KAEFER A.G. v. WINFIELD MARINE SERVICES CO., LTD

DCCJ 4320/2019

[2021] HKDC 656

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4320 OF 2019

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BETWEEN

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DECISION

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INTRODUCTION

1.  This is an appeal brought by the defendant (“D”) arising out of a decision made by a master on a security for costs issue and a summons taken out by the plaintiff (“P”) on a summary judgment application.

2.  Thus, there are 2 substantive matters which require this court’s determination.  They are: -

(a) D’s Notice of Appeal dated 16 July 2020 against Master Maurice Lam’s (“the Master”) decision on the summons dated 19 November 2019 seeking security for costs in the sum of HK$182,890, together with a stay pending provision of the same pursuant to Order 23 rule 1 of the Rules of the District Court, Cap 336H (“RDC”) (“the Security Summons”); and

(b) P’s summons dated 18 September 2020 seeking summary judgment under Order 14 of the RDC and/or determination of certain questions of law under Order 14A (“the Judgment Summons”).

3.  The Security Summons is on appeal by D from the decision of the Master dated 2 July 2020[1] (“the Master’s Decision”) in which the Master declined to order security on the basis that he considered P has strong merits in the case.

BACKGROUND

Fraud perpetrated against P

32.  P is the victim of an email fraud, commonly referred to as a “CEO impersonation fraud”

33.  On 16 April 2019, P’s commercial director in charge of P’s bank account, Ms Andrea Keisel, received an email purporting to be from P’s sole shareholder, Mr Kaefer, who is also a director of P.

34.  The email informed Ms Keisel of a “secret business deal”.  Ms Keisel was told to await further details from KPMG which was P’s tax advisor.  Ms Keisel then received emails purportedly to be from KPMG and further emails purportedly to be from Mr Kaefer, ultimately directing Ms Keisel to transfer the sum of €987,026.00 (“the Defrauded Funds”) to a Hong Kong company named Hong Kong Tangxin Trade Limited (“Tangxin”).

35.  Ms Keisel made the transfer on 16 April 2019.

36.  All the emails from “KPMG” and “Mr Kaefer” were from fake email accounts and there were no genuine instructions from Mr Kaefer and no “secret business deal”.

37.  On 18 April 2019, DHCJ Keith Yeung (as he then was), granted an urgent ex parte proprietary injunction to P to restrain Tangxin from dealing with the sums paid by P, together with a “top up” Mareva injunction in HCCL 6/2019 (“First Layer Injunction”).

38.  Shortly after obtaining the First Layer Injunction, P was informed by the German Police (who had been in contact with the Hong Kong Police) that Tangxin’s account with HSBC that had received the Defrauded Funds had been emptied.  However, the Hong Kong Police identified two “second layer” bank accounts into which the Defrauded Funds had been transferred, namely:

(a) Account no. 950800xxxxxx held by ‘H and Q Trade Limited’ maintained with Taipei Fubon Bank; and

(b) Account no. 12494xxxxx held by ‘Hong Kong Shunchao Industrial Co Limited’ maintained with Hong Kong Citibank (collectively “Second Layer Defendants”).

39.  On 24 April 2019, Madam Justice Remedios granted P’s an ex parte injunction against the Second Layer Defendants to restrain them from dealing with the Defrauded Funds as received by them, with a “top up” Mareva injunction in HCCL 7/2019 in essentially identical terms to the First Layer Injunction.

40.  On review of the Tangxin’s account statements with HSBC, provided pursuant to s21 of the Evidence Ordinance (Cap 8), it was revealed that HK$785,889 (“the Sum”) out of the Defrauded Funds had been paid to D on 17 April 2019, making D a further “Second Layer Defendant”.

D’s defence

41.  The following facts have been alleged by D in the Defence and the affirmations filed by D’s director Iu Muk Chun Anita (“Iu”).

42.  D was incorporated in 2006.  D’s primary and only business is to supply fuels through its 4 refuelling vessels based in Tuen Mun.  The fuels are supplied to vessels, fishing boats and/or ships from all over the world in which about 60% of them are from the Mainland.

43.  D operates a booking system in which potential customers or their representatives (which Iu in her earlier affirmations originally addressed them as D’s “agents”) would call to make oral arrangement with D’s representatives.  The essential details would allegedly be agreed by both sides over the phone (including the name of the vessel to be refuelled; the approximate amount of fuels; time of arrival as well as the price for the quoted fuels).

44.  D would usually require customers to pay into its bank account with Hong Kong and Shanghai Banking Corporation with account no. 17875xxxx838 (the “HSBC Account”) in advance, though long-time customers/representatives allegedly may be allowed more time to make payments.

45.  All the payments made by the customers would be deposited into the HSBC Account and the money therein would be used to settle D’s operating expenses. This was the same account into which Tangxin made payment on 17 April 2019.

46.  After a vessel was refuelled at D’s refuelling vessel, pursuant to the aforesaid arrangements, a delivery note (「送貨單」) in Chinese would be provided to the vessel, recording the transaction details with a copy kept by D.

47.  In 2019, D allegedly handled the refuelling of about 70 to 80 vessels a day and about 2,400 vessels per month on average. D alleges that it is not uncommon for its customers to make payments through third party bank accounts and particularly when its Mainland customers may not have local bank accounts. D claims that it has been in no position to check or verify the source of funds in those bank accounts which have been used for the payments of refuelling.

48.  In or about mid-April 2019, D alleges that it had received a phone call from a long-time Mainland customer “Ah Po”[2], who placed order for the refuelling of 6 Mainland vessels for the period between 15 and 18 April 2019 at the agreed total price of HK$785,889:-

(a) On 15 April 2019, D supplied 30,000 litres of fuel (at the price of HK$122,250) and 58,300 litres of fuel (at the price of HK$237,571) to vessels “東运 428” and “興泰隆118” respectively;

(b) On 16 April 2019, D supplied 36,000 litres of fuel (at the price of HK$147,300) and 26,000 litres of oil (at the price of HK$106,385) to vessels “興泰源18” and “東运393” respectively;

(c) On 17 April 2019, D supplied 18,000 litres of oil (at the price of HK$73,575) to the vessel “東运801”; and

(d) On 18 April 2019, D supplied 24,200 litres of oil (at the price of HK$98,809) to the vessel “東运938”.

49.  On or about 17 April 2019, Ah Po informed D that he had arranged for payment of the Sum into the HSBC Account for the refuelling order placed for those 6 vessels as aforesaid.

50.  Thus, D claims that it has incurred expenditure for the purchase of the fuels supplied to those 6 vessels between 15 and 18 April 2019 as aforementioned and D received the Sum for the sale of the fuels to those 6 vessels in good faith without any notice of the Plaintiff’s alleged claim to the Sum.

DISCUSSION

51.  In this Decision, I shall first deal with the Security Summons under heading (I) and then the Judgment Summons under heading (II).  I shall also deal with the pertaining procedural matters raised by the parties during the hearing under the respective headings.

(I) SECURITY SUMMONS

The Law

52.  Order 23 rule 1 of the RDC provides:

“(1) Where, on the application of a defendant to an action or other proceeding in the Court of First Instance, it appears to the Court-

(a) that the plaintiff is ordinarily resident out of the jurisdiction, or

…

if, having regard to all the circumstances of the case, the Court thinks it just to do so, it may order the plaintiff to give such security for the defendant’s costs of the action or other proceeding as it thinks just.”

53.   It is trite that an appeal from the master to a judge in chambers is dealt with by way of an actual rehearing.  Thus this Court will have to consider the issues afresh as if it comes before it for the first time, while giving weight it deserves to the previous decision of the master: see §58/1/2 of Hong Kong Civil Procedure 2021 (“HKCP”).

54.   The relevant principles on security for costs are well-established.  Once the Court’s jurisdiction for ordering security is triggered, the usual practice is for the Court to make a foreign plaintiff give security for costs as it would be unjust that a successful defendant should have to go abroad to enforce a costs order: see Montgomery Ward & Co., Incorporated as Illinois Corporation v Evergo Trading Company Limited & Anor (CACV 32/1996, unreported, 31 May 1996) at p 4 per Nazareth VP, pp 4-5 per Bokhary JA (as he then was) & p 5 per Godfrey JA (as he then was).

