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

HCA 150/2020

[2022] HKCFI 2541

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 150 OF 2020

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HCA 399/2020

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 399 OF 2020

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________________________

(Heard together)

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DECISION

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INTRODUCTION

1.  The plaintiff (“P”) is an Argentina company.

2.  P is a victim of email frauds.  Between 9 and 19 December 2019, having received a series of bogus emails purportedly sent by its President, P was deceived into making 8 payments totalling US$6,823,232 (“Stolen Funds”) to a bank account in Hong Kong (“HRJ Account”) held by Hong Kong HRJ Trade Limited (“HRJ”). 

3.  HRJ transferred almost the entirety of the Stolen Funds out of the HRJ Account to 19 second-level recipients who are the 19 defendants in HCA 150/2020, including the 19^th defendant (“D19”) which received via its bank account (“D19 Account”) two sums of US$90,000 and US$130,800 (collectively, “D19 Sums”) on 17 December 2019. 

4.  On the same day, D19 transferred out of the D19 Account: (1) to the 15^th defendant in HCA 399/2020 (“D15”) a sum of US$212,325 (“D15 Sum”); and (2) to the 16^th defendant in the same action (“D16”) a sum of US$530,260 (“D16 Sum”).  All 17 defendants in that action were described as the third-level recipients of the Stolen Funds.

5.  P’s case against D19, D15 and D16 is two-fold:

(1)  First, it is P’s case that the D19 Sums, D15 Sum and D16 Sum are all traceable monies of P and held by D19, D15 and D16 on constructive trust for P.  On this basis, P asserts a proprietary claim over those sums.

(2)  Second, P makes an unjust enrichment claim against D19, D15 and D16 on the basis that (a) they were respectively enriched by their receipt of the D19 Sums, D15 Sum and D16 Sum at P’s expense, and (b)P would not have transferred the sums but for its mistaken apprehension caused by the email fraud.

6.  On the other hand, D19, D15 and D16 all claim to be bona fide purchasers for value without notice on the basis that they received the sums in consideration of electronic appliances sold by them.  In addition, they rely on the defence of change of position.

7.  P applies for summary judgment against D19, D15 and D16 for recovery of the D19 Sums, D15 Sum and D16 Sum respectively.

8.  There is a cross-application by D19, D15 and D16 against P for security for costs up to and including trial, on the ground that P is resident overseas and has no known assets in Hong Kong.

9.  The two applications came before me on 26 July 2022.  P was represented by Mr Ernest Ng, and D19, D15 and D16 were represented by Mr Joseph Wong.  At the end of the hearing, decision was reserved.

10.  This is my decision.

TRACING AND PROPRIETARY CLAIM

11.  For the purpose of establishing a proprietary claim against each of D19, D15 and D16, P must establish that P’s assets is traceable into, and remains in, the hands of each of them.

12.  In the present case, P’s traceable asset (which may also be referred to as P’s “proprietary base”) is its equitable interest in the Stolen Funds under a constructive trust:

(1)  A thief or fraudulent recipient holds the stolen property on constructive trust for the true owner: Westdeutsche Bank v Islington LBC [1996] AC 669 at 716C-D, cited in Zief Incorporated v Tekchandani Ajai Mohan (t/a D’Ziner Collections (Hong Kong)) & Ors [2021] 3 HKC 69 at [45].

(2)  On the facts of this case, I am satisfied that HRJ was a fraudulent recipient controlled by whomever was impersonating P’s President – otherwise, there is no discernible reason why the Stolen Funds were directed to the HRJ Account.  On this basis, I find that the Stolen Funds were held by HRJ on constructive trust for P upon receipt, such that P could trace its equitable interest in the Stolen Funds. 

(3)  The present case is distinguishable from Zief Incorporated (supra) where Recorder Eugene Fung SC found no proper basis for a constructive trust:

(a)  In that case, the plaintiff – also a victim of email fraud – transferred a sum of money to the 4^th defendant’s bank account under the mistaken belief that the plaintiff’s owner and controller had given instructions to that effect.  The 4^th defendant claimed to be a supplier of diamonds, and there was no suggestion that the 4^th defendant was complicit in the email fraud.

(b)  On these facts, the learned Recorder refused to grant proprietary relief even though the plaintiff succeeded in establishing an unjust enrichment claim.  That was because the 4^th defendant “cannot be described as a ‘thief’ or ‘fraudulent recipient’ (at [45]); nor was it pleaded or shown that the 4^th defendant’s conscience was affected by acquiring knowledge of the plaintiff’s mistaken belief before judgment (at [50]).  Accordingly, the learned Recorder found no foundation for a constructive trust.

