideration here remains to be whether the proceedings were brought to her notice when the writ was said to have been served on her on 15 April 2021. In this regard, she has produced evidence of her changes of residence during the relevant period, which I do not find to be unbelievable.
19. In the circumstances, I find that the 2nd defendant has sufficiently proved she had not received the writ and the proceedings were not brought to her notice prior to the entering of the default judgment. The default judgment was irregularly obtained, and should be set aside on this ground alone.
20. However, even if the default judgment was regularly obtained, I am also of the view that the 2nd defendant has put forward a defence that has a real prospect of success for the reasons set out below.
REAL PROSPECT OF SUCCESS ON THE MERITS
21. The 2nd defendant’s case is as follows.
22. She received the sums of HK$665,601 and HK$39,080.50 on 31 May 2018, being the traceable proceeds of the US$90,000 allegedly defrauded from the plaintiff, on behalf of her employer which is a licensed money service operator called Hong Kong Exchange (“HK Exchange”). HK Exchange is a small family-run partnership owned by the family of the late husband of the 2nd defendant. The Citibank Account held in the name of the 2nd defendant was a designated account of HK Exchange, according to the online database of the Customs and Excise Department and notification of change in particulars filed with the Customs and Excise Department. In other words, although the Citibank Account is held in the name of the 2nd defendant, it is an account used for the purposes of the money exchange business of HK Exchange.
23. The 2nd defendant’s evidence is that HK Exchange received the two sums through the Citibank Account pursuant to two money exchange agreements between HK Exchange and the 1st defendant:-
(a) Pursuant to the first agreement, the 1st defendant transferred US$5,000 to HK Exchange in return for HK$38,500 being paid out in cash to a friend of the 1st defendant, Mr Wang Te Pin (“Mr Wang”);
(b) Pursuant to the second agreement, the 1st defendant transferred US$85,000 to HK Exchange in return for HK$654,500 being paid out in cash to Mr Wang.
24. It is the 2nd defendant’s case that neither HK Exchange nor herself was aware of the alleged fraud. Insofar as the 2nd defendant was given to understand, HK Exchange’s general manager, Ms Chiu Shuk Ling, had performed due diligence on the 1st defendant and Mr Wang by requesting for their identification documents and inquiring as to the source of the funds and the purpose and nature of the remittance transactions. According to Ms Chiu, nothing out of the ordinary was discovered. The money was said to be provided to Mr Wang for purchasing gold. HK Exchange’s cashier, Ms Fung Yin Yee, also checked Mr Wang’s identification documents and found nothing out of the ordinary.
25. Therefore, the 2nd defendant submits she has the following defences to the plaintiff’s claim in restitution, or for money had and received, which is now regarded as being based on unjust enrichment (see Credit One Finance Ltd v Yeung Kwok Chi [2021] 1 HKC 598 at paragraph 39 per Recorder Eugene Fung SC):-
(i) First, the 2nd defendant received the sums merely as an agent of HK Exchange. Therefore, she is not liable to a claim in restitution of unjust enrichment, as she was not personally enriched by the said sums. This is referred to as the “ministerial receipt defence”.
(ii) Second, HK Exchange is a bona fide purchaser of the said sums.
(iii) Third, HK Exchange changed its position in good faith after receiving the sums.
Ministerial Receipt Defence
26. Mr Jiang has referred me to The Yerrid Law Firm v Qiansbaizi Trading Ltd & Others, HCA 2271 of 2019, 19 March 2021; [2021] HKCFI 620, where the ministerial receipt defence was considered by DHCJ Paul Lam SC in a similar situation. He said at paragraph 19:-
“At this hearing, P argues that, first, D2 has not adduced any evidence that it had transferred out any part of the US$200,000 which it had received from D1; and hence, there was no change of position. D2 replies by relying on the principles of ministerial receipt as set out in Goff & Jones, The Law of Unjust Enrichment (9th edn), where the authors state in §28-02 at p 807:
“On another view, which we prefer, an agent who receives a benefit for which he must account to his principal should be able to resist a claim in unjust enrichment whether or not he pays the value of the benefit to his principal, and whether or not he takes good title to property which he then uses as his own, because his obligation to account means that he never takes the value of the benefit for himself, and that the principal alone is enriched by the transaction.”
In this case, D2 merely received the sum of US$200,000 as the receiving agent for Fuyau or Wanyuen. There is no suggestion that D2 was entitled to keep any part of this sum in its own right. For the present purpose, I accept that this is an argument with a real prospect of success.”
