CRELAN SA v. YU MAY INTERNATIONAL LTD

DCCJ 5/2021

[2023] HKDC 807

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 5 OF 2021

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D E C I S I O N

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1.  This is an appeal by the plaintiff against Master Bryan Lung’s order dated 11 November 2022 dismissing the plaintiff’s applications for summary judgment and interim payment, and ordering the plaintiff to give security for the defendant’s costs in the sum of $180,000.

2.  In these proceedings, the plaintiff claims against the defendant for a sum of US$256,000 which the plaintiff says represents a portion of the money which it was induced by fraud to transfer and was received by the defendant as a second level recipient. The main issue which arises for determination is whether the defendant can rely on the defence of ministerial receipt.

A.  Background

3.  The plaintiff, a company incorporated in Belgium in 1937, is part of the Crelan Group and carries on business as a cooperative bank based in Belgium.

4.  The defendant is a limited company incorporated in Hong Kong on 7 January 2014. Its sole director and shareholder is Madam Pan Yi Zhen (“Madam Pan”). It is the holder of HSBC account no. 848-689493-838 (“the Defendant’s Account”).

5.  According to the plaintiff’s pleaded case, it fell victim to a cyber fraud whereby one of its staff members was procured by fraudsters impersonating the plaintiff’s senior officers to transfer three sums totalling EUR 1,290,850 on 7 January 2016 to a Hang Seng Bank account belonging to one HongKong China Nexus Co, Limited (“HKCNCL”) under the mistaken belief that those funds were paid for the plaintiff’s business transactions.

6.  It has transpired that, shortly after HKCNCL received the three sums from the plaintiff on 7 January 2016, it converted those sums into US dollars and transferred a sum of US$256,000 to the Defendant’s Account within the same day.

7.  In these proceedings, the plaintiff claims that it is entitled to restitution of the sum of US$256,000 against the defendant on the ground of unjust enrichment.

8.  The defendant admits that a sum of US$255,998.06 (“Sum”) was transferred from HKCNCL to the Defendant’s Account on 7 January 2016. Nonetheless, in its defence, the defendant avers that it is not liable to return the Sum to the plaintiff on the ground of change of position, with details as follows:

(1)  It is operationally dormant and does not carry on any business at all, but nonetheless it has maintained the Defendant’s Account for the use of the money exchange business of Kincheng Exchange Limited (“Kincheng”), a licensed money exchange operator.

(2)  Since around 2015, Kincheng had a client known as Silver Fast Limited (“Silver Fast”), which operated the same business as Kincheng as a licensed money service operator and established an account with Kincheng for the purpose of carrying out remittance.

(3)  Pursuant to the written instructions given by Silver Fast on 7 January 2016, Kincheng arranged to remit the Sum in full in the equivalent of RMB 1,681,250 to the bank account of one Chen Xi (“Chen”) maintained with the Agriculture Bank of China Limited on the Mainland (“Chen’s Account”) on the same day.

(4)  The Sum was money belonging to Silver Fast, or alternatively, HKCNCL. It was HKCNCL which transferred the Sum on the instruction of Silver Fast to the Defendant’s Account for remitting an equivalent sum in RMB to Chen. The defendant is not enriched since it has not retained the Sum. Alternatively, the defendant only served as an intermediary or “conduit-pipe” for the Sum to be transmitted to the ultimate recipient, viz. Chen, and retained no benefit at all.

B.  Appeal against Master’s decision

9.  An appeal against Master’s decision is dealt with by way of an actual rehearing of the application which led to the order under appeal: Redoak Capital Ltd v Standard Industrial International Co Ltd [2018] HKCFI 2835, §31. The judge will give the weight it deserves to the previous decision of the Master, but is no way fettered by the previous exercise of the Master’s discretion: see Hong Kong Civil Procedure 2023, vol 1, §58/1/2.

C.  The plaintiff’s application for summary judgment

C1.  The relevant legal principles

10.  It is well established that the burden rests upon the defendant in summary judgment proceedings to show a fair probability or reasonable grounds that a bona fide defence exists by condescending to particulars: Toy Major Trading Co Limited v Hang Shun Plastic Toys Limited [2007] 3 HKLRD 345, §12, per Ma CJHC (as he then was); Mohan Selvaraj v Grace Ka Man O’Brien [2020] HKCA 698, §15, per Lam VP (as Lam PJ then was).

