WAH TAI HING FOODS MANUFACTORY LTD AND ANOTHER v. FOK CHIU MING MILTON AND ANOTHER

HCA 127/2021

[2026] HKCFI 1870

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 127 OF 2021

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BETWEEN

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J U D G M E N T

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A. INTRODUCTION

1.  The 1^st and 2^nd Plaintiffs (“P1” and “P2”) are members of the Wah Tai Hing group of companies, who were and are engaged in the manufacturing and sale of traditional Chinese pickled fruits.

2.  At all material times, the Plaintiffs were owned and under the control of the Yeung family. The Plaintiffs’ directors included Mr. Yeung Keung Hon (“Yeung Senior”) and his son Mr. Yeung Man Chung (“Yeung Junior”) (collectively the “Yeungs”).

3.  The 1^st Defendant, Mr Fok Chiu Ming Milton (“Fok”), was an ex-employee of the Plaintiffs. Li Bo is his wife.

4.  The 2^nd Defendant, Ms. Yeung Lik Ming (“Madam Yeung”), was an insurance agent. Fok was her client and had been the former tenant of her property in Shenzhen for about 10 years. The Plaintiffs had no direct business relationship with Madam Yeung.

5.  In around November 2020, the Plaintiffs discovered that Fok had misappropriated large sums of money from the Plaintiffs by forging signatures on the cheques drawn from the Plaintiffs’ bank accounts which were paid to himself, Madam Yeung, and other third parties (the “Fraudulent Taking Scheme”).

6.  The Plaintiffs have already entered final judgment against Fok, and now seek to recover some of the misappropriated sums from Madam Yeung.

7.  Madam Yeung does not deny her receipt of monies from Fok, but denies that she had knowledge of the Fraudulent Taking Scheme and that the payments to her were misappropriated from the Plaintiffs. Her defence is that she was a bona fide purchaser without notice of the fraud, who had provided consideration in the form of a tenancy to Fok, currency exchange and the purchase of goods on behalf of Fok. She passed on money from Fok to Li Bo. She had changed her position.

8.  The Plaintiffs’ reply is that even if Madam Yeung can establish the Exchange Agreement as a matter of fact, the entering into and performance of such an agreement was (i) in breach of Hong Kong law in that she had provided currency exchange and remittance services without a licence and (ii) in breach of PRC law on foreign exchange control. The illegality negates the bona fide purchaser and change of position defences.

B. UNDISPUTED FACTUAL BACKGROUND

9.  Fok was formerly an accounting clerk employed by P1 in about 2005 but was in the position of an accounting manager until his fraud was discovered in 2020. He last earned a monthly salary of HK$15,500.

10.  The Plaintiffs maintained the following bank accounts (the “Accounts”):

Bank	Account No.
P1
Hang Seng Bank (“HSB”)	XXX-2XX-XXXXX8-001
Dah Sing Bank (“DSB”)	XXX-7XX-XXXXXXXXX6
Bank of China (HK) (“BOC”)	XXX-6XX-XXXXXXX9
P2
BOC	XXX-5XX-XXXXXXX1
HSB	XXX-2XX-XXXXX0-XX

11.  For over 10 years, between 2007 and 2020, Fok had fraudulently misappropriated a total sum of HK$28,309,379.93 (the “Misappropriated Sums”) from the Accounts and transferred it to himself, Madam Yeung and other third parties as pleaded in the statement of claim. His mode was as follows:

(1) Even though the Yeungs were the only signatories of the Accounts, Fok was responsible for safe custody of cheque books for the Accounts.

(2) Fok forged the signatures of Yeung Senior and drew the cheques to pay the Misappropriated Sums purportedly in the names of the Plaintiffs.

(3) False descriptions were made in the payment vouchers and cheque stubs which corresponded to the payments of the Misappropriated Sums, but there were no genuine documents evidencing any transactions or transfers approved by the Plaintiffs.

12.  The Fraudulent Taking Scheme was discovered by the Plaintiffs in about November 2020 after Fok was put in quarantine due to a COVID-19 infection. The matter was first reported to the Police on 14 December 2020.

13.  Of the Misappropriated Sums, a total of HK$6,419,730.38 were purportedly paid by the Plaintiffs to Madam Yeung between 15 April 2013 to 20 November 2020 (“the HK$6.4m”). Those spreading between 2016 and 2020 have been set out in Exhibit A.

14.  On 22 January 2021, the Plaintiffs commenced the present action. Final judgment has been entered in default against Fok in the sum of HK$28,309,379.93 on 5 October 2022. The Plaintiffs seek recovery of the HK$6.4m against Madam Yeung.

C. CASES OF THE PARTIES

15.  The Plaintiffs’ case against Madam Yeung is premised on unjust enrichment, constructive trust, dishonest assistance in Fok’s breach of trust, knowing receipt and procuring Fok’s breach of contract of employment with P1. In essence, the Plaintiffs allege that:

(1) In receiving the HK$6.4m, Madam Yeung knew that they represented monies misappropriated from the Plaintiffs;

(2) Madam Yeung dishonestly assisted Fok’s misappropriation by assisting him to divert part of the Misappropriated Sums through paying Renminbi (“RMB”) to Fok and Li Bo in exchange for the HK$6.4m in Hong Kong Dollars (“HKD”).

16.  Madam Yeung does not deny Fok’s fraud and her receipt of the HK$6.4m from Fok, but she denies knowledge of fraud and that the money was misappropriated from the Plaintiffs. She explains that she received the HK$6.4m for the following purposes:

(1) As rent, pursuant to a Tenancy Agreement dated around March 2010 whereby Fok would rent her property in Shenzhen;

(2) As payments for skin care products and dried seafood that she purchased for Fok (the “Purchase Transactions”); and

(3) Pursuant to an Exchange Agreement between Fok and herself whereby (a) Fok would pay sums in HKD to her in Hong Kong and, in exchange, Madam Yeung would make payments in RMB to Li Bo in Mainland China.

17.  With regard to the 1^st purpose, during the period of the tenancy, Fok had been paying Madam Yeung on time. He would notify her via phone message each time after payment was made.

18.  With regard to the 2^nd purpose, Madam Yeung pleaded that there were about 5-6 Purchase Transactions in about 2012 to 2013. However, this purpose was abandoned during her cross-examination, detailed in Section H below.

19.  With regard to the 3^rd purpose, Madam Yeung received RMB from her PRC investments every month, and she needed to exchange RMB to HKD from time to time. On the other hand, Fok earned his income in HKD and needed to exchange it to RMB for his family’s spending in Mainland China. In the light of the parties’ funding needs and for the purpose of saving remittance fees, Fok and Madam Yeung entered into the Exchange Agreement, so that Madam Yeung would transfer RMB from her Mainland bank account to that of Li Bo in the Mainland in accordance with Fok’s instructions.

