AXHT CO LTD v. FREEWAY FINANCE CO LTD

HCA 1320/2016

[2020] HKCFI 1603

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1320 OF 2016

________________________

________________________

________________________

J U D G M E N T

________________________

1.  In this action, the Plaintiff claims against the Defendant for a sum of HK$2,134,023 (“Sum”) on the basis of unjust enrichment. Both the Plaintiff and the Defendant are victims of fraud committed by one Mr Soe Kin Fai (“Soe”), who purported to be the sole shareholder and director of Wing Wo Lung Company Limited (“WWL”), which held a valuable property, on the strength of which the Plaintiff and the Defendant had advanced substantial loans.

THE FACTS

2.  The underlying facts in this case are not in serious dispute. 

3.  The Plaintiff and the Defendant are both licensed money lenders carrying on the business of money lending in Hong Kong.

4.  The subject matter of this claim relates to WWL, a Hong Kong incorporated company.  The shareholders of WWL are Overdale International Incorporation, a Liberian company, and Madam Lee Cheung Kam Lan.  The directors of WWL are Madam Lee Wai Lin, Mr Lam Kin Man Alex and Mr Tang Wai Yui.

5.  WWL is the registered owner of the entire building situated on Inland Lot No.3914 known as 228 Des Voeux Road West, Hong Kong (“Property”).  There is some evidence to suggest that in October 2015, the Property was valued at HK$80,000,000.

6.  In around September 2015, a number of documents were created which gave the impression that the registered shareholders of WWL had transferred their shares in WWL to Soe for valuable consideration.  Those documents were:-

(1)  Two share sale and purchase agreements, purportedly entered into between the registered shareholders of WWL and Soe, whereby the entire shareholding in WWL was stated to be sold to Soe for a total consideration of HK$13,000,000.  These agreements purported to bear the signatures of the vendors, and were stated to be witnessed by one Law Man, described as a practicing certified public accountant with what purported to be a registration number  on 19 September 2015.

(2)  Instruments of transfer and bought and sold notes with respect to the shares in WWL in favour of Soe.  These documents again purported to bear the signatures of the vendors, and were stamped on 17 September 2015.

(3)  Two copies of written resolution of the directors of WWL dated 10 September 2015 with identical content, namely to approve the transfer of shares in WWL in favour of Soe, the resignation of current directors and the appointment of Soe as director, and the change of company secretary.  One such resolution was purportedly signed by Madam Lee Wai Lin only, whereas the other was purportedly signed by all three directors.

7.  It transpired that the aforesaid documents and the signatures thereon were forged by Soe. The circumstances in which Soe’s fraud came to light are set out in paragraph 24 below.

8.  Meanwhile, relying on the forged documents in paragraph 6(3) above, Soe caused various documents to be filed at the Companies Registry on 11 September 2015 to change the registered office, directors and company secretary of WWL.

9.  Having completed these steps, Soe approached the Defendant shortly thereafter to apply for a loan of HK$2,000,000 (“D’s Loan”).  Soe proposed that he and WWL should be the borrowers, and offered the Property as security.

10.  The Defendant’s evidence (which was not challenged in its entirety) was that it had carried out due diligence, both by itself and through its solicitors, Messrs. Wong & Co (“W&C”), including (inter alia) searches at the Companies Registry to confirm Soe was the sole director of WWL, checking that Soe was the sole shareholder of WWL by reference to the documents supplied, confirming WWL was the registered owner of the Property and availability of original or certified copies of all title deeds to the Property, and carrying out winding up and bankruptcy searches of WWL and Soe respectively.

11.  On 21 September 2015, W&C reported back to the Defendant by letter that it had carried out the due diligence requested by the Defendant, and no problem or anomaly was identified in their letter.  They also confirmed that the title deeds and documents of the Property were retained by them for perusal and would be sent to the Defendant for safe custody in due course. 

12.  As it turned out, two assignments relating to the Property – including the assignment pursuant to which WWL acquired legal title to the Property – could not be provided.  Soe then executed a statutory declaration on 22 September 2015 stating that those title deeds had been lost and could not be found, and WWL had never deposited, mortgaged, charged, encumbered or otherwise dealt with those missing assignments or used the same as security for loan or had the same pledged by way of security with anyone (“Statutory Declaration”).

