WONG LEE MEI MAY v. SINCERITY INTERNATIONAL GROUP (H.K.) LTD

DCCJ 5090/2019

[2022] HKDC 272

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 5090 OF 2019

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DECISION

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I.    INTRODUCTION

1.  In these proceedings, the plaintiff seeks to recover from the defendant the sum of HK$2,005,124.63 (“Sum”).  The Sum was transferred on 8 November 2017 from the plaintiff’s account maintained at Bank of China (Hong Kong) Limited to the defendant’s account at The Industrial and Commercial Bank of China (Asia) Limited (“ICBC Account”).  It is the plaintiff’s case that she is the victim of an email fraud.

2.  On 12 March 2021, Master Jocelyn Leung dismissed the plaintiff’s application for summary judgment and summarily assessed costs at HK$147,070 in favour of the defendant (“Decision”).  This is the plaintiff’s appeal against the Decision.

3.  As with the hearing before the Master, the plaintiff and the defendant were represented respectively by Mr Harprabdeep Singh and Mr Justin Ho, both of counsel.

II.   BACKGROUND

4.  The plaintiff was aged 55 at the time of the transfer of the Sum to the defendant.  She stopped working two years earlier in 2015, after being employed as an executive secretary for the first 25 years of her working life (between 1981 and 2006) and a bank executive for the following 8 years (from 2007 to 2015).

5.  The plaintiff separated from her husband in 2012 but they remained on good terms.  After the separation, the plaintiff resided with her son and her mother.

6.  Between July and September 2017, three of the plaintiff’s relatives including her former husband and father-in-law passed away.  The successive demise of those close to the plaintiff had no doubt affected the plaintiff adversely, and between 5 and 24 October 2017, she was hospitalized for psychiatric treatment.

7.  It was during this period of vulnerability that the plaintiff started to use a social networking app called SweetRing.  In late September 2017, she met an individual known to her as Mitchell Hookwell (“Hookwell”) who represented to her that he was a General of the United States Army serving in Syria.  Within a very short time, the plaintiff developed what she thought was a close relationship with Hookwell.

8.  The plaintiff was told by Hookwell that he intended to marry her, and she was requested by Hookwell to write to his superior, a General John F Kelly (“Kelly”) to apply for Hookwell’s early release.

9.  Emails were then exchanged between the plaintiff and Kelly.

(1)  On 27 October 2017, the plaintiff was told that releasing Hookwell from Syria would require the plaintiff to pay the costs of his replacement in the sum of US$7,800;

(2)  On 31 October 2017, the plaintiff was presented with various options for transporting Hookwell out of Syria and their costs.  The option which was selected by the plaintiff cost US$88,280.

(3)  On 3 November 2017, the plaintiff was told that a termination fee to release Hookwell would cost US$256,500 (ie the US$ equivalent of the Sum).

10.  The plaintiff complied with Kelly’s payment requests.

(1)  On 30 October and 1 November 2017, the plaintiff remitted respectively US$7,800 and US$88,280 to the bank account of Annali Business Consultant Limited maintained at Hang Seng Bank Limited (“HSB Account”).  These remittances do not form the subject matter of these proceedings.

(2)  On 8 November 2017, the plaintiff remitted US$256,500 (ie the Sum) to the ICBC Account.

11.  Following the plaintiff’s remittance of the three sums, Kelly informed the plaintiff that Hookwell’s release would be delayed and requested for more payments from the plaintiff, which requests the plaintiff did not entertain.

12.  Realizing that she had been defrauded, the plaintiff attempted but was unsuccessful in obtaining a refund from Kelly.  She then reported the matter to the police on 12 November 2017.  The plaintiff was later informed by the police on 23 March 2018 that only HK$6,712,62 remained in the HSB Account and that US$256,500 in the ICBC Account was frozen.

13.  It appears from the evidence that the parties’ solicitors started to correspond on the plaintiff’s complaint in late April 2018.  As the matter could not be resolved, the plaintiff commenced these proceedings on 18 September 2019 to recover the Sum.