20.  After a transfer, Madam Yeung would capture the image of a notice of transfer and send the same to Fok via WeChat.

21.  Fok would then deposit the HKD equivalent by cheque to Madam Yeung’s HSBC Account in Hong Kong. After each deposit, he would send Madam Yeung a photo of a cheque and a Cheque Deposit Advice issued by HSBC. Those documents contained the name of the recipient (Madam Yeung), the date and amount. The lower part of the Cheque Deposit Advice showed an image of the cheque, but the drawer’s account number and signature area were not shown in order to protect privacy. Madam Yeung had never received any physical cheque. She did not know the identity of the drawers of the cheques.

22.  Since January 2018, for the sake of convenience, Madam Yeung and Fok agreed to include the monthly rental payments in the HKD transfers.

23.  The currency exchange first took place on 24 August 2016 and lasted until 20 November 2020. The amount of currency exchanged ranged from HK$9,000 to HK$160,000 per month.

24.  In the light of the above, Madam Yeung submits that she had provided valuable consideration for the HK$6.4m and had acted in good faith. She is thus entitled to rely on the defences of bona fide purchaser for value without notice and change of position. It is inequitable for the Plaintiffs to recover the money from her.

25.  Madam Yeung further avers that since she became acquainted with Fok, the latter had made various representations to her. He claimed that the Company was very successful. He would take care of the business side, like sales and finance, something that Yeung Senior was not good at. Fok was trusted by Yeung Senior, who even asked his sons to learn from Fok. During his employment, Yeung Senior would pay him bonus every quarter, though Fok had never disclosed his monthly or annual income to Madam Yeung. Yeung Senior had other investments in the PRC and he would invite Fok to invest in those PRC businesses with him. Fok had been assisting with other personal businesses of Yeung Junior. Fok had a considerable appetite for currency exchange annually and needed to conduct currency exchange from HKD to RMB of about HK$1 million annually. Fok had investments in columbarium niches and a property in Guandong in 2013/2014 for about RMB 1.2 million. (collectively, “Fok’s Representations”)

26.  Madam Yeung claims that Fok had been paying rent punctually and she formed the view that Fok was a responsible person. Due to Fok’s Representations, she also formed the view that Fok was a highly valued, loyal, passionate and trusted employee of the Plaintiffs. Fok had high earning capacity as he received bonuses and had persistent investments in different assets and insurance contracts.

27.  Madam Yeung claims that she had no reason to suspect the source of the money and identity of the cheque drawers.

28.  By reason of Fok’s Representations and her beliefs, Madam Yeung denies that she had knowledge of Fok’s fraud, or that she was dishonest or had assisted in breach of trust.

29.  In reply, the Plaintiffs aver that Madam Yeung’s defences are negated by illegality because her entering into and performance of the Exchange Agreement and/or deriving a profit from such activities were in contravention of:

(1) The Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap 615) (“AMLO”), due to the provision of money changing and remittance services without a licence; and

(2) PRC laws on foreign exchange control and criminal law, such as (i) the offences of private purchase/sale of foreign currency (“私自買賣外匯”) or purchase/sale of foreign currency in disguise (“變相買賣外匯”) and (ii) the offence of doing illegal business (“非法經營罪”).

As a result, Madam Yeung could not be said to have acted in good faith.

D. ISSUES

30.  The Plaintiffs primarily relied upon the unjust enrichment claim at the Trial. If liability is established for restitution, it will not be necessary for the Court to consider the other causes of action.

31.  In view of the developments at the trial, the issues are:

(1) Whether Madam Yeung had knowledge of Fok’s fraud;

(2) Whether unjust enrichment can be established;

(3) Whether Madam Yeung has a defence in bona fide purchaser for value without notice;

(4) Whether Madam Yeung has a defence in change of position;

(5) Whether the Exchange Agreement was tainted with domestic illegality;

(6) Whether the Exchange Agreement was tainted with foreign illegality; and

(7) What is the appropriate relief for the Plaintiffs if liability is established.

E. WITNESSES AND CREDIBILITY

32.  The principles for assessing the credibility of witnesses have been summarized in Hu Lan v David Golden [2023] HKCFI 873 at §36, DHCJ H Au-Yeung (as he then was):

(1) Generally speaking, contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility.

(2) Importance should be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events.

(3) The court will also attach importance to the consistency of the witness’ evidence with undisputed or indisputable evidence, and the internal consistency of the witness’ evidence. The latter type of consistency is often tested by a comparison between the witness’ oral testimony and his or her witness statement.

(4) The court should consider a witness’ motive for deliberately not giving truthful testimony. For example, telling the truth may prejudice his interest, or a just determination of the litigation may affect his interest.

(5) It is essential to have regard to the entirety of a witness’ evidence. A witness can make mistakes, but the mistakes do not necessarily affect other parts of his evidence. Likewise, a witness may lie. However, lies themselves do not mean necessarily that the entirety of that witness' evidence is to be rejected. A witness may lie in a stupid attempt to bolster his case, but the actual case nevertheless remains good irrespective of the lie.

(6) On the other hand, where it is shown that a witness has been discredited over one or more matters to which he has testified, this fact is relevant to the assessment of his overall credibility.

(7) While the court is entitled to take demeanour into account when assessing testimony, it should be borne in mind that demeanour can be deceptive and is therefore to be approached with care.

33.  Pointers to a witness’ lack of credibility include: evasive and argumentative answers; tangential speeches avoiding the question; blaming legal advisers for pleading, disclosure and evidence shortcomings; self-contradiction; internal inconsistency; shifting case; new evidence, and selective disclosure: Cheung Hon Kin v Chubb Life Insurance Company Ltd [2024] HKCFI 1313 at §82, Cheng J.

34.  The Yeungs gave evidence at the trial. They were straightforward and frank when answering questions. Their evidence was largely supported by unchallenged documents. I find the Yeungs to be credible and accept their evidence.

35.  There is little documentary evidence about the agreements between Fok and Madam Yeung, but there are some bank records documenting the transfers of funds under the Exchange Agreement. Thus Madam Yeung’s oral evidence was crucial to ascertaining the facts, her mental element and her knowledge (or lack of it) of Fok’s fraud.

36.  She was challenged in cross-examination on various aspects about the documents, but I do not think her credibility was undermined:

(1) She has failed to produce phone messages prior to 2016. She has explained that she had changed her mobile phone and was unable to retrieve the earlier messages.

(2) The phone messages now produced by her were extracted and organized by her son and all the Chinese descriptions of the various categories of messages were in fact done by him as well. Madam Yeung had not read them. His son was not a witness. There appeared to be significant time gaps between messages. However, nothing that I have read or heard gave rise to suspicions that either of them had concealed anything of relevance.

37.  There were other complaints of her failure to produce documents such as the insurance policies that Fok bought and comments that she did not have written communications with Li Bo. The insurance policies were subject to client confidentiality. Her communications with Li Bo, if any, would not assist in any issue. I do not consider those to be important to this trial.

38.  Having heard her, I find Madam Yeung to be an honest and credible witness trying to recount matters occurring years ago and trying to disclose as much as she could. She was forthcoming and clear-minded. She frankly gave evidence and would not make up an answer. Her responses were generally consistent with the bulk of the documentary evidence. She frankly admitted that she had transgressed the law on currency exchange. There is no evidence that she has deliberately concealed matters from the Court. Save otherwise specified, I accept her evidence. The focus of this trial is really on how the law looks at her conduct.