13.  The Defendant said that having obtained confirmation from W&C on the due diligence and being satisfied with its results, on 22 September 2015:-

(1)  It entered into a loan agreement with Soe and WWL as joint borrowers for the amount of D’s Loan (HK$2,000,000) for a term of 3 months (“D’s Loan Agreement”).  It was expressly provided that D’s Loan was to be secured by a legal charge over the Property.

(2)  WWL, acting by Soe, executed a legal charge over the Property (“D’s Charge”) to secure all sums advanced by the Defendant to Soe, who was described as the only “Borrower” in the First Schedule to D’s Charge.

(3)  The Defendant caused a cheque in the sum of D’s Loan to be paid to W&C, who thereafter released the same to Soe. 

14.  Thereafter, on 23 October 2015, Soe made an application to the Plaintiff for a loan.  He claimed to be the sole owner and director of a company that operated a hostel, with a monthly income of HK$100,000.  He also disclosed D’s Loan to the Plaintiff.  Soe told the manager of the Plaintiff, Mr Li Kin Wai (who gave evidence on behalf of the Plaintiff), that WWL was in need of a loan of HK$50,000,000 for redevelopment of the Property.  Soe also provided to the Plaintiff the documents referred to in paragraph 6 above.

15.  The Plaintiff then caused a land search of the Property and a company search of WWL to be carried out.

16.  After the aforesaid due diligence, the Plaintiff was satisfied that the loan application from Soe was genuine, and proceeded to negotiate on the amount of the loan to be advanced.  In the end, it was agreed that the Plaintiff would advance a loan of HK$25,000,000.

17.  To that end, on  October 2015:-

(1)  The Plaintiff entered into a first mortgage loan agreement with WWL for a loan of HK$15,000,000, with interest at the effective rate of 15% and repayable by 84 monthly instalments (the first of which would be due on 28 November 2015), secured on the Property and a personal guarantee by Soe.

(2)  The Plaintiff instructed Messrs. Cham & Co (“C&C”) to handle the transaction. C&C wrote to the Defendant to seek the relevant title deeds and documents for the Property, and the amount payable to the Defendant on redemption of D’s Charge.  C&C provided a written authorization from Soe for the release of the aforesaid information and the preparation of a Release of D’s Charge.

(3)  A mortgage dated 28 October 2015 over the Property was executed by Soe on behalf of WWL (“P’s Mortgage”).  P’s Mortgage was registered at the Lands Registry and under the Companies Ordinance on 3 November 2015.

(4)  Soe executed a guarantee dated 28 October 2015 to secure the liabilities WWL owed to the Plaintiff.

18.  On 30 October 2015, the Plaintiff entered into a second mortgage loan agreement with WWL for a loan of HK$10,000,000, with interest at the effective rate of 15% and repayable by 84 monthly instalments (the first of which would be due on 30 November 2015), secured on the Property and a personal guarantee by Soe.

19.  On the same day, Soe purportedly on behalf of WWL also executed a declaration confirming that HK$2,500,000 of the loan advanced by the Plaintiff should be paid to C&C for the purpose of discharging D’s Loan and related expenses.[1]

20.  The first and second mortgage loan agreements between the Plaintiff and WWL would be referred to collectively as “P’s Loan Agreement”, and the total loan amount of HK$25,000,000 as “P’s Loan”.

21.  P’s Loan (HK$25,000,000) was advanced in the following manner:-

(1)  HK$500,000 was paid in cash to Soe on 28 October 2015.

(2)  HK$14,500,000 was paid by cheque drawn in favour of WWL on 28 October 2015 which was received by Soe, purportedly on behalf of WWL.

(3)  HK$7,500,000 was paid by cheque drawn in favour of WWL on 30 October 2015, which was also received by Soe purportedly on behalf of WWL.

(4)  HK$2,500,000 was paid by cheque drawn in favour of C&C on 30 October 2015 to be stakeheld in accordance with the arrangement in paragraph 19 above.  On 5 November 2015, C&C drew 2 cheques of HK$2,134,023 and HK$4,000 in favour of W&C for the purpose of discharging D’s Loan and payment of related expenses.  After deducting the aforesaid as well as miscellaneous payments for the purpose of registration of P’s Mortgage, on 6 November 2015 C&C deposited the balance of HK$361,337 into one of the two bank accounts at DBS Bank (Hong Kong Limited) Soe opened in the name of WWL.

22.  On 5 November 2015:-

(1)  The Defendant executed a Receipt on Discharge of a Charge with respect to D’s Charge, and the same was registered at the Land Registry on 25 November 2015.

