YIP WAI HUNG v. SHANGHAI BUSINESS INFORMATION LTD

DCCJ 6630/2019

[2023] HKDC 401

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 6630 OF 2019

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BETWEEN

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JUDGMENT

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Introduction

1.  The Plaintiff claims to be a victim of fraud, whereby she was procured to transfer the sums of HK$200,000 (the “1^st Sum”) and HK$90,000 (the “2^nd Sum”) into the Defendant’s account (no. 48707279 maintained with Citibank (Hong Kong) Limited, “D’s Account”) on 25 March 2019 and 26 March 2019 respectively. She seeks to recover those sums in this action.

2.  Trial was originally scheduled to take place before me commencing on 28 June 2022 for 3 days. On the first day of trial, in view of various pleading objections raised by both sides, I adjourned the trial to dates in October 2022 with no order as to costs of the adjournment such that both sides may in the meantime perfect their pleadings. That seemed to me to be the most pragmatic course to take to allow the substantive rights of the parties to be properly adjudicated.

3.  The adjourned trial came back before me in October 2022. Both sides have since amended their pleadings and the objections have now fallen away.

The respective cases of the parties

The Plaintiff’s factual case

4.  The Plaintiff claims to be a fraud victim in a purported loan transaction involving an intermediary. The background facts are set out in her witness statement.

5.  In gist, in around 2017, the Plaintiff received a phone call from a male who introduced himself as Mr Wong and claimed to be a staff member of Hang Seng Bank (“Wong”). Wong asked the Plaintiff whether she needed a loan. At the time, the Plaintiff had credit card debts of around HK$200,000 plus other indebtedness towards money lenders, all of which attracted very high interest. The Plaintiff wanted to restructure her debts and therefore told Wong that she was interested in getting a loan.

6.  The Plaintiff physically met Wong at the Mongkok branch of Hang Seng Bank. Wong asked the Plaintiff for her financial information and assisted her in making a loan application, which was in due course rejected by the bank due to the Plaintiff’s poor credit rating. The Plaintiff saved Wong’s phone number notwithstanding the bank’s rejection of the loan application.

7.  It was not until around 1 March 2019 that they had further contact. The Plaintiff received a call from Wong and he asked if the Plaintiff needed a loan. Wong told the Plaintiff that he knew she had an outstanding mortgage of around HK$900,000 with Public Bank (大眾銀行) and asked if she would wish to transfer the mortgage to Hang Seng Bank to benefit from a lower interest rate. Wong then sent his Hang Seng Bank business card to the Plaintiff via WhatsApp.

8.  A few days later, Wong told the Plaintiff that in order for the mortgage transfer to be approved, the Plaintiff had to first repay her outstanding credit card debts and personal loans (the “Outstanding Debts”). Wong gave a telephone number (6703-0674) to the Plaintiff and said that she should find a Mr Cheung (“Cheung”) on that number for assistance. The Plaintiff had no reason to doubt at that stage and accordingly did as she was told.

9.  Similar to Wong’s advice to the Plaintiff, Cheung also informed her that she had to first repay the Outstanding Debts before the mortgage transfer would be approved. Cheung suggested that the Plaintiff should borrow HK$300,000 for this purpose and introduced her to various money lenders, but none of them was willing to advance to the Plaintiff. Eventually the Plaintiff managed to borrow HK$300,000 (by way of a cheque[1]) on 25 March 2019 from a money lender that she herself found.

10.  The Plaintiff immediately informed Cheung after getting the cheque from the money lender. Cheung instructed the Plaintiff to deposit the money into D’s Account so that he may assist the Plaintiff in repaying the Outstanding Debts. The Plaintiff therefore attended Wing Lung Bank on the same day to cash the cheque, and she then attempted to deposit the cash into D’s Account at Citibank. She was however informed that the daily maximum for cash deposit was HK$200,000 (with a handling fee of HK$1,000). The Plaintiff called Cheung who directed the Plaintiff to deposit only HK$200,000 on that day. The Plaintiff complied[2] (she also paid HK$1,000 handling fee on top) and sent the deposit slips to Cheung by WhatsApp. Cheung then told the Plaintiff that she only needed to further deposit HK$90,000 into D’s Account. This led the Plaintiff to think that her Outstanding Debts at the time amounted to HK$290,000.