14.  Following the filing of the Defence on 21 October 2019, on 31 October 2019,[1] the plaintiff obtained an order against ICBC to produce bank statements of the ICBC Account for the period between 5 and 9 November 2017 and documents relating to the source and identity of the deposit of the Sum.

15.  It is plain from the documents produced by ICBC that the Sum deposited into the ICBC Account originated from the plaintiff and that the defendant was informed of the same contemporaneously.

16.  After the filing of a short Reply on 18 November 2019 which essentially only joined issue with the defendant on the Defence, the plaintiff applied for summary judgment on 3 January 2020.  As stated earlier, the Master dismissed the plaintiff’s application on 12 March 2021.

III.   THE PLAINTIFF’S CLAIM AND THE SCOPE OF ITS APPLICATION FOR SUMMARY JUDGMENT

17.  It is the plaintiff’s pleaded case that the three remittances were procured by the fraudulent representations of Hookwell and Kelly.  Her claim against the defendant is premised on (1) money had and received and (2) unjust enrichment.  The Statement of Claim seeks inter alia (1) a declaration that the defendant holds the sum on trust for and on behalf of the plaintiff and (2) an order for payment of the sum by the defendant to the plaintiff.

18.  At the hearing, Mr Singh confined the summary judgment application to the monetary relief sought by the plaintiff.  He no longer pursued the declaratory relief, a position no doubt taken to avoid the possibility that the plaintiff’s claim is caught by the fraud exception (as to which see section VI below).

IV.   THE DEFENDANT’S CASE

19.  It is common ground that the parties did not know or have any dealings with each other.  The defendant does not have any personal knowledge of, and therefore is not in a position to dispute, the factual matters set out at §§4 to 12 above.

20.  The defendant’s account as to how the Sum was transferred to the ICBC Account is as follows (“Transaction”).

(1)  The defendant is part of the Sincerity International Group (“Group”) which is based in the PRC.  The Group is in the business of motorcycle manufacturing.  As a member of the Group, the plaintiff would export the products of the Group to the Group’s affiliates in Africa and South America, and in return, the affiliates would arrange remittance of US Dollars for settling invoices of the relevant orders.

(2)  One of the affiliates is Apsonic Moto China-Africa Development Limited (“Apsonic”), a company incorporated in Ghana.

(3)  In around July 2017, Apsonic placed an order to purchase 294 motor tricycle (“Goods”) from the defendant.  Subsequently, the defendant issued an invoice numbered DC20171015 (“Invoice”) for the price of the Goods in the sum of US$256,510 (ie US$10 more than the Sum).

(4)  In August 2017, the defendant arranged to ship the Goods in six containers through the vessels of CMA CGM.

(5)  On or around 8 or 9 November 2017, Apsonic informed the defendant that it had arranged payment to settle the Invoice.

(6)  On 8 November 2017, the defendant received a sum of US$256,498.70 (ie US$256,500 less handling a bank handling charge of US$1.30) in the ICBC Account.

21.  The defendant resists the plaintiff’s application for summary judgment on the following bases.

(1)  First, the defendant says that the fraud exception is engaged and therefore summary judgement cannot be granted by virtue of RDC Order 14, rule 1(2)(b).

(2)  Secondly, the defendant contends that there is a triable issue as to whether the plaintiff had paid the Sum to the defendant as payment pursuant to Transaction as an agent (or with the authorization or consent) of Apsonic.

(3)  Thirdly, the defendant says that it is entitled to avail itself to the good consideration defence.  The proposition advanced is that a recipient of funds who discharges a real and existing debt of a third party is not liable to repay the funds to the mistaken payor, irrespective of whether the payor had intended the payment to discharge that debt.

(4)  Fourthly, the defendant argues that, in so far as the plaintiff relies on the unjust element of a total failure of consideration, her unjust enrichment claim is defective and should be rejected.

V.   THE APPLICABLE PRINCIPLES

22.  The principles relevant to a summary judgment application are established and have been summarized, for example, at Chan Man Yam v Lung Tsz Hin [2021] HKDC 941 §16.