F. WHETHER MADAM YEUNG HAD KNOWLEDGE OF FOK’S FRAUD

39.  This is an issue that permeates the claim and the defences. The Plaintiffs suggest that Madam Yeung had knowledge of Fok’s fraud or had turned a blind eye to the fact that Fok could not have the resources to pay such a significant sum of HK$6.4m to her and those payments represented proceeds of misappropriation.

40.  Understandably, the Yeungs knew nothing about the arrangements between Fok and Madam Yeung and had no positive evidence as to whether Madam Yeung knew about the fraud of Fok.

41.  There was a quibble over whether she was a “close friend” of Fok. In my view, the label is not important. The evidence shows overwhelmingly that the Exchange Agreement could not have existed if she and Fok were not friends who fully trusted each other.

42.  Madam Yeung’s view that Fok was trustworthy was partly corroborated by evidence from the Yeungs. By way of example, Yeung Junior knew that Madam Yeung was the insurance agent of Fok and his landlord. Yeung Junior considered that Fok abided by principles all the time (長期都係循規蹈矩). Before the Fraudulent Taking Scheme was discovered, Yeung Junior treated Fok as a role model. He agreed that Fok was hardworking and honest and it did not occur to him that Fok would steal from his employer. Accordingly, despite the many opportunities to observe and work with Fok over the years, the dishonesty of Fok was not apparent to even the Yeungs. He was truly trusted and was reliable to the Yeungs.

43.  Fok’s Representations and Madam Yeung’s perception that Fok could have huge funds passing through his hands had some bases:

(1) She had taken out 8 insurance policies for Fok between 2011 and 2016 (and he had policies with at least 2 other insurance companies as disclosed in the phone messages). According to what Fok stated when filling out applications for insurance policies, his income was HK$100,000 per month. His monthly premia for Madam Yeung’s policies were US$5,000 month. She claimed that this gave her the impression that Fok made HK$150,000 to HK$200,000 a month. Such information came out in cross-examination. I accept that Madam Yeung did not produce the policies as it involved client confidentiality. However, her oral evidence was supported by a list of 6 insurance policies (which she gave to Fok on 19 June 2019) for which monthly premia totalling HK$50,139 still had to be paid.

(2) In answer to the Court’s question, she explained that money laundering would happen with insurance policies where a person used a huge sum to purchase a policy but immediately withdrew from the insurance account within a short span of time. Money laundering would not happen if a person paid monthly premia like Fok.

(3) Fok bought a property in Shenzhen for leasing out in around June 2017. That came about after Fok mentioned to her 3 months earlier that he wanted to buy a flat costing less than RMB 4 million; and he asked her to calculate the redemption value of all funds purchased through her to see if they were enough for the downpayment. I do not agree with Mr Chow that that purchase would have meant that Fok would have a smaller appetite for RMB, as the rental income could have been given to his wife or used for mortgage; there was simply no evidence one way or another.

(4) He was well trusted by his employer and he received bonuses.

44.  In the light of the preceding paragraph, I do not find it surprising that Madam Yeung thought that Fok was joking when he said that he did not have enough money or that government measures on rebates and financial budgets did not apply to him.

45.  Mr Chow disagrees. He points out that, under cross-examination, Madam Yeung claimed, for the first time, that she had asked Fok about why he did not need to pay tax and his answer was effectively that the Plaintiffs (as his employer) were willing to “cook the books” for him (“做數”)[1]. However, there was no follow up in cross-examination as to what “cook the books” meant.

46.  Further, Madam Yeung was apparently surprised when she received the demand letter from the Plaintiffs’ solicitors. She took a picture of the letter and asked Fok what was happening. The tone of the messages between her and Fok did not appear to me to be an orchestrated case of Fok taking up all responsibility so as to spare a co-conspirator, but he really considered the responsibility to be his and that Madam Yeung had no knowledge of the fraud. She kept persuading Fok to come clean. He eventually repaid the Plaintiffs HK$2.7 million.

47.  In the phone messages, Madam Yeung already mentioned that she was never shown the drawer of the cheques. She proactively disclosed the messages between Fok and her to the Plaintiffs. She even suggested to Yeung Junior that according to the legal advice that she received, the Plaintiffs could apply for an injunction to freeze Fok’s bank account.

48.  She cooperated with the police and the Plaintiffs. Importantly, she has not been prosecuted by the police or authorities in Hong Kong or Mainland China.

49.  I find from her evidence that she had no subjective dishonesty and no actual knowledge of the fraud of Fok.

G. UNJUST ENRICHMENT

50.  It is trite law that to establish a claim of unjust enrichment, it must be shown: (a) that the defendant was enriched; (b) that such enrichment was at the plaintiff's expense; (c) that the enrichment was unjust; and (d) whether any of the defences are applicable: Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79 at §67 per Ribeiro PJ.

51.  As conceded by Ms Chong and Mr Kwok (counsel for Madam Yeung), only element (d) is in dispute, i.e. whether Madam Yeung can rely on the change of position and bona fide purchaser defences; and the burden of establishing those defences is on Madam Yeung: Credit One Finance Ltd v Yeung Kwok Chi [2021] 1 HKC 598 at §43, Recorder Eugene Fung SC (as he then was).

H. BONA FIDE PURCHASER DEFENCE

52.  For this defence, Madam Yeung must show on a balance of probabilities that:

(1) she has legal title to the property in question;

(2) she has acted in good faith in receiving the property from the transferor without notice of the prior equity; the requirement is not fulfilled where the defendant had actual or constructive notice of the defect in title; the defendant will have constructive notice if she failed to make enquires that would have been made by a reasonable person in her position; and

(3) she provided value for the transfer of title of the property; she cannot be considered to have done so if it was transferred pursuant to an illegal transaction.

See BCPE Diamond Holdco SRL v Sunwe Plastic HK Ltd [2025] 2 HKC 415 at §43 Recorder Eugene Fung SC, as he then was; Virgo at pp 720-723.

53.  Good faith is capable of embracing a failure to act in a commercially acceptable way and the sharp practice of the kind that falls short of outright dishonesty as well as dishonesty itself. The factors which will determine whether it is inequitable to allow the claimant to obtain restitution in the case of mistaken payment will vary from case to case, but where the payee has voluntarily parted with the money much is likely to depend on the circumstances in which he did so and the extent of his knowledge about how the payment came to be made. Where he knows that the payment he has received was made by mistake, he must return it. Where he has grounds for believing that the payment may have been made by mistake, but cannot be sure, he may not be found to have acted in good faith if he does not make inquiries of the payer. See Americhip Inc v Zhu Hongling [2021] 4 HKLRD 490, §59, Mimmie Chan J.