11.  Since the Plaintiff knew that Bank of China had a lower handling fee for inter-bank transfers, on the next day (26 March 2019), she first deposited HK$90,000 cash (from the cashing of the cheque) into her personal bank account at Bank of China (no. 01288910560859, “P’s Account”), and then caused HK$90,000 to be transferred from P’s Account to D’s Account[3]. The transfer slip was sent to Cheung by WhatsApp.

12.  After the 2 transfers, the Plaintiff was unable to contact Cheung or Wong. She reported the incident to the police on 18 April 2019.

The Defendant’s factual case

13.  The Defendant is a limited company incorporated in Hong Kong. It was incorporated for the sole purpose of providing ancillary support to Merchants Century Limited (“Merchants Century”), which in turn is engaged in the business of money exchange and remittance services (“Money Services”) under the trading name “USD Money Exchange Company” (美源人民幣找換匯款公司)[4].

14.  More specifically, the Defendant maintains D’s Account to receive funds as an agent for and on behalf of Merchants Century in the course of the latter’s business. It is said that when the Defendant receives funds as an agent of Merchants Century, the Defendant is under an obligation to repay such sums to Merchants Century or to dispose of it in accordance with the latter’s instructions[5].

15.  The Defendant admits that D’s Account was credited with the 1^st Sum and the 2^nd Sum on 25 and 26 March 2019 respectively[6]. The Defendant says that these transactions arose in the course of carrying out Money Services as the agent of Merchants Century for one customer who purported to be a Mr. Lau Mau Nang (“Lau”, 劉謀能)[7] in the following manner.

16.  On or around 8 or 9 March 2019, the manager of Merchants Century Madam Liu (“Liu”, 廖安琪) received a call from Lau who said that he wished to inquire about remittance procedures. Lau was a new customer and said he needed to make a remittance of 1.4 million dollars (presumably he meant Hong Kong Dollars)[8]. Liu continued to liaise with Lau through WhatsApp, and cutting a long story short:

(1) Lau provided a copy of his Hong Kong identity card to Liu on 11 March 2019;

(2) On 13 March 2019, Liu asked Lau which bank he intended to use for the remittance (because it would be quicker and easier if both sides use the same bank). Lau responded that there was a slight delay and he would only be able to revert later;

(3) They were back in communication again in the morning of 25 March 2019 when Liu sent over the account details of D’s Account to Lau. In this message there was a clear direction that a cash deposit would not be accepted (“不可存現金”);

(4) At around 5:26pm on 25 March 2019, Lau sent a copy of the deposit slip by WhatsApp to Liu recording the deposit of the 1^st Sum in favour of D’s Account. Lau also stated that there would be a further deposit of HK$90,000 the following day;

(5) Liu however discovered that the 1^st Sum was deposited in cash. She reminded Lau that this was not permissible, but at the same time she thought there was no point going back on the HK$200,000 that had already been deposited after checking that D’s Account was indeed credited with the sum (“無謂繼續追究”)[9]. Her evidence is that this was how Merchants Century would usually handle customers who neglect the direction and make a cash deposit (“這亦是美源對一時疏漏以現金方式入數的客人的做法”)[10];

(6) On 26 March 2019, Lau sent a copy of the transfer slip by WhatsApp to Liu recording the transfer of the 2^nd Sum from P’s Account in favour of D’s Account. Lau further sent copies of the Plaintiff’s identity card and address proof (a water bill) to Liu (which the Plaintiff had earlier provided to Wong and/or Cheung), together with his own (i.e. Lau’s) address proof (a bank statement from Hang Seng Bank);

(7) Lau directed the sum of HK$290,000 (the 1^st Sum and the 2^nd Sum) to be exchanged into RMB and remitted to an account in the Mainland under the name of one Madam Chen (陳碧娟) maintained with Agricultural Bank (“Chen’s Account”);

(8) Liu assisted Lau to fill up various remittance forms, and on 26 and 27 March 2019 Merchants Century arranged for a total of RMB 250,270 to be remitted to Chen’s Account as directed by Lau.

