VANTEDGE ENTERPRISE CO LTD v. EVERWAY (HK) TRADING LTD AND OTHERS

DCCJ 5377/2023

[2024] HKDC 1349

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 5377 OF 2023

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DECISION

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Introduction and Background Facts

1.  I have before me an application by the Plaintiff (“P”) by Summons dated 27 March 2024 (“the Summons”) against the 1^st Defendant (“D1”) for summary judgment for the sum of USD110,420 or its Hong Kong Dollar equivalent (“the Sum”) and for a declaration that P has proprietary interest over the Sum and is entitled to trace the Sum into all such funds and assets acquired by or representing such funds. Whilst originally the Summons also sought summary judgment against the 3^rd Defendant (“D3”), P only proceeds against D1 on the Summons.

2.  P claims to be a victim of fraud. According to the Statement of Claim (“SOC”):

(1)  On or about 24 April 2023, P’s general manager (“Yu”) was approached on LinkedIn by one Ms Mackie Beesan (“the Scammer”), who allegedly worked for E L Erman (“ELE”), and procured P to enter into a business partnership with ELE as a procurement company to purchase raw materials from P for manufacture of cosmetic products in Israel (“the Goods”);

(2)  On or about 27 April 2023, Yu on behalf of P signed a Memorandum of Understanding with the Scammer;

(3)  On or about 2 May 2023, P was requested by the Scammer to contact ELE and confirmed the specification of the Goods;

(4)  On or about 4 May 2023, a letter of intent was executed between P and ELE pursuant to which P was engaged to enter into a two-year contract. Upon the successful testing of 2 gallons of the sample goods and upon payment by P of the sample goods, 84 gallons of raw materials would be procured by P;

(5)  On or about 12 May 2023, P was provided with two bank accounts by the supplier to make the payment, and pursuant to the supplier’s instructions, P deposited USD9,210 to a Turkish account specified by the supplier;

(6)  On or about 24 May 2023, P was informed that the sample goods passed the testing and ELE would send representatives to P’s warehouse to examine and/or inspect the Goods personally. However, as P’s warehouse was located in Turkey, personal examination could not be arranged. The Scammer then informed P that the first batch of procurement shall be paid by cash on delivery;

(7)  Between 26 May 2023 and 7 June 2023, P was directed to make a total sum of USD110,420, ie the Sum, to D1’s bank account (“D1’s Account”);

(8)  Various other sums were later subsequently made by P to the accounts of the 2^nd Defendant (“D2”) and D3;

(9)  On or about 10 July 2023, P tried to contact ELE via a telephone number provided by the Scammer but to no avail;

(10)  On or about 11 July 2023, P checked the delivery status of the Goods on the website of the courier but no record was shown and it was later discovered that the website was fake. On the same day, P reported the matter to the Hong Kong Police; and

(11)  P had never any business, commercial or other dealing with D1, D2 or D3. The Sum was transferred by mistake as a result of the fraud perpetuated by the Scammer.

3.  In the Defence of D1, it is claimed that it has no knowledge of the alleged fraud. Whilst admitting that the Sum was credited to D1’s Account, D1 avers:

(1)  The Sum was paid by P to D1 under a business transaction made by D1 with its purchaser, Ecomaxxi Enterprises (“EE”), a company in Nigeria;

(2)  EE is a company run by Mr Chris Nweobis (“Chris”) who has been a customer of D1 for the past 5 to 6 years;

(3)  D1 sells batteries to EE and exports the batteries to Nigeria. There were around 2 to 3 transactions each year;

(4)  Usually when EE and D1 reaches a deal, EE would make a purchase order through WeChat to D1;

(5)  EE would pay 10 to 20% deposit to D1 and then D1 would arrange with the trading company in China for making the batteries at the factory in China;

(6)  D1 would then issue an invoice to EE with the price of the products and the shipping fees;

(7)  EE would arrange for payment of the invoice by depositing the purchase price and shipping fees to D1’s Account before the products were shipped;

(8)  Since EE is in Africa, EE would arrange money agents to make payments to D1. It would be done by depositing money to D1’s Account by different companies. When D1 received the deposit of money, D1 would identify and confirm the same with Chris;