54.  Madam Yeung has stated 3 purposes for receiving HK$6.4m.

55.  With regard to the Tenancy Agreement, there were limited documents. Madam Yeung explained that Fok had paid rent punctually and his family had resided at her property for a substantial period of time. Therefore, she was not concerned if the original Tenancy Agreement was lost or see a need to have a new one. I find the explanation reasonable and accept it.

56.  There is a suggestion in the expert report that a person from Hong Kong can only buy a property in Mainland China for self-use but cannot rent it out. Rental income is not lawful income and one cannot apply for remittance of the rent out of Mainland China.

57.  However, such expert evidence should be disregarded because (i) there is no plea along those lines; and (ii) no leave has been granted for expert evidence to be obtained on such an issue.

58.  I find that Madam Yeung had provided full value for the payments representing rent in Exhibit A. Madam Yeung does not have to rely on any illegal conduct as a defence in that aspect. There is nothing to show that receiving rent in HKD for leasing a property in Mainland China would infringe the law. Any currency exchange would be from her left hand to her right hand. Whether she can show good faith and lack of notice of Fok’s fraud depends on the analysis of foreign illegality below.

59.  With regard to the Purchase Transactions, Madam Yeung’s pleaded case was that she purchased dried seafood or skin care products for Fok. It took place once every few months, for about 5-6 times, in about 2012-2013. On each occasion, Fok would reimburse her through bank deposits as soon as possible. Madam Yeung could not remember the number of payments or the total amounts (as she told the police). Under cross-examination, she estimated that it was around a few hundred to at most about a thousand dollars or so.

60.  The Purchase Transaction could, at best, apply to the misappropriated payments to her in April/May 2013. Annexure 2 to the Statement of Claim showed 2 payments in 2013 to her of HK$50,000 (“the 2013 Payments”). Those 2 payments do not sit well with her factual account in terms of the amounts and number of payments involved. When confronted with the inconsistencies, Madam Yeung abandoned her case on Purchase Transactions and claimed, instead, that she had received maintenance payments in RMB in the Mainland from her ex-husband and had it converted into HKD in Hong Kong.

61.  Such a change of case threw into doubt the commencement date of the Exchange Agreement, which she claimed to be August 2016, instead of 2013. In re-examination, she tried to salvage her case by blaming her lawyer for not acting in accordance with her instructions. However, I do not accept it because she had consistently stated the commencement date to be August 2016 to the police in May 2021, in her Defence in June 2021 and in her witness statement in June 2022.

62.  Further, I accept Mr Chow’s submission that there was no valid justification from Madam Yeung at all to explain her receipt of the 2013 Payments. There is no evidence that the 2 relevant cheques were redacted so that she did not know that the source of the payments was P1.

63.  I reject her bona fide purchaser defence that she had provided consideration in the form of Purchase Transactions or that she did not know that she was not entitled to the 2013 payments. She should have at least made enquiries with Fok.

64.  With regard to the Exchange Agreement, Exhibit A reflects the flow of funds between her and Fok. There had been 3 years in between the 2013 Payments before the other payments to Madam Yeung started again in August 2016, supported by phone messages. I am not able to find, on balance, that she had concealed relevant documents in that period.

65.  Madam Yeung made some “profits” due to differences in exchange rates. She explained that, on the first few occasions she checked the exchange rates and found out that the rates adopted by Fok were fair. Later, she trusted Fok to decide the rates and Fok had not exploited that trust over the years.

66.  I have found no dishonesty or actual knowledge of Fok’s fraud. Even so, I find that there were “red flags” which would have alerted Madam Yeung to at least make enquiries with Fok. Mr Chow has listed many but I concentrate on the ones that trouble me most.

67.  Firstly, as this Court observed during cross-examination, Madam Yeung was effectively lending her bank account for Fok’s use, which was a notorious feature in money laundering activities.

68.  Secondly, Exhibit A shows a dramatic increase in frequency and quantum of currency exchange especially after 2017 (when Fok allegedly purchased a property in Shenzhen):

Year	No. of Payments	Total received by Madam Yeung (HK$)
2016	3, ie #1-3	103,680
2017	10, ie #4-13	425,534.00
2018	23, ie #14-36	1,047,476.60
2019	36, ie #37-72	2,633,425.98
2020 (up to Nov)	33, ie #73-104	2,121,831.70

69.  Under cross-examination, Madam Yeung confirmed that she was actually aware of the dramatic increases but she did not find it suspicious. I cannot accept this explanation in the light of her knowledge, gathered from her financial background, of money laundering and the danger of allowing such volume of funds from another person to go through her bank accounts. She should have at least queried why Fok could not conduct that volume of transactions through his and Li Bo’s own accounts, as he was paying at the proper exchange rates anyway.

70.  I find as follows:

(1) Madam Yeung had no actual knowledge of Fok’s fraud and was not dishonest by a subjective standard.

(2) Madam Yeung had provided value for the rent she had received from Fok. According to Exhibit A, the rent amounted to RMB 216,000 or HK$244,080. Whether she was bona fide depends on the outcome of analyses of the foreign illegality issue of the Exchange Agreement (Section L4 below).

(3) The bona fide purchaser defence in relation to the Purchase Transactions is not established. She has no defence for the 2013 Payments.

(4) The Exchange Agreement existed and had been performed for 4 years since August 2016. Madam Yeung had provided consideration for it by providing RMB in exchange for HKD. However there were red flags which would have cast doubt on her bona fides. Whether she was bona fide depends on the outcome of analyses of the foreign illegality issue (See Section L3 below).

I. CHANGE OF POSITION DEFENCE

71.  For the change of position defence to succeed, Madam Yeung must show that:

(1) There was a causative link between the receipt of the benefit and her change of position, so that but for the receipt of the benefit, her position would not have changed;

(2) It would be inequitable in all the circumstances to require her to make restitution to the Plaintiffs; and

(3) The defence is not open to one who has changed her position in bad faith, e.g. because she was imputed with the fraudster’s knowledge.

Zhang Kan v SPH (Hong Kong) International Trading Co Ltd [2023] 4 HKLRD 544 at §28 per G Lam JA.

72.  I find there to be a causative link between the receipt of the HK$6.4m and Madam Yeung’s change of position. But for her receipt of those monies, she would not have continued to lease her property to Fok, or transferred RMB to Li Bo.

73.  The same findings in paragraph 70 above as regards her bona fides are applicable to the Tenancy Agreement and Exchange Agreement.

J. GENERAL PRINCIPLES ON ILLEGALITY

J1. General approach to determining illegality

74.  In Monat Investment Ltd v All Person(s) in Occupation of Part of No 16 Ma Po Tsuen [2023] 2 HKLRD 1311 at §36.4 & 57 decided that the previous strict approach in Tinsley v Milligan [1994] 1 AC 340 has been replaced by the “range of factors” approach espoused in Patel v Mirza [2017] AC 467. The court will consider a “trio of necessary considerations” to determine whether it would be harmful to the integrity of the legal system to allow a claim involving an illegal act:

(1) the underlying purpose of the prohibition which had been transgressed;

(2) other relevant public policies which might be rendered ineffective or less effective by the denial of the claim; and

(3) the possibility of overkill unless the law was applied with a due sense of proportionality.