(c)  The present case is different, as I am satisfied that HRJ was a fraudulent recipient of the Stolen Funds, which gave rise to a constructive trust in favour of P at the moment of receipt.

13.  Tracing the Stolen Funds into the D19 Account is straightforward:

(1)  Before the HRJ Account received any part of the Stolen Funds from P, it had a de minimis balance of US$361.81 which could be ignored for present purposes.  Effectively, the HRJ Account had a nil balance prior to receiving the Stolen Funds.

(2)  On 9 December 2019, P made its first payment to the HRJ Account.  Since then, and up to 19 December 2019, the only monies paid into it were the Stolen Funds. 

(3)  As a result, all of the monies paid into and out of the HRJ Account during that period, including the D19 Sums paid into the D19 Account on 17 December 2019, derived from the Stolen Funds.

(4)  In the premises, the D19 Sums are traceable from the Stolen Funds.  Despite that, as explained in [19] below, no part of the traceable sums remains in the D19 Account.

14.  Tracing the D19 Sums into D15’s account (“D15 Account”) and D16’s account (“D16 Account”) is more complicated, as the D19 Sums mixed with D19’s own funds in the D19 Account, which were not de minimis and therefore could not be ignored.  In particular, immediately before receiving the first tranche of the D19 Sums on 17 December 2019, the D19 Account had a credit balance of US$464,543.69.  Accordingly, I must apply well-established tracing rules to decide how much of the D15 Sum and D16 Sum derive from D19’s own funds, and how much of it is traceable from the D19 Sums.

15.  The relevant transactions in the D19 Account on 17 December 2019 are as follows (all in US dollars):

Party	Deposit	Withdrawal	Balance
Third party	39,998.05		464,543.69
HRJ	90,000.00 (i.e. D19 Sums)		554,543.69
Third party	95,681.00		650,224.69
HRJ	130,800.00 (i.e. D19 Sums)		781,024.69
Third party	187,011.10		968,035.79
D15		212,325.00 (i.e. D15 Sum)	755,710.79
D16		530,260.00 (i.e. D16 Sum)	225,450.79

16.  Mr Wong argues that no tracing exercise could be undertaken because of the lack of time stamps for the above transactions.  I reject his submission.  As Mr Ng points out, the sequence of funds going in and out of the D19 Account were duly reflected in the increase and decrease in the account balance as shown in the bank statement and extracted above, and can be relied upon as the foundation for the tracing exercise.

17.  Insofar as the D15 Sum is concerned, Mr Ng accepts that the D19 Sums could not be traced into the D15 Sum by applying the First In, First Out (“FIFO”) rule, which is the only rule relied upon by P.[1] In simple terms, there were sufficient pre-existing funds in the D19 Account for D19 to have transferred the D15 Sum without resorting to the D19 Sums, and the FIFO rule presumes that this was in fact what happened.  It follows, and Mr Ng accepts, that (1) the D15 Sum wholly consisted of D19’s own funds, and (2) P has no proprietary claim for the D15 Sum.

18.  Insofar as the D16 Sum (US$530,260) is concerned:

(1)  Pursuant to the FIFO rule, the D16 Sum comprises the following sums:

(a)  US$252,218.69 – being the balance of D19’s own funds after the D15 Sum was paid (US$464,543.69 - US$212,325 = US$252,218.69), all of which, being the first funds that existed in the D19 Account, is presumed to have been applied towards the D16 Sum first;

(b)  US$90,000 – being the first tranche of the D19 Sums, which, being the first funds that became available in the D19 Account after D19’s pre-existing funds have all been spent, is presumed to have been applied towards the D16 Sum first thereafter;

(c)  US$95,681 – being a sum received from a third party, which is treated as D19’s own funds and, being the first funds that became available in the D19 Account after the first tranche of the D19 Sums has all been spent, is presumed to have been applied towards the D16 Sum first thereafter; and

(d)  US$92,360.31 – being part the second tranche of the D19 Sums, which, being the first funds that became available in the D19 Account after D19’s newly added own funds have all been spent, is presumed to have been applied towards the D16 Sum first thereafter.

(2)  In the premises, only items (b) and (d) above (totaling US$182,360.31) derived from the D19 Sums.  In other words, only US$182,360.31 of the Stolen Funds is traceable into the D16 Account.