55.    Put in another way, once it is established that the plaintiff is a resident outside the jurisdiction, the burden is then shifted to the plaintiff to prove why such discretion should not be exercised in the defendant’s favour: per Registrar KW Lung in Eric Edward Hotung & Another v Ho Yuen Ki & Others (HCA 857/2011, unreported, 13 December 2013) at §27.

56.   It has been said that parties should not attempt to go into the merits of the case unless it can be easily demonstrated one way or another that there is a high degree of probability of success or failure: see Porzelack KG v Porzelack (UK) Ltd [1987] 1 WLR 420 at 423 per Sir Nicolas Browne-Wilkinson VC (as he then was).

57.  In this case, it is not disputed that P is an ordinarily resident outside Hong Kong.

58.  Hence, the burden is shifted to P to demonstrate why such discretion should not be exercised in D’s favour.

59.  It is trite that the Court has a broad discretion in relation to ordering security and it should be exercised in light of all the circumstances. It is certainly not a rigid rule that an overseas plaintiff should be ordered to provide security. The Court may take into account the merits of the case, and whether the plaintiff’s claim is “genuine and strong” no order for security would be granted.

60.  A helpful summary of operable principles is provided by Madam Justice B. Chu in Dracco Netherlands B.V v Simba Toys GMBH & Co. KG., unreported, HCA 304/2014, 5 October 2016.

61.  The burden however is and always remains on the defendant to demonstrate that it is just to order security.  In Lim Yi Shenn v Wong Yuen Yee [2012] 3 HKLRD 505, Recorder Horace Wong SC stated at §58:

“The burden is upon the defendants to satisfy me that it is just to make an order for security for costs. It is accepted, as indeed is well-settled, that there is no inflexible rule to order a foreign plaintiff to provide security for costs, although, as mentioned above, the approach of the court is to order security unless there is anything to show that it is not just to so order. It might be said that there is an evidential burden on the plaintiff to adduce some evidence to displace the initial inclination to order security (described by Godfrey J as the prima facie position in Walt Disney Co v Disney Property Agency, supra), but the legal burden rests always with the defendant making the application to satisfy the Court that it is just to make the order.” (emphasis added)

62.  The meaning of the above was made clear by Master Kenneth Lam in Christine Ruth Ong Chai Hoon & Ors v Lam Kin Chung [2019] HKCFI 2772, where the master stated at §9 as follows:

“As the learned Recorder Horace Wong SC observed in Lim Yi Shenn v Wong Yuen Yee [2012] 3 HKLRD 505, the burden is always on the party seeking security for costs to show that it is just, reasonable and fair to order security.”

63.  P submits that security should not be ordered in all the circumstances because:

(a) P has a genuine and strong case; and

(b) There is a reciprocal enforcement agreement between Hong Kong and Germany (where P is resident) under the Foreign Judgments (Reciprocal Enforcement) Ordinance (Cap 319) (“FJREO”).

64.  It is P’s submission that each of these grounds taken individually are sufficient to dispose of this application, but if the Court is of the view that neither is decisive, they can be taken together to point strongly away from ordering security.

Merits of P’s claim

65.  I accept Mr Toby Brown for P’s submissions that the prima facie merits of P’s claim is overwhelming.  There can be no question that D received part of the Defrauded Funds.  The burden thus shifts to D to demonstrate its change of position defence.

66.  D, on the other hand, in its submissions, contends that it has demonstrated a strong defence of “change of position” which it says has clearly defeated P’s claim for money had and received and unjust enrichment.  Mr Kenny Lin, leading Mr Ken Cheng, for D, submits that “(T)here is no way that the Court could reach any conclusion on P’s prospect of success at this stage without a full trial.”.[3]

67.  I shall explain in my discussion under Heading (II) on the Judgment Summons of why I consider P has very strong merits in its case against D and why I think D’s defence is not really arguable and bound to fail.

68.  P further submits that, even if the Court is of the view that summary judgment should not be entered, that does not mean security for costs should be ordered.  In P’s submission, the question of security is not based on merits alone (as in summary judgment), but is based on all the circumstances, including the FJREO point below.

The FJREO

69.  A reciprocal enforcement procedure has been put in place between Hong Kong and the Federal Republic of Germany being a jurisdiction identified in the 2^nd Schedule of the FJREO.

70.  In Lim Yi Shenn, supra, the learned recorder noted at §§61-62 that the requirement of substantial reciprocity in order for a jurisdiction to be included in the FJREO and that he was entitled to infer that any country listed in the FJREO must have legislation of the type provided for in Hong Kong.

71.  In Lim Yi Shenn, supra, the recorder further stated at §§64-65:

“In the absence of any evidence filed by the Defendants to show, for example, that despite the substantial reciprocity, there exists some special difficulties and burdens for enforcement in Singapore which they would not encounter if the enforcement is done in Hong Kong, I cannot assume that there are difficulties for enforcement in Singapore that are particular to that jurisdiction. The evidential burden is discharged by the Plaintiff’s showing that there is an available regime which provides for reciprocal enforcement of judgments in Singapore. This is of course not conclusive but the burden rests with the Defendants to show that nonetheless, it is just to require the Plaintiff to provide security.

I have also taken into account the fact that Singapore is an English-speaking country and there is not going to be any language difficulties in communicating with Singapore lawyers instructed to pursue enforcement in that jurisdiction. I also take judicial notice that Singapore has a common law system and the present case is not a case whereby enforcement would have to be taken in a country with a legal system that is wholly foreign to a Hong Kong defendant. It is true that the Defendants would still have to instruct a foreign lawyer, but that is, in my view, a matter of minor importance given the considerations mentioned above.” (emphasis added)

72.  The recorder went on to conclude at §69:

“As rightly submitted by Mr Chan, the existence of a regime for reciprocal enforcement between Singapore and Hong Kong is plainly not conclusive, but that does not mean that in the absence of any evidence filed by the Defendants to show why it is just to make an order for security for costs, that this Court should proceed to make an order simply because the Plaintiff is not ordinarily resident in Hong Kong. The fact that there is such reciprocal enforcement, in the absence of other relevant evidence, shows that it is not just to make an order under O 23 r 1(l)(a).” (emphasis added)

73.  In other words, according to the above case, the fact that a jurisdiction is included in the FJREO was conclusive that there are no material difficulties[4] with enforcement unless a defendant put forward evidence of such difficulties (and in which case the extent of those difficulties would need to be taken into account as one of the circumstances in considering security). I respectfully would agree with the same.

74.  In Dracco Netherlands B. V., Madam Justice Bebe Chu came to the same conclusion and for the same reasons in respect of the Netherlands, a “Schedule 2” country.  In that case, the FJREO was raised for the first time at the hearing.  No evidence of the Netherlands’ reciprocal statute was provided, but the learned judge concluded at §60 that she was entitled to draw an inference of reciprocity in reliance on Lim Yi Shenn (and thereby endorsing that decision).  The learned judge concluded at §61 that in the absence of any evidence from the defendant as to difficulties enforcing a judgment in the Netherlands, security should not be ordered.

75.  The judge went on to consider the position of a plaintiff resident in a “2^nd Schedule” jurisdiction at §§61-62:

“Even though the Netherlands does not have a common law system, in light of s3 of FJREO, I cannot assume that there are going to be difficulties for enforcement in the Netherlands that are particular to that country. There has been no sufficient evidence in any event to this effect.

The burden rests with D to show that it is just to require P to provide security.”

76.  The decision in Dracco Netherlands B. V. was appealed ^[5]. The Court of Appeal (“the CA”) was critical of both grounds upon which P had succeeded in resisting the application for security before the judge.

77.  However, what is relevant for our case ^[6]is that the CA gave insight as to the evidence needed and the burden on the respective parties where the FJREO applies.  This appears to be the only CA’s ratio which addresses the FJREO issue (other than in the context of security for costs for appeals, such decisions having been afforded little weight in respect of security for costs at first instance, given the different considerations: see Chris Au v Steve Yoon Soo Kim at §88).