(2)  W&C on behalf of the Defendant released the title deeds and documents relating to the Property to C&C.  Amongst them was the Statutory Declaration.  The Plaintiff’s witness, Mr Li, confirmed that he was aware of the missing assignments, having been so informed by C&C.  When questioned, he explained that he did not find that there was anything strange about the missing assignments, as he relied on the Plaintiff’s lawyers (C&C) and they did not advise him that there was any need to look into the matter.  I accept his evidence.

23.  It appears that when the first instalments under P’s Loan Agreement fell due on 28 and 30 November 2015 respectively, WWL did not repay them, and the Plaintiff sent written chasers for repayment to the Property. 

24.  This alerted the real owners of WWL, and by a letter dated 3 December 2015 from Messrs. William Sin & So, WWL and its board of directors informed the Plaintiff that Soe was a stranger to WWL, Soe had relied on forged documents filed at the Companies Registry to hold himself out as shareholder and director of WWL, P’s Mortgage was likewise fraudulent, and WWL had reported the matter to the police.

25.  On 5 December 2015, the Plaintiff also reported the matter to the police.

26.  It appears that on 17 December 2015, the Plaintiff commenced High Court Action No 2980 of 2015 against WWL as first defendant and Soe as second defendant, and obtained an injunction ex parte against Soe restraining him from dealing with the funds in the DBS accounts referred to in paragraph 21(4) above.  The claim against WWL was withdrawn by consent on 6 June 2016, and it was further declared by consent that P’s Loan Agreement and P’s Mortgage (inter alia) would be declared null and void.  I am informed that with respect to Soe, save for HK$361,432.13 in the DBS accounts, the Plaintiff has made no further recovery.

27.  In the meantime, on 18 May 2016, the Plaintiff commenced this action against the Defendant to seek restitution of the HK$2,134,023 referred to in paragraph 21(4) above (ie the Sum).

28.  By a Deed of Confirmation of Invalidity dated 24 October 2016 between WWL and the Defendant, the Defendant confirmed that D’s Charge and the Receipt on Discharge of a Charge referred to in paragraph 22(1) above are invalid and void against WWL and the Property.

THE ISSUES

29.  It is common ground that the framework for approaching the Plaintiff’s claim in unjust enrichment is as set out by the Court of Final Appeal in Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79, paragraph 67 (Ribeiro PJ for the Court), namely to ask the following four questions:-

(1)  Was the defendant enriched?

(2)  Was the enrichment at the plaintiff’s expense?

(3)  Was the enrichment unjust?

(4)  Are any of the defences applicable?

30.  The plaintiff bears the burden to establish the first, second and third questions, whereas the defendant bears the burden to establish the fourth question: Goff & Jones, The Law of Unjust Enrichment, 9 ed, paragraph 1-09.

31.  There is no dispute between the parties over the first question – it is common ground that the Defendant did receive the Sum.

32.  However, the parties took issue with each of the second, third and fourth questions, to which I now turn.

“AT THE EXPENSE OF”

33.  The Plaintiff claims that the Defendant’s receipt of the Sum was at the expense of the Plaintiff, on the basis that it was the Plaintiff who drew a cheque of HK$2,500,000 in favour of C&C on 30 October 2015, from which C&C then drew a cheque in the amount of the Sum (ie HK$2,134,023) from its client account in favour of the Defendant on 6 November 2015.

34.  The Defendant disputes that the Sum was received at the expense of the Plaintiff, on the basis that in all the correspondence it had had with C&C leading up to its receipt of the Sum (namely the letters from C&C dated 28 October 2015 and 5 November 2015), C&C stated that they acted on behalf of Soe and WWL (as the case may be).  On that basis it contends the Sum was paid by C&C on behalf of Soe (and/or Soe and WWL).  

35.  The Defendant also relies on paragraph 12 of the Statement of Agreed Facts dated 19 February 2020, which states that:-

“Soe, purportedly acting on behalf of WWL, used part of the total loan proceeds of HK$25,000,000 from the Plaintiff to WWL to discharge [D’s Charge].”

36.  On the evidence, the position is as follows:-

(1)  On 30 October 2015, after the Plaintiff had entered into P’s Loan Agreement with WWL (acting by Soe), Soe on behalf of WWL stated in writing that HK$2,500,000 of P’s Loan should be paid to C&C for the purpose of discharging D’s Loan and related expenses.

(2)  The discharge of D’s Loan was a necessary step in perfecting the Plaintiff’s security over the Property, which at that time was subject to D’s Charge. 