(3)  After this traceable amount was transferred to the D16 Account, the following transactions in the D16 Account are relevant (all in US dollars):

Party	Deposit	Withdrawal	Balance
Third party		25.00	374,086.43
D16	530,258.00 (i.e. D16 Sum)		904,344.43
Third parties (various)		895,154	9,190.43
Third parties (various)	275,667.56		284,857.99
Third party		270,144.00	14,713.99

(4)  Plainly, when the balance of the D16 Account dropped to US$9,190.43 (on 17 December 2019), this was the maximum amount of the traceable sum which could have remained therein.

(5)  Applying the FIFO rule, when an outward remittance of US$270,144.00 was made (on 18 December 2019), the remaining sum of US$9,190.43 was applied first, ahead of the intervening inflows.

(6)  Accordingly, no traceable sum of the D16 Sum remains in the D16 Account.  P has no proprietary claim against D16.

(7)  For completeness, even if P seeks to “cherry-pick” and apply the punitive presumption of identification for the above post-transfer transactions, P would have had to show that D16 is a wrongdoer in that it knew or had reason to suspect that the D16 Sum was encumbered by third party property rights.  I would have granted unconditional leave to defend in respect of this issue as I am unable to resolve it on the papers.  However, since Mr Ng confirmed with this Court that P only relies on the FIFO rule in this application, this is academic.

19.  Lastly, as to the balance of the D19 Sums which were not utilized to pay D16 (i.e. US$130,800.00 - US$92,360.31 = US$38,439.69) and which therefore remained in the D19 Account:

(1)  After the D16 was transferred, the following transactions in the D19 Account are relevant (all in US dollars):

Party	Deposit	Withdrawal	Balance
D16		530,260.00 (i.e. D16 Sum)	225,450.79
Third parties (various)	1,176,169.21		1,401,620.00
Third party		99,640.00	1,301,980.00

(2)  Applying the FIFO rule, when the outward remittance of US$99,640.00 was made (on 18 December 2019), the remainder of the D19 Sums in the D19 Account (i.e. US$38,439.69) was applied first, as all of D19’s pre-existing bank balance in the D19 Account had been deployed to pay D15 and D16: see [17]-[18] above.

(3)  Accordingly, no traceable sum of the D19 Sums remains in the D19 Account.  P has no proprietary claim against D19.

(4)  Again, had P sought to apply the punitive presumption of identification against D19, P would have had to show that D19 is a wrongdoer, and I would have granted unconditional leave to defend in respect of this issue: see [18(7)] above.

20.  In conclusion, P has no prima facie proprietary claim against D19, D15 or D16.  I dismiss P’s summary judgment application for proprietary relief against them.

UNJUST ENRICHMENT

21.  The framework for approaching an unjust enrichment claim is set out in Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79 at [67].  One should ask the following four questions:

(1)  Was the defendant enriched?

(2)  Was the enrichment at the plaintiff’s expense?

(3)  Was the enrichment unjust?

(4)  Are any of the defences applicable?

22.  P bears the burden of establishing an affirmative answer to the first three questions: Goff and Jones, The Law of Unjust Enrichment (9^th ed. 2018) at para 1-09.

23.  In considering the “at the expense of” question, the relevant principles were laid down by the UK Supreme Court in Investment Trust Companies v Revenue and Customs Commissioners [2018] AC 275.  They have been helpfully summarized in AXHT Co Ltd v Freeway Finance Co Ltd [2020] 4 HKLRD 133 at [43] as follows:

(1)  Whether a defendant has been enriched “at the expense of” a plaintiff depends on whether there has been a transfer of value between the parties in the sense that the defendant has received a benefit from the plaintiff and the plaintiff has suffered some form of economic loss through his provision of the benefit.

(2)  A “but for” causal connection between the plaintiff’s being worse off and the defendant’s being better off is not sufficient of itself to constitute a transfer of value.  Nor is the requirement satisfied by a connection between the parties’ respective benefit and loss merely by a matter of economic or commercial reality.

(3)  The requirement would normally be satisfied if the transfer is direct, but there may also be other situations where an indirect transfer would suffice, for example: (a) through an agent; or (b) the intervening transaction is found to be a sham, or that a set of related transactions operated in a coordinated way as forming a single scheme or transaction such that it would be unrealistic to consider each of the individual transactions separately; or (c) the property received by the defendant from a third party is one that the plaintiff can trace an interest into; or (d) where the plaintiff discharges a debt owed by the defendant to a third party.

