GRUPO PACIFICA INCORPORADA v. WORLDWIDE MARINE PRODUCT LTD AND OTHERS

HCA 2640/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 2640 OF 2014

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D E C I S I O N

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Introduction

1.  This is the plaintiff’s application for the continuation of a Mareva injunction granted ex parte in December 2014 (against the 1^st and 2^nd defendants (“the said injunction”) (the 3^rd and 4^th defendants are banks licensed in Hong Kong and are not the targets of the said injunction)).  Appearing at the hearing to oppose this application was the 1^st defendant (“Worldwide Marine Product”) (and the latter’s application to discharge the said injunction).  The plaintiff informed that the court documents had not been successfully served on the 2^nd defendant (“Eminent Vantage”); naturally it did not appear at the hearing.

Background

2.  The background leading to this action (as described by the plaintiff) is, and consequently the facts upon which the plaintiff’s claim is premised are, a bit unusual.  It/they can be summarized as follows.

3.  The plaintiff was the purchaser of a vessel called “Golden” (“‘Golden’”) from a company which appeared to be the owner of “Golden”.

4.  Both contracting parties acted through their own agents; the vendor acted through an agent Blue Marine Co Ltd (“Blue Marine”). It is the plaintiff’s case Blue Marine has been controlled by a Korean national surnamed “Park” (“Mr Park”).  The sum claimed in this action, US$900,000, was part of the purchase price earlier paid by the plaintiff to Blue Marine (the remaining US$100,000 was the deposit).

5.  The plaintiff’s pleaded case is that it was the victim of a fraud (the same case has been put forth at the ex parte application).  At the hearing before me, the plaintiff clarified that the fraud put forth concerns the refund of the plaintiff’s money earlier paid over to Blue Marine in performance of its contractual obligation as the purchaser.

6.  The unusual features of this alleged fraud are these.  One, Mr Park, allegedly the fraudster who perpetuated the fraud, was the source of the evidence on which the plaintiff’s claim (founded on fraud) is based. According to the plaintiff’s pleaded case:

(a) not having “Golden” delivered by its owner or Blue Marine, in September 2014 the plaintiff informed Blue Marine by letter that the purchase was “cancelled” and asked for the refund of US$900,000;

(b) instead of refunding the said sum, in October 2014 Blue Marine sent a package to the plaintiff.  Inside the package were documents (among others) which the plaintiff now pleads are:

(1) a forged letter purportedly sent by the plaintiff’s agent to Blue Marine in September 2014;

(2) a forged notice purportedly sent by the plaintiff to Blue Marine in August 2014;

(c) the above documents are now relied on by the plaintiff as evidence of:

(1) forgery and falsity;

(2) the plaintiff’s said sum having been deposited with the defendants (half of it with Worldwide Marine Product and half of it with Eminent Vantage).

It is unusual for a fraudster not to simply vanish, but instead to provide the fraud victim with materials on which the victim can build a case.

7.  Two, the other unusual feature is the reason given for the amount of the plaintiff’s claim.  Rather than claiming for the whole of US$1 million it paid over earlier (having informed the other party the agreement was “cancelled”), the plaintiff chooses to claim for US$900,000.  The statement of claim pleads the following reason for the claim:

“[it] did not seek the return of the remaining US$100,000 as it wanted to keep the funds on deposit in case the transaction could be completed at a later date” (para 9 thereof).

8.  Why para 7 above is unusual is this:

(1) as the victim of a fraud, the plaintiff at least arguably could have the right to avoid the sale and purchase agreement;

(2) even if the sale and purchase agreement is not regarded as related to the fraud perpetuated in October 2014 (see para 6(b) and (c) above), as the innocent contracting party to the sale and purchase agreement, the plaintiff should have the right to accept any repudiatory breach on the part of the owner of “Golden”.

Not having done either of sub-para (1) or (2) above, it is doubtful if the fraud has been avoided, alternatively, if the repudiation of the sale and purchase agreement (by non-delivery) has been accepted.

9.  Further to para 8 above, it is unclear why the plaintiff should think the sale and purchase agreement might still be completed despite having knowledge or belief of the fraud of Blue Marine/Mr Park since about October 2014.

10.  There is no dispute (for the purpose of this application) about half of US$900,000 having been deposited into a US$ bank account of Worldwide Marine Product.

The case against Worldwide Marine Product

11.  From the materials enclosed in Blue Marine’s said package, the plaintiff contends that about half of the claimed sum has been shown to have been deposited with Worldwide Marine Product (as stated above, this is not denied).