75.  The approach is flexible rather than mechanistic. The list of factors relevant to proportionality is not exhaustive because of the infinite possible variety of cases; but potentially relevant factors include the seriousness of the conduct, its centrality to the contract, whether it was intentional and whether there was a marked disparity in the parties’ respective culpability: Patel at §§101, 107-108.

76.  As further explained by the UK Supreme Court in Stoffel & Co v Grondola [2021] AC 540 at §24, a balancing of policy considerations in either direction is an important element of the court’s decision-making process. Further, the policy considerations at the first two stages of the trio of necessary considerations are assessed at a relatively high level of generality before considering their application to the situation before the court. By contrast, with the proportionality consideration at the third stage, the court will give close scrutiny to the detail of the case at hand: §26.

J2. Distinguishing claims

77.  There is a need to distinguish between

(a) domestic and foreign illegality; and

(b) a contract claim (ie one between the plaintiff and the defendant) and a restitutionary claim.

78.  For the purpose of conflict of laws, “foreign” in this context means another jurisdiction, in this case, Mainland China.

79.  The law governing foreign illegality was considered by the Court of Final Appeal in Ryder Industries Ltd v Chan Shui Woo (2015) 18 HKCFAR 544 at §39. That was a case concerning the enforceability in Hong Kong of a contract governed by Hong Kong law which had been performed in the PRC partly in breach of PRC law (§8, 38). The CFA held that the underlying rationale was international comity coupled with Hong Kong public policy. The Court laid down what has later come to be commonly known as the “Ryder principles”:

“First, if the contract is unenforceable under its proper law (whether chosen by the parties or otherwise), then it will not be enforced by the Hong Kong court. The importance of this principle is that it applies to limit the enforceability of the contract regardless of the place of required, intended or actual performance. Moreover, it is irrelevant whether the bar on enforcement is a foreign penal law of the sort which will not be directly enforced by a Hong Kong court.

Secondly, if the performance of the contract requires or necessarily involves conduct which is illegal under the laws of the place where it is required to be performed, then it will not be given effect regardless of its proper law. (“Type 2 case”)

Thirdly, the contract will not be given effect regardless of its proper law ‘if the real object and intention of the parties [at the time of concluding the contract] necessitates them joining in an endeavour to perform in a foreign and friendly country some act which is illegal by the law of such country notwithstanding the fact that there may be, in a certain event, alternative modes or places of performing which permit the contract to be performed legally’.

Fourthly, violation of foreign laws in the actual performance of a contract may, even though not required or initially intended, lead to the unenforceability of the contract before a Hong Kong court, regardless of its proper law. It has recently been stated in England at first instance that a contract will not be enforced if it has been ‘performed in such a way that one party (or both parties) commits a legal wrong’. It is, however, respectfully suggested that this is to state the principle too rigidly, and that a more flexible approach having regard to the seriousness of the foreign illegality is required to determine whether public policy and comity really require enforcement of the contract to be denied in such a case.

Fifthly, the above four principles apply irrespective of whether the illegality under foreign law existed at the time of contracting or arose subsequently.”

80.  In Wong Chi Hung v Lo Wing Pun [2025] 2 HKLRD 882, G Lam JA observed that the Ryder principles are a summary of the principles on the effect of foreign illegality on contract claims between the plaintiff and the defendant (§55). (Note that at the time Ryder was decided, Tinsley v Milligan was still good law in Hong Kong.)

81.  G Lam JA summarized the distinction between contract and restitutionary claims at §54:

“54. Drawing the threads together, I would endeavour to summarise what I regard as the applicable analysis as follows:

(1) The first step is to ascertain the law that governs the claim in restitution by Hong Kong conflict of laws rules. If the claim is governed by foreign law, the effect of foreign illegality on that claim is also governed by foreign law.

(2) When a restitutionary claim is governed by Hong Kong law, the court assesses whether foreign illegality constitutes a defence by applying Hong Kong principles, focusing on public policy and international comity rather than the rationales underlying the domestic doctrine of illegality. (emphases added)

(3) Restitutionary obligations are distinct from contractual claims. Restitution aims to restore parties to their pre-transaction positions rather than enforce contractual performance. Accordingly the reasons for refusing to enforce a contract due to foreign illegality do not automatically bar restitution.

(4) Foreign illegality may serve as a defence to claims in restitution under Hong Kong law, grounded in international comity and public policy.

(5) In general, a plaintiff who has paid money to the defendant pursuant to a contract which the latter has not performed and which has been rendered ineffective due to foreign illegality should be entitled to restitution of the money. There may be exceptions if the underlying agreement involves egregious foreign illegality, where comity and public policy demand refusal of assistance to the plaintiff.

(6) The general rule is fortified if the foreign law itself provides for restitution in such a case.

(7) Where the foreign law would be stultified by allowing a restitutionary claim or such a claim is expressly or by clear implication barred under the foreign law, and there is no countervailing Hong Kong public policy reason not to give effect to the foreign law, there may be a defence to the claim in restitution.”

J3. Effect of illegality on an unjust enrichment / restitutionary claim

82.  It is only in rare instances that the court will debar a claimant who satisfies the ordinary requirements of a claim in unjust enrichment (or a restitutionary claim) from recovering money paid or property transferred by reason of the fact that the consideration which has failed was an unlawful consideration: Patel v Mirza, §§116, 121.

83.  Two cases are illustrative. In Patel v Mirza, the claimant paid £620,000 to the defendant pursuant to an agreement to bet on price movement of shares using insider information. Such an agreement was illegal as it amounted to an offence of insider dealing under s.52 of the Criminal Justice Act 1993. The money was eventually not used to make a bet on the share price. The contract claim failed but the claim in unjust enrichment succeeded before the UK Supreme Court.

84.  A similar result was reached in Wong Chi Hung, where the plaintiff paid the defendants, who ran a money exchange shop, a sum of RMB 1 million but the latter did not pay the plaintiff an equivalent amount in HKD. The contract was governed by Hong Kong law. The claim in contract and unjust enrichment was dismissed at first instance on the ground that it fell within the second category of the Ryder principles and was unenforceable (§27), but the restitution claim was granted on appeal.

85.  The Court of Appeal held that the claim in restitution was based on an independent obligation imposed by its proper law, i.e. Hong Kong law, under which the plaintiff was prima facie entitled to restitution. By allowing his claim the Hong Kong court would simply be upholding the plaintiff’s rights under Hong Kong law that flowed from the total failure of consideration for the money he paid, in the context where the parties’ contract had become ineffective. The Court did not think this would in any way detract from the object and policy of the PRC laws and regulations infringed by the parties. The Court saw no reason in comity or public policy for denying restitution to the plaintiff, especially given that restitution would also be possible under Mainland law (§64). The plaintiff was thus given relief under his unjust enrichment claim.