(4)  When the defendant has not received a benefit directly from the plaintiff, no question of agency arises, and where the benefit does not consist of property in which the plaintiff has or can trace an interest, it will generally be difficult to maintain that the defendant has been enriched at the plaintiff’s expense.

24.  I am satisfied that the “enrichment” question and the “unjust factor” question should be answered in favour of P, in that (1) D19, D15 and D16 were enriched by their receipt of (respectively) the D19 Sums, D15 Sum and D16 Sum and (2) there was an unjust factor on the present facts of this case, namely mistake. 

25.  The real challenge which P must overcome in its claim based on unjust enrichment is the “at the expense of” question, since none of D19, D15 and D16 were direct recipients of the relevant sums from P.

26.  Insofar as D19 and D16 are concerned:

(1)  I have already concluded that P could trace the Stolen Funds into: (a) the entirety of the D19 Sums (which D19 received from HRJ) – see [12] above; and (b) part of the D16 Sum totaling US$182,360.31 (which D16 received from D19 and are traceable to the D19 Sums) – see [18] above. 

(2)  The fact that the traceable sums no longer remain in the hands of D19 and D16 is immaterial, as their liability for unjust enrichment crystallized at the time of receipt (when all the ingredients of the cause of action – namely (a) enrichment, (b) at P’s expense (c) under a mistake – were present), and any subsequent disposal of the mixed funds has no bearing on P’s prima facie claim based on unjust enrichment.

(3)  In the premises, although D19 and D16 were not direct recipients of (respectively) the D19 Sums and the D16 Sum from P, their enrichment consisted of property in which P could trace an interest.  This sufficiently meets the “at the expense of” requirement: see [23(3) above]. 

(4)  Accordingly, subject to defences, I am satisfied that P has established a prima facie unjust enrichment claim against D19 for the sum of US$220,800 and against D16 for the sum of US$182,360.31.  I reject Mr Ng’s submissions that D16 should be held liable for the entirety of the D19 Sums (US$220,800) just because there was a causal connection between the D19 Sums and the D16 Sum, for the same reasoning set out below in respect of the D15 Sum.

27.  Insofar as D15 is concerned:

(1)  On the present facts: (a) given the interposition of HRJ and D19, it is plain that any transfer of value between P and D15 could only be indirect; (b) P accepts that its property is not traceable into D15’s hands – see [17] above; and (c) it is not alleged, let alone proved, that HRJ (the direct recipient) was D15’s agent, nor is there any suggestion of sham or coordinated transactions. 

(2)  Mr Ng submits that sufficient causal connection can easily be established between D19 Sums on the one hand, and D15 Sum and D16 Sum on the other hand.  This is, however, beside the point.  It is wholly irrelevant whether D15’s enrichment was at D19’s expense in the sense that D19 transferred the D15 Sum to D15 upon receiving the D19 Sums.  What must be shown is that D15’s enrichment must be at P’s expense, not that of an intermediate recipient (here, D19). 

(3)  Mr Ng also submits that a strict tracing exercise is not required to meet the “at the expense of” test.  This must be correct, as tracing is just one way in which an indirect transfer of value could satisfy that test: see [23(3)] above.  This is consistent with the passages in Goff and Jones (supra) cited by P, which suggested agency (paras 6-62, 6-88) and coordinated transactions (paras 6-88 to 6-91) as alternative ways of satisfying the “at the expense of” requirement.  

(4)  The true problem with P’s case, as noted above, is that P has not identified any proper basis for this Court to hold that the D15 Sum, despite being an indirect transfer from P, was nevertheless received by D15 at P’s expense.

(5)  巨展皮具香港有限公司 v 上海兄弟海運有限公司 [2018] HKCFI 53 does not assist P. In that case, Deputy High Court Judge Keith Yeung SC (as he then was) applied the test in Investment Trust Companies (see [23] above) and found the indirect transfer in question to be at the plaintiff’s expense on the basis of (a) sham and (b) tracing: see [25(iv), (v)] of the judgment.  As noted above, there is no suggestion of sham in this case.

(6)  Lee Yuk Shing v Dianoor International Ltd [2016] 4 HKC 535 does not assist P either:

(a)  In that case, the plaintiff operated a small jewellery business under the mentorship of his uncle, and he purchased some stones from the defendant in an auction, thinking they were diamonds.  Those stones turned out to be synthetic cubic zirconia, and the plaintiff thereupon sued the defendant for return of the purchase price on the basis of misrepresentation and breach of contract. 