(3)  On the same day (30 October 2015), the Plaintiff paid HK$2,500,000 by cheque to C&C. This was plainly in furtherance of the arrangement in sub-paragraph (1).

(4)  On 5 November 2015, C&C received W&C’s confirmation that the Sum required to discharge D’s Charge, whereupon the Sum was paid out of C&C’s client account by cheque drawn in favour of W&C.

37.  In the premises, it is clear that the Sum originated from the HK$2,500,000 the Plaintiff paid to C&C. 

38.  The requirement that the enrichment must have been gained “at the expense of ” the plaintiff reflects the principle underlying the law of unjust enrichment that it is concerned with the reversal of transfers of value between the plaintiff and defendant, as opposed to disgorgement of gains or compensation of losses: Goff & Jones paragraph 6-01.

39.  Whether a transfer of value is “at the expense of” the plaintiff is not a question of fact but a question of combined fact and law: Goff & Jones paragraph 6-02.

40.  The question is what is the legal test to be applied for the purpose of determining whether the plaintiff has suffered a loss that is sufficiently closely linked with the defendant’s gain for the law to hold that a benefit has been transferred from the plaintiff to the defendant.

41.  It is clear from the authorities that direct transfer from the plaintiff to the defendant is not necessary for this purpose, though it would no doubt satisfy the requirement. In Shanghai Tongji, the Court of Final Appeal rejected an argument advanced by the defendant (Casil), who received the proceeds of a sight letter of credit the plaintiff (Shanghai Tongji) caused its bank to issue, through negotiation of the draft with Casil’s own bank, that the enrichment of Casil was not at the expense of Shanghai Tongji.  It held that Casil’s enrichment was undoubtedly at the expense of Shanghai Tongji, for (i) the letter of credit was merely the mechanism whereby Casil received payment against tender of conforming documents at the direction and for the debit of Shanghai Tongji (paragraph 71), and (ii) the interposed issuing and negotiating banks merely provided the mechanism for making payment to Casil under the letter of credit; they were not intermediate recipients unjustly enriched but more than “a mere conduit-pipe” for payment to the ultimate recipient (paragraph 73). 

42.  In Khan v Permayer [2001] BPIR 95, the English Court of Appeal applied the test of “at whose ultimate expense” the payment was made.  In that case, Khan was indebted to Permayer.  Khan subsequently proposed an individual voluntary arrangement under the Insolvency Act 1986, which Permayer as creditor voted in favour of, and was ultimately approved.  Khan performed his obligations under the arrangement, including making payment to Permayer as provided thereunder (being 12% of the debt).  Thereafter, in exchange for his consent to the sale to a third party of the reversion of a property in which Khan operated his restaurant business, Permayer demanded that the outstanding debt owed by Khan to him should be repaid in full.  An arrangement was made whereby the third party would pay the outstanding sum to Permayer, who would thereafter recoup the same from Khan.  The payment was made by the third party, and Khan also reimbursed the third party.  It was then discovered that by concurring in the individual voluntary arrangement and accepting payment in performance thereof, Permayer’s debt had been discharged, and there was no debt due by Khan to Permayer at the time the third party made payment to Permayer.  The English Court of Appeal rejected Permayer’s argument that his enrichment, which came from the third party, was not at the expense of Khan.  At paragraph 40, Morritt LJ held that:-

“… a payment made by a third party under a mistaken belief which gives rise to unjust enrichment of the defendant may be recoverable by the person at whose ultimate expense it was paid if that person is also acting under the same mistake as the third party.”

43.  In Investment Trust Companies v Revenue and Customs Commissioners [2018] AC 275, the United Kingdom Supreme Court provided “more precise criteria” in response to the uncertainty in the approach to be adopted in determining whether an enrichment was “at the expense of” the plaintiff.  Bearing in mind that the purpose of the law of unjust enrichment is to correct normatively defective transfers of value, usually by restoring the parties to their pre-transfer positions, it held that:-

(1)  Whether a defendant has been enriched “at the expense of” a plaintiff depends on whether there has been a transfer of value between the parties in the sense that the defendant has received a benefit from the plaintiff and the plaintiff has suffered some form of economic loss through his provision of the benefit (paragraphs 43 to 44). 

(2)  The requirement that the plaintiff must also incur a loss through the provision of the benefit means that where the provision of the benefit is merely an incidental or collateral result of the expenditure, it would not normally satisfy such requirement.  A “but for” causal connection between the plaintiff’s being worse off and the defendant’s being better off is not sufficient in itself to constitute a transfer of value (paragraph 52).