78.  P submits and I accept it is evident from §3.6 of the CA’s judgment that:

(a) Showing that the relevant jurisdiction was included in the FJREO was sufficient to discharge the plaintiff’s burden (as the plaintiff in that case had adduced nothing in respect of Netherlands’ law); and

(b) The burden rested entirely on the defendant to show that there were difficulties with enforcement.

79.  The CA held that a defendant must be given an opportunity to adduce evidence because it bears the burden, which the defendant was denied in Dracco Netherlands B.V.. Hence, the CA decided the appeal on the merits of the claim argument and not on the FJREO, as this point was then not properly/fairly raised by the plaintiff in the case and therefore made clear where the respective evidentiary burdens lie.

80.  Of course, as P has submitted, not any evidence of enforcement difficulties will be sufficient to discharge the defendant’s burden.  In Christine Ruth Ong Chai Hoon & Ors, supra, the master considered the evidence that was presented to him on the difficulties of enforcing a Hong Kong judgment in Singapore and stated at §§ 10-11:

“In our present case, the only affidavit evidence on the alleged difficulties of enforcing costs orders in Singapore was in (l) paragraphs 34 to 39 of the 3rd Affirmation of Ho Kim Hung filed herein on 30 July 2019; and also (2) paragraphs 24 to 27 of the Affirmation of Chan Hiu Tung filed herein on 23 October 2019, where it was suggested that in a separate and unrelated Hong Kong defamation action involving D1 (HCA 1999 / 2012) (“the Unrelated Action”), D1 obtained final judgment in Hong Kong on 27 January 2017 (“the Unrelated Judgment”) and sought to enforce it in Singapore. It was said that registration of the Unrelated Judgment in the High Court of Singapore was only completed by D1’s Singaporean lawyers on 28 November 2017, and D1 only managed to get the debtor in question declared bankrupt on 19 July 2018.

In my view, that kind of evidence came nowhere near the kind of evidence required to prove difficulties. There was no evidence before me that the timeframe deposed to was normal or typical in Singapore, and there was no evidence before me as to whether D1 could have enforced the Unrelated Judgment in Singapore quicker had he been more diligent. In any case, it is highly questionable whether being able to declare a judgment debtor bankrupt within 18 months of getting the judgment in question can be described as a genuine “enforcement difficulty”. For this reason alone, I should dismiss the Summons.”

81.  I accept Mr Brown’s submission that the Court does not have to consider the sufficiency of D’s evidence in respect of enforcement in Germany in this case as there is simply no evidence produced by D on this issue at all.  In our instant case, D has not only failed to discharge its burden; it has failed to even address it.  That remains the case notwithstanding that this issue was squarely raised in P’s skeleton submissions filed on 23 January 2020 in anticipation of the original hearing.  D had 4 months before the matter was heard by the Master to put forward such evidence.  Yet D had chosen not to produce any evidence on this issue.

82.  In the circumstances, I would follow the approach taken by the master in Christine Ruth Ong Chai Hoon & Ors, supra and would dismiss the Security Summons on this ground alone.

P’s financial position

83.  On a related topic, the Court is entitled to take into account of P’s financial position.

84.  P’s CFO in his affidavit filed for the Security Summons stated that P has the equivalent of HK$131M in cash reserves.  Thus, there is simply no risk that P is not “good for the money”.

85.  The impact of overseas assets on a security for costs application can be demonstrated in the recent decision in Zadeh v Registrar of Companies [2019] 5 HKLRD 355; [2019] HKCFI 2675. Although decided on technical grounds that do not apply in our case, Coleman J considered whether he would have otherwise awarded security for costs. The learned judge noted at §§42-46 of that decision as relevant and mitigating against the award of security, that the plaintiff was a substantial business with net assets of US$27M and cash approaching US$470,000. The learned judge also took into account the FJREO, notwithstanding that it appears he may have accepted evidence that there was some additional costs and inconvenience enforcing in Singapore.

86.  This would have been another factor that I would take into account when considering the Security Summons had I not allowed it on the merits and the FJREO grounds.

Conclusion on the Security Summons

87.  In conclusion, I am of the view that the Master was absolutely correct in dismissing the Security Summons and therefore D’s appeal against the Master’s Decision should be dismissed with costs in favour of P, such costs will be summarily assessed by this Court on paper and to be paid forthwith.

(II) SUMMARY JUDGMENT SUMMONS

D’s 2 “procedural summonses”

87.  In respect of the Judgment Summons, D had issued 2 “procedural summonses” which the Court was asked to deal with at the beginning of the hearing.  They were:

(a) D’s summons dated 4 November 2020 to replace the 2^nd affirmation of Iu (“Iu-2 Aff”) with an amended version re-affirmed on 3 November 2020 (“Iu-4 Aff”) purportedly trying to rectify certain “clerical errors” (“Amendment Summons”); and

(b) D’s summons dated 5 November 2020 to strike out the 4^th affidavit of Simon Howard Baker, the solicitor for P, filed on behalf of the plaintiff on 4 November 2020 (“Baker-4 Aff”).

88.  I shall briefly deal with D’s “procedural summonses” here and the rulings I made at the hearing.

89.  Mr Lin for D claims that shortly after D had filed Iu-2’s Aff on 27 October 2020, it realised that there were certain “clerical errors” contained in it and they had immediately informed P of its intention to rectify the errors by letter dated 29 October 2020 enclosing the draft Iu-4 Aff. 

90.  It is submitted on behalf of D that the Iu-4 Aff has only sought to make minor alterations in 2 paragraphs, ie §§6 & 6.3. It has further been submitted that there is no prejudice to P who has not put forward any objection to this application.  Thus, it is submitted on behalf of D that the application ought to be allowed.

91.  In my view, while the wordings D sought to replace are not substantial, they represented significant changes and a major shift in D’s case.  Instead of saying that the persons who had placed orders for fuels on behalf of some of their customers were “agents in sourcing customers”: (see §6 of Iu-4 Aff), D wanted to change them to “customers’ referrals as our source of business”. And instead of saying they were “middlemen”, they wanted to change it to say that they were “our representatives”: (§6.3 of Iu-4 Aff).

92.  However, despite the objections made by P, in the interest of justice and to allow D to have the full opportunity to put forward its case, I gave leave to D to file a fresh copy of Iu-4 Aff with costs in favour of P.

93.  For the application to strike out Baker-4 Aff, I agreed with Mr Lin that it contained matters which should not have been placed under an affidavit for various reasons.  At the end of the arguments, I made the following ruling on that issue:

“1. This is in the form of a submission of legal arguments and on facts raised by the other side, the affidavit should depose of facts only which should form the contents of an affidavit rather than legal submissions;

2. It also contains objectionable hearsay and personal views of the P’s solicitor on forensic matters which should not have been included in an affidavit in the first place;

3. It further contains matters of PRC law which this court is not qualified to decide without the assistance of foreign law expert;

4. It is also in breach of PD 10.1 where court documents are not allowed to be exhibited;

5. The prejudice value of putting in the writs and statement of claim in 3 other unrelated cases in my view far outweigh the probative value to include them; and

6. In any event I cannot see how by using these court documents in the 3 other cases to attack the character of the defendant will help the court to dispose of the issues in this case.

In the aforesaid premises, I agree with Mr Lin that the 4^th affidavit of Mr Baker should be struck out and expunged from the hearing bundle, with costs to the defendant with certificate for counsel.”

D’s new defence: Bona Fide Purchaser for Value without Notice

94.  On the date of the hearing and just prior to the commencement of the hearing, Mr Lin attempted to lodge with the Court a new 3-page supplemental skeleton submissions raising the new defence of “bona fide purchaser for value without notice”.  I refused to look at the supplemental skeleton which was only faxed to the clerk of the Court at 9:08 am, barely more than 20 minutes before the hearing commenced.

95.  At the hearing, Mr Lin submitted that, eventhough only the defence of “change of position” is specifically mentioned in the Defence, the material facts[7] which have been pleaded in the Defence also give rise to a defence of “bona fide purchaser for value without notice”.  In particular, he submitted that §10(b) of the Defence specifically pleads that: “The Defendant received the said sum as settlement of fuel charges in good faith and without notice of the alleged email fraud on the Plaintiff and/or alleged holding on trust for the Plaintiff”.