(9)  In this particular case, EE agreed to purchase and D1 agreed to sell 3,500 CTNS R6 “Get Ready” Battery size AA (“the Batteries”);

(10)  EE paid a deposit for USD20,000;

(11)  D1 issued an invoice to EE for USD123,050 being the purchase price for the Batteries and the shipping fees thereof (“the Invoice”);

(12)  After receiving payment of the Invoice, and confirmation of the payment with Chris, D1 arranged export of the Batteries in June 2023;

(13)  A balance of USD7,000 odd was kept by D1 for the next order;

(14)  Accordingly, the Sum was for consideration of the Invoice; and

(15)  D1 do not know the Scammer and ELE, and had not any business dealings with them.

4.  The following affirmations have been filed in respect of the Summons:

(1)  1^st Affirmation of Yu Feng Shu filed on 28 March 2024 in support of the Summons;

(2)  Affirmation of Nwene, Christopher Chinweobi also known as Chris Nweobis filed on 12 June 2024 in opposition to the Summons;

(3)  Affirmation of Cheng Hon Sang filed on 12 June 2024 in opposition to the Summons; and

(4)  2^nd Affirmation of Yu Feng Shu filed on 28 June 2024 in reply.

Applicable principles

5.  The applicable principles for summary judgment are trite. I would gratefully adopt the recent summary of those principles by Deputy District Judge Alexsander Wong in Shenzhen Hifrozen International Logistics Development Co Ltd v Splendid Joy Corporation Limited [2024] HKDC 894 at §18:

(1)  The Statement of Claim must be complete and good in itself before any summary judgment may be entered upon it. Any defect or omission on the Statement of Claim cannot be corrected or supplemented by the plaintiff’s affidavit. If the defect is one of substance, the application for summary judgment will be dismissed: Li Chuen Kwai v Po Lam Construction Development Ltd (unrep, HCA 2376/2013, 24 September 2014), at §11; Hong Kong Civil Procedure 2024, Vol 1, §14/1/5;

(2)  Where a plaintiff’s application is properly constituted (provided that he has raised a prima facie sustainable case in the first place), he is prima facie entitled to judgment unless the defendant shows cause to the contrary: Hong Kong Civil Procedure 2024, Vol 1, §14/4/1; Supreme China Securities Ltd v Ng Wing Yip [2024] HKCFI 1196, at §35;

(3)  In responding to a summary judgment application:-

(a)  The defendant must condescend to particulars. The mere assertion in an affidavit of a given situation by the defendant does not, ipso facto, ground leave to defend;

(b)  The defendant must satisfy the court that its evidence is capable of being believed and that on the basis of such evidence, there is a fair or reasonable probability of the defendant having a real or bona fide defence. The issue is not whether the defendant is believed, but whether the assertions are believable;

(c)  In deciding whether there is a fair or reasonable probability of the defendant having a real or bona fide defence or whether the defendant’s assertions are believable, the court does not isolate each factual issue and consider whether it is possible that the defendant’s story on that issue is credible. Rather, the court must look at the whole situation;

(d)  In assessing the credibility of the defendant’s factual case, while the court will not embark on a mini-trial on affidavit, the court is not obliged to suspend its critical faculties and assume that the defendant’s evidence is accurate;

(e)  If having regard to inherent plausibility, inconsistency with contemporaneous documents and other compelling evidence, the defence is not credible, the court must say so. If the defendant’s defence is incredible in any material respect, it cannot be said that there is a fair or reasonable probability that the defendant has a real or bona fide defence; and

(f)  Unless it is obvious that the defence is frivolous and practically moonshine, Order 14 ought not to apply.

See: John Joseph Mc Gee v Nold (HK) Limited [2022] HKCFI 3598, at §21; Menfond Electronic Art & Computer Design Co Ltd v Wong Wang Tat Victor [2013] 2 HKC 259, at §61.

Discussion

6.  Whilst it is now well-established that equity will impose a constructive on the fraudulent recipient when the property is obtained by fraud (see eg Zief Incorporated v Tekchandani Ajai Mohan [2021] 3 HKC 69, §45 and JSP International SRO v Alacrity Limited & Ors [2022] HKCFI 977, §§26 and 43) in the SOC, apart from the assertion that P made payments to the accounts of the Defendants “as fraud agents” as directed by the Scammer, there is no other plea that D1 was implicated in the fraud and was therefore a fraudulent recipient.