17.  The Defendant further confirms that at all material times it has no staff member with the surname Cheung[11].

The pleaded cause of action and defence

18.  At the start of the trial, Mr Esmond Wong, counsel for the Plaintiff, confirmed that the Plaintiff does not allege that the Defendant is implicated in the fraud. Indeed, it is common ground that the Plaintiff had no prior dealings with the Defendant[12].

19.  The only cause of action pursued by the Plaintiff for the recovery of the 2 sums is unjust enrichment.

20.  As mentioned above, the Defendant admits receipt of both the 1^st Sum and the 2^nd Sum. The Defendant however argues that there was no enrichment, and further relies on the defences of ministerial receipt and change of position. The Defendant is not contending that it is a bona fide purchaser for value without notice.

21.  In reply, insofar as the defences of ministerial receipt and/or change of position are applicable, the Plaintiff says that they are rebutted by illegality. Reliance is placed on the Defendant’s and Merchants Century’s failure to comply with sections 30, 31 and 40 of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (“AMLO”, Cap 615).

General credibility of the witnesses

22.  The Plaintiff (for herself) and Liu (for the Defendant) gave oral evidence at trial.

23.  In assessing their evidence, I bear in mind the well-known principles set out in Lee Fu Wing v Yan Po Ting Paul [2009] 5 HKLRD 513 at §53 per Deputy High Court Judge Thomas Au (as he then was). I should generally place weight on contemporaneous documents and inherent probabilities.

24.  I also take into account the demeanour of the witnesses when giving evidence, but I remind myself that the matter before me is a trial of the issues as put before the Court, not a trial of the character of the parties or the witnesses: Sun Legend Investments Ltd v Ho Yuk Wah (2011) 14 HKCFAR 541 at §§57-58.

25.  It is common ground that the Plaintiff and the Defendant do not know and have no dealings with each other. In this regard, both parties have had limited material to challenge the other side’s factual case by way of cross-examination. For example, the Defendant was not privy to the matters whereby the Plaintiff was (allegedly) defrauded by Cheung and/or Wong. Equally, the Plaintiff has no knowledge of the dealings between the Defendant and Lau.

26.  I have fully considered the comprehensive closing submissions of both parties concerning the credibility of the factual witnesses. My assessment is that both the Plaintiff and Liu are honest witnesses. Both were trying their best to truthfully tell their side of the story to the Court. I find them both to be generally credible, subject to 2 matters:

(1) I acknowledge that the Plaintiff’s evidence was at times clumsy. For example, she was unable to recall the amount of the Outstanding Debts. This is somewhat curious because the whole point of getting a loan from the money lender as advised by Cheung and Wong was to have them first paid off. Furthermore, she was unable to meaningfully explain her line of thought as to how savings might be achieved by borrowing from money lenders (which she accepted would attract high interest) to pay off the Outstanding Debts. Nevertheless, I am of the view that these matters are equally consistent with her character which comes across as (without disrespect) somewhat naïve and gullible (which led her to be more prone to be deceived, and it is precisely what her case is about). I also accept that given her past dealings with Wong back in 2017 (including a physical meeting at Hang Seng Bank), it was quite natural for her to place trust on him in 2019. I have no difficulty in accepting her entire evidence, in particular the fact that she was defrauded to cause the 2 sums to be paid into D’s Account;

(2) There are aspects of Liu’s evidence concerning the precise relationship between the Defendant and Merchants Century which I have reservations. It is a matter that I will need to come back to in greater detail below.

Analysis

27.  It is clear that this is yet another case, by now regularly handled by legal practitioners, where the Plaintiff was fraudulently procured to part with her money and the crime proceeds were “laundered” through money exchangers and intermediaries across the Mainland border to a third party recipient.

28.  The focus of the trial is whether the defences of ministerial receipt and change of position are made out, and if so whether they are rebutted by illegality. I should nevertheless begin with an analysis as to whether the Plaintiff has made out a claim for unjust enrichment.

The Plaintiff’s unjust enrichment claim

29.  The framework for an unjust enrichment claim is not in dispute and it is authoritatively set out by the Court of Final Appeal in Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79 at §§66-68 as follows:

(1) Was the Defendant enriched;

(2) Was the enrichment at the Plaintiff’s expense;

(3) Was the enrichment unjust; and

(4) Whether there are any applicable defences.