96.  Mr Lin said this point has also been made clear in §13 of Iu-4 Aff, viz. “......As a matter of fact, the Defendant received the Sum for the sale of the fuels to those 6 vessels in good faith without any notice of the Plaintiff’s alleged claim to the Sum (which is denied) ……”.

97.  As acknowledged in §24 of P’s Judgment Summons’ submissions, bona fide purchaser for value without notice is a defence to the claim by a victim of a fraud for money had and received and unjust enrichment.

98.  The defence is explained in Goff & Jones: The Law of Unjust Enrichment (9^th ed.) at 29-04; 29-06 & 29-08:

^“At common law the nemo dat rule conveyances of property to which the vendor has no valid title, but the bona fide purchase exception operates in one frequently occurring case, namely where money passes into currency. When a bona fide purchaser provides goods or services in exchange for stolen money he acquires legal title to the money, and the original owner loses his legal title, even where the notes and coins are still identifiable in the purchaser’s hands…… Hence the policy of the rule is to preserve the effectiveness of money as currency in the interests of maintaining an efficient market economy.

(29-04)

The common law does not generally enquire whether the proffered consideration is adequate consideration. However value given under a void contract is no consideration at all, because it is not given pursuant to a valid legal obligation. In Lipkin Gorman (A Firm) v Karpnale Ltd, the claimant firm had a claim in unjust enrichment against the defendant casino, which had received money stolen from the firm by a fraudulent partner. The casino could not plead bona fide purchase. The casino had received the money in good faith. It had also given value. But, because the contracts of licensed casinos with their customers were void, there was no legal nexus between what the casino gave and what it received from the gambler. This defines one important limitation on the defence. Even where it would otherwise be effective, it does not work unless value passes under a valid contract between the defendant and the third party. A factual exchange will not suffice. (29-06)

In equity, the rule that a bona fide purchaser of legal title takes free of any equitable title or interest in the property was largely settled during the Chancellorship of Lord Nottingham, in the late 17th century….. As at common law, the rule protects purchasers of legal title provided they have given value, and acted in good faith and without notice, the burden being on the defendant to prove all three elements.” (Emphasis added)

99.  In the present case, Mr Lin submits that D has “plainly satisfied” the test of bona fide purchaser for value without notice. It provided valuable consideration for the Sum under valid agreements, namely, the refuelling of the said 6 vessels, and received the Sum in good faith without notice of P’s right.  He submits that, at the very least, this must be sufficient to raise a triable issue.

100.  I am afraid I did not agree with Mr Lin’s submissions at all and ruled against his application for this last minute attempt in trying to add a new and substantive line of defence at the hearing for the following reasons.

101.  First and foremost, this defence was a completely new and distinct one which has not been pleaded in the Defence at all.  In the Defence dated 24 September 2019, which was drafted by D’s former solicitors but had not been amended or changed at all since that date, no such defence was mentioned.  Despite the involvement of a new firm of solicitors and junior counsel earlier, and later with Mr Lin on board as leading counsel at the hearing, D had never mentioned or raised this defence at all.  Incidentally, this was after counsel has put in a 25-page skeleton submissions for the main issues for the 2 main summonses not long prior to the hearing.

102.  In the Defence, the only defence raised by D was the “change of positon” plea.  This has been specifically pleaded under §10 of the Defence.  No specific plea of D being a “bona fide purchaser for value without notice” has been pleaded or mentioned by D in the Defence at all.

103.  Only in the context of the defence of “change of positon” and in that context alone, if I may emphasis, has D pleaded the fact that D had “bona fide changed its positon” and gave particulars of how its position was changed and how “(T)he Defendant received the said sum as settlement of fuel charge in good faith and without notice of the alleged email fraud on the Plaintiff and/or alleged holding on trust for the Plaintiff.”

104.  Order 18 rule 1 of the RDC makes it clear that a party must plead and raise all the issues he wishes to deal with at the trial, he cannot deal with “recently thought up” issues separately and in piecemeal: see §18/0/3 of HKCP.

105.  Hence, in my judgment, D was not entitled to raise a completely new and separate defence at the hearing, even if the “elements” or “ingredients” which constitutes to the defence might have been “in passing” or “accidently” mentioned in the existing pleadings or affirmations but under an entirely different plea.

106.  For that reason alone, I would have rejected the inclusion of this new defence.

107.  Secondly, D could not provide a satisfactory explanation to the lateness of the application.  It is clear that they had had plenty of time to review their pleadings and evidence as the P’s Judgment Summons was issued back on 18 September 2020 and directions to file affidavit evidence in this case was given back on 14 October 2020 by this Court. D therefore would have had ample of time to consider its positon and, if consider appropriate, to put in this quite different and distinct line of defence.  But it had failed to do so.  In my judgment, to allow it to do so at the hearing not only would be allowing D to widely expand the scope of their defence, hence not only changing the position of its goal posts but effectively doubling the size of its goal at the same time, it would inevitably have had the effect of leading to an adjournment of the hearing as the Court would need to allow D to put in a draft amended defence and for P to properly consider its position and then to amend its skeleton submissions accordingly.  That would not be right and would defeat the underlying objectives of the Civil Justice Reform.  It was not something that the Court was prepared to do.

108.  Last but not the least, as P’s counsel Mr Brown has rightly pointed out in his skeleton submissions, this defence of “bona fide purchaser for value without notice” had always been available to a defendant in the position similar to that of D.  He had cited the authorities of that in §24 of his skeleton submissions in support of his proposition.  But as he has also pointed out in his submission, all along, D’s counsel – at least Mr Cheng the junior counsel who appeared with Mr Lin at the hearing before me – had in his skeleton submissions filed at the first instance hearing for the Security Summons that only a “change of position” defence was asserted, this is as pointed out by P’s counsel, is “distinctly different from the “bona fide purchaser for value” defence, with a different test applies and they are not “interchangeable”.  Mr Lin did not take issue with the last point.

109.  Hence, I did not see why D, with the assistance of experienced counsel and 2 different firms of solicitors, could not have spotted such an obvious point, if indeed they thought such defence was available to them all along.  I therefore did not accept that this was a mere slip or omission on the part of D as Mr Lin has alleged.  I considered that it was clear to them that this was not a defence they had intended to run all along.  To allow them to include this defence as a last minute application a few minutes before the hearing commenced would be grossly unfair and unjust to P.

110.  I therefore rejected Mr Lin’s application to include this last minute supplemental skeleton submissions and refused to take into account of this new head of defence, with costs of this arguments awarded to P in any event, including certificate for counsel.

111.  I will now deal with the substantive arguments on the Summary Judgment.

Order 14 Principles

112.  DHCJ Wilson Chan (as he then was) set out the Order 14 principles in Li Chuen Kwai v PO Lam Construction Development Ltd, unreported, HCA 2376/2013, 24 September 2014 at §§11-12:

“11. As far as the plaintiff's claim is concerned:

(l) An application for summary judgment must be supported by an affidavit verifying the facts on which the claim is based [Order 14, rule 2(1), Rules of the High Court].

(2) The Statement of Claim must be good and complete in itself; any defect or omission in the Statement of Claim cannot be corrected or supplemented by the plaintiff's affidavit. If the defect is one of substance, the application for summary judgment will be dismissed [see: Hong Kong Civil Procedure 2014 at Practice Note 14/1/5].

(3) This means that an Order 14 application has to proceed on the case as pleaded, and it is those facts (as pleaded) which have to be verified on affidavit.

(4) Where the assertions in the plaintiff’s affirmation constitute a material deviation from the plaintiff's pleaded case, the plaintiff will have failed to verify his claim as pleaded, and summary judgment should not be granted [Lin Jan v Long Xiaobo, HCA 1516/2012 (Judgment dated 4/09/2013)].

(5) Equally, summary judgment will not be granted where the plaintiff's affidavit evidence is materially different from and inherently inconsistent with his/her case in the Statement of Claim [see: Sin Yuk Hung v Sin Tung San, HCA 474/2013 (Judgment dated 18/12/2013)].