(3)  Nor is the requirement satisfied by a connection between the parties’ respective benefit and loss merely as a matter of economic or commercial reality (paragraph 59).

(4)  The requirement would normally be satisfied if the transfer is direct, but there may also be other situations where an indirect transfer would suffice, for example through an agent, or the intervening transaction is found to be a sham, or that a set of related transactions operated in a coordinated way as forming a single scheme or transaction such that it would be unrealistic to consider each of the individual transactions separately, or the property received by the defendant from a third party is one that the plaintiff can an interest into, or where the plaintiff discharges a debt owed by the defendant to a third party (paragraphs 48, 49, 61 to 66). 

(5)  When the defendant has not received a benefit directly from the plaintiff, no question of agency arises, and where the benefit does not consist of property in which the plaintiff has or can trace an interest, it will generally be difficult to maintain that the defendant has been enriched at the plaintiff’s expense (paragraph 51).

44.  In my view, applying the principles set out above, the receipt of the Sum by the Defendant was clearly “at the expense of” the Plaintiff:-

(1)  The Defendant has received a benefit (the Sum) for which the Plaintiff has suffered some form of economic loss through providing, in that the Sum originated from the Plaintiff.

(2)  The interposition of C&C was no more than a mechanism, or a conduit-pipe, through which the payment from the Plaintiff to the Defendant was effected.

(3)  The receipt of the Sum by the Defendant was not an incidental benefit; the Sum was paid for the purpose of discharging D’s Charge and perfecting P’s Mortgage.

THE UNJUST FACTOR

45.  The unjust factor relied upon by the Plaintiff is mistake of fact. 

46.  A claim for unjust enrichment based on mistake raises three questions:-

(1)  Was there a mistake?

(2)  Did the mistake cause the payment?

(3)  Did the payee have a right to receive the sum which was paid to it?

See Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349, 407H.

Was there a mistake?

47.  The pleaded mistake is “[the Plaintiff’s] mistaken belief that the mortgage of $25 million of which $2,134,023.00 formed part was entered into genuinely/validly by [WWL] and/or that $2,134,023.00 was genuinely/validly owing to the Defendant under a genuine legal charge” (paragraph 23 of the Statement of Claim).

48.  At trial the Plaintiff further elaborated that its case is based on one or more of the following mistakes of fact:-

(1)  the Plaintiff mistakenly believed that D’s Loan was extended to WWL;

(2)  the Plaintiff mistakenly believed that D’s Loan was secured by D’s Charge over the Property; and

(3)  the Plaintiff mistakenly believed that the Sum was owed by WWL to the Defendant.

49.  It is clear that the gravamen of the Plaintiff’s case on mistake is the fact that WWL was a party to the transactions involving the Defendant and was indebted to the Defendant as a result.

50.  In fact, WWL was never so involved, and Soe had by the use of forged documents held himself out to represent WWL when he in fact never had authority to do so.

51.  The Defendant contends that the Sum was paid by the Plaintiff voluntarily “for the purpose of removing [D’s Charge] on the Property to enhance the Plaintiff’s interests in the Property” (paragraph 17 of the Defence).  The Defendant relies on Kelly v Solari (1841) 9 M&W 54, where Parke B held at 59:-

“…If, indeed, the money is intentionally paid, without reference to the truth or falsehood of the fact, the plaintiff meaning to waive all inquiry into it, and that the person receiving shall have the money at all events, whether the fact be true or false, the latter is certainly entitled to retain it; but if it is paid under the impression of the truth of a fact which is untrue, it may, generally speaking, be recovered back, however careless the party paying may have been, in omitting to use due diligence to inquire into the fact. In such a case the receiver was not entitled to it, nor intended to have it”

52.  I do not accept the Defendant’s contention.  The evidence simply does not support its argument that the Plaintiff parted with the Sum voluntarily in the sense that it did not care the recipient (WWL) was.  The evidence clearly shows that the Plaintiff paid the Sum only because it believed that WWL, the registered owner of the Property, was in fact involved in the transactions with the Defendant and was indebted to the Defendant.  Indeed, this was how counsel for the Defendant put his case to the Plaintiff’s witness, Mr Li.  There is no basis to suggest that the Plaintiff paid the Sum intentionally without any reference to whether it be true or false that WWL was indebted to the Defendant.