11.  It is equally trite that a summary judgment application is not a platform for a mini-trial on affidavit evidence: Mohan Selvaraj (supra), §16. While the assertions of a defendant would not be accepted on their face value, and it is open to the court to test the defendant’s assertions against contemporaneous documents and conduct, it remains that the question at this stage is not whether the defendant’s evidence is to be believed, but whether it is believable.

C2.  Ministerial receipt

12.  It is well established that the following framework should be adopted in determining the validity of a claim in unjust enrichment: (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? See Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd [2004] 7 HKCFAR 79, §67, per Ribeiro PJ; Yukio Takahashi v Cheng Zhen Shu [2011] 14 HKCFAR 558, §26, per Ribeiro PJ. If the first three matters are established by the plaintiff, it is then for the defendant to prove that there is a defence: Samsoondar v Capital Insurance Co Ltd [2021] 2 All ER 1105, §18, per Lord Burrows.

13.  As I understand from the submissions of Mr Tai, counsel for the defendant, he does not seriously dispute that, subject to the defence of ministerial receipt, the plaintiff is entitled to recover the Sum from the defendant on the ground of unjust enrichment. In his oral submissions, Mr Tai also clarified that, despite the plea of change of position in the defence and references to the same in his skeleton submissions, the defendant would only rely on the narrower ground of ministerial receipt for the present purposes (narrower in the sense that it is restricted to agents as opposed to the change of position defence being generally available: cf Goff & Jones on Unjust Enrichment (10^th ed, 2022), §28-02).

14.  It is common ground between the parties that the defendant must raise triable issues as to the existence of an agency relationship between itself (as agent) and its principal (which it says was Kincheng) in order to establish the defence of ministerial receipt. In addition, the defendant must have acted in good faith and without notice of the claim: Goff & Jones (supra), §28-01; Aesthetics Architecture Pty Ltd v Main Crown Enterprises Ltd, CACV 188 of 2013 (11 August 2014), §18, per Cheung CJHC (as the Chief Justice then was).

15.  However, the parties disagreed as to whether, as a matter of law, the defendant should also prove that it had paid over the value of the benefit to Kincheng.

C3.  Whether payment over is a necessary element of the defence of ministerial receipt

16.  Mr Tai cited the following passage in Goff & Jones (supra) (at §28-02) in support of his proposition that payment over by an agent to its principal is not required in establishing the defence of ministerial receipt:

“… 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.”

17.  Mr Tai also relied on two District Court decisions, viz. Opera National de Paris v Sun Bon International Logistic Limited [2022] HKDC 766 and Tian, Manli v Lin Chun Hsien and Anor [2022] HKDC 817, in support of his proposition.

(1)  In Opera National (supra), it was held (at §24) that since the defendant’s bank account was used by a licensed money service operator for its money service, the defendant was acting as the agent of the licensed money service operator when receiving the sum in its account. On such basis, the court found that the defence of ministerial receipt was available to the defendant.

(2)  In Tian, Manli (supra), it was held (at §28) that there was force in the 2^nd defendant’s argument that she received the sums in question as agent for a licensed money service operator and not in her own right, and she was liable to account for the same to the licensed money service operator. In the light of the evidence adduced, the court found that the 2^nd defendant had a real prospect of successfully defending the claim on the defence of ministerial receipt.

18.  It appears that Mr Tai’s proposition is supported by The Yerrid Law Firm v Qiansbaizi Trading Limited and Anor [2021] HKCFI 620, an identity theft fraud case where the 2^nd defendant argued that it received the plaintiff’s money as a receiving agent in the course of normal money remittance service from Hong Kong to the Mainland. In the context of an application to set aside a default judgment, DHCJ Paul Lam SC was prepared to accept (at §19) that the passage in Goff & Jones (supra) as cited at §16 above provided for the principles of ministerial receipt and held that the 2^nd defendant’s argument that it merely received the plaintiff’s money as the receiving agent for third parties was one with a real prospect of success. However, it is also worthy to note that the learned Judge eventually found that the 2^nd defendant was not a receiving agent on the facts of that case (at §§23-24). Thus the views expressed by the learned Judge at §19 of the decision as to the principles of ministerial receipt were not fundamental to the decision and were obiter.