12. As far as the defendant’s defence is concerned:

(l) The defendant shoulders the burden to satisfy the court that he has a real or bona fide defence (ie that there are triable issues), or that there ought for some reason to be a trial of the plaintiff's claim.

(2) However, a complete defence need not be shown. The defence set up need only show that there is a triable issue or question or that for some other reason there ought to be a trial; and leave to defend ought to be given unless there is clearly no defence in law and no possibility of a real defence on the question of fact.

(3) Although the mere assertion in an affidavit does not, ipso facto, provide leave to defend, the court will not embark upon a mini-trial of the action on paper and leave to defend will be granted unless the defence raised is so incredible or so contradicted by contemporaneous documents or circumstances that it becomes clear that the defence is a sham.

(4) The test is not whether the defendant’s assertions are to be believed, rather it is whether those assertions are believable, ie capable of being believed. If so, the defendant must have leave to defend.

(5) Whether the defendant’s assertions are believable is a question that should be answered not by taking those assertions in isolation bur rather by taking them in the context of so much of the background as either undisputed or beyond reasonable dispute.”

113.  Master Gary CC Lam observed in Tang Yuan Yi 湯元儀 v Tokyo International Investment Limited, unreported, HCA 2078/2018, 5 June 2020; [2020] HKCFI 1133 at §8:

“……I bear in mind the trite principle that in opposing an Order 14 application, the Defendant should condescend upon particulars in terms of evidence to support its defence, and the Defendant cannot leave some relevant forensic loopholes which he should be in a position to fill up but for no good reason he does not, and then ask the Court to give leave to defend because the loopholes are a matter for trial.”

114.  While D claims “this case bears serious disputed factual matrix (sic)”, P submits that:

(a) It is not clear what those disputed facts are (or their relevance to any matters in issue); and

(b) If there are any unresolved factual matters, that is simply by virtue of D’s failure to provide sufficient documents and evidence of its own case.

Order 14A Principles

115.  O14A r1(1) which provides:

“(l) The Court may upon the application of a party or of its own motion determine any question of law or construction of any document arising in any cause or matter at any stage of the proceedings where it appears to the Court that –

(a) such question is suitable for determination without a full trial of the action; and

(b) such determination will finally determine (subject only to any possible appeal) the entire cause or matter or any claim or issue therein.”

116.  In Shell Hong Kong Ltd v Yeung Wai Man Kiu Yip Co Ltd (2003) 6 HKCFAR 222, the Court of Final Appeal set out the relevant considerations (at §§22 - 25):

(a) Order 14A may be invoked for a determination of a question of law, provided that the 2 conditions are satisfied;

(b) It is not necessary for the making of an application under Order 14A that the determination of a question of law would finally determine the whole action;

(c) It is inappropriate to use Order 14A if the issues of facts are interwoven with the legal issues to be determined. The question of law cannot be dealt with on assumed or hypothetical facts; and

(d) Even if the conditions are satisfied, the court still has a discretion under rule 1 to decide whether to entertain an application under this Order.

117.  P’s Summary Judgment application is based on Order 14 and Order 14A and the 3 questions posed for determination under Order 14A are as follows:

(a) Whether the defence of anticipatory change of position can operate where a party claiming to have changed its position in reliance on a future event, could not have actually anticipated that event (in this case that event is the purported payment by a previously unknown and unrelated party third party) (“Question 1”);

(b) Whether in claiming a defence of anticipatory change of position there must be a “but for” link between the anticipated future event and the change of position (“Question 2”); and

(c)  Whether the defence of change of position is available to a party where the party has a viable cause of action that would place it back in the original position (“Question 3”).

118.  I agree with Mr Lin that P’s application for summary judgment under Order 14A is not appropriate.  In my judgment, the 3 questions posed are not really question of law but factual issues which have been dressed up as questions of law.  I agree with Mr Lin that the defence of “change of position” which the 3 questions revolving around are “fact sensitive” and they are not suitable for determination under Order 14A.  As stated in Shell Hong Kong Ltd, supra, an assumption of facts, actual or hypothetical, is not enough.

119.  Thus, I find that the Summary Judgment insofar as they are based on Order 14A should not be entertained.

Merits of P’s claim 

120.  For the application under Order 14, it is trite that victims of fraud have a claim in unjust enrichment and may assert a proprietary claim against the recipients insofar as the fraudulently obtained funds are traceable into their hands, unless the recipients can establish the defence of bona fide purchaser for value without notice or change of position in good faith: Leonard Koutsomihalis & Anor v Aki Enterprises & Anor, unreported, HCA 2509/2014, 16 June 2015 per Chow J at §22; Ferrari North America, Inc. v Changhon International Energy Co., Limited (暢鴻國際能源有限公司) & Ors [2018] HKCFI 1603 per Lisa Wong J at §12.

121.  D’s junior counsel has made clear in his skeleton submissions filed at the first instance hearing of the Security Summons before the Master that only a change of position defence is asserted.  It is not in dispute that this is a distinct defence from bona fide purchaser for value with a different test applying.  They are, in his own words, not “interchangeable”.

122.  The following appears in the pleadings:

(a) In §8 of the Statement of Claim, P pleads that the Sum was part of the Defrauded Funds in Tangxin’s account and was transferred to D’s account.

(b) In response, at §6 of the Defence, D admits receipt of the Sum and that it was from Tangxin, but otherwise does not admit §8.

(c) However, that denial of P’s claim in §8 of the Defence is not on the basis that D denies that the Sum belong(ed) to P. Rather, there is a positive averment that P’s claim to the Sum was extinguished.

123.  As such, I agree with Mr Brown that the issue in dispute, as per D’s Defence, is whether P’s interest in the Sum had come to an end, not whether P was the owner of the Sum.

124.  Further, D’s evidence does not dispute the tracing. This is important because D was provided with the relevant bank statements prior to the hearing of the Security Summons and has had ample opportunity to review the same.

125.  As P has now obtained judgment against Tangxin, I agree with P that it is not open to D to argue that Tangxin was not the recipient of P’s proprietary funds, as D cannot go behind P’s judgment.

126.  In any event, P has provided the details of the tracing through the 2^nd affidavit of Baker (“Baker-2 Aff”) and that evidence has gone unchallenged.

127.  By looking at the bank statements exhibited by P, I agree with Mr Brown that the following facts are clear:

(a) P in fact paid the Defrauded Funds of €987,026 to Tangxin, as the proof of payment out from P’s account is provided, as is Tangxin’s account statement showing receipt into its EUR account;

(b) After the deposit of the Defrauded Funds, Tangxin transferred all the EUR deposited to its HKD account. It is also clear that the EUR balance before the deposit from P was zero (or de minims) as the total of the various withdrawals and the small remaining balance are almost exactly the amount deposited by P;

(c) The first 4 withdrawals from the EUR account are in fact transfers to Tangxin’s HKD account and can be seen as deposits to the HKD account. Prior to the deposits the HKD account had a balance of only HK$1,250.00; and

(d) The first payment made out from the HKD after the transfer of P’s funds from the EUR account is to D and is made from the traceable proceeds of the Defrauded Funds.

D only needs to raise “triable issues” at this stage

128.  Mr Lin in both of his written and oral submissions has repeatedly emphasized that, for the purpose of an Order 14 application and at this stage of the proceedings, all D has to show there is a triable issue or question or that for some other reason there ought to be a trial.  A complete defence need not be shown: See §14/4/9 of HKCP.  To quote the famous and often repeated statement of Godfrey JA in Man Earn Ltd v Wing Ting Fong [1996] 1 HKC 225: “Unless it is obvious that the defence put forward by the defendant is frivolous and practically moonshine, O.14 ought not to be applied.”

129.  Mr Lin submits that the “change of position” defence raised by D has “plainly raised a triable issue” and the Court should not embark on a mini-trial on the affirmation evidence.

D’s change of position defence

130.  On the other hand, P submits that D’s change of position defence can be demonstrated to be hopelessly misapplied by D, based solely on D’s evidence.