53.  Accordingly I find that the Plaintiff paid the Sum to the Defendant on the basis of a mistake of fact that WWL was a party to D’s Loan Agreement and D’s Charge and was indebted to the Defendant pursuant to them.

Did the mistake cause the payment?

54.  This question is to be answered in the affirmative.  But for the Plaintiff’s mistaken belief that WWL was indebted to the Defendant, it would not have paid the Sum to the Defendant for the purpose of discharging the debt which it believed to be subsisting.

Did the Defendant have a right to receive the Sum?

55.  This issue is hotly contested. 

56.  To recap, the relevant facts are:-

(1)  The Defendant entered into D’s Loan Agreement with WWL and Soe as joint borrowers.

(2)  The Defendant advanced D’s Loan to WWL and Soe.

(3)  D’s Charge, which was purportedly executed by WWL in favour of the Defendant, contained a covenant to repay D’s Loan in addition to imposing a legal charge over the Property to secure the repayment of the same.

(4)  Whilst D’s Charge and the Receipt on Discharge of a Charge have been declared null and void as between WWL and the Defendant (see paragraph 28 above), no such declaration has been made with respect to D’s Loan Agreement.

57.  The Defendant argues that (i) the Plaintiff’s pleaded case is that the Defendant’s loan transaction with WWL was procured by deceit and fraudulent misrepresentation such that such transaction would only be voidable and not void; and (ii) unlike D’s Charge and the Receipt on Discharge of a Charge, D’s Loan Agreement (with WWL and Soe as joint borrowers) has never been avoided and remains subsisting, such that the Defendant was entitled to be paid the Sum. 

58.  I do not accept the Defendant’s argument for the following reasons.

59.  First, the reading of the Statement of Claim advanced by the Defendant is blinkered and does not take into account the full extent of the pleas.  The Plaintiff has clearly pleaded in paragraph 5 of the Statement of Claim that Soe had defrauded the Plaintiff and the Defendant which involved using forged documents of WWL to hold himself out as the sole shareholder and director of WWL.  When the Statement of Claim is read as a whole, I do not understand the Plaintiff to have confined its case to one of fraudulent misrepresentation, even though that is what is pleaded in paragraph 22 of the Statement of Claim.

60.  Second, I do not consider that D’s Loan Agreement has not been declared null and void (no such declaration could have been made since it involved Soe, who cannot be traced) to be an answer The relevant question is what is the legal effect of D’s Loan Agreement.  If, on proper analysis, D’s Loan Agreement is void, then the fact that it has not been declared to be so by the parties is neither here nor there.

61.  Third, in my view there was no consensus ad idem with respect to D’s Loan Agreement and the same is void.

(1)  The paradigm situation of mistaken identity is where A makes an offer to B, B accepts it, but believing that he is dealing with C, in circumstances where A knows of B’s mistake and may have even deliberately caused it.

(2)  In such a case, it is clear that there was no contract with C.  This is because C was not aware of the transaction and there was no consensus ad idem.  If A purported to act as C’s agent, A would have acted without authority and the contract would also not be binding on C.

(3)  As to whether there was a contract between A and B, the authorities treat this as a question going to the formation of the contract, and ask, applying the objective approach, whether each party intended, or must be deemed to have intended, to contract with the other.

(4)  In a case where the parties conducted their dealings wholly in writing, the exercise is essentially the same as the one adopted in the interpretation of the terms of a contract, where the court will construe the written instrument, making appropriate use of extrinsic evidence, to ascertain with whom a party intends to contract.

(5)  In a case where there was personal contact or dealings between the parties, the intention of the parties would have to be deduced from their words and conduct.  It is recognized that complications may arise, and the law applies a presumption that each party intends to contract with the other with whom he is dealing.  This is considered to be an exception to the rule in sub-paragraph (4) above.

(6)  The above is set out in the majority judgments of Lord Hobhouse of Woodborough, Lord Phillips of Worth Matravers and Lord Walker of Gestingthorpe in Shogun Finance Ltd v Hudson [2004] 1 AC 919.  Although the issue in that case concerned the application of a statutory exception in the Hire-Purchase Act 1964, the House of Lords provided detailed expositions on the law on mistaken identity, with the minority (Lord Nichols of Birkenhead and Lord Millett) favouring a coherent approach for sub-paragraphs (4) and (5) above (such that where two individuals deal with each other, by whatever medium, and agree terms of a contract, then a contract will be concluded between them, notwithstanding that one has deceived the other into thinking that he has the identity of a third party, and the contract will be voidable but not void), and the majority affirming the established, divergent position for the two scenarios as set out in sub-paragraphs (4) and (5) above.