23.  Essentially:-

(1)  the court has to determine two questions: first, whether the defendant says is believable as opposed to whether its version of events is to be believed; and secondly, if it is, whether what the defendant says amount to an arguable defence in law;

(2)  the defendant bears the burden of satisfying the court that he has a real of bona fide defence or there ought for some reason be a trial of the plaintiff’s claim;

(3)  the defendant’s evidence must condescend upon particulars;

(4)  even though the underlying reason for the commencement of proceedings was a fraud perpetrated by some third parties, in the context of an application for summary judgment, the plaintiff would not be caught by the fraud exception under RDC Order 14, rule 1(2)(b)so long as the plaintiff’s claim against the particular defendant is not based on the allegation of fraud.

24.  The Master was of the view that the fraud exception did not apply to the present case but concluded that a triable issue was raised principally on the defence of good consideration.

25.  I agree with the Master.  Since this action must go to trial, the less I say about its merits the better.  Nonetheless, I should briefly indicate why I believe that the appeal should be dismissed.

VI.   THE FRAUD EXCEPTION

26.  As stated earlier (§18 above), the plaintiff no longer pursues her claim for a declaratory relief.  The position appears to be an acknowledgement on the plaintiff’s part of the arguability of the defendant’s stance that the declaratory relief is essentially one based on the imposition of a constructive trust on a fraudulent recipient: Mesirow Financial Administrative Corporation v Best Link Industrial Co Ltd, HCMP 1847 of 2015, 25 January 2016 at §33.

27.  Although Mr Singh no longer pursues the declaratory relief and bases the plaintiff’s claim solely on money had and received and unjust enrichment, Mr Ho contends that the fraud exception nevertheless still bites.  Mr Ho argues that, when having regard to the full pleadings and evidence, it is clear that what the plaintiff is asserting in substance is that the Transaction did not exist: Zimmer Sweden AB v KPN Hong Kong Ltd [2016] 1 HKLRD 1016 at §§19.1 to 19.3.

28.  Zimmer was considered in R Stahl Inc v AJ Development Limited [2021] HKCA 1093.  At §17, G Lam JA said as follows:-

“As to the argument that the plaintiff’s affidavit evidence raises directly or by implication allegations of fraud on the part of the defendant, it seems to us that all that was being said by the plaintiff was that the defendant owned and had full authority to operate the Account despite Zhong’s protestations to the contrary. The plaintiff does invite the court not to accept Zhong’s evidence but this does not, in our judgment, mean that there is a claim based on an allegation of dishonesty or fraud. As pointed out in Tang Yuan Yi v Tokyo International Investment Ltd [2021] HKCFI 944 at §64(c), the contrary reasoning would mean that whenever a plaintiff seeks summary judgment on the basis that the defendant’s defence is incredible, there is an implied allegation of dishonesty or fraud which precludes summary judgment from being granted. That could not have been the intention of the rule. Here the plaintiff does not need to allege, and does not do so simply by contending that Zhong’s evidence is incredible, that the defendant is complicit in the fraud practised on the plaintiff or has been guilty of some other fraud. The plaintiff can assert that Zhong’s evidence is incredible and that in fact the defendant did open and operate the Account, without alleging or necessarily implying that it was party to the fraud. The plaintiff would have a cause of action even if the defendant was an innocent recipient of the funds. The present case may therefore be distinguished from A-1 Business and Zimmer where the plaintiff in reply to the defence raised contended that the transactions through which the defendant had allegedly obtained the money were in fact fictitious and supported by fake documents.”

29.  In my view, the present case is, like R Stahl, distinguishable from Zimmer.  The plaintiff has not pleaded a case of fraud against the defendant and whilst her evidence does challenge the cogency of the defendant’s evidence, at the hearing Mr Singh confirmed that it is not the plaintiff’s case that the documents relied on by the defendant are not authentic or that the Transaction did not exist.[2]

30.  I am therefore of the view that the fraud exception does not apply to the plaintiff’s summary judgment application.

VII.    TRIABLE ISSUES / SOME OTHER REASON FOR TRIAL

31.  I propose to deal with the issues identified by the defendant in the following order (§21(2) to (4) above)): (1) defence of good consideration, (2) defence of agency, and (3) defectiveness of the plaintiff’s claim.  Like the Master, I am of the view that the crux of present determination is whether a triable issue is raised in respect of the defence of good consideration.