19.  On the other hand, Mr Cheung for the plaintiff submitted that a defence of ministerial receipt is only available to an agent who has received a benefit for its principal and paid over the value of the benefit to its principal. He argued that the passage cited at §16 above only represented the “academic” view of the learned editors of Goff & Jones (supra), and he drew the court’s attention to other passages in Goff & Jones (supra), including §§28-06 and 28-17, where the learned editors noted that the predominant view at common law is that payment over is required in order for the agent to escape liability, and such predominant position at common law was summarised in the following terms by Millett LJ (as he then was) in Portman Building Society v Hamlyn Taylor Neck (A Firm) [1998] 4 All ER 202 at 207:

“[W]here the plaintiff has paid money under (for example) a mistake to the agent of a third party … [and] the agent still retains the money … the plaintiff may elect to sue either the principal or the agent, and the agent remains liable if he pays the money over to his principal after notice of the claim. If he wishes to protect himself, he should interplead. But once the agent has paid the money to his principal or to his order without notice of the claim, the plaintiff must sue the principal.”

20.  More recently, in Test Claimants in the FII Group Litigation v Revenue and Customs Commissioners [2021] 1 WLR 4354, the UK Supreme Court stated in obiter (at §170, per Lord Reed PSC and Lord Hodge DPSC) that a defendant who is paid money may not be enriched if it incurs “liabilities … as a consequence of the receipt of the money”. On this analysis, the UK Supreme Court seems to suggest that it is necessary to have regard to the net transfer of value in assessing whether the defendant has been enriched by the receipt of money: see §171.

21.  Importantly for the present purposes, in Test Claimants (supra), the UK Supreme Court went on (at §172) to cite with approval Jeremy Stone Consultants Ltd v National Westminster Bank plc [2013] EWHC 208 (Ch), where Sales J (as he then was) held that (1) if the receipt of a benefit is matched by a corresponding liability, the defendant will not have been enriched, and (2) even if there had been enrichment, a defence of ministerial receipt would be available where the defendant “had a contractual obligation to pay out the sums … in accordance with its customer’s instructions and had done so” (emphasis added). This appears to me to be a recent affirmation by the highest authority in the UK that payment over by the agent would be required in order to establish the defence of ministerial receipt, and in any event, the defendant must at least prove that its receipt of a benefit is matched by a corresponding liability in order to make good its defence.

22.  In my view, there are apparently two lines of authorities on the issue of whether payment over is required in establishing a defence of ministerial receipt. My understanding of the position in Hong Kong is that this point has not been ruled upon by the higher courts. I also take note that Millett LJ’s dicta in Portman Building Society (supra) and the UK Supreme Court’s views in Test Claimants (supra), as stated at §§19-21 above, were not referred to by counsel in The Yerrid Law Firm (supra), Opera National (supra) and Tian, Manli (supra), and therefore the courts therein did not have the benefit of full arguments from parties to consider the competing lines of authorities.

23.  To my mind, the predominant position at common law, namely, that payment over is required to establish the defence of ministerial receipt, should prevail in accordance with the declaratory theory of the common law. This also accords with the Court of Appeal’s recent observations in Monat Investment Ltd v All Person(s) in Occupation of Part of The Remaining Portion of Lot No 591 in Mui Wo DD 4 No 16 Ma Po Tsuen, Mui Wo, Lantau Island and Anor [2023] HKCA 479, §52.3, per Yuen JA, that it would be surprising if the common law as expounded by the highest authority in the UK (which the Court of Final Appeal has said should be accorded the greatest respect) is not to be regarded as the common law in Hong Kong simply because, randomly, there may or may not happen to be a case involving the point being processed through the Hong Kong courts. Given that the common law is an integral part of the law governing global commercial activities, and it is important to have reasonable predictability and consistency in the application of common law, I am inclined to apply the predominant position as propounded in Portman Building Society (supra) and adopted in Test Claimants (supra) for the present purposes.

C4.  The defendant’s evidence on its agency relationship with Kincheng

24.  The defendant has adduced three affirmations of Madam Lai Hiu Ying (“Madam Lai”), the sole director and shareholder of Kincheng, an affirmation of Madam Pan, and an affirmation made by its solicitor in support of its opposition to the summary judgment application.

25.  Among the documentary evidence produced by the defendant, Mr Tai heavily relied on the Form 6 (Notification of Changes in Particulars under Money Service Operator Licence) (“Form 6”) submitted by Kincheng to the Commissioner of Customs and Excise (“Commissioner”) on 8 November 2015,[1] in which Kincheng informed the Commissioner that it would start using the Defendant’s Account for its money service operations from 9 November 2015. According to Mr Tai’s submission, Form 6, in and of itself, shows that the defendant was the receiving agent of Kincheng. He referred to Opera National de Paris (supra) and Tian, Manli (supra), whereby the courts found that the production of the full set of Form 6 was sufficient, on the facts of those cases, to show that the defendant was the receiving agent of a licensed money service operator.