12.  From this starting point, the plaintiff further contends that it has established a good arguable case against Worldwide Marine Product irrespective of whether the latter was a knowing party to the fraud. The contention can be summarised as follows:

(a) the evidence adduced by Worldwide Marine Product is so unsatisfactory it should be found to be either inadmissible or (if admissible) to have little or no evidential weight;

(b) in any event, the evidence so adduced does not give rise to any valid defence.

The above will be elaborated below.

13.  As regards the allegedly unsatisfactory evidence:

(1) the deponent was not an employee of (nor was her otherwise legally connected with) Worldwide Marine Product;

(2) the deponent fails in many instances to sufficiently identify the source of her information, belief or knowledge;

(3) some of the more important documentary exhibits lack sufficient “chain of evidence”.

14.  In relation to para 12(a) (and para 13) above, it is important to note the following.  The evidence adduced by Worldwide Marine Product is to the following effect:

(a) the more substantial operation is a business in Shenzhen called “深圳市羅湖區泰然海產品店” (“Tairan”);

(b) Worldwide Marine Product was described as Tairan’s Hong Kong “trading point” in the affirmation.  This phrase has been accepted by both parties to mean it was Tairan’s Hong Kong financial and/or foreign exchange arm;

(c) Worldwide Marine Product was never a substantial operation.  Reportedly it has only 2 Hong Kong staff.  Both parties accept that its most important asset in Hong Kong is the credit balance kept at an HSBC bank account (into which the claimed sum was deposited, and still retained) (“the HSBC a/c”).

15.  Based on the above, the plaintiff contends that Worldwide Marine Product is nothing much more than:

(1) the HSBC a/c identified in the said injunction;

(2) Tairan’s Hong Kong “window” company, which has been operating an “underground bank” business exchanging currencies and/or sums for Tairan’s customers.  At the very least, the US dollar-to-Renminbi transfer Tairan agreed to effect for Mr Park was in the nature of an “underground bank” transaction.

16.  The contention summarized in para 15(1) above is in support of the plaintiff’s argument that Worldwide Marine Product has (i) no “real” local presence, and (ii) only an extremely liquid asset (these are supportive of the plaintiff’s case concerning “real risk of dissipation”).

17.  The contention summarized in para 15(2) above is in support of the plaintiff’s case concerning illegality (said to arise out of the illegal contract between Worldwide Marine Product and Mr Park (avoiding Mainland foreign exchange prohibition)).

18.  Having taken the stance outlined in para 16 and 17 above, it would be unfair for the plaintiff to then “turn around” and levy the criticism set out in para 12(a) and 13(1) above.

19.  As regards para 13(2) above, the deponent describes herself as Tairan’s “finance officer” (a better translation of the Chinese term “財務主管” may be “officer-in-charge of finance”).  All that the law requires is that an affidavit of a business operation be deposed to by its responsible officer (such as a director, company secretary, officer and the like): cp Hong Kong Civil Procedure 2015, Vol 1, para 41/5/1 (Mutual Luck Investment Limited v Chiu Yim Man and Others HCMP 6047/1998 (29 April 1999), (cited by the plaintiff) does not take the matter further than has been stated there).  This deponent satisfies that requirement.  I consider her to be a responsible officer of Worldwide Marine Product.  I find her failure to specifically name the individuals who she described as her colleagues more a matter of a failure to provide further factual details, than a ground for discredit and/or for diminishing the evidential weight of her affirmation.  The same applies to her use of the word “we” which in context were references to Worldwide Marine Product.

20.  As regards para 13(3) above, it is true:

(a) the bank transfer slips evidencing the transfers to third-party transferees (as directed by Mr Park) do not show the transferor as Worldwide Marine Product, but two individuals respectively surnamed “Yang” and “Zheng”;

(b) the defence affirmation is unduly economical about these documents.

However, for these documents to be ignored would mean they probably are either untrue documents, or at least were gathered from unrelated sources to fabricate this part of the defence case; either would be too far-fetched.

21.  As to whether Worldwide Marine Product has established a valid defence (even assuming its affidavit evidence is accepted), the plaintiff relies heavily on the following legal principles.  In Goff & Jones: The Law of Unjust Enrichment (2011) 8^th Ed, the learned authors said:

“[after referring to Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 (the casino defendant there innocently received fund fraudulently obtained earlier from the plaintiff)] Relying on a number of leading common law authorities, the House of Lords held that the casino, which was unable to invoke the defence of bona fide purchase, was unjustly enriched at the expense of the claimant firm when (however innocently) it had received the cash from Cass [the fraudster], which represented the traceable proceeds of the firm’s credit balance. The casino was prima facie liable for the sum received, subject to the defence of change of position.” (emphasis supplied) (para 8-42 thereof)

