LO KA YI v. YAT FUNG PRECIOUS METALS MANUFACTORY CO LTD AND OTHERS

HCA 1116/2020

[2021] HKCFI 1475

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1116 OF 2020

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REASONS FOR DECISION

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1.  This is an application by Lo Ka Yi (“P”) for summary judgment against Yat Fung Precious Metals Manufactory Company Limited (“D1”). P’s summons was taken out after D1 had filed its defence and amended defence. At the conclusion of the hearing, P’s application was dismissed with costs on an indemnity basis. My reasons appear below.

Background facts

2.  A sum of HK$6,958,000 (“the sum”) was transferred on 26 June 2020 from P’s account maintained with CMB Wing Lung Bank Ltd (“D3”) to the D1’s bank account maintained with the Bank of China (HK) Ltd (“BOC”).

3.  The transfer was made by D3 pursuant to a remittance application presented by one “Law Ming Chun” to D3 earlier the same day.

4.  D1 is a company carrying on a business of precious metals (including selling pure gold), casting and trading, refining and recycling, as well as jewellery.

5.  Its only directors and shareholders are So Tin Cho (“Mr So”) and his wife Lin Wan Yang (“Ms Lin”) who started the business in 1988 under the tradename of Tin Fung Jewellery Casting Company and subsequently through inter alia D1.

6.  Lin Yang (“Mr Lin”), Ms Lin’s brother has been working for the business for about 20 years and handled a telephone request from a Mr Lo (“the Purchaser”) for the purchase of about 10 kg of pure gold who sought confirmation of the gold price for the transaction.

7.  It is D1’s company policy to require purchasers to make prepayment and it is only after confirmation of receipt of the purchase money for an order that it would confirm the exact gold price with the purchaser and proceed with executing the order.

8.  The Purchaser was so informed and later on that morning he advised Mr Lin that the transfer had been made and sent Mr Lin a copy of the remittance application issued by D3 stating that the sum was being remitted from a bank account in the name of Lo Ka Yi to D1’s bank account.

9.  After BOC confirmed receipt of the sum in D1’s bank account around 5pm that day, Mr So instructed Mr Lin to proceed with the sale of pure gold to the purchaser.

10.  The pure gold was delivered by D1 to the Purchaser’s representative who presented himself as the holder of the HKID card in the name of “Law Ming Chun” at D1’s office shortly after 6pm on the same day.

Applicable legal principles

11.  The principles governing O 14 applications are well-settled. When such an application is made, the onus is on the defendant to show that there is a triable issue or an arguable defence. The applicable test is whether the defendant’s assertions are believable.

P’s claim

12.  P’s claim against D1 is for restitution based on unjust enrichment.

13.  D1 filed its amended defence on 30 September 2020, pleading that it was a bona fide seller in respect of the sale and purchase of pure gold (“the transaction”) and that it received the transfer from P’s bank account in the ordinary course of business without notice of the alleged fraud.  It provided details of the relevant events of 26 June 2020 in relation to the transaction.

14.  In essence, D1’s defence is that there was no enrichment; D1 changed its position upon receipt of the sum by selling and delivering gold of that value; and it was a bona fide seller without notice of the fraud on P.

(1) Unjust enrichment

15.  Mr Jackson Poon, counsel for P submitted that as a victim of fraud, P would prima facie have a claim in money had and received against a recipient of the funds pursuant to the fraud, unless the recipient can establish that he is a bona fide purchaser for value without notice: Ferrari North America Inc v Changhon International Energy Co Limited and Others [2018] HKCFI 1603 at §12. That submission was not controversial.

16.  Based on the fact that the sum was traced into D1’s bank account, it was submitted that P was entitled to recover the funds in the equity from the fraudulent recipient, citing Michael Chen Kang Huang v Peter Lit Ma [2009] 6 HKC 191 at §56.

17.  Pausing here, the ‘fraud’ pleaded in the amended statement of claim was that of the 2^nd defendant Law Ming Chun (“D2”). There are no particulars of fraud given vis-a-vis D1 and it is unclear on what basis D1 is said to be a fraudulent recipient for the Michael Chen case to be applicable.

18.  In any event, even if the property is traceable in equity on constructive trust, that is subject to all restitutionary defences, such as change of position: see Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 at 716G-H.

19.  The classic illustration of the defence can be found in Lord Templeman’s speech in Lipkin Gorman (a firm) v Karpnale Limited [1991] 2 AC 548 where (at 580H-581A) he stated as follows:

“In my opinion in a claim for money had and received by a thief, the plaintiff victim must show that money belonging to him was paid by the thief to the defendant and that the defendant was unjustly enriched and remained unjustly enriched. An innocent recipient of stolen money may not be enriched at all; if Cass had paid £20,000 derived from the solicitors to a car dealer for a motorcar priced at £20,000, the car dealer would not have been enriched. The car dealer would have received £20,000 for a car worth £20,000. But an innocent recipient of stolen money will be enriched if the recipient has not given full consideration.”

20.  P submitted that D1 cannot avail itself of the defence of bona fide purchaser for value because D1 was “careless and/or too loose” when handling the transaction for the purchase of gold. In response to the court’s question, P maintained that the court was not being asked to conduct a mini trial on affidavit in that P is not disputing D1’s evidence.