(b)  On appeal, the defendant argued that the plaintiff was not entitled to relief because (i) the payment was made by a friend of the plaintiff’s uncle (one Mr Lo), (ii) the uncle then repaid Mr Lo, and (iii) there was accordingly no objective evidence that the plaintiff had paid for the stones or had contributed to payment.  This was framed as an unjust enrichment issue: see [110]. 

(c)  Kwan JA (as she then was) rejected this contention on the basis that (i) the relationship between the uncle and the plaintiff was “so very close that their funds and their company’s funds all belonged to the family pot” and the trial judge had found that “as a matter of fact the plaintiff has repaid Mr Lo” ([110]-[111]); and (ii) the plaintiff was in a joint venture with his uncle and Mr Lo, as a result of which “it would hardly matter as among the parties to the joint venture, who had made payment initially or who had reimbursed whom initially. A party to the joint venture is entitled to pursue a claim for the loss to the joint venture against a third party, and account to his partners later for any recovery made” ([111]).

(d)  These facts are far removed from those of this case, where there can be no suggestion that D19 shared a “very close” relationship (or in a joint venture) with P, to the effect that it would not matter whether it was D19 or P who paid D15.  

(e)  Lastly, Relfo Limited (in liquidation) v Varsani [2014] EWCA Civ 360 does not assist P. That case has been analysed as a case of sham which was “created precisely in order to conceal the connection between the claimant and the defendant”: Investment Trust Companies at [48].  Since P does not make any allegation of sham, Relfo does not assist.

(7)  Applying the principles summarized at [23] above, I am unable to discern any basis to hold that D15’s enrichment was at P’s expense.  On this basis, P has not demonstrated a prima facie sustainable unjust enrichment claim against D15.

DEFENCES

28.  I now turn to the defences raised by each of D19, D15 and D16.  I remind myself that all that each of them has to do is to raise a defence that is believable, and the Court should not undertake a mini-trial on affirmation.  That said, it is still incumbent on them to condescend upon particulars and put forward believable evidence that supports their case.  Whether their factual account is believable must be assessed against the documents (or lack thereof) and inherent probabilities (or improbabilities).

D19

29.  D19’s case may be summarized as follows:

(1)  D19 is primarily engaged in the business of trading electronic products.  Since July 2015, it has been holding a Radio Dealers Licence issued by the Office of Telecommunications Authority and has been paying licence fees.  It runs a proper and legitimate business and conducts proper due diligence checks on the propriety of incoming funds from its customers.  D19 has always been using the D19 Account in its business.

(2)  On 15 December 2019, a person named 陳至超 (“Mr Chan”), with whom D19 had never dealt before, attended D19’s office in Kwun Tong to place an order for the purchase of 101 iPhones and 94 Apple watches at US$90,000.  Mr Chan told D19 that he was engaged in the trading of electronic products in Mainland China and would like to pay through a moneychanger on the Mainland, and that all payments from him would be proper.  D19 took a copy of Mr Chan’s PRC ID card as part of its due diligence process and record, and issued an invoice to Mr Chan.

(3)  On 16 December 2019, Mr Chan attended D19’s office again to place a further order for 400 Apple watches at US$130,800.  D19 issued another invoice to Mr Chan.

(4)  On 17 December 2019, Mr Chan attended D19’s office and provide two remittance notes issued by a Mainland moneychanger as proof of the two remittances of US$90,000 and US$130,800 to D19.  D19 checked its bank account and noticed that the funds were transferred from HRJ.  Mr Chan assured D19 that it was a normal practice for a moneychanger to use the bank accounts of some agents to effect payments. D19 then handed over the purchased products to Mr Chan at its office.

(5)  Mr Chan made an affirmation to support the above account.

30.  For the following reasons, I find that D19’s case is incapable of belief:

(1)  D19 did not keep any record of the sales to Mr Chan as required under Condition 5 of the Radio Dealers Licence, which required D19 to keep and maintain complete and accurate registers containing (inter alia) the dates of transactions and particulars of equipment sold, including equipment serial numbers.  Contrary to Mr Wong’s submissions, this is not only a “regulatory issue”.  The lack of records seriously undermines D19’s case that the sales to Mr Chan did take place as alleged.

(2)  The two invoices were not signed by Mr Chan.  This is at odds with an invoice dated 28 August 2018 issued by D19 to D16 for the sale of iPhones where one could see D16’s chop against the customer entry.  D16 claimed to first begin dealing with D19 in November 2017. There was no explanation why D16, who was an old customer of D19, was asked to sign on D19’s invoices in August 2018, but not Mr Chan, who was supposedly a new customer.