27. The defence did not assist the appellant in that case eventually, as the court accepted the plaintiff’s submission that there is no evidence the recipient of the sums was a formally authorised agent of the money service operator in question. There is no such argument raised in the present case. However, the plaintiff did raise a query that the forms and guidance notes issued by the Customs and Excise Department pursuant to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, Cap.615 stated that “the holder of bank account(s) used for operating the money service must be in the name of the applicant, its partner, director or ultimate owner”, whereas the 2nd defendant was neither. In response, the 2nd defendant argues that at the material time, the applicable guidance notes were not applicable. In any event, there is no dispute that at the material time, the Citibank Account held in her name was indeed one of the designated accounts of HK Exchange registered in the records of the Customs and Excise Department.
28. Thus, it is submitted by the 2nd defendant that she has a real prospect of successfully defending the plaintiff’s claim on the basis that she received the sums as agent for HK Exchange and not in her own right, and she is liable to account for the same to HK Exchange. I agree that there is force in such argument, and find that in light of the evidence adduced, the 2nd defendant has a real prospect of successfully defending the claim on this defence.
Bona Fide Purchaser and Change of Position Defences
29. The 2nd defendant also seeks to rely on the bona fide purchaser defence (see, e.g., Lesnina H DOO v Wave Shipping Trade Co Ltd [2022] 2 HKLRD 727 at paragraphs 41 and 65, per DHCJ Dawes SC), and the defence of change of position.
30. For the defence of change of position, it is submitted that in an unjust enrichment claim, the defence of change of position in good faith may be available to a person whose position has so changed that it would be inequitable in all the circumstances to require him to make restitution in whole or in part: see, e.g., Arrow ECS Norway AS v Xin Cheng Holdings (International) Co Ltd, HCA 239 of 2015, 12 May 2016 at paragraph 29.
31. She argues that HK Exchange has given valuable consideration for the sums by transferring money to Mr Wang pursuant to the money exchange transactions. Further, HK Exchange had performed due diligence prior to completing the transactions, and hence had acted in good faith, not having notice of the alleged fraud. The 2nd defendant had acted on that basis, thus similarly not having any notice of the alleged fraud.
32. It is further submitted that even being a mere recipient of funds remitted through an underground banking system is not sufficient to cause liability. It has to be proved that the recipient knew or had reason to believe that the money had an illicit source: see Arrow ECS Norway AS (above) at paragraph 30 per Au-Yeung J; and BR CAT International Co Ltd v Hongkong Proof Import and Export Trading Co Ltd, HCA 1023 of 2014, 22 September 2017 at paragraph 96 per Bebe Chu J.
33. As to bona fides, Mr Hon further submits that according to certain litigation searches conducted on behalf of the plaintiff, various personnel at HK Exchange have been named as defendants in various criminal proceedings (e.g. for drug trafficking, theft, criminal damage and criminal intimidation), which tends to show that HK Exchange operates as a criminal syndicate. I do not agree that this goes as far as Mr Hon would suggest. Even assuming there have been eventual criminal convictions, this may provide an overall impression on the background of the persons running HK Exchange, but would not necessarily detract from the credibility of the 2nd defendant’s case in this instance.
34. Apart from the issue of good faith, however, I have some reservation about the applicability of the change of position defence to the case of the 2nd defendant, as it was HK Exchange who had paid out the agreed amount of exchange to Mr Wang, whereas the traceable proceeds are still kept in the Citibank Account that is under the name of the 2nd defendant. Nonetheless, given my view about the defence of ministerial receipt, this would not affect the conclusion I have reached.
CONCLUSION
35. For the above reasons, I allow the appeal and set aside the default judgment and garnishee order. I understand that the Citibank Bank Account has been suspended and the traceable proceeds have not been paid out to HK Exchange or any other party. In the circumstances, I would not consider it appropriate to set aside the default judgment on any condition.
COSTS
36. Costs should follow the event in this appeal. I make an order nisi that the plaintiff shall pay the costs of the 2nd defendant of this appeal and of the application before the master, to be summarily assessed if not agreed, with certificate for counsel. For that purpose, I direct that:-
(i) The 2nd defendant shall file and serve her Statement of Costs within 14 days from the date of this judgment; and
(ii) The plaintiff shall file and serve his response and objections to the 2nd defendant’s Statement of Costs within 14 days thereafter.
37. Lastly, I thank counsel for their assistance.
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( Joseph Vaughan )
Deputy District Judge
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Mr Kevin Hon, instructed by Edmund Cheung & Co, for the plaintiff
The 1st defendant was not represented and did not appear
Mr Jiang Zixin, instructed by Henry Yu & Associates, for the 2nd defendant
The garnishee was not represented and did not appear
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