7.  Furthermore, it is also well-established a plaintiff who alleges dishonesty must plead the facts, matters and circumstances relied on to show that the defendant was dishonest and not merely negligent, and that the facts, matters and circumstances which are consistent with negligence do not do so: see Three Rivers District Council & ors v Bank of England (No 3) [2003] 2 AC 1 at §§184-186 applied in JSP International SRO §28.

8.  At most, there is an unparticularised allegation of fraud in the SOC. On this basis alone, I do not consider that the claim based on constructive trust is sustainable as pleaded in the SOC which prima facie entitles P to summary judgment for the proprietary claim over the Sum.

9.  Whilst, there may also be an alterative way in which a constructive trust can be asserted over the Sum, short of alleging D1 was a fraudulent recipient, namely D1’s state of knowledge is such to make it unconscionable for it to retain the money (see Guaranty Bank and Trust Company v ZZZIK Inc Ltd (unrep) HCA 1139/2016, 18 July 2016, §32) this has not been pleaded in the SOC.

10.  Mr Liu, counsel for P, had sought to rely on the plea in the Reply that D1 did not act in good faith and should have suspected the Sum paid to D1 was tainted with illegality or fraud. I do not find that plea sufficient. In any event, a plaintiff must not put forward in his reply a new cause of action not raised in the statement of claim: see Hong Kong Civil Procedure 2024, Vol 1, §18/3/2.

11.  Accordingly, I am not satisfied that P’s proprietary claim to the Sum is properly constituted and/or P has raised a prima facie sustainable case.

12.  As to P’s claim for the Sum based on unjust enrichment, Mr Liu, counsel for P, submitted that the defence of bona fide purchaser for value without notice is not a defence to such claim. He referred to McGrath QC, Commercial Fraud in Civil Practice (2^nd Edn), §3.171 and Graham Virgo, The Principles of the Law of Restitution (4^th Edn), p 719.

13.  However, it is well-established that a change of position is a defence to a claim in unjust enrichment. At the very least, it is open to D1 to rely on this defence: see Commercial Fraud in Civil Practice, §3.171 and Zief Incorporated at §35.

14.  In D1’s Defence and the affirmations filed in opposition of the Summons, essentially, D1’s case is that the Sum was received as payment for the Invoice, and having received the Sum, D1 arranged for the exportation of the Batteries to EE in June 2023.

15.  The fact that the sale and export of the Batteries to EE was a genuine transaction between D1 and EE was confirmed by Chris, a party unrelated to D1. Whether or not this defence is made out is a matter for trial.

16.  Mr Liu had relied on three matters to say that D1’s case is unbelievable.

17.  Firstly, it was submitted there was no contemporaneous documents evidencing the allegation that the Sum was arranged by Chris through a money agent in Nigeria and no payment records between EE and the money agent were produced.

18.  Secondly, it was submitted that the Invoice was not a genuine or contemporaneous document given the shipping fee stated thereon was USD2,900 per unit (for two units). However, the WeChat conversation between D1 and Chris stated that the shipping fee is cheaper now and was USD2,900.

19.  Thirdly, it was submitted whilst Chris had explained the difference between the Sum and the Invoice amount of USD7,370, that amount would remain in D1’s account to be set off in the future, there is no evidence of a running account between D1 and EE.

20.  Although there may be what Mr Liu called fundamental gaps or weaknesses in the evidence of D1 or Chris, I would refuse to conduct a mini-trial on the affidavits on credibility. I do not agree there are material discrepancies between their evidence and the contemporaneous documents. In any event, these are really matters for trial.

21.  In all, looking at the whole situation and the circumstances of this case, where one is dealing with an alleged trade with individuals in Nigeria, circumstances in the dealings between parties which require further investigation at trial, I am of the view that D1’s case is believable and cannot be said to be practically moonshine.

22.  Accordingly, I would grant unconditional leave to D1 to defend.

23.  I further order (as agreed by the parties) that costs of the Summons, with certificate for counsel, be in the cause.