(3)  The unit prices for the iPhones and Apple watches set out in the two invoices to Mr Chan appear to be wholly arbitrary.  D19 did not produce any price list for the products.  Indeed, the unit price for the Apple watches differs across the two invoices: US$332 for the first sales (of 94 pcs) and US$327 for the second sales (of 400 pcs) which took place two days thereafter.  Mr Wong faintly suggested that this may be the result of D19 giving a discount to Mr Chan for the larger quantities in the second transaction.  This was, however, not supported by D19’s evidence.

(4)  There is no evidence of delivery to Mr Chan.  Mr Chan was not asked to sign on any document to acknowledge receipt of the purchased items.  This would be contrary to commercial and indeed common sense, especially when this was the first time D19 dealt with Mr Chan, and the quantity of goods purchased by Mr Chan was not insubstantial.

(5)  Mr Wong submits that all of the above are “forensic points” on inherent probabilities which ought to be tested at trial.  He draws my attention to the fact that (a) D19 was set up long before the emails fraud practised on P, (b) D19 had held the Radio Dealers Licence and paid the licence fees over the years, (c) D19 had paid its taxes, and (d) D19 had transactions with other entities.  All these are said to show that D19 is running a legitimate business operation.  That may well be so, but the key question is whether D19 has put forward sufficiently believable evidence proving its sales to Mr Chan.  For the reasons set out above, I conclude that it has not done so.

31.  In conclusion, there is no believable factual foundation for D19’s defences of bona fide purchase and change of position.  D19 has no credible defence to P’s claim.  Accordingly, P is entitled to judgment against D19 in terms set out in the relief section below.

D15

32.  P has not established a prima facie claim against D15, and P’s application for summary judgment against D15 must be dismissed.  Strictly speaking, it is not necessary to deal with the defences raised by D15.  In the event that I was wrong in my conclusion, I summarize and deal with D15’s case as follows.

33.  According to D15:

(1)  D15 carries on the business of trading electronic products in Hong Kong.  As with D19, D15 holds a Radio Dealers Licence.  Its business model is to resell products from upstream suppliers from around the world to Hong Kong wholesale suppliers for traders, profiting off the difference in price.  Once its customers have expressed an interest in the products which it provides, it will ask the customers to make payment and use the amount to source the products from overseas suppliers.  It has always been using the D15 Account in its business.

(2)  D15 began trading with D19 in October 2019.  It received the D15 Sum as part of D19’s payment in a series of transactions in December 2019, for the sale of 5,000 Samsung monitors, sourced from an overseas supplier called Meridian Supplies.  D15 contends that the sum was a legitimate receipt in the course of its business.

34.  I find D15’s case to be factually believable and triable.  D15’s case is supported by the following:

(1)  There was a long-standing business relationship between D15 and D19 starting from October 2019.

(2)  The D15 Sum was the 6^th payment made to D19 in December 2019, and D19 had been making substantial payments to D15 both before and after that payment.

(3)  D19 had sufficient funds in the D19 Account to pay the D15 Sum without resorting to the D19 Sums, which means that any doubts over D19’s sales to Mr Chan (and D19’s receipt of the D19 Sums) would not necessarily impugn D19’s payment of the D15 Sum to D15.

(4)  The transactions in December 2019 between D15 and D19 were supported by corresponding invoices issued by D15 to D19 and tallied with the payments shown in the bank statements.

(5)  A delivery note (acknowledged with D19’s chop) for the 5,000 Samsung monitors was produced.

35.  In coming to the above conclusion, I have not lost sight of Mr Ng’s various challenges to D15’s case and the documents produced by D15, including: (1) the lack of proper record of the transaction as required by D15’s Radio Dealers Licence; (2) the lack of particulars, signatures or company chops on the invoice to D19; (3) D15 apparently placed orders with Meridian Supplies at the same time or before D19 made the last two payments to D15 in December 2019, which appeared to be at odds with D15’s modus operandi; and (4) the delivery note was not produced when D15 resisted P’s injunction application, but was belatedly produced by D19 (and not D15 itself) in resisting the present application.  All these are valid criticisms of D15’s case, but in my view they stand tested against D15’s evidence and are insufficient to render D15’s case unbelievable in light of my observations set out in [34] above.