131.  I accept Mr Brown’s submission that it is trite that once the Defrauded Funds are traced into D’s hands, the burden is then on D to prove that it has changed position and in good faith: Chan Chun Chung v PBM (Hong Kong) Ltd (2004) 7 HKCFAR 178 at §14 per Litton NPJ; Seridom Servicios Integrados Idom S.A.U. v Heng Wen Trade Co., Limited (桓文貿易有限公司) & Ors [2019] HKCFI 85 per Marlene Ng J at §87.

132.  The change of position defence was recently addressed by Madam Justice Marlene Ng in Seridom Servicios Integrados Idom S.A.U., supra. The learned Judge cited Lipkin Gorman with approval (at §75) as follows:

“......the defence is available to a person whose position has so changed that it would be inequitable in all the circumstances to require him to make restitution, or alternatively to make restitution in full. I wish to stress [however] that the mere fact that the defendant has spent the money, in whole or in part, does not of itself render it inequitable that he should [be] called upon to repay, because the expenditure might in any event had been incurred by him in the ordinary course of things……”

133.  In the decision, at footnote 28, the learned Judge cited Goff & Jones: The Law of Unjust Enrichment (9th Ed) in which the learned editors observed at para 27-08 the following (which did not appear in the decision):

“This might appear to be a rule about the type of detriment that a defendant must have suffered, but in fact it is a rule about causation. The defendant need not show that he spent money on something that other people might think unusual, nor that he spent in a way that he had never spent money before. The test is whether he entered the transaction that he would not have entered but for his enrichment.”

134.  In Laerdal Medical Limited v Hong Kong Haocheng International Limited, unreported, HCA 2193/2016, 21 June 2017: (in a summary judgment application) DHCJ Saunders noted (at §26):

“Mr Tang referred me to the decision in Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548, where, in the speech of Lord Templeman, at p560D, the example is given of an innocent recipient of the sum of £20,000 which he spends on a trip around the world, which he would not have taken had he not received the payment. That person, says Lord Templeman, has altered his position on the faith of the payment and he is not unjustly enriched when the victim of the theft seeks restitution.”

D’s Defence

135.  D’s defence rests on its claim that it supplied fuel to 6 vessels (“the Vessels”) in anticipation of or after receipt of the Sum. I note with interest that 5 out of the 6 vessels were provided with fuel before D received the Sum from Tangxin on 17 April 2019 (all bar one supply of fuel was in the period from 15 April 2019 to 17 April 2019, with the remaining supply on 18 April 2019).

136.  Tangxin is not the owner of any of the Vessels; it is not a customer of D and D does not claim to have any prior or ongoing relationship with Tangxin.  There was no evidence that it had any communications between D and the owner of the Vessels.  There was no plausible explanation on what basis D formed its belief that the money was deposited by Tangxin was to settle the fuel charges rendered to the Vessels.  As such, D’s statements which could be found in its Defence and Iu’s affirmations that it believes the Sum was paid by its customer in my view is unconvincing and lacks a ring of truth to it.

137.  In my judgment, D has simply failed to provide any direct evidence to challenge the genuineness of P’s account of events.

The mysterious “Ah Po”

138.  In Iu-4 Aff, it purports to explain how D came to provide fuel for the previously unknown Vessels and receive payments from an unrelated and unknown party, who paid with the proceeds of a fraud.

139.  According to Iu-4 Aff, “Ah Po” is a long-term Mainland customer “whose vessel attends every 2-3 days for refueling” and “has a good track-record of payment”.

140.  Further, according to Iu-4 Aff, Ah Po contacted D “in mid-April” 2019 and requested D to re-fuel the Vessels in the period between 15 and 18 April 2019. According to Iu, “[Ah Po] was given 7 days to settle payment because of his past good track record of payments”.

141.  It has also been alleged that D has been in contact with Ah Po and he allegedly told it that “he could no longer contact the payer of the Sum”.

142.  I agree with Mr Brown that the whole identity of “Ah Po” is mysterious.  I further opine that his alleged role in the transactions for the refuelling of the Vessels is highly questionable.  In fact, I would consider his alleged role as highly dubious and unconvincing for the following reasons:

(a) Despite having been a purported customer for more than 8 years, D cannot even provide his full name and any further personal particulars;

(b) Although the Security Summons was fought out (and has been taken on appeal by D) on merits, D’s affirmation filed therein makes no mention of this apparent key role played by Ah Po;

(c) After D had introduced Ah Po into the matter by setting out his role in Iu-4 Aff as essentially an “agent” or a “middleman”, D then tried to resile from this sworn evidence and (via the Amendment Summons and without any credible explanation) trying to create a distance between D and Ah Po, and casted him as the customer’s “representative” rather than D’s “agent”; and  

(d) Although Ah Po is said to have been a customer for many years, no documents have been produced to show this “track record of payment” despite discovery being closed.  In fact, there is not a single document that refers to Ah Po or the various claims made in Iu-4 Aff about Ah Po’s alleged long term relationship with D.

143.  I further note that, despite allegedly having regular contact with Ah Po and specific discussions about this case, there is no statement, whether sworn or otherwise, from Ah Po, which D alleges it has long term business relationship with.  D claims that the degree of trust in Ah Po is said to have come from his good track record of payment, yet no evidence is provided of the same.

144.  Where a defendant raises the defence of bona fide purchaser or change of position, he essentially bears the burden of proof: see Pacific Rainbow International Inc v Shenzhen Wolverine Tech Ltd & Ors, unreported, HCA 3023/2016, 2 May 2017; per DHCJ Douglas Lam SC state at §§50-53 and Seridom Servicios Integrados Idom S.A.U., per Madam Justice Marlene Ng at §104.  In this case, in my view, despite discovery being closed, D has produced very few documents in this case to support of its “change of position” defence.  In my judgment, a party cannot hide behind the failure of condescending to sufficient particulars which it is in the position to provide and then claim that there are gaps in the evidence which entitles them to go to trial.  In my view, this is exactly what D is doing in this case.

D’s right of recovery

145.  I agree with Mr Brown that the position of P herein is similar to that in Laerdal Medical Limited wherein the defendant (Haocheng) was owed a debt by “S&Y” for a delivery of shoes but where the defendant received payment from the plaintiff, but as a result of an email fraud.  DHCJ Saunders stated at §27, §29, §33 and §35:

“Mr Tang was obliged to accept that Haocheng had not received payment from S & Y in respect of the shoes, but that the shoes had been delivered to S & Y. The shoes having been delivered to S & Y, that company was obliged to make payment for them to Haocheng. I pressed Mr Tang to explain what Haocheng would do with the funds when payment was received.

…

The fact that Haocheng has a debt due to it from S & Y, which it is entitled to enforce, sets this case into a very different category in the example given by Lord Templeman in Lipkin Gorman.

…

Plainly a second most significant circumstance is that the recipient has a right to recover the sum that he now says that he has “lost Haocheng has the right to pursue S & Y for the amount that is properly due by S & Y. That feature of the position of Haocheng has no parallel in any of the Lipkin Gorman examples.

…

The defence is hopeless, and Laerdal is entitled to judgment in respect of the whole sum of €496,000.”

146.  I agree that most likely it was due to the decision in Laerdal Medical Limited, supra (which was raised at the Security Summons), that D has sought to introduce Ah Po between D and the Vessels’ owners to create a convenient separation that arose only once D recognised that this argument was fatal to the defence. However, on the evidence as it originally stood (ie prior to the consideration of the Amendment Summons), Ah Po was allegedly acting as either an agent of D or as a middleman and hence the desired separation was not created.  Obviously, if Ah Po is D’s agent, then the Laerdal Medical Limited argument remains unanswered as Ah Po is then merely an extension of D.

147.  Yet, even if Ah Po is treated as the Vessels’ owners’ representative, it is obvious that D still has a right of recovery against the Vessels’ owners. As the Master has rightly stated in the Decision at §34:

“Thirdly, the plaintiff pointed out in its Reply that the defendant’s position had not been changed because it could still chase the fuel charges after the owner or manager of the 6 Vessels. Mr Cheng replied that there was no evidence that recovery of the fuel charges was indeed practicable. With respect, I do not agree. According to the Defence, the defendant’s business model was that it would provide fuels to the vessels and would receive the payment of the purchase price afterwards. I have no doubt that there must be some mechanisms for the Defendant to chase the purchase price, otherwise the whole business model would make no commercial sense.”