26.  In my view, whilst Form 6 may constitute evidence that the defendant allowed Kincheng to use the Defendant’s Account for Kincheng’s money service operations, it does not necessarily follow that the defendant thereby received each and every deposit in the Defendant’s Account as the receiving agent of Kincheng. Each case must depend on its own facts. In the present case, there is an additional dimension in the defendant’s case which did not feature in Opera National de Paris (supra) and Tian, Manli (supra), namely, that there are two licensed money service operators (viz. Kincheng and Silver Fast) which are said to have been involved in the transfer of the Sum from HKCNCL to the Defendant’s Account and then to Chen’s Account, and there is a dispute between the parties as to the respective roles of the two licensed money service operators in the subject transfer. In these circumstances, I am not prepared to find that the defendant acted as Kincheng’s receiving agent in respect of the subject transfer on the basis of the Form 6 alone, but shall consider the entirety of the defendant’s evidence in assessing its alleged agency relationship with Kincheng.

27.  Having considered all the affirmations and exhibits adduced by or on behalf of the defendant, I am of the view that the quality of the evidence put forward by the defendant is such that the court is left with a real doubt about the defendant’s good faith in its case on the alleged agency relationship with Kincheng.

28.  First, in relation to the evidence concerning the alleged agency relationship, no documentary evidence has been adduced by or on behalf of the defendant to show:

(1)  how Kincheng would generally give instructions to the defendant in relation to the use of the Defendant’s Account for Kincheng’s money service operations (such as by WhatsApp, WeChat or fax messages exchanged between the staff members of the defendant and Kincheng);

(2)  how the defendant would account to Kincheng for the sums allegedly received on behalf of Kincheng (whether or not there was actual payment over); and

(3)  how each of the defendant and Kincheng would record the sums allegedly received by the defendant on behalf of Kincheng in their respective business records such as invoices, receipts, books and accounts.

As Chow J (as he then was) pointed out in Arrow ECS Norway AS v M Yang Trading Limited and Others [2018] 5 HKC 317, §34, such business records are essential even for an unlicensed, and thus illegal, money service operator. A fortiori, a licensed money service operator such as Kincheng must have these kinds of business records in its possession which should be available for production in these proceedings.

29.  The only contemporaneous document produced by the defendant in support of the alleged agency relationship is Form 6. According to the defendant’s case, it has produced the full set of Form 6 (which consists of 3 pages) in these proceedings. The only change in particulars was the addition of the Defendant’s Account. On the other hand, according to the defendant’s written consent and authorisation letter dated 22 February 2016 (“Consent Letter”), the defendant had apparently agreed to lend not only the Defendant’s Account but also other bank accounts of its own (which details were redacted) to Kincheng for the latter’s money service operations as from 9 November 2015. On the defendant’s own case, it was obliged to report all bank accounts which it was to use for its money service operations to the Commissioner in the Form 6. However, no explanation has been given as to why the details of the other bank accounts were not included in the Form 6, and if they were, why such details are absent from the allegedly full set of Form 6 before the court.

30.  The Consent Letter dated 22 February 2016 is a document which post-dated the transfer of the Sum from HKCNCL to the Defendant’s Account as well as the plaintiff’s complaint to the Hong Kong Police Force regarding the alleged fraud. It stated that Madam Pan is “now authorised by the defendant’s board of director(s) to represent the defendant to sign this consent letter” (現獲本公司董事局授權代表本公司簽署之同意書). According to Madam Lai’s affirmation, this Consent Letter “had also been duly submitted by the Defendant to the [Commissioner]”. However, no explanation has been given by Madam Lai as to (1) when was it submitted to the Commissioner, (2) why had it not been submitted at the same time as Form 6 on 8 November 2015, and (3) why was it considered necessary for the Consent Letter to be made more than 3.5 months after the relevant consent had allegedly been given by the defendant in favour of Kincheng. These matters, in my view, cast doubt as to whether the defendant’s evidence is believable.

31.  Turning to the transfer of the Sum from HKCNCL to the Defendant’s Account and then to Chen’s Account on the Mainland, it is the defendant’s pleaded defence that the Sum was received on behalf of Kincheng in its ordinary course of business because:

(1)  Silver Fast had been a client of Kincheng, and established an account with Kincheng for the purpose of carrying out remittance, since around 2015;

(2)  Silver Fast had instructed Kincheng to carry out various remittance prior to 7 January 2016; and

(3)  the Sum falls within the normal range of remittance amounts Kincheng ordinarily remits for its clients (which is in the range of around US$3,000 to US$700,000).