36.  Mr Ng further submits that D15’s change of position defence is unarguable because there is no evidence to show that there has been any effort to “reverse” the transaction or that it was legally or practically irreversible (even assuming that the goods were delivered).

37.  If it were necessary for me to rule on this point, I would reject it for the following reasons:

(1)  A qualifying change of position must be legally or practically irreversible, or there must be significant difficulties in reversing the change: Holy AG v BMW Limited & Ors[2022] HKCFI 798 at [28]; Goff & Jones (supra) at para 27-21.

(2)  Whether a change of position is reversible plainly turns on the facts.  In Grupo Pacifica Incorporada v Worldwide Marine Product Ltd & Ors (unrep., HCA 2640/2014, 24 September 2018), the relevant change of position was a notional set-off between the defendant and a third party.  Since this was a matter of accounting treatment, the Court rightly found the notional set-off to be reversible: [40]-[42].  In Holy AG (supra), the change of position involved a supplier crediting the relevant sum into its purchaser’s running account.  Since this does not involve an irrevocable extension of credit (in that the supplier could use the credit to settle the purchaser’s trade debt), Cheng J held that there was no irreversible change of position: [31].

(3)  These facts are far removed from the present case, where the change of position in question involved the completed delivery of actual goods to a purchaser.  Unlike a mere entry on a trader’s book (which is obviously reversible), there is no obvious (let alone obviously legal and practical) way for D15 to unwind the delivery and reclaim the goods from D19.

(4)  Accordingly, if it were necessary for me to decide, I would find the reversibility point to at least involve triable issues.

38.  In the premises, even if I were wrong in deciding that there was no prima facie case of unjust enrichment against D15, I would have held that D15 raised credible defences of bona fide purchase and change of position which should be tried.

D16

39.  D16’s case may be summarized as follows:

(1)  D16 carries on the business of trading rubber and electronic products in Hong Kong.  Its business model is to resell products from upstream suppliers from around the world to Hong Kong and China wholesale suppliers for traders, profiting off the difference in price.  It uses the D16 Account for its business.

(2)  D16 first began dealing with D19 in November 2017.  On 17 December 2019, D16 and D19 entered into a sales contract whereby D19 agreed to purchase 740 iPhones from D16 at US$530,260.  It was pursuant to this sales contract that D19 transferred the D16 Sum to D16 on 17 December 2019.  The iPhones sold and delivered to D19 were supplied by two upstream suppliers, namely: (1) 190 pcs from Callable Telecom Limited (“Callable Telecom”), which D16 paid by cash on 10 December 2019; and (2) 550 pcs from Zhong Tian Heng He (Tianjian) International Trade Co Ltd (“Zhong Tian”) under a sales agreement entered on 17 December 2019 (evidenced by a confirmation letter from Zhong Tian), and D16 paid Zhong Tian on the same day.  D19 then collected the iPhones from D16’s office on 17 December 2019.

40.  For the following reasons, I find that D16’s case is incapable of belief:

(1)  The confirmation letter from Zhong Tian which was dated 19 December 2019 (after D16 had entered into a sales agreement with D19 on 17 December 2019) recorded that the 550 iPhones ordered by D16 were delivered to Dubai.  The air waybill recorded that the iPhones were dispatched from Beijing and arrived at Dubai on 19 December 2019.  It was impossible for D19 to have collected them from D16’s office on 17 December 2019.  This is fatal to D16’s case.

(2)  As for the 190 iPhones supplied by Callable Telecom, they were purchased by D16 on 10 December 2019 which was one week before D16 entered into the sales agreement with D19 on 17 December 2019.  It is incredible that D16 could foresee what D19 would be ordered one week later to match its order with Callable Telecom.

(3)  If D16’s case (which is not clear from the evidence) is that its purchase from Callable Telecom was independent from its sales to D19 but it just so happened that D19 agreed to buy the whole lot which D16 had purchased from Callable Telecom one week earlier, such coincidence is incredible.

(4)  There is no evidence of D16’s payment to Callable Telecom.  D16’s allegation in its affirmation that it had paid Callable Telecom in cash flatly contradicts its own pleaded case that it had “transferred” the sum to Callable Telecom.  It is also incredible for D16 to pay a substantial sum of US$129,200 all in cash to Callable Telecom.

(5)  There is nothing on the face of the delivery note to link it to D16.  It was produced by D19, not by D16, even though it recorded that each of the seller (i.e. D16) and the purchaser (i.e. D19) was issued a copy.  The address of the customer and the invoice number were also left blank.  There was no reference in D16’s affirmation evidence that a delivery note was issued to D19.  Rather, D16 simply stated that:

“As for delivery of the 740 Iphones to Tin Loong, our staff just informed Tin Loong that the goods were ready for collection and asked them someone over to pick them up as both our offices were both on the same floor on 20/F of 1 Hung To Road.”