(a)   Defence of good consideration

32.  Mr Ho relies on Hills Industries Ltd v Australian Financial Services and Leasing Pty Ltd [2012] NSWCA 380 as an authority for the propositions that even if the plaintiff had mistakenly paid the Sum to the ICBC Account, the defendant can still avail itself of the good consideration defence if it can demonstrate that (1) the defendant received the mistaken payment from the plaintiff in good faith and without notice and (2) there was an arrangement whereby the debt owed by Apsonic to the defendant was discharged.

33.  In Hills, Allsop P said:-

(1)  at 104:

“Both cases reveal a clear basis of a lack of liability in the receiver or payee of funds where (irrespective of the intention of the owner of the funds) a recipient in good faith and without relevant notice gives value or consideration. The discharge of a real and existing liability (even if owed by the wrongdoer, as in Smith v Knapp) will suffice…”

(2)  at 110-111:

“… The question was whether the "discharge for value" rule would apply to mistaken transfers of funds by electronic means or whether money could be recovered unless a change of position had been caused that would make repayment unjust. The Court, unanimously, applied the discharge for value rule…

… This concern for finality in business transactions has long been a significant policy consideration in this State… A consequence of this concern has been the adoption of a rule which precludes recovery from a third person, who as the result of the mistake of one or both of the parties to an original transaction receives payment by one of them in good faith in the ordinary course of business and for a valuable consideration… The 'discharge for value' rule is consistent with and furthers the policy goal of finality in business transactions and may appropriately be applied in respect to electronic funds transfers. When a beneficiary receives money to which it is entitled and has no knowledge that the money was erroneously wired, the beneficiary should not have to wonder whether it may retain the funds; rather, such a beneficiary should be able to consider the transfer of funds as a final and complete transaction, not subject to revocation…

This approach equiparates the position of a person who receives negotiable instruments or cash which is stolen or the property of another and a person who receives good title to negotiable instruments or cash but in a transaction vitiated by a factor open to give rise to a right of restitution. If the recipient in good faith and without notice gives consideration or value by discharging a debt in exchange for the payment, he will take title to the funds if stolen or otherwise owned by another and will defeat a restitutionary claim. The relevance to the analysis of title and the need for the discharge for value rule to equate to the position of good faith purchase of title for consideration can be seen in the relationship between secs 13 and 14 of the Restatement (1937) and the Reporters' Notes thereon at pp 7-9.”

34.  At the hearing, Mr Singh did not quarrel with the arguability of the legal proposition advanced by Mr Ho.  Further, as canvassed at section VI above, Mr Singh confirmed that it is not the plaintiff’s case that the Transaction was a sham.  Instead, Mr Singh says that the defendant’s factual case is incredible and in particular the defendant has not demonstrated that there was a correlation between the Transaction and the transfer of the Sum by the plaintiff.

35.  In the present case, the defendant has adduced into evidence a number of documents.  It seems to me that the crucial ones are as follows.

36.  First, as to the agreement reached between the defendant and Apsonic, the defendant has adduced the Invoice dated 1 August 2017.  The Goods set out therein, totaling 294 Units, comprised three models, namely AP150ZH-20 (boster) (100 Units), AP150ZH-175 (44 Units) and AP150ZH-20 (150 Units) and the price for them was US$256,510 FOB Qingdao.  The Invoice provides that payment was to be made by telegraphic transfer, that the Goods were to be shipped in six containers, that the Goods were to be loaded in Qiandao China and discharged in Tema.