148.  In my view, it is very convenient for D to now make a bare assertion that Ah Po has purportedly claimed he “could no longer contact the payer”. However, the reality is that the actual payer is Tangxin, not Ah Po.  For the purpose of taking proceedings against Tangxin, it is in my view not necessary to “contact” it.  It is a Hong Kong company and it can be sued by service at its registered office.

149.  Further, I agree with Mr Brown that there is a right of recovery is against the party who should have paid D for the fuel it received and has not, namely, the Vessels’ owners.  D can sue the Vessels’ owners for recovery and as D will do so when bills are unpaid.

150.  In addition, as these are claims are for fuel supplied to the Vessels, D’s are in the privileged position of having an in rem claim against the Vessels. As the Master rightly noted in the Decision at §34:

“Mr Brown also pointed out at the hearing that the defendant was in an advantageous position because there were viable causes of action in rem against the 6 Vessels. Mr Cheng made no opposition to that point. If there are mechanisms to chase back the fuel charges from the 6 Vessels (and/or their owners or managers), it cannot be said that the defendant’s position had been changed.”

151.  That D can maintain an in personam claim against the Vessels’ owners and an in rem claim against the Vessels themselves and arrest and sell the Vessels as a means of recovery is noted in the Court of Final Appeal decision in The Liberal Container (World Fuel Services (Singapore) Pte Ltd v Florens Container Inc.) [2007] 2 FIKLRD 507; (2007) 10 HKCFAR 256.

152.  That Vessels can be arrested in the PRC (and it is trite the arrest of vessels is a major component of international maritime law) has been noted in the CA: see for example Sea Powerful II Special Maritime Enterprise (ENE) v Bank of China [2016] 3 HKLRD 352.

153.  D claims that there is no recourse because the Vessels are “nowhere to be found and/or traced in Hong Kong as they are all Mainland vessels”.  In my judgment, this argument must fail as D is not restricted to taking action in Hong Kong and can pursue its claim in the Mainland. For a company which claims 60% of its business has come from refuelling vessels from the Mainland, it is simply unimaginable that D has no recourse to any vessel or its owner who has defaulted their payments.  

154.  Further, on either version of D’s evidence, Ah Po must have the details of the Vessels’ owners as he was taking instructions from them and it is not claimed that he has lost contact with them.  Of course, even if D cannot find the Vessels’ owners (albeit that the Vessels will be registered in a searchable database and D has the Vessels’ details), that does not change the fact that D has a remedy against them. In my view, D cannot rely on a procedural difficulty, created by its own failure to know its customers, to claim that it does not have to pursue a valid means of recovery, such that P (who is entirely innocent) must bear the loss.

155.  As such, I consider it is entirely disingenuous for D to claim difficulty in recovery having made no effort whatsoever to recover in the PRC against either the Vessels or their owners.

156.  However, even on its “amended” version, I agree with P that D still has another remedy, ie against Ah Po. It is clear from the evidence that D was in fact treating Ah Po as the customer:

(a) D gave Ah Po “7 days to settle payment because of his past good track record of payment” (emphasis added).

(b) Ah Po informed D that “he had arranged for payment” (emphasis added).

(c) According to D, its business operates on advanced payments and “it is only to be paid in arrears by long-time customers and their representatives” (emphasis added). As payment in arrears was granted, it can only be on the basis that Ah Po was treated as the customer, as the Vessel owners were new customers.

157.  It is clear that D has the means of recovering payment and that is fatal to the change of position defence.

158.  I agree with P that, looked at another way, by providing the fuel in advance, D acquired an asset, namely, the right to be paid by the Vessels’ owners, Ah Po and/or against the Vessels (via an in rem claim) for exactly the value of the fuel provided. As such, there is in fact no change of position.  D merely changed one asset (fuel) for another (the chose in action to be paid), an exchange it regularly made in the ordinary course of its business whenever it provided fuel in advance of payment. As such, I agree with Mr Brown that there has been no reduction in assets required for a change of position defence.

159.  Thus, in the aforestated circumstances, I consider that the change of position defence relied on by D has no merits and plainly not arguable.

Anticipatory receipt from unknown party

160.  Independent to the change of position defence, D purported to change its position in reliance on the anticipated payment for the fuel provided. 

161.  P accepts that reliance can, in theory, be based on a future event. However, what is unusual in this case is that D could not have anticipated the payment that it received, because the payment was from an entirely unknown party (ie Tangxin) and not Ah Po or the Vessels’ owners.

162.  In the Decision, the Master noted at §35:

“Fourthly, the plaintiff noted in its Reply that 5 out of 6 of the fuel charges incurred prior to the transfer of money from the plaintiff to Tangxin, and asserted that the receipt of funds was not causative of the change of position. In the defendant’s Reply Submissions, Mr Cheng sought to resort to the doctrine of “anticipatory change of position”. However, it was not the defendant’s case that, when it provided fuels to the 6 Vessels, it anticipated that the money would be paid by Tangxin. At the hearing, Mr Cheng submitted that the defendant had anticipated that the money would be paid by an unknown person, and that unknown person had just happened to be Tangxin. In my view, this cannot be causative of the change of position.”

163.  I agree with the Master’s reasoning and find that D could not have acted in anticipation of payment by Tangxin. On D’s own case, it had no knowledge of Tangxin prior to the payment.  Thus, this alternative plea of D cannot stand also.

The “But for” requirement

164.  In the Decision, the Master also noted at §36:

“Finally, and in my view most importantly, the defendant's change of position defence is defective, in that it failed to plead the key element in the defence, namely, that, but for the payment made by Tangxin, the defendant would not have provided fuels to the 6 Vessels. In the Defence, there was no causal link whatsoever between the provisions of fuels to the 6 Vessels (change of position) and the receipts of payment by Tangxin (enrichment). The causal link cannot be inferred because the provision of fuels happened prior to the receipts of payment. In my view, this lack of causal link is fatal to the defendant’s change of position defence.”

165.  Despite this issue being raised in July, there has been no application made by D to amend its Defence.

166.  In Seridom Servicios Integrados Idom S.A.U., Madam Justice Marlene Ng noted at §76:

“Goff & Jones, The Law of Unjust Enrichment, explains that “a defendant most obviously suffers relevant detriment” where there has been a reduction of assets but “Lord Goff did not ……restrict the scope of the defence to [such] cases” “and it may also be founded on other types of detriment……” Further, the onus of pleading and proving the change of position defence is on the defendant who must put it forward “fairly and squarely” in his pleadings so that “its factual merits could be explored at the trial”; he must also adduce evidence and give disclosure in support of the defence. The defendant must prove, at least on a “but for” basis, that his change of position was [causally] (sic.) linked with his enrichment.”

167.  The above quote makes two essential points:

(a) The onus of pleading the change of position is on D; and

(b) The “but for” element is an essential aspect.

168.  The fact that D has not pleaded the causal connection, the change of position defence in my view is fatally flawed, which is independent of the other fatal flaws set out above.

Lack of good faith

169.  Not only was there no change of position by D, the good faith element is similarly not established.

170.  In Grupo Pacifica Incorporada v Worldwide Marine Product Limited & Ors, unreported, HCA 2640 of 2014, 24 September 2018, Recorder Houghton SC cited Niru Battery Manufacturing Co v Milestone Trading Ltd [2003] EWCA Civ 1446; [2004] QB 985 (not provided):

“As is spelled out in that judgment, a defence of change of position does not require a plaintiff to show dishonesty on the part of the defendant in order to defeat the defence. Rather the question as to whether a defendant has acted in good faith is part and parcel of the overall enquiry as to whether it would be inequitable to call on the defendant to make restitution to the plaintiff. As described by Clarke LJ at paragraph 147, the question includes consideration as to whether “the injustice of requiring him to repay outweighs the injustice of denying the claimant restitution.”

171.  As the learned Recorder noted, a lack of good faith could be demonstrated by showing that a defendant failed to act in a commercial acceptable way (at §44) and dishonesty is not required (at §45).