21.  In P’s written submissions[1], P elaborated on the respects in which D1 was said to be negligent: D1 had not checked (i) the identity of the Purchaser, (ii) the identity of the servant of the alleged purchaser, (iii) the identity of the one who transferred the money to D1; and (iv) the source of the money. It was said that it is open to the court to make a finding that D1 was negligent in those respects by simply relying on D1’s affirmations.

22.  As to §21 (i) and (iii) above, the court queried whether it is P’s case that Mr Lin, upon receiving the telephone call from the Purchaser, should have checked the identity of the Purchaser and if so how that was to be accomplished.

23.  D3’s pleaded defence reveals that D3 took steps to verify the Purchaser’s identity before processing the remittance from P’s bank account to D1’s bank account. D3 called P’s registered contact number.  The recipient of the call whom D3 believed was P confirmed that the purpose of the remittance was to purchase gold, the exact amount of the remittance and the fact that she was not free to deal with it herself but had asked Law Ming Chun to handle it for her.

24.  In addition, D3 had also sent an SMS message to P’s registered number and the recipient of the call was able to provide information of P’s ID card number as well as the number of credit cards she had with D3.

25.  In view of the matters described, the allegations in §21 (i) and (iii) were no longer pursued.

26.  If and in so far as it is suggested that the court (i) should evaluate whether D1 was negligent in handling the transaction; and/or (ii) in deciding on relief, to take into account the respective faults of P and D1, there would not appear to be any valid basis for such an approach.

27.  In Dextra Bank & Trust Co Limited v Bank of Jamaica [2002] 1 All ER (Comm) 193, the Privy Council (at §45) declined to introduce the concept of relative fault into this branch of the common law.  The same approach was adopted by the court in Credit One Finance Limited v Yeung Kwok Chi [2020] HKCFI 2450 at §70.

28.  Plainly, the issue of whether or not D1 was negligent in any respect is a matter for trial and wholly unsuitable for any form of summary determination.

     (2) Bona fide seller defence

29.  D1’s affirmations contain a full and meticulous account (exhibiting contemporaneous documents) to show the various stages of the transaction which was carried out in the ordinary course of D1’s business.

30.  The defence of a bona fide purchase for value requires the party asserting the defence to show that (i) value was given for the property received; (ii) that he acted in good faith; and (iii) without notice: Goff & Jones on The Law of Unjust Enrichment (9^th edn.), §§29-08.

31.  Mr Ernest Koo, counsel for D1, submitted that so long as the 3 essential elements are satisfied, nothing in the Ferrari case limits the availability of the defence to a bona fide purchaser and not a seller. In my view, that must be correct.

     (3) Change of position

32.  D1’s case is simply that but for remittance or transfer it would not have entered into the transaction and delivered the pure gold to the Purchaser.

33.  D1 submitted that the facts P relied on, namely, that the sum remained in D1’s bank account and that P had never consented to the remittance, are irrelevant to its defence of change of position which factually occurred.  D1 parted with pure gold which had a value equivalent to the sum as of the date of the transaction.

34.  D1 further submitted that there is a distinction between the bona fide purchase defence and the defence of change of position. Lord Goff recognised that distinction in Lipkin Gorman (a firm) v Karpnale Limited [1991] 2 AC 548 when (at 580H-581A) he stated:

“… change of position will only avail a defendant to the extent that his position has been changed; whereas, where bona fide purchase is invoked, no enquiry is made (in most cases) into the adequacy of the consideration.”.

35.  Thus, it is stated in Goff & Jones at §29-13 that:

“…the change of position defence only operates pro tanto, to the extent that the defendant has suffered detriment, whereas the bona fide purchase defence always operates as an absolute bar: provided that the defendant has given some consideration in exchange for the relevant property, the claim will fail completely, whatever the value of the consideration given”.

36.  In the present case, on D1’s pleaded case, there is no difference between the 2 defences if D1 succeeds in demonstrating at trial that the value of the gold delivered to the Purchaser is the same as the remittance amount.

Conclusion

37.  As it was clear beyond peradventure that D1 has a bona fide defence to P’s claim, P’s application fell to be dismissed with costs.

38.  D1 applied for indemnity costs on the basis that after D1 filed its defence on 3 September 2020 with full particulars raising a viable defence, P should have known that any application for summary judgment would be a waste of judicial resources.  Yet it proceeded not only to take out the present application but also obtained Mareva injunction freezing D1’s assets up to the value of the sum which is still extant. The injunction secured P’s position pending trial.

39.  D1 referred to the decision of Mimmie Chan J in Qantex Capital Markets Limited v Dimitri Philippides [2019] HKCFI 880 where indemnity costs were awarded to the defendant after dismissing the plaintiff’s application for determination of points of law under O 14 A and for summary judgment. An unwarranted summary judgment application which does not promote the overall objectives of the CJR (for example, by the taking of unnecessary steps that delay the trial of the real issues in dispute and the action and taking up valuable court time) is an abuse of process.

40.  Those considerations are equally applicable to the present case. Unquestionably, had serious consideration been given to D1’s defence, no application for summary judgment would have been made.  The injunction ensured that if P were to succeed at trial, she would not be left with an empty judgment. For all those reasons, an order for indemnity costs was warranted.

41.  There is to be an order nisi of costs on indemnity basis in favour of D1 with certificate for counsel, such costs to be summarily assessed and payable forthwith.  Directions will be given separately for the summary assessment.