(7)  Applying the aforesaid principles, (i) D’s Loan Agreement must be void as between the Defendant and WWL, who was not aware of and never consented to entering into the same; (ii) as between the Defendant and Soe, the presumption that the Defendant intended to contract with Soe is rebutted by the fact that (a) it was expressly provided for in D’s Loan Agreement that D’s Loan was to be secured by a legal charge over the Property; and (b) the Defendant’s own witness testimony that prior to granting D’s Loan, the Defendant had conducted due diligence to confirm that Soe was in fact the sole shareholder and director of WWL which owned the Property.  The facts in (a) and (b) above clearly show that the Defendant intended to contract with Soe only on the basis that he was the sole shareholder and director of WWL.  That was in fact not the case.  Accordingly I hold that the Defendant did not intend to enter into D’s Loan Agreement with Soe. 

(8)  In light of my findings in sub-paragraph (7) above, D’s Loan Agreement is void.

62.  Fourth, since D’s Loan Agreement is void, the Defendant would not be regarded as having given valuable consideration when advancing Ds’ Loan, and would have no legal right to receive the Sum: Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548, 560F-G (Lord Templeman), 575C-F and 581C-E (Lord Goff of Chieveley).

63.  The above also disposes of the Defendant’s “good consideration” defence.

64.  In light of the foregoing, I find that the Plaintiff has established the unjust factor in this case.

CHANGE OF POSITION

65.  The defence of change of position is available to a person who has in good faith changed his position so that it would be inequitable in all the circumstances to require him to make restitution, or alternatively to make restitution in full: Lipkin Gorman (a firm) v Karpnale Ltd 580F-G.

66.  In answering this question, the court adopts a broad approach based on practical justice, and avoids technicality: Dextra Bank & Trust Co Ltd v Bank of Jamaica [2002] 1 All ER (Comm) 193, paragraph 36.

67.  The onus is on the defendant to make good the defence, and while the court should not apply too strict a standard, as it may well be unrealistic to expect a defendant to produce conclusive evidence of change of position, there must be a sufficient causal link between the payment and the change of position relied upon: Scottish Equitable plc v Derby [2001] 3 All ER 818, paragraph 31.

68.  In this case, the pleaded change of position is (i) the release of WWL and Soe from liability under D’s Loan Agreement and (ii) the discharge of D’s Charge.[2]

69.  In my view, the Defendant fails to establish a change of position for the following reasons.

(1)  As I have found in paragraph 61 above, D’s Loan Agreement (executed by Soe and purportedly executed by WWL) and D’s Charge (executed by WWL) were void.  As such, they created no obligations in favour of the Defendant which the Defendant had released.

(2)  Further, as Clarke J (as he then was) explained in South Tyneside Metropolitan BC v Svenska International plc [1995] 1 All ER 545, 565 (cited in Dextra Bank paragraph 39), a defendant cannot rely on a change of position which depends on the underlying void transaction being treated as valid.  In that case a local authority entered into ultra vires swap transactions with the bank, and the bank also entered into hedging transactions which would substantially cancel out its potential liability to the local authority under the swap transactions.  In the end the local authority was the net payer, and tried to recover the payment from the bank.  The bank was held liable to make restitution, but claimed to be entitled to set off the losses incurred by it under the hedging transactions on the ground of change of position.  Clarke J held that the bank was not entitled to rely upon the underlying validity of the transaction, which was ultra vires and void, to support a defence of change of position.  The same reasoning applies in the present case.

OTHER DEFENCES ADVANCED

70.  In the course of the argument, the Defendant advanced two further defences.

71.  The first is what counsel for the Defendant coins the “no risk re-distribution” defence.  It is contended that it is a defence to a claim in unjust enrichment that “in the absence of a contract [between the Plaintiff and the Defendant], the law of unjust enrichment would not redistribute risks”.  In support of this contention, he refers to the dicta of Lord Goff of Chieveley in Pan Ocean Shipping Co Ltd v Creditcorp Ltd [1994] 1 WLR 161, 166E-F.  