J4. Effect of illegality on the defences of bona fide purchaser and change of position

86.  The distinction between domestic and foreign illegality likewise applies in the context of the bona fide purchaser and change of position defences. Domestic illegality is governed by the principles in Tinsley (now Patel). Foreign illegality is governed by conflict of laws principle: She Ching Yan v Cai Yunxiang [2023] HKCFI 592 [2023] HKCFI 592, §82, DHCJ Winnie Tsui (as she then was).

87.  Whether the Court should adopt a strict approach or engage in an evaluation exercise under would depend on how the foreign illegality came about. Where the change of position is tainted with illegality coming within the Ryder Type 2 cases, it is not open to the defendant to rely upon the defences of bona fide purchaser or change of position to a restitutionary claim: She Ching Yan, §§67-69, 109-113, (a case on currency exchange agreement); Americhip, §§22-25 and 60.

88.  She Ching Yan was a case that fell within Type 2 of the Ryder principles. It applied a strict approach, whereby the court would not recognize the currency exchange transaction altogether and as a result the defences of change of position and bona fide purchaser for value without notice would not be available (§§109-113). There was no need to conduct any evaluation of the seriousness of the contravention by reference to the PRC policies which underlay the relevant rules (§125).

89.  Americhip reached the same conclusion although it did not make a distinction between domestic illegality or foreign illegality. Specifically, Mimmie Chan J held that the recipient could not put up a tainted claim to retention against the victim’s untainted claim for restitution. (Americhip, §§22-25)

90.  The present case is not a contract claim but a restitutionary claim. There was no contract between the Plaintiffs and Madam Yeung. The only contract was the Exchange Agreement between the 2 Defendants and the currency exchanges had completed. There is no dispute that both Hong Kong law and PRC law apply to that Exchange Agreement. There is no suggestion that the Tenancy Agreement was in breach of any law.

K. DOMESTIC ILLEGALITY

K1. Principles under AMLO

91.  Section 29 of the AMLO provides that “a person commits an offence if the person operates a money service without a licence”.

92.  According to Schedule 1 of the AMLO, the term “money service” means:

(1) a “money changing service” which means “a service for the exchanging of currencies that is operated in Hong Kong as a business [subject to an exception that is not applicable]”; or

(2) a “remittance service” which means “a service of one or more of the following that is operated in Hong Kong as a business – (a) sending, or arranging for the sending of, money to a place outside Hong Kong; (b) receiving, or arranging for the receipt of, money from a place outside Hong Kong; (c) arranging for the receipt of money in a place outside Hong Kong”.

93.  The term “business” is not defined in AMLO, but the term should be given a fair, large and liberal construction and interpretation pursuant to section 19 of Interpretation of General Clauses Ordinance, Cap 1. It is not necessary to unduly restrict the term by implying a requirement of profit or gain. Unlicensed services which are provided free of charge or even on a voluntary basis can be regarded as a business. See HKSAR v Chu Lai Ming Kathy [2014] 1 HKLRD 1042, §§19-25 and 28, DHCJ KH Woo (a case in which the defendant was charged with the offence of carrying on business as a travel agent without license under the Travel Agents Ordinance, Cap 218, which did not define the term “business”).

94.  In Chow Wun Sing v Yiu Chun Luk, CACV295/2006 (unreported, 20.2.2008), the Court of Appeal considered running a “business” within the meaning of section 7 of the Money Lenders Ordinance (Cap 163) (“MLO”):

(1) Whether at the time of the loan, the business of the person was that of making loans is a question of fact to be decided by reference to the facts and circumstances of each case (§15).

(2) A certain degree of system and continuity was a relevant factor but not determinative (§16).

(3) A business-like approach may be a relevant factor but not itself conclusive evidence (§21).

(4) The fact that only a small number of transactions were concluded did not mean there could not have been a business but a small number could be consistent with the case that the person was not running a business (§22).

See also Re Lau Kam Sing [2023] 4 HKC 1, §19 (CA) with similar criteria.

95.  I agree with Mr Chow that there are differences in the legislative intent for MLO and AMLO.

(1) The purpose of the prohibition against unlicensed money lending under MLO is to combat loan sharks. The prohibition is subject to a large number of exempted loans where no license is required for money lending: Part 2 to Schedule 1 of MLO. This is in recognition of the fact that there are many legitimate business transactions which involve the lending of money that the Legislature has no intent to regulate under the MLO.

(2) On the other hand, the purpose behind the licensing requirement of money service operators is to combat money laundering. A licensed money service operator is under extensive obligations to conduct customer due diligence and record keeping under Part 2 of AMLO, Part 2 to the AMLO, and Part 2 to Schedule 2. Unlike the MLO, there is almost no exception to the restriction against providing money services as a business without a license under the AMLO unless the service provider is otherwise authorized or licensed under its own regulatory scheme for anti-money laundering, see: AMLO, s.25.

K2. Whether there was domestic illegality in the Exchange Agreement

96.  I accept that the Exchange Agreement existed. Objectively, Madam Yeung was clearly operating both a money changing service and a remittance service within the meaning of section 29 of AMLO.

97.  Applying the authorities in Section K1, she was plainly carrying out a business. As shown in Exhibit A, it was a system with regular movements of money between Fok and Madam Yeung. There were 104 transactions in total, spreading over 4 years between 2016 and 2020. The amounts dramatically increased over the years, totalling HK$6.4m.

98.  The unchallenged evidence of the legal expert (Mr Huang) was that the amount exchanged between Fok and Madam Yeung was HK$5,269,880.08 (equivalent to about RMB 4,470,000). The total “profit” she made between 2016 and 2020 was in the sum of RMB 109,622.59, due to the difference in exchange rates. These sums are not negligible.

99.  Madam Yeung has to rely on the defences of bona fide purchaser and change of position but they are tainted by domestic illegality insofar as the Exchange Agreement is concerned. In contrast, the Plaintiffs are totally innocent and there is no bar to their restitution claim.

100.  Even applying the “range of factors” approach to this case:

(1) Madam Yeung has not pleaded any factual bases under the trio of necessary considerations to enable the Court to exercise its discretion in her favour.

(2) The policy intent of the licensing requirement for operation of money service is to combat the laundering of proceeds of crime, which was exactly what Madam Yeung violated.

(3) Madam Yeung has not identified any conflicting public policy.

(4) There is no issue of any “overkill” with respect to Madam Yeung who had chosen to engage in such conduct without enquiry with Fok for 4 years.

(5) As explored in cross-examination, Madam Yeung was well aware of the licensing requirement under AMLO, given her professional training and experience as an insurance agent. In terms of comparing relative culpability, there was a marked difference between the Plaintiffs and Madam Yeung. The former were wholly innocent.

101.  I find that domestic illegality is established in relation to the Exchange Agreement. There is nothing to tilt the scale in favour of Madam Yeung. The bona fide purchaser defence regarding the Exchange Agreement falls as well, as good faith cannot be proved.

L. FOREIGN ILLEGALITY

L1. Expert evidence on PRC laws

102.  Only the Plaintiffs have adduced the expert opinion of Mr Huang, the salient points of which are set out as follows.