37.  As to the actual shipment of the Goods, the defendant has adduced six bills of lading numbered ECMU9440327, APHU6247294, FSCU989953, APHU6718326, DFSU6330220, and CMAU7187135, each naming it as the shipper and Apsonic as the consignee and the notify party.  The first three were dated 1 August 2017 and the latter three 3 August 2017.  In each of the bills of lading, the number of units is identified,[3] and the six containers contained in total 294 units.  Each of the bills of lading states that the loading port was Qingdao and the discharge port was Tema, Ghana.  In other words, the details set out in the bills of lading match the terms of the Invoice.

38.  As to the method of effecting payment to it by Apsonic, it is the defendant’s case that Apsonic would arrange payment through various banks, one of which was Guaranty Trust Bank (Ghana) Limited (“GT Bank”).  In the usual course of events, Apsonic would contact GT Bank for the payment of US Dollars.  Frequently, GT Bank would ask Apsonic to deposit Ghanaian Cedi (“Cedi”) with it or its agent(s).  The agents would then arrange for the US Dollars to be remitted to the account designated by Apsonic by itself or its agents. Neither Apsonic nor the defendant would have any control over how the agents arrange the remittance.

39.  On this occasion, Apsonic transferred Cedi 1,140,687.56 as directed by GT Bank to a Ghanaian company, Boresak Enterprises (“Boresak”), directly on 6 November 2017 and indirectly via another Ghana company called Yes Ice Kube on 8 November 2017.

40.  In support of the matters stated in the preceding paragraph, the defendant has adduced the following documents.

(1)  There is a cheque issued by Apsonic in the sum of Cedi 808,400 and dated 6 November 2017 in favour of Boresak.

(2)  There is also a bank statement of Yes Ice Kube showing that Cedi 332,287.56 was withdrawn from its account and transferred to Boresak on 8 November 2017.

(3)  The bank statement of Boresak shows that Cedi 808,400 (ie the sum under Apsonic’s cheque) was deposited on 6 November 2017 and a sum of Cedi 332,287.56 was transferred from Yes Ice Kube.

(4)  As such, between 6 and 8 November 2017, Boresak had received in total Cedi 1,149,687.56 (“Deposited Sum”).

41.  Importantly, on 8 November 2017, Cedi 1,128,600 was withdrawn from Boresak’s account, as shown on its statement (“Withdrawn Sum”).  As I understand it, the exchange rate in early November 2017 was around Cedi 4.4 to 1 US Dollar.[4] The Withdrawn Sum would therefore exchange US$256,500, namely the equivalent of the Sum.

42.  The Deposited Sum represents around a 1.8% premium over the Withdrawn Sum.  I note from the defendant’s evidence that it was told by Apsonic that the exchange rate was Cedi 4.425 to 1 US Dollar, which apparently accounts for a 0.56%[5] exchange again made by GT Bank.  Whether the rest of the premium represents charges levied by GT Bank and/or its agents seems to me to be a matter for trial.

43.  After the defendant received the payment of US$256,498.70 (ie US$256,500 less handling charge of US$1.30), the defendant treated the invoice as having been settled in its internal accounting documents.

44.  Mr Singh was critical of the defendant’s evidence.  Non-exhaustively, he points to the fact that no evidence has been adduced by the defendant on the allegation that the Group was a leading motorcycle manufacturer, that there are discrepancies in the incorporation documents of Apsonic, that no purchase order was ever issued by Apsonic in respect of the Goods, that it is unclear why GT Bank, being a reputable bank, had to employed agents to effect the transfer, and that there was a discrepancy of US$10 between the Invoice (US$256,510) and the Sum (US$256,500).  Where, as here, Mr Singh has expressly disavowed any suggestion that the Transaction was a sham (and hence triggering the fraud exception), like the Master, I do not regard the criticisms as having the effect of rendering the defendant’s case unbelievable given the documents and the observations canvassed at §§36 to 43 above.

45.  In addition, I note from the statement of ICBC Account that the defendant had maintained a substantial balance, both before and after the transfer of the Sum.  Indeed, at the end of November 2017, the defendant had a deposit close to US$9 million in the ICB Account.  It seems to me that this lends credence to the defendant’s evidence that it was conducting substantial business at the material time.