30.  The first 2 stages may be taken together and disposed of briefly. For the 2^nd Sum, it was a direct remittance from P’s Account to D’s Account. As for the 1^st Sum, it was a cash deposit made by the Plaintiff into D’s Account. It seems to me plain that the Defendant was enriched at the Plaintiff’s expense. The issue of ministerial receipt, which some may perceive as a question of whether the Defendant was indeed enriched, will be addressed below.

31.  As to the “unjust factor”, the Plaintiff says that the payments were made by mistake. This is a well-established unjust factor to ground restitution: Guaranty Bank and Trust Co v Zzzik Inc Ltd (unreported, HCA 1139/2016, 18 July 2016) at §27 where it was held that “[r]egarding the claim based on unjust enrichment, money paid under a mistake of fact is prima facie recoverable provided that the payer did not intend the payee to have the money in any event, the money was not paid for good consideration and the payee has not in good faith changed his position”. See also Goff & Jones, The Law of Restitution (9^th edition) at §9-02.

32.  On the facts of the present case, given that I accept the Plaintiff’s evidence that she has fallen victim to a fraud pursuant to which she caused the 2 sums to be transferred to the credit of D’s Account, mistakenly believing that those would be used to pay off the Outstanding Debts, I am satisfied that the unjust factor is made out. I further note that Guaranty Bank was also concerned with a fraud case.

33.  There were debates between the parties as to whether this was a real “mistake” case; the Defendant’s argument is that the Plaintiff’s true complaint is for “failure” or “lack of basis”.

34.  Without disrespect to counsel, I do not intend to extensively set out their respective arguments. In my view it is at most a technical pleading objection and the ultimate point of substance is this. If the Plaintiff had been told of the true position that, after depositing the 2 sums into D’s Account the Outstanding Debts would still not be settled, there is no doubt that the Plaintiff would not have parted with her money in the first place. That was precisely the operative and causative mistake that she was labouring under which caused her to credit the 2 sums with D’s Account, and I am satisfied that this is sufficient to come under the Plaintiff’s pleaded case.

35.  This brings me to analyse whether the defences of ministerial receipt and/or change of position are made out.

The defence of ministerial receipt

36.  The defence of ministerial receipt usually arises where the benefit was received by the defendant as an agent. Where the agent has actually paid over the benefit to his principal, the defence of ministerial receipt substantially overlaps with the change of position defence. However, in circumstances where the agent has not (or at least not yet) paid over the benefit to his principal, the defence of ministerial receipt may (at least this is the preferred view of the learned authors of Goff & Jones at §28-02) still be available so long as the agent is under an immediate duty to account to his principal. This approach was recently upheld by the UK Supreme Court: see Test Claimants in the Franked Investment Income Group Litigation v Commissioners for HMRC [2021] UKSC 31 at §§169 to 172. On this analysis, the defence of ministerial receipt is essentially the same as a denial of the enrichment element of the cause of action (i.e. the agent never takes the value of the benefit for himself and the principal alone is enriched). See the analysis in Goff & Jones §§28-01 to 28-03.

37.  It goes without saying that in order for the defence of ministerial receipt to be established, the Court must be satisfied with the existence of the alleged agency relationship between the (supposed) agent and the (supposed) principal. In addition, the agent must have acted in good faith and without notice of the claim: Goff & Jones §28-01; Aesthetics Architecture Pty Ltd v Main Crown Enterprises Ltd (unreported, CACV 188/2013, 11 August 2014) at §18.

38.  On the facts of this case, the Defendant argues that it received the 2 sums only as the agent of Merchants Century – D’s Account was merely a conduit for receiving money on behalf of Merchants Century in the course of the latter’s money exchange and remittance business. Since the Defendant had an immediate obligation to account to Merchants Century upon receipt of the 2 sums, the defence of ministerial receipt is applicable.

39.  Whether the Defendant received the 2 sums as the agent of Merchants Century (and/or with an immediate obligation to account) is a question of fact. It is an issue raised by the Defendant and the burden of proof lies upon it: Zhang Kan v SPH (Hong Kong) International Trading Co Ltd [2022] 3 HKLRD 813[13] at §§39-40.