103.  Art.45 of the Regulations of the People's Republic of China on Foreign Exchange Administration (《中華人民共和國外匯管理條例》) (“Forex Regulations”) provides as follows:

“私自買賣外匯、變相買賣外匯、倒買倒賣外匯或者非法介紹買賣外匯數額較大的，由外匯管理機關給予警告，沒收違法所得，處違法金額30%以下的罰款；情節嚴重的，處違法金額30%以上等值以下的罰款；構成犯罪的，依法追究刑事責任。”

“Whoever buys or sells foreign exchange without permission, buys or sells foreign exchange in a disguised form, buys and sells foreign exchange, or illegally introduces a large amount of foreign exchange, the foreign exchange administration authority shall give a warning, confiscate the illegal income, and impose a fine of less than 30% of the illegal amount; if the circumstances are serious, a penalty shall be imposed. A fine of more than 30% of the illegal amount and less than the equivalent value; if a crime is constituted, criminal responsibility shall be investigated according to law.” (emphases added).

104.  There was no clear definition as to the precise meaning of he phrase “disguised sale and purchase of foreign exchange” (變相買賣外匯), but Mr Huang has referred to authoritative Interpretations from the Supreme People's Court (“SPC”), the Supreme People’s Procuratorate (“SPP”) and the State Administration on Foreign Exchange (國家外匯管理局) (“SAFE”). Those Interpretations consistently affirmed that this phrase was to be broadly defined. It covered any method, including a situation where there was no direct sale and purchase of foreign exchange, borrowing in one currency but repaying in another, and “matching balance” (對敲) (ie no physical cross-border flow of RMB and the foreign currency (including HKD) but parallel flow of funds inside and outside Mainland China). The statement from SPP and SAFE on 27 December 2023 is a summary based on the practical application of Art.45 by the Mainland authorities in past cases of “matching balance”.

105.  Even though there was no direct sale and purchase of RMB with HKD or physical flow of RMB or HKD across the border, performance of the Exchange Agreement amounted to a disguised sale and purchase of foreign exchange, in breach of Art.45 of the Forex Regulations.

106.  According to Art.45 of the Forex Regulations and Article 3-4 of the Notice of SAFE on Relevant Issues Concerning the Meaning of Some Articles of Chapter VII Legal Liabilities in the “Regulation of the PRC on Foreign Exchange Administration Act” and the Principle for the Application Thereof (国家外汇管理局关于《中华人民共和国外汇管理条例》第七章法律责任部分条款内容含义和适用原则有关问题的通知), Madam Yeung’s performance of the Exchange Agreement would attract the following administrative penalties:

(1) a warning;

(2) confiscation of the unlawful gain (RMB 109,622.59); and/or

(3) an additional fine of up to 30% of the amount exchanged (RMB 5,269,880.08 x 30% = RMB 1,580,964.02).

107.  The gain of Madam Yeung from the illegal transactions exceeded the threshold of RMB100,000 imposed in Arts. 2 and 3 of the Interpretation of the SPC and SPP on Several Issues concerning the Application of Law in the Handling of Criminal Cases Regarding Illegal Fund Payment and Settlement Business and Illegal Trading in Foreign Exchange (最高人民法院、最高人民檢察院關於辦理非法從事資金支付結算業務、非法買賣外匯刑事案件適用法律若干問題的解釋). Therefore, her conduct would also amount to the commission of the criminal offence of running an illegal business (非法經營罪) contrary to Art. 225 of the PRC Criminal Code (中華人民共和國刑法).

108.  Mr Huang testified that, in practice, authorities would only impose administrative penalties rather than initiate criminal prosecution, where there was no evidence that the person had an intent to obtain a profit (營利目的).

L2. Hong Kong authorities on breach of relevant PRC laws

109.  Apart from the authorities above, the Plaintiffs have given notice under section 59 to rely on the following authorities in Hong Kong: DBS Bank (Hong Kong) Ltd v Pan Jing [2020] 4 HKC 391; Americhip Inc v Zhu Hongling [2021] 4 HKLRD 490; TTI Global Resources Hong Kong Limited v Hongkong Myphone Technology Co., Limited [2021] HKCFI 306, and She Ching Yan [2023] HKCFI 592. All of them involved matching balances and no physical currency exchanges. The Hong Kong courts’ holdings are extracted as follows:

(1) There are 4 categories of illegal activities under Art. 45 of the Forex Regulations: private sale and purchase of foreign exchange (私自買賣), disguised or sham sale and purchase (變相買賣), purchase and resale at a profit (倒買倒賣), and sale and purchase through unlawful intermediaries (非法介紹買賣), without the necessary permission: Americhip, at §44.

(2) Matching exchanges of foreign currencies are in breach of Art. 30 and 39 of the Forex Measures: Pan Jing, at §§33; She Ching Yan (2023), at §40.

(3) Matching balances contravene Art. 45 of the Forex Regulations. TTI Global Resources Hong Kong Limited v Hongkong Myphone Technology Co., Limited，§§49 and 52, DHCJ To.

(4) Art.4 of the Forex Regulations provides that the Forex Regulations apply to “foreign exchange receipts” and disbursements and to foreign exchange business activities (外滙經常活動) of domestic organizations and individuals. Activities (活動) has a wider meaning than business activities (經營). The term “經營” does not confine the activities to “business” activities, as “經營” simply means “to engage in”. To “engage” in an “activity” does not require the carrying on of a business, nor does it require such activity or engagement to be repeated: Americhip, at §§28 and 43. (Note that this is quite unlike the position under AMLO.)

(5) The consequences of serious contravention of Art. 45 of the Forex measures is an administrative fine of up to 30% of the illegal amount involved: Americhip, at §44. (情節嚴重的、處違法金額30%以上等值以下的罰款)

(6) The Administrative Measures for Foreign Exchange of Individuals (個人外匯管理辦法) (the “Forex Measures”), prohibit domestic individuals in the Mainland from purchasing or withdrawing more than US$50,000 worth of foreign currencies per year unless approved by an authorized bank: Americhip, at §33.

(7) Illegality, when raised as a defence to a claim for unjust enrichment, is concerned with acts which are contrary to public law and engage the public interest. It may extend to the infringement of rules attracting civil sanctions of a penal character. The PRC laws relating to exchange transactions (including Art. 45 of the Forex Regulations) fall into that category. See Pan Jing at §§26, 36 and 41.

(8) It is irrelevant that no administrative sanctions have actually been imposed because a determination or sanction by the relevant authorities cannot be a requisite for the doctrine of illegality to bar a claim or defence if otherwise available: Pan Jing at §41.

110.  Once a determination in a case is admitted under section 59(2)(b) of the Evidence Ordinance and Order 38, rule 7, the relevant laws of the PRC shall be taken to be in accordance with the determination unless the contrary is proved: She Ching Yan at §60. If a defendant has not adduced evidence to challenge or disprove the determination, it is no defence to say that he did not know that it was inappropriate to exchange currencies with a private individual.