46.  As stated earlier, Mr Singh does not argue that the positions Mr Ho seeks to derive from Hills are unarguable as a matter of law.  Where I have found that the defendant’s case is factually capable of being believed, it follows that the defendant has raised a triable issue as regards the defence of good consideration.  As I have so found, I will only deal briefly on the other grounds raised by the defendant.

(b)   Defence of agency

47.  The defendant says that the possibility that the plaintiff was an agent of Apsonic cannot be ignored or discounted, and in particular, there is a question as to whether the plaintiff had paid the Sum to the defendant as payment pursuant to the Transaction acting as an agent (or with the authorization or consent) of Apsonic.

48.  I believe that the defendant accepts that there is at the moment no evidence to suggest the foregoing to be the case, and in particular somehow Boresak and/or GT Bank had enlisted the plaintiff’s assistance to effect the transfer of the Sum.  That is why the defendant pursues this ground as providing some other reason for trial.

49.  The matters identified by Mr Ho as requiring investigation are (1) the source of the plaintiff’s funds and (2) the questionable fact that the Sum was remitted to a bank account in Hong Kong for the release of Hookwell in Syria.

50.  As stated at Note 14/4/10 of Hong Kong Civil Procedure 2021, lack of evidence as to a possible defence does not justify granting leave to defend where there is nothing devious or artificial in a claim even though such evidence would only lie within the power of the party seeking summary judgment.

51.  I do not regard, on the present state of the evidence, that there is anything devious or artificial in the plaintiff’s claim.  Had the defence of agency been the only ground advanced by the defendant, I would have not allowed the matter to go to trial.

(c)   Defectiveness of the plaintiff’s claim

52.  Mr Ho submits that it is questionable whether the plaintiff has even made out a valid claim for the defendant to answer.  He says that the plaintiff appears to rely solely on the unjust element of a total failure of consideration. Mr Ho then reasons that for the plaintiff to be able to rely on a total failure of consideration as the unjust element of her unjust enrichment claim, she must show that the Sum was remitted to the defendant on the joint understanding that the defendant would be allowed to retain the Sum only if a certain condition or basis is fulfilled, and such a joint understanding must be shared or communicated between the transferor and transferee: Goff & Jones; The Law of Unjust Enrichment, 9^th Ed at §12-01.

53.  It seems to be that the foregoing characterization of the plaintiff’s claim is unjustifiably narrow and is tantamount to an application to strike out the plaintiff’s claim.

54.  The weight of the authorities is that a plaintiff who is the victim of an email fraud would prima facie have a claim in money had and received and may assert a proprietary claim against a recipient in so far as the fraudulently obtained funds are traceable into his lands, unless the recipient can establish that he is a bona fide purchaser for value without notice: Ferrari North America Inc v Changhon International Energy Co Ltd & Ors [2018] HKCFI 1603 at §12.

55.  As stated earlier, the pleaded bases of the plaintiff’s claim include money had and received.  It seems to me that Mr Ho’s has sought to take advantage of one paragraph of Mr Singh’s written material (§21(c)) when it is plain from Mr Singh’s submissions that the plaintiff’s case is wider than what Mr Ho portrays it to be (eg Mr Singh’s Skeleton Submissions §§19(a) and (d)). In any event, I do not regard Mr Singh to have submitted that the unjust enrichment claim is exclusively premised on a total failure of consideration.

56.  I do not regard this ground takes the defendant’s case any further.

VIII.CONCLUSION

57.  For the above reasons, the Master was right in refusing summary judgment.  I also agree with the Master that as opposed to granting unconditional leave to defend, this is an appropriate case for dismissing the application for summary judgment, bearing in mind that the application was pursued only after the close of pleadings when the gist of the defendant’s case had already been pleaded in the Defence.

58.  The appeal is therefore dismissed.  As there is no application for the costs to be summarily assessed, I make an order nisi that the costs of the appeal be paid by the plaintiff to the defendant to be taxed if not agreed, with a certificate for counsel.  Prior to the costs order becoming absolute, the parties are at liberty to apply for the costs to be summarily assessed for which directions will then be made for its paper disposal.

59.  I thank both counsel for their assistance.