40.  I am not satisfied that the Defendant is able to discharge its burden in showing that it was the agent of Merchants Century for the receipt of the 2 sums or that it was under an immediate obligation to account for the receipt to Merchants Century, for the following reasons:

(1) There is no documentary evidence, such as agreements or correspondences exchanged between the Defendant and Merchants Century, showing the alleged agency relationship;

(2) There is no documentary evidence (not even WhatsApp or Wechat exchanges between staff members) showing how Merchants Century would generally give instructions to the Defendant, either in relation to the conduct of Merchants Century’s money exchange and remittance business or to make remittances to Merchants Century after the Defendant has received funds allegedly on its behalf;

(3) There is no documentary evidence specifically concerning the 2 sums in question regarding Merchants Century’s instructions to the Defendant either to account for the receipt or to pay over;

(4) Liu confirmed that she was neither involved in the decision making process nor the operational arrangements regarding the alleged agency relationship between the Defendant and Merchants Century. In this regard, I note Liu’s evidence that she was only an employee of Merchants Century (not the Defendant), and in her witness statement she never mentioned that she had any role in the business or operations of the Defendant. Liu also confirmed that she had not been “taking part in handling the instructions towards the Defendant to transfer the sums it received to Merchants Century”[14];

(5) The only objective evidence which the Defendant may rely on to show the alleged agency relationship is that the Defendant and Merchants Century shared the same registered offices (as shown in their annual returns)[15]. In my judgment that is very far from proving the alleged agency relationship. At most it might be said that they are related companies, but that is fundamentally different from an agency relationship.

41.  I also accept the Plaintiff’s submission that given the (alleged) long standing agency relationship between Merchants Century and the Defendant, there are bound to be documents (transfer slips, bank statements, accounting entries etc) concerning similar transactions whereby the Defendant initially received funds on behalf of Merchants Century and there was a subsequent accounting exercise or an actual transfer of funds in accordance with Merchants Century’s instructions. Liu confirmed in her oral evidence that she has previously come across documents concerning such similar operations[16]. None was however disclosed by the Defendant. The complete lack of disclosure casts a huge doubt on the veracity of the Defendant’s case.

42.  The Defendant further argues that from the WhatsApp exchanges between Liu and Lau, Liu (on behalf of Merchants Century) directed Lau to deposit funds into D’s Account for the carrying out of Money Services and an agency relationship may be inferred[17]. In my judgment, such banking instruction is unable to show the alleged agency relationship. There may be a host of reasons why Merchants Century would direct the deposit to be paid into D’s Account (e.g. it was intended by Merchants Century to be a payment in favour of its own creditor).

43.  I therefore reject Liu’s evidence insofar as she says that (i) there was an agency relationship between Merchants Century and the Defendant in relation to the receipt of the 2 sums in question and (ii) the Defendant was under an immediate obligation to account for the receipt of the 2 sums to Merchants Century. These are no more than bare assertions with no documentary support whatsoever. I find as a fact that there was no such agency relationship as between Merchants Century and the Defendant, and that the Defendant was and is not under an immediate obligation to account for the receipt of the 2 sums to Merchants Century. These factual findings are necessarily fatal to the defence of ministerial receipt.

The defence of change of position

44.  The elements of the defence are now well-known. In gist, the defendant has to prove that (i) there was a causative link between the receipt of the benefit and his change of position, such that but for the receipt of the benefit, the defendant’s position would not have changed, either because the defendant no longer has the benefit received or because he has changed his position in some other way in reliance of the receipt of the benefit, and (ii) the defendant’s position must have changed in circumstances which make it inequitable for him to make restitution to the plaintiff: TTI Global Resources Hong Kong Ltd v Hongkong Myphone Technology Co., Ltd [2021] HKCFI 306 at §55.

45.  It is common ground between the parties that the defence is only available to a defendant who has changed his position in good faith.

46.  The Defendant is, quite rightly in my view, not seriously pressing this line of defence in closing[18], and I will dispose of the point briefly. There is nothing in terms of evidence showing that the Defendant changed its position. At most it showed that Merchants Century remitted certain sums to Chen’s Account[19]. In addition, Liu’s evidence is that she did not know what exactly happened to the 2 sums after D’s Account was credited. There is no evidence showing that the Defendant transferred those sums either to Merchants Century or to a third party designated by Merchants Century. I am therefore not satisfied that the Defendant has in fact changed its position after having received the 2 sums in question.