In respect of (1) and (2) above, there is conspicuously not a shred of documentary evidence to substantiate any of these pleas. As for (3) above, while the transaction records of the Defendant’s Account tend to show that the Sum fell within the usual range of deposit amounts in the Defendant’s Account, I note that, on 7 January 2016 alone, the defendant received four sums in the Defendant’s Account which exceeded the maximum amount that Kincheng ordinarily remits for its clients (viz. US$700,000), with the largest sum in the amount of US$1,699,991.60. In my view, this cast doubt on the defendant’s case that all sums in the Defendant’s Account were received as agent for Kincheng.

32.  The declaration (聲明書) (“Declaration”) made by Madam Chen Shaoxia of Silver Fast dated 7 January 2016 does not seem to assist the defendant’s case that it received the Sum as a receiving agent of Kincheng. To my mind, the Declaration raised more questions than providing answers.

(1)  What Silver Fast stated in the Declaration was that, on 7 January 2016, it made a remittance of US$256,000 through HKCNCL’s Hang Seng Bank account to the Defendant’s Account, and required the aforesaid sum to be exchanged to RMB 1,681,250 and to be remitted to Chen’s Account. The above “operation” (操作) was said to be a normal money exchange transaction between money exchange providers. If this sum shall give rise to any commercial dispute or legal liability, Silver Fast shall be wholly responsible for the same and they shall have nothing to do with the defendant.

(2)  Conspicuously, there is no mention of Kincheng in the entire document. If the Declaration were meant to be instructions given by Silver Fast to Kincheng for the latter’s exchange of US$256,000 to RMB 1,681,250 and remittance of the RMB sum to Chen’s Account, there is no conceivable reason why Silver Fast failed to refer to Kincheng at all. Also, if Kincheng had been involved in the money exchange operation in question, the indemnity given by Silver Fast should have covered not only the defendant but also Kincheng.

(3)  I find that there is substantial force in Mr Cheung’s submission that the Declaration is evident that Kincheng did not participate in the two transactions envisaged therein because (a) the first transaction only involved Silver Fast instructing HKCNCL to transfer the sum of US$256,000 to the defendant; and (b) the second transaction only involved an unknown party making a remittance of RMB 1,681,250 to Chen’s Account. In my view, this submission is fortified by the remittance slip in respect of the deposit of RMB 1,681,250 to Chen’s Account, where the payor’s name and account number were conspicuously redacted. If Kincheng had been involved in the remittance of RMB 1,681,250 to Chen’s Account, there is no reason why the payor’s name and account number had to be redacted. No explanation has been given in any of the five affirmations filed on behalf of the defendant to explain for such redaction, and more importantly, who paid the sum of RMB 1,681,250 into Chen’s Account.

33.  In the light of the above, I am not prepared to accept Mr Tai’s submission that the Declaration was plainly issued by Silver Fast to Kincheng because it referred to the Defendant’s Account, which was recorded in Form 6 as being used by Kincheng, and Silver Fast’s statement that “the above operation is a normal money exchange transaction between money exchange providers” (以上操作屬於找換行同業之間的正常匯兌交易) must mean that the transaction was between Silver Fast and Kincheng.

(1)  On the existing documentary evidence, it is more likely than not that the Defendant’s Account was used by Silver Fast, rather than Kincheng, to receive the sum of US$256,000 from HKCNCL, which would explain why Silver Fast only provided an indemnity for the defendant but not also Kincheng in the Declaration.

(2)  Silver Fast’s statement that it was a “normal money exchange transaction between money exchange providers” seems to be no more than a self-serving statement which lacks particularity and documentary proof. If it was a normal money exchange transaction between licensed money service operators, one would expect that proper business records kept by both licensed operators would be available to explain the state of affairs when a transaction gives rise to legal proceedings such as the present one. However, no such records have been produced by or on behalf of the defendant thus far.

34.  Thirdly, in relation to the transaction records of the Defendant’s Account, I note that the defendant has produced two versions which apparently show different account balances in respect of the same transaction. For instance, immediately after the Sum was deposited into the Defendant’s Account, the account balance was shown to be US$1,692,575.15 in one version (which was produced as an exhibit to the affirmation of the defendant’s solicitor dated 28 June 2022) whereas a different balance sum of US$2,535,898.83 was shown against the same entry in another version (which was produced as an exhibit to the 2^nd affirmation of Madam Lai dated 29 August 2022). I raised this matter with Mr Tai during the hearing, and Mr Tai fairly accepted that there is no admissible evidence before the court which can explain away such inexplicable discrepancies in the bank transaction records.