22.  The plaintiff also quoted the following from the Lipkin Gorman decision:

“At present I do not wish to state the principle any less broadly than this: that the defence is available to a person whose position has so changed that it would be inequitable in all the circumstances to require him to make restitution, or alternatively to make restitution in full. I wish to stress however that the mere fact that the defendant has spent the money, in whole or in part, does not of itself render it inequitable that he should be called upon to repay, because the expenditure might in any event have been incurred by him in the ordinary course of things. I fear that the mistaken assumption that mere expenditure of money may be regarded as amounting to a change of position for present purposes has led in the past to opposition by some to recognition of a defence which in fact is likely to be available only on comparatively rare occasions.” (emphasis supplied) (p 580 thereof)

23.  Two matters in the Lipkin Gorman decision have to be noted:

(1) “Conversion does not lie for money, taken and received as currency … But the law imposes an obligation on the recipient of stolen money to pay an equivalent sum to the victim if the recipient has been ‘unjustly enriched’ at the expense of the true owner” (p 559 thereof);

(2) the end result was that the casino was liable to pay the plaintiff: “limited to the net amount of stolen money which the [casino] retains, will not inflict a net loss on the [casino] as a result of the transactions between the [casino] and the thief … The [claimant] will recover part of their stolen money and the [casino] will only lose the winnings the [casino] was not entitled to make out of the [claimant’s] money” (p 563 thereof (see also pp 582-3 thereof)).

24.  Following the above line of reasoning (para 21 to 23 above), it will be safe to conclude, for example, that licensed banks which innocently received money which may be the fruits of theft (and/or other cases where the depositors have no title to the money) can avail themselves of the defence of change of position when they pay out the same to the depositors or as directed by the latter.

25.  Leaving aside for the moment the illegality issue, the position of Worldwide Marine Product was not much different than that of licensed bank (see also para 20(a) above).

26.  The last-mentioned issue (illegality) can be discussed relatively briefly.  Reliance is here placed by the plaintiff on the contention that the transaction aimed to avoid the foreign exchange regulatory regime of the Mainland.  That the law of such regime is part of Mainland law, and accordingly in the context of Hong Kong is treated as foreign law, must be trite.  Foreign law is a subject-matter for evidence.  This is particularly so in the area of foreign exchange law because this area is well known to differ with jurisdiction (Hong Kong, for example, has relatively little foreign exchange restriction).

27.  The short point here is that neither party has adduced evidence on what the state of Mainland law is concerning foreign exchange control in the Mainland (including, in particular, whether the offending contracts are illegal, and if so, the consequences (if any) of such illegality).

28.  Because of the conclusion reached, I do not consider the plaintiff to be able to establish a good arguable case against Worldwide Marine Product; alternatively, the strength of the plaintiff’s case is such that the balance of convenience is in favour of not continuing the said injunction.

29.  Finally, again because of the conclusion reached, it is unnecessary to consider the real risk of dissipation.  I will only state for the record that, if it were necessary to do so, I would have concluded that there is such risk (bearing in mind the matters set out in para 14 and 15 above).

The case against Eminent Vantage

30.  The plaintiff adduces evidence that Eminent Vantage is effectively controlled by Mr Park.  Neither Eminent Vantage nor Mr Park has any prima facie right to the plaintiff’s money.  Accordingly, I am satisfied that the said injunction should continue against Eminent Vantage until 28 days after service of the relevant court documents on Eminent Vantage or further order.

Conclusion

31.  The application against Worldwide Marine Product is dismissed (and the said injunction is discharged).

32.  The application against Eminent Vantage is determined in the manner as set out in para 30 above.

Other matters

33.  In the course of the parties’ submissions (and as a result of a challenge by Worldwide Marine Product), it was disclosed (without evidence) that a claim has been commenced against Blue Marine/Mr Park in Korea.  This disclosure regrettably was brief, and no details are known as to, for instance, the nature of the claim, its progress and the response of Blue Marine/Mr Park thereto.

34.  The parties’ written submissions also mentioned various other points.  These have not been expressly set out or dealt with above.  This is so only because of the need to balance between the length of the decision and its comprehension.  It does not mean those other points are thought to be irrelevant (or have been overlooked).  To avoid doubt, those other points have also been considered.

Costs order nisi

35.  There is no apparent reason to depart from the usual rule that costs should follow the event.  There will accordingly be a costs order nisi pursuant to Ord 42 r 5B(6) that the costs of this application be:

(a) as between the plaintiff and Worldwide Marine Product, the defendant’s costs in the cause;

(b) as between the plaintiff and Eminent Vantage, the plaintiff’s costs in the cause.