Illegality and its impact on the defences

47.  Given my findings above, it is strictly not necessary for me to consider whether illegality was involved and if so how it might impact on the availability of the defences. But in case I am wrong, I now proceed to consider the issue.

48.  The illegality arises this way. It would appear that Merchants Century holds a licence for operating money service under the AMLO[20]. It is not in dispute that a money service operator may only use specific accounts reported to and approved by the Customs & Excise Department for its business. In particular, a licensed money service operator must report any addition of bank account for such use by submitting a Form 6. There is no evidence whatsoever that Merchants Century obtained any approval from the Customs & Excise Department to use D’s Account for operating its money service business right at the start, or has obtained approval at any time thereafter by submitting a Form 6. Under section 40 of the AMLO, a licensee must report any changes in particulars to the Commissioner of the Customs and Excise in writing within 1 month beginning on the date on which the change takes place and failure to do constitutes an offence under section 40(4). Such changes include the addition of bank account used for operating money service. Breach of this requirement constitutes a criminal offence. See a very similar analysis in The Yerrid Law Firm v Qiansbaizi Trading Ltd [2021] HKCFI 620 at §23.

49.  Accordingly, without obtaining approval from the Customs & Excise Department, it was illegal for Merchants Century to “borrow” D’s Account[21] to be used for its money service business, and it was impossible for the Defendant to have legally received the 2 sums as the agent of Merchants Century in the course of the latter’s business. The illegality taints not only Merchants Century (being the licensee who has an obligation to obtain approval) but also the Defendant (who claims itself to be the receiving agent of Merchants Century and received the 2 sums in D’s Account in such capacity): Yerrid at §24.

50.  Once such illegality is established, it defeats both defences of ministerial receipt and change of position, as both require good faith as an element of the defence. In this connection, the reasoning in Yerrid at §§20-22 applies with full force to the present case (I recognise that Yerrid was a decision regarding an application to set aside of a default judgment). I am also aware of a long line of authorities dealing with substantially the same point, see e.g. Barros Mattos Junior v MacDaniels Ltd [2005] 1 WLR 247 and Arrow ECS Norway AS v M Yang Trading Ltd [2018] HKCFI 975. Insofar as is necessary, I also find that by allowing D’s Account to be used by Merchants Century in circumstances that violate the provisions in the AMLO, the Defendant has failed to act in a commercially acceptable way: Predicine Holdings Ltd v Bianchi (Hong Kong) Ltd [2021] HKCFI 123 at §§99.

51.  The Defendant accepts that if illegality is established, it defeats the change of position defence[22]. But the Defendant argues that illegality does not defeat the defence of ministerial receipt. Mr. Jethro Pak on behalf of the Defendant submits that Yerrid should not be followed in this regard, primarily because the Court there only focussed its decision (particularly at §21) on the impact of illegality on the change of position defence upon considering Arrow ECS Norway (which is also a decision concerning the impact of illegality on the change of position defence).

52.  I am unable to accept this argument. It ignores the Court of Appeal decision of Aesthetics Architecture, which held that good faith is an essential ingredient to the defence of ministerial receipt (and it is a decision that is binding on me). Furthermore, the illegality in this case (of not obtaining approval from the Customs & Excise Department to use D’s Account to operate Merchants Century’s money service business) has the effect of prohibiting any agency relationship (even if one is established on the facts) to be recognised when the Defendant received the 2 sums allegedly on behalf of Merchants Century in the course of its money service business, and this negates the defence of ministerial receipt.

53.  Accordingly, if contrary to my findings above either (or both) of the defences of ministerial receipt and change of position is made out on the evidence, I would have held that they are defeated by illegality in any event.

Conclusion

54.  I therefore enter judgment in favour of the Plaintiff in the sum of HK$290,000, together with interest at 1% over prime rate from the date of the respective transfers to the date of judgment, and thereafter at judgment rate until full payment.

55.  I further make a costs order nisi that the Defendant shall pay the Plaintiff’s costs of the action (including all costs reserved if any) to be taxed if not agreed with certificate for counsel.