35.  For the above reasons, I am of the view that the evidence adduced by or on behalf of the defendant in relation to its claim of being a receiving agent of Kincheng in respect of the Sum can be described as scant, vague and shadowy.

C5.  Whether the defendant paid over the benefit of the Sum to Kincheng

36.  On the issue of payment over, Mr Tai submitted that the defendant had paid over the benefit of the Sum to Kincheng because, according to the transaction records of the Defendant’s Account, the closing balance by the end of 8 January 2016 (viz. the day following the transfer of the Sum to the Defendant’s Account) was US$0.50 only.

37.  In my view, the fact that the Defendant’s Account was almost depleted on the day after the Sum was transferred thereto does not necessarily mean that there was payment over of the benefit of the Sum by the defendant to Kincheng. This is because, first, there is no indication in the bank account records available before the court as to whom the withdrawals from the Defendant’s Account were made in favour of, and secondly, the defendant has not produced any business records of its own or of Kincheng, such as remittance advice, invoices, receipts, books and accounts, to show that the benefit of the Sum was paid over to Kincheng.

38.  On the whole, I am of the view that the defendant has not condescended to particulars nor adduced sufficient documentary evidence to prove that it paid over the benefit of the Sum to Kincheng.

C6.  Whether the defendant acted in good faith in respect of the Sum

39.  It has been said that “bad faith”, in the context of a change of position defence, is capable of “embracing a failure to act in a commercially acceptable way and sharp practice of a kind that falls short of outright dishonesty as well as dishonesty itself”: Arrow ECS Norway AS (supra), §36, per Chow J; Niru Battery Manufacturing Co v Milestone Trading Ltd [2004] QB 985, §164, per Clarke LJ (as he then was). In Niru Battery Manufacturing Co (supra), Clarke LJ said that the essential question is “whether it would be inequitable or unconscionable, and thus unjust, to allow the recipient of money paid under a mistake of fact to deny restitution to the payer”.

40.  According to the plaintiff, the defendant did not act in good faith when receiving the Sum in the Defendant’s Account because:

(1)  by allowing Kincheng to use the Defendant’s Account without informing HSBC of the same, the defendant sought to circumvent the “banking practice” as pleaded in §3(l) of the defence that the majority of licensed banks in Hong Kong do not allow any bank account to be opened for any party who carried on the business of money exchange, and once a bank account is suspected of being used for the purpose of money exchange business, the bank would freeze or cancel such bank account; and

(2)  by allowing Silver Fast to use the Defendant’s Account for the receipt of the Sum without reporting the same to the Commissioner, the defendant breached section 40 of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap 615) (“AMLO”).

At the hearing, Mr Cheung confirmed that the plaintiff would not rely on any arguments of illegality or fraud, as canvassed in his skeleton submissions, in establishing the absence of good faith on the part of the defendant.

41.  In relation to the alleged circumvention of the “banking practice”, I agree with Mr Tai’s submission that there is no authority suggesting that the lending of one’s bank account to another for the latter’s licensed money service operations, by itself, constitutes a failure to act in a commercially acceptable way so as to defeat a good faith defence. On the existing evidence, it appears to be the case that, at least before 2020, the Commissioner allowed a licensed money service operator to make use a third party’s bank account for its licensed activities as long as the particulars of the bank account were reported to the Commissioner in a Form 6 within the prescribed time limit stipulated in section 40(1) of the AMLO. It is also common ground that Kincheng had reported to the Commissioner on 8 November 2015 that it would start using the Defendant’s Account to operate its money service from 9 November 2015. In the circumstances, I do not think that there is any substance in the plaintiff’s complaint on this front.

42.  As to the claim that the defendant breached section 40 of the AMLO by allowing Silver Fast to use the Defendant’s Account for the receipt of the Sum without reporting the same to the Commissioner, I note that this argument was only raised by the plaintiff during the hearing. In its pleaded case, the plaintiff only made a cursory plea that “[i]n breach of the AMLO … the Defendant comes with unclean hands and/or is not bona fide”, without making any specific reference to section 40 of the AMLO: see §4(a) of the plaintiff’s reply. In the circumstances, I am inclined to agree with Mr Tai that this particular point has not been properly raised in the pleadings or the affidavit evidence adduced by the plaintiff, and on such basis, it is not appropriate for the court to deal with the same at the Order 14 stage.