(6)  There is no signature or chop of D19 on the invoice, despite there is what appears to be D19’s chop on the sales contract executed on the very same day.  There is no explanation by D16 how the invoice and sales contract were executed.

41.  In conclusion, there is no believable factual foundation for D16’s defences of bona fide purchase or change of position.  D16 has no credible defence to P’s claim.  Accordingly, P is entitled to judgment against D16 in terms set out in the relief section below.

RELIEF FOR UNJUST ENRICHMENT

42.  On the basis that D19 and D16 are liable to make restitution for unjust enrichment, I give judgment against D19 for the sum of US$220,800 (or the Hong Kong dollar equivalent) and against D16 for the sum of US$182,360.31 (or the Hong Kong dollar equivalent) (see [26] above), with the total amount recoverable from them being capped at US$220,800 (or the Hong Kong dollar equivalent).  The cap is necessary to prevent double recovery.  The law of unjust enrichment seeks to reverse defective transfers of value, and restitution of the D19 Sums would fully correct the transfer of value to (and through) D19.  Allowing P to recover more than that sum would amount to “over-restitution” and give P an unjustified windfall.

43.  D19 and D16 shall pay interest from the date of their receipts of the sums set out above, i.e. 17 December 2019, at the rate of HSBC prime +1% until the date of this Decision (15 August 2022) and thereafter at judgment rate until full payment.

DISMISSAL AS AGAINST D15

44.  I dismiss P’s application for summary judgment against D15 in light of my conclusion that P has no prima facie case based either on its proprietary claim or unjust enrichment, and in any case there is also a believable defence on bona fide purchase and change of position.

45.  At the hearing, I raised with Mr Ng the following observations of Linda Chan J in her Reasons for Decision dated 26 April 2021 [2021] HKCFI 1153 at [18] when granting a proprietary and Mareva injunction against D15:

“On the basis of the evidence before the Court, it is clear that both the D15 Sum and D16 Sum came from the 7^th Transfer.[2] They are traceable proceeds of P’s assets which were transferred to HRJ’s account pursuant to the fraud perpetrated against P, and P has a proprietary claim over the D15 Sum and D16 Sum. Unless D15 and D16 are able to establish a valid defence to P’s claim, they are liable to return the D15 Sum and D16 Sum to P.

46.  This is clearly unsustainable as against D15, when P accepts that its funds could not be traced into D15’s hands and as a result it has no proprietary claim against D15: see [17] above.  When the injunction hearing took place before Linda Chan J on 22 April 2021, P has already received the bank statements of the D19 Account through the banker’s books order, and was or should be aware of the relevant fund flow.  That being so, I find it extraordinary for P to maintain its position before Linda Chan J that P has a proprietary claim against D15.  It is all the more perplexing that up till the hearing before me, no steps have been taken by P to rectify the position or alert the Judge of the false premise.

47.  I shall leave it to P and those advising it to take immediate steps to rectify the position.

SECURITY FOR COSTS

48.  The application for security for costs is only relevant to D15 since I have entered judgment against D19 and D16.

49.  P being an overseas company with no known assets in Hong Kong should prima facie be liable to pay security.

50.  Given my findings on the merits, P’s case against D15 is not sufficient strong to tilt the balance against ordering security.

51.  D15 seeks a sum of HK$2.4 million as security for costs up to and including trial.  The skeleton bill covers both the costs of D15 and D16.  At such an early stage of the proceedings, I consider that P should provide security up to and including exchange of witness statement only.  On a broad-brush basis, a reasonable sum is HK$350,000 given the fairly straightforward of D15’s defence as set out in [33] above.  The security should be paid into Court within 28 days from the date of Judgment, in default of which P’s claim will be dismissed forthwith with costs to D15 without further Order.

COSTS

52.  I make a costs order nisi as follows:

(1)  D19 and D16 do pay P’s costs of the action, including costs of the summary judgment application and the security for costs application, to be taxed if not agreed.

(2)  P do pay D15’s costs of the summary judgment application and the security for costs application, to be taxed if not agreed, and to be paid forthwith.

53.  The costs order nisi will be made absolute in the absence of any application for variation by way of inter partes summons within 28 days from the date of this Decision.