172.  In Grupo Pacifica Incorporada, supra, the defendant received funds from a customer in US$ for the purpose of assisting the customer make payments into the PRC. The defendant then received the funds from a third party and arranged the payment through an affiliate into the PRC (what is typically referred to as the Underground Banking System). The funds received from the third party were the proceeds of a fraud and the defendant claimed a change of position defense by virtue of the payments made into the PRC. The Recorder said of the defendant’s conduct:

“The 1^st defendant has therefore chosen to act as a money exchange service for Weihai with no consideration as to why it has been asked to do so, and with no enquiry as to the source of funds or the basis of the underlying transaction. None of this establishes dishonesty or complicity in the fraud on the part of the 1^st defendant. This failure to act in a commercially acceptable way is sufficient, in my judgment, to defeat the 1^st defendant’s defence of having acted in good faith however.”

173.  I agree with Mr Brown that there is conceptually little difference between the position in Grupo Pacifica Incorporada and this case, where D provided substantial amount of fuel and yet:

(a) did not know the identity of the Vessels’ owners;

(b) accepted payment from Tangxin without enquiry as to why Tangxin, as a third party, would be paying the fuel bill for 6 different vessels/customers; and

(c) delivered most of the fuel without having received payment.

174.  It is clear that D’s modus operandi is entirely lacking any concern as to the source of the funds it receives. D’s evidence is:

“In fact, it is not uncommon for our customers to make payments through third party bank accounts and particularly when our Mainland customers may not have local bank accounts. We have been in no position to check or verify the source of funds in those bank accounts which have been used for the payment of refuelling.”

175.  D considers that because it regularly accepts funds from unidentified payors, that this somehow makes this an acceptable practice. In fact, I find the opposite is true. The fact that they did not ever bother to make any enquiries speak volums about their lack of good faith.

176.  In the aforesaid circumstances, I find D’s “change of position” defence is lack of good faith.

Whether conditional leave should be given

177.  In the oral submissions made in court, which supplemented his written submissions, Mr Lin relied on the decision of Pacific Rainbow International Inc v Shenzhen Wolverine Tech Ltd & Ors, unreported, HCA 3023/2016 (DHCJ Douglas Lam SC; 2 May 2017), which was a case originally cited by Mr Brown in his submissions, to make the proposition that D in this case has made out an arguable case.

178.  In that case, the 2^nd defendant contended that he had no knowledge or involvement in the 1^st defendant’s fraud, if any, and he was in any event a bona fide recipient for value without notice. The learned deputy High Court judge set out the facts of that case in §§24-35 of his decision. 

179.  On the credibility and cogency of the 2^nd defendant’s evidence, in the context of an application to continue with a Mareva injunction, the learned deputy High Court judge made the following observations:-

“50. The present case is somewhat different from ordinary commercial disputes where the court would normally have to decide between two (or more) competing versions of events. Here, the plaintiff seeks to trace and recover monies it has paid to the 1^st defendant due to an apparent fraud and which have subsequently been transferred onwards to the 2^nd and 3^rd defendants. The plaintiff has no personal knowledge of the circumstances or the reasons why the monies were transferred to the 2^nd and 3^rd defendants, or whether the 2^nd to 4^th defendants are participants in the apparent fraud or are in fact innocent parties. These are matters known only to the defendants themselves. At this stage, the court can only look at the 2^nd defendant’s version of events and form a broad brush view as its creditability based on inherent probabilities and whether it is supported by the contemporaneous materials which have been (or which should have been) disclosed by the 2^nd defendant.

51. The premise of the 2^nd defendant’s case is that he is a legitimate businessperson who has been operating a legitimate business for a number of years, and the transactions between him and the 1^st defendant were, at least to the best of his own knowledge, genuine transactions entered into in the course of that business.”

180.  After analyzing the evidence (which is unique to that case) in detail, the learned deputy High Court judge concluded at §75 that he found the 2^nd defendant has presented an arguable defence to the plaintiff’s claims.  However, for the reasons set out in the decision, he found the 2^nd defendant’s evidence is far from conclusive, and indeed raised number of questions that would have to be investigated at the trial. He therefore concluded that the plaintiff had maintained a good arguable case for its claims of knowing receipt, dishonest assistance and conspiracy using unlawful mean against the 2^nd defendant, including inferences to be drawn to the requisite knowledge and state of mind of the 2^nd defendant.  He found as a result the plaintiff had also demonstrated a good arguable case on its claim of unjust enrichment.

181.  In my judgment, although the facts of that case are similar to that of our present case, it is decided in the context of whether a Mareva injunction should be continued and not in the context of an Order 14 application.  They involved different tests and different considerations.   However, one thing is clear is that, in both cases, the defendant’s evidence is far from conclusive.  The only question is whether they are sufficient to give rise to warrant further investigations at trial.

182.  Mr Lin also further heavily relies on the case of Ferrari North America, Inc v Chaghom International Energy Co., Limited & Others, unreported, HCA 852/2017 (25 September 2019; Mimmie Chan J) (“Ferrari (No. 2)”) where in the context of an Order 14 application, the learned judge considered the defence put up by a number of defendants including the 7^th defendant in that case which have a lot of similarities as D in our case: see §§35- 45 of the judgment.

183.  The court in that case accepted that the mere use of and resort to “underground banking systems” is not sufficient to find guilt, or lack of good faith.  It has to be proved that the recipient knew of had reason to believe that the money received had an illicit source.  The learned judge in that case also accepted that the defence of change of position in good faith to a claim in restitution is fact sensitive, as the Court of Appeal indicated in §20 of its judgment in Liu Ke Mian Lorraine v De Xin Da Trading Co Ltd, unreported, HCMP 1481/2016, 30 September 2016.  On the facts of that case, the learned judge found that whilst the evidence produced by the 7^th defendant “may not be perfect or complete at this stage”, she accepted what the 7^th defendant has produced may “show an arguable defence of change in positon in good faith”.

184.  However, in my view, each case is fact sensitive.  The facts in each case are different.  On this issue, I tend to agree with Mr Brown for P that the Ferrari (No.2) case can be distinguished from our present case in that much more “substantial” evidence has been put forward by the 7^th defendant in that case to put up a more credible defence.  In particular, in that case there is affidavit evidence produced by the 7^th defendant to show that they had made inquiries with regard to the deposit of the sum of money onto the 7^th defendant’s account while there was no such explanation in our case at all.  In our case, I agree with P that everything which D wished to say has been put forward in Iu’s various affirmations.  Discovery has been closed. We have everything we need to know in order to determine the merits of the case.  For the reasons set out in the preceeding paragraphs under the discussion of merits of the case, I do not consider that D has put forward an arguable defence. 

185.  In the premises, I do not consider that it is appropriate to give leave, whether conditionally or unconditionally, for D to defend the case.  

Conclusion on the Summary Judgment

186.  In the aforestated premises, I consider that D’s defence based on “change of position” is unarguable and leave should not be granted, whether conditionally or unconditionally, to D in order for the case to proceed to trial.   

CONCLUSION

187.  In conclusion, I have found:

(a) against D on its appeal against the Master’s decision on the Security Summons;

(b) in favour of P on its Judgment Summons.

Orders made

188.  I shall make the following orders accordingly:

(a) D’s Notice of Appeal dated 16 July 2020 is dismissed with costs in favour of P, such costs to be summarily assessed by this Court and to be paid forthwith;

(b) There be judgment entered in favour of P against D in the sum of HK$785,889, together with interest thereon at Hong Kong Prime Lending Rate plus 1% from 17 April 2019 to the date of judgment, and thereafter at judgment rate until payment and costs of the action, such costs to be taxed if not agreed, with certificate for counsel; and

(c) The costs of the Summary Judgment be paid by D to P (save for the costs awarded in favour of D in one of the procedural summonses), such costs to be summarily assessed by this Court and to be paid forthwith.

189.  For the purpose of the summary assessment on costs for the Security Summons and the Judgment Summons, I hereby direct P to lodge with the clerk of the Court a statement of costs within 7 days and D to lodge a statement of objection within 7 days thereafter, if any. The summary assessment will be dealt with by way of paper disposal.

190.  It remains for me to thank counsel on both sides for their very helpful submissions.