C7.  Conclusion

43.  In the light of the existing evidence, I am of the view that the ministerial receipt defence raised by the defendant, in particular, its claim that it was the receiving agent of Kincheng when receiving the Sum, is shadowy, such that this is an appropriate case for conditional leave to defend to be given: Unic Company v Centus Developments Limited [1988] HKC 643, 647-8, per Godfrey J (as he then was); Kwong Key Construction & Engineering Limited v Sunlink Limited, CACV 457 of 2002 (13 June 2003), §12, per Ma JA (as he then was).

44.  I also bear in mind that no issue has been raised by the defendant, whether in its affirmation evidence or submissions (including the further written submissions lodged after the hearing pursuant to the court’s directions), that it is financially incapable of paying the Sum into court or as interim payment (as will be dealt with below). Even though the defendant sought to refer to a Letter of No Consent issued by the Hong Kong Police Force and the fact that a sum in the amount claimed by the plaintiff is frozen in the Defendant’s Account, there is no suggestion by the defendant that leave to defend should not be made conditional by reason of its financial circumstances.

45.  For the foregoing reasons, I would allow the plaintiff’s appeal in respect of the summary judgment application, set aside the unconditional leave to appeal granted by the Master, and grant leave to defend to be conditional upon payment by the defendant of the sum of US$255,998.06.

46.  As to whether the sum should be paid into court or, as the plaintiff contended, be paid to the plaintiff as interim payment, for the reasons set out in Section D below, I consider that it would be appropriate for the sum to be paid into court in the circumstances of this case. I would therefore make an order that unless the defendant do pay US$255,998.06 into court within 21 days from the date of this order, the plaintiff will have leave to enter judgment against the defendant in the sum of US$255,998.06, together with interest at the prime rate plus 1% per annum from 7 January 2016 until the date of judgment and thereafter at judgment rate until full payment, with the costs of the action to be paid by the defendant, such costs to be taxed if not agreed.

47.  For completeness, I have also considered the plaintiff’s further or alternative claims for damages and equitable compensation. It is noteworthy that the plaintiff has not adduced any evidence in these respects. Therefore, I am not prepared to enter interlocutory judgment with damages and/or equitable compensation to be assessed in favour of the plaintiff in the event that the defendant fails to pay US$255,998.06 into court within 21 days from the date of this order.

D.  The plaintiff’s application for interim payment

48.  The plaintiff’s application for interim payment is made under Order 29, rules 10 and 12 of the Rules of the District Court (Cap 336H) (“RDC”). Order 29, rule 12(c) relevantly provides as follows:

“If, on the hearing of an application under rule 10, the Court is satisfied –

…

(c) that, if the action proceeded to trial, the plaintiff would obtain judgment against the defendant for a substantial sum of money apart from any damages or costs,

the Court may, if it thinks fit, and without prejudice to any contentions of the parties as to the nature or character of the sum to be paid by the defendant, order the defendant to make an interim payment of such amount as it thinks just, after taking into account any set-off, cross-claim or counterclaim on which the defendant may be entitled to rely.”

49.  It is well established that, under Order 29, rule 12, a plaintiff may obtain an order for interim payment if it can prove that it “would”, as opposed to “would likely”, obtain judgment for a substantial sum of money against the defendant at the trial: Guo Jing Jing v Art Master Investment Ltd, HCA 1008 of 2009 (11 December 2009), §88, per Au J (as he then was); Delco Participation BV and Chiho Environmental Group Limited and Anor [2021] HKCFI 1272, §14, per Coleman J. Once the threshold requirements are satisfied, the court may, if it thinks fit in all the circumstances, make an order for interim payment: Delco Participation BV (supra), §15; Fortuna Apparels Limited v Mega Style Limited and Anor, HCCL 173 of 1995 (27 September 1996), §41.

50.  In the present case, although I have found that the defence of ministerial receipt can be said to be shadowy, I consider that the following matters militate against the exercise of the court’s discretion to make an order for interim payment:

(1)  The plaintiff is a Belgian entity with no real presence or known assets in Hong Kong.

(2)  Notwithstanding that there is a reciprocal enforcement procedure between Hong Kong and Belgium under the Foreign Judgments (Reciprocal Enforcement) Ordinance (Cap 319),[2] the defendant has adduced unchallenged Belgian legal opinion suggesting that the overall process of enforcement of a Hong Kong court order in Belgium, if contested, may be time consuming (with an estimate of 13 to 20 months) and expensive (with an estimate of EUR 95,000 to EUR 175,000).

51.  On balance, it seems to me fair and just in all the circumstances of this case that the defendant shall be ordered to pay the Sum in full into court rather than as interim payment to the plaintiff. I shall therefore dismiss the plaintiff’s application for interim payment.