111.  Madam Yeung has not pleaded contrary PRC laws. Ms Chong seeks, by cross-examination, to show that Art. 45 of the Forex Regulations was not clear in its terms and queries whether the various Interpretations of SPC, SPP and SAFE had legal effect. Without disrespect, her submission that the Plaintiffs have failed to prove that the conduct of Madam Yeung was in breach of PRC laws cannot stand in the light of the principles extracted from these Hong Kong authorities.

L3. Whether there was foreign illegality in the Exchange Agreement

112.  In the light of the authorities above and the expert evidence, the Exchange Agreement was a matching balance which violated Art. 45 of the Forex Regulations

113.  It was irrelevant that: (a) Art.45 gave no clear indication of what a “substantial amount” was; even if one were to remove the part relating to the rent, the amount involved was still very substantial; (b) Madam Yeung did not know that the Exchange Agreement was not lawful; (c) she had no intention to run a forex business or to make a profit; and (d) that no administrative penalty had ever been imposed on her or that there was no prosecution against her.

114.  As there was foreign illegality in relation to the Exchange Agreement, the range of factors approach espoused in Patel v Mirza does not apply.

115.  Even if I am wrong, applying the range of factors approach would not assist Madam Yeung because:

(1) The Exchange Agreement was in breach of both domestic and PRC laws.

(2) Madam Yeung has not pleaded any factual bases on which the Court could exercise its discretion to give effect to the Exchange Agreement.

(3) A breach of Mainland foreign currency regulations is regarded as “extremely harmful to society”: TTI Global at §§49 and 52.

(4) According to Mr. Huang, Madam Yeung’s conduct would be regarded as serious (情節嚴重) and amounted to “illegal business activities that seriously disrupted the market order” (嚴重擾亂市場秩序的非法經營行爲) for the purpose of Art.225 of the PRC Criminal Code.

(5) The fact that no administrative sanction was actually imposed is irrelevant in the context of foreign illegality because a determination or sanction by the relevant authorities cannot be a prerequisite for the doctrine of foreign illegality to bar a defence if otherwise available: Pan Jing, §41.

(6) In She Ching Yan, D18 only received a one-time payment in Hong Kong in exchange for a one-time payment of RMB in the Mainland under the illegal currency exchange arrangement (§§2-4). Madam Yeung was involved in 104 transactions for 4 years.

116.  Ms Chong seeks to distinguish Patel v Mirza from the present case. She submits that, allowing the claimant restitution notwithstanding the general defence of illegality raised by the defendant on the one hand, whilst barring the defendant from raising the defence of bona fide purchaser for value and change of position on the ground of illegality on the other, would make the law incoherent and self-defeating: Patel, §99.

117.  She also submits, in reliance on Wong Chi Hung, that unless the underlying dealings between Fok and Madam Yeung involved egregious foreign illegality where comity and public policy demand refusal of assistance to the latter, Madam Yeung is still entitled to rely on the defence of change of position. This is when the ‘evaluative exercise’ comes into play.

118.  Without disrespect, Ms Chong has misunderstood the authorities. In Patel and Wong Chi Hung, although the claims in contract (the plaintiffs being parties) were defeated by illegality, the claims in restitution were not because the acts remaining to be done were not illegal.

119.  The Exchange Agreement in the present case involved a contract and illegal conduct not involving the Plaintiffs at all. The foreign illegality was egregious (having regard to the duration and amount involved) and was between the Defendants only. Comity and public policy do demand refusal to assist Madam Yeung. The law is not incoherent or self-defeating.

120.  Further, without disrespect, it is not appropriate for Ms Chong to rely on the obiter dicta of Esben Finance Limited v Nei Wong Hou-Lianq [2022] SGCA(I) 1 (cited in Wong Chi Hung, footnote 31). Whereas Monat (applying Patel) is the leading authority binding on this Court, Patel has been expressly rejected by the Singapore Court of Appeal in Ochroid Trading Ltd v Chua Siok Lui [2018] SGCA 5, §125, 176(a) and (b(ii)(B)) (a case on domestic illegality).

L4. Impact of foreign illegality on the defences

121.  Following on the finding of foreign illegality, the change of position defence or bona fide purchaser defence must fail with regard to the Exchange Agreement.

122.  As for the Tenancy Agreement, even if the funds stolen from the Plaintiffs had been mixed in Madam Yeung’s bank account with monies which had not been stolen, the Plaintiffs as the true owner of the funds are entitled to trace its money in the manner which was most advantageous to them: Americhip, §19.

123.  Further, I have identified 2 red flags in paragraph 66 - 69 above.

(1) Had Madam Yeung confronted Fok about the 2013 Payments, she would have discovered the misappropriation of the Plaintiffs’ funds in time to stop the Exchange Agreement from going ahead.

(2) On her own evidence, she had allowed her bank account to be used for the Exchange Agreement for about 2 years before she started including the receipt of rent under the Exchange Agreement. During those 2 years, if she had queried Fok as to why he needed to use her bank account, Fok’s fraud may have been discovered in time to prevent him from using the Plaintiffs’ cheques to pay for the rent.

124.  For the reasons given in the preceding paragraph, I find that Madam Yeung has failed to prove her good faith for the defences of bona fide purchaser and change of position. In any case, the equities are entirely against her when one applies the range of factors approach in Patel.

M. FINDINGS

125.  In summary, I find that Madam Yeung had no actual knowledge of Fok’s fraud and was not subjectively dishonest. With regard to the 3 purposes for which she received monies from Fok:

(1) She fails as regards the Purchase Transactions which she had abandoned at the trial. She has completely no defence as regards the 2013 Payments.

(2) The Tenancy Agreement was not tainted with illegality. She was a purchaser for value in respect of the rent she received from Fok (ie RMB 216,000 or HK$244,080 according to Exhibit A). However, due to the red flags before she started to receive rent under the Exchange Agreement, she was put on inquiry but failed to inquire. Thus she failed to establish good faith for the defences of bona fide purchaser and change of position.

(3) The Exchange Agreement existed and had been performed for 4 years since August 2016. It was tainted with domestic and foreign illegality. Although she was a purchaser for value for the HKD she received from Fok, she failed to establish good faith for both defences, due to the red flags I have identified and she had failed to make enquires.

(4) Even if the range of factors approach in Patel v Mirza are applied, the equities are against Madam Yeung as the Plaintiffs’ conduct did not involve any illegality.

(5) Madam Yeung therefore has no defence to the unjust enrichment claim.

126.  The above is sufficient to dispose of this case and it is not necessary to deal with other causes of action.

N. RELIEF

127.  The Plaintiffs should be entitled to restitution of the sums paid to Madam Yeung, ie HK$6,419,730.38.

128.  On a nisi basis, interests shall be at the rate of P + 1% on the sum awarded from the dates of payment from the Plaintiffs to Madam Yeung up to the date of judgment and thereafter at judgment rate until payment.

129.  Costs should follow the event. On a nisi basis, they should be paid by Madam Yeung to the Plaintiffs, to be taxed if not agreed.

130.  I thank counsel for their assistance.