72.  In that case, Pan Ocean chartered a vessel from Trident for a single time charter voyage. Trident entered into financing arrangements with Creditcorp to finance its operations, and as part of those arrangements Trident assigned to Creditcorp its right to the receivables payable by Pan Ocean.  Notice of assignment was given to Pan Ocean, who made an advance payment payable under the charterparty to Creditcorp direct.  Meanwhile, the vessel had been withdrawn by the head owners due to Trident’s failure to pay for repairs and was no longer able to proceed with the voyage.  Pan Ocean accepted Trident’s conduct as a repudiation of the charterparty and the charter came to an end.  Pan Ocean then sought to recover the advance payment made to Creditcorp on the basis of money paid for a consideration that wholly failed.

73.  The Defendant only relies on 166EF but I would set out the whole section (166D-G) to show the proper context:-

“I am of course well aware that writers on the law of restitution have been exploring the possibility that, in exceptional circumstances, a plaintiff may have a claim in restitution when he has conferred a benefit on the defendant in the course of performing an obligation to a third party (see eg Goff and Jones on the Law of Restitution, 4^th ed. (1993), pp. 55 et seq., and (for a particular example) Burrows on the Law of Restitution, (1993))pp.271-272). But, quite apart from the fact that the existence of a remedy in restitution in such circumstances must still be regarded as a matter of debate, it is always recognised that serious difficulties arise if the law seeks to expand the law of restitution to redistribute risks for which provision has been made under an applicable contract. Moreover, it would in any event be unjust to do so in a case such as the present where the defendant, Creditcorp, is not the mere recipient of a windfall but is an assignee who has purchased from Trident the right to receive the contractual debt which the plaintiff, Pan Ocean, is now seeking to recover from Creditcorp in restitution despite the facts that the relevant contract imposes on the assignor (Trident) an obligation of repayment in the circumstances in question.” (underlined sentence relied upon by the Defendant)

74.  In my view, the Defendant has cited the underlined sentence in Pan Ocean Shipping above wholly out of context, and Lord Goff’s dicta, read in its proper context and against the facts of that case, in no way support the Defendant’s contention of a free-standing defence as suggested in paragraph 71 above.  In that case, it is clear that Pan Ocean could not have established its claim in unjust enrichment on well-established principles, in that (i) although the charterparty had been discharged upon acceptance of Trident’s repudiatory breach, clause 18 (which provided for Pan Ocean’s right to receive refund of any overpayment of hire) survived termination and remained applicable as between Pan Ocean and Trident; and (ii) Creditcorp plainly had the right to receive the advance payment from Pan Ocean, pursuant to the assignment of receivables for which notice had been given to Pan Ocean. Accordingly, Lord Goff’s dicta no more than reflected those underlying principles, and did not support the wide-sweeping proposition advanced by the Defendant which is in any event contrary to the well-established principles on unjust enrichment.

75.  The second is the Defendant’s submission that the court is entitled to look at justice and whether it is just and fair in the circumstances to have the money repaid.

76.  I do not accept this is the permissible scope of the court’s role in adjudicating on claims on unjust enrichment.  A similar submission was made in Lipkin Gorman v Karpnale Ltd to the effect that it was for the court to consider the question of injustice or unfairness on broad grounds, and that it should deny recovery if it thought that it would be unjust or unfair to hold the defendant liable, which was rejected by the court.  In particular, at 578D-E Lord Goff of Chieveley held:-

“The claim for money had and received is not, as I have previously mentioned, founded upon any wrong committed by the club against the solicitors. But it does not, in my opinion, follow that the court has carte blanche to reject the solicitors’ claim simply because it thinks it unfair or unjust in the circumstances to grant recovery. The recovery of money in restitution is not, as a general rule, a matter of discretion for the court. A claim to recover money at common law is made as a matter of right; and even though the underlying principle of recovery is the principle of unjust enrichment, nevertheless, where recovery is denied, it is denied on the basis of legal principle.”

77.  Further, as emphasized by Lord Reed JSC in Investment Trust Companies paragraph 39:-

“A claim based on unjust enrichment does not create a judicial licence to meet the perceived requirements of fairness on a case-by-case basis: legal rights arising from unjust enrichment should be determined by rules of law which are ascertainable and consistently applied.”

78.  Accordingly I also reject these further defences advanced by the Defendant.

DISPOSITION

79.  In the premises, I am of the view that the Plaintiff has established a claim in unjust enrichment, and the Defendant has failed to establish any defence to the same.  Accordingly, I grant judgment on the Sum in favour of the Plaintiff.

80.  I also make a costs order nisi that the Plaintiff is to have the costs of this action to be paid by the Defendant on a party to party basis, to be taxed if not agreed.  The costs order nisi will be made absolute unless the parties take out an application to vary the same within 14 days.