E.  The defendant’s application for security for costs

52.  The principles governing applications for security for costs are well established, and may be summarised as follows:

(1)  The power to order security under RDC Order 23, rule 1 is discretionary and the court should have regard to all the circumstances of the case. The key issue is what is fair and just in all the circumstances: Hong Kong Civil Procedure 2023, vol 1, §23/3/3.

(2)  While there is no inflexible or rigid rule that a plaintiff resident abroad should be ordered to provide security for costs, it is the usual and general rule of practice of the court to do so because it is ordinarily just to do so: Hong Kong Civil Procedure 2023, vol 1, §23/3/4. After all, if the defendant succeeds and gets an order for his costs, it is not right that he should have to go to a foreign country to enforce the order: Montgomery Ward & Co Inc v Evergo Trading Co Ltd, CACV 32 of 1996 (31 May 1996), pp 3-4.

(3)  Generally speaking, security will not be required from a foreign company if it has substantial property, whether real or personal, within the jurisdiction, but the property must be of a fixed and permanent nature, which can certainly be available for costs, and such foreign company must show that it is so available: Hong Kong Civil Procedure 2023, vol 1, §23/3/6.

(4)  Whether there is any reciprocal enforcement agreement between Hong Kong and the jurisdiction in which the foreign plaintiff is residing is a factor that the court may take into account in deciding whether it is just to order security: Tagliani v Lee Wai Ying Elvis [2006] 2 HKC 194, §15.

(5)  If a plaintiff wants to rely on the merits of its case to resist an application for security for costs, it needs to show, without embarking upon a detailed analysis of the merits, that it has a high probability of success. The threshold for establishing this is “very high indeed”: PT Graha Multimulia Cemerlang v Silver Tech Enterprise Limited, HCCW 883 of 2004 (1 March 2005), §6, per Kwan J (as she then was); The National Trust Ltd v Tahoe Investment Group Co, Limited and Others [2021] HKCFI 2617, §25, per K Yeung J.

53.  In the present case, for the reasons stated in Section C above, I am prepared to accept that the plaintiff’s case has a high probability of success. On the other hand, I consider that the matters stated at §50 above, viz. the plaintiff is a foreign company with no known assets in Hong Kong and the difficulties that the defendant may encounter in the enforcement of a Hong Kong costs order in Belgium, coupled with the fact that there is no suggestion by the plaintiff that an order for security would stifle its claim against the defendant, weigh in favour of security to be ordered.

54.  In all the circumstances of the case, I consider that the Master’s decision to order the plaintiff to pay security for costs in the sum of HK$180,000 is fair and just, and would uphold the same.

F.  Disposition

55.  For the foregoing reasons, I would make the following orders:

(1)  The plaintiff’s appeal in respect of the summary judgment application is allowed.

(2)  The unconditional leave to defend granted by the Master is set aside.

(3)  Unless the defendant do pay US$255,998.06 into court within 21 days from the date of this order (viz. on or before 7 July 2023), the plaintiff will have leave to enter judgment against the defendant in the sum of US$255,998.06, together with interest at the prime rate plus 1% per annum from 7 January 2016 until the date of judgment and thereafter at judgment rate until full payment, with the costs of the action to be paid by the defendant, such costs to be taxed if not agreed.

(4)  The plaintiff’s appeals in respect of the interim payment and security for costs applications are dismissed.

56.  On the issue of costs, the Master ordered the plaintiff to pay (1) 90% of the costs of the summary judgment application, and (2) the costs of the security for costs application, to the defendant. I am not minded to disturb the costs order below in relation to the security for costs application. As for the costs of the summary judgment application, as I have substituted the unconditional leave with conditional leave to defend, I consider that the incidence of those costs should be determined as part and parcel of the costs of the action. I would therefore make an order nisi that the costs of the summary judgment application (up to and including the hearing before the Master on 11 November 2022) be in the cause: cf Xpoly Recyclying Limited v Gold Leader Enterprises Limited [2011] 4 HKLRD 230, §31, per Lam J (as Lam PJ then was).

57.  As for the costs of the appeal, having regard to the relative success of the parties on the various issues canvassed above, the nature and complexity of those issues, the parties’ respective statements of costs, and adopting a broad brush approach, I consider that the plaintiff shall have half of the costs of the appeal, summarily assessed at HK$75,000.

58.  There will therefore be an order nisi that the defendant do pay half of the costs of the appeal, summarily assessed at HK$75,000, to the plaintiff.