HAN JOHN ALEXANDER v. HONGKONG AUTOPAL INDUSTRIAL DEVELOPMENT CO LTD AND ANOTHER

HCA 954/2022

[2025] HKCFI 4987

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 954 OF 2022

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J U D G M E N T

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1.  By this action, the Plaintiff (“Mr Han”) seeks to recover a sum of USD900,000 (“Sum”) misappropriated from him.

2.  Mr Han’s underlying case of misappropriation is unchallenged and is summarized as follows.

3.  In November 2021, Mr Han intended to convert USD1,000,000 to RMB and remit to his friend, Mr Nu, in the Mainland.

4.  Mr Han, through his assistant Ms Tsui, reached out to Mr Ho, who is Mr Han’s witness at trial. Mr Ho provides intermediary consultancy service. This includes lining up suitable companies for clients who require currency exchange and remittance service. He previously assisted Mr Han on about 3 to 4 occasions when he required money remittance service. On one such occasion in 2019, this was done through the 2^nd Defendant (“Omega”). Omega was introduced to Mr Ho’s assistant, Ivan, by one of his business connections, Mr Lam, who is his contact point at Omega. One Ms Fu is a director of Omega.

5.  Ivan relayed Mr Han’s request to Mr Lam. Mr Lam later reverted and said Omega would offer an exchange rate of 1 USD to 6.45 RMB, and would complete the remittance within 2 days after receiving the USD1,000,000 from Mr Han. Mr Ho then reverted to Ms Tsui and told her that the exchange rate was 1 USD to 6.14 RMB. He said in his evidence that the difference between the two exchange rates would be his service fee to Mr Han. He did not tell Ms Tsui about that. He said that Mr Han should understand, implicitly, that the exchange rate which he relayed to Ms Tsui would have taken into account his service fee, because he would not be offering consultancy service to Mr Han for free.

6.  Whether Mr Han would have agreed to Mr Ho’s service fee had he known of the exchange rate offered by Omega is a matter between Mr Han and Mr Ho. I record the above evidence because this came out only from Mr Ho’s oral testimony at trial, and Mr Han should know about it.

7.  Mr Han (through Ms Tsui) accepted the exchange rate relayed by Mr Ho and agreed to engage the services of Omega, and he transferred USD1,000,000 to Omega for the purpose of converting the same to RMB6,140,000 for remittance to Mr Nu.

8.  Mr Han deposited USD1,000,000 into Omega’s USD account on 15 November 2021. The bank records show that on 17 November 2021, USD100,000 out of the USD1,000,000 was converted to HK$778,000 and deposited into Omega’s HKD account, leaving a balance of USD900,000 which is the Sum.[1]  On the same day, HK$390,000 was paid out of Omega’s HKD account to an account under the name of “Wong Kok Wei”. Also on the same day, Mr Nu received a sum of RMB322,140 from a “Wong Kok Wei”. It is not known whether the two “Wong Kok Wei” are the same person. No one knew who “Wong Kok Wei” is. For tracing purposes, Mr Han proceeds on the basis that the RMB322,140 received by Mr Nu was converted from the HK$390,000 transferred by Omega to “Wong Kok Wei”, and was in turn part of Mr Han’s USD1,000,000 deposited with Omega.

9.  Since Mr Nu received far less than RMB6,140,000 as agreed, Mr Han instructed Mr Ho to follow up with the matter and ask Omega to remit the balance as soon as possible. On 18 November 2021, Mr Lam told Ivan that due to the shortage of RMB, Omega was unable to complete the currency exchange and remittance of the outstanding funds to Mr Nu. Omega proposed to first return USD900,000 to Mr Han on 19 November 2021, with the balance to be returned later. Ivan’s assistant accompanied Ms Fu to the bank to complete a form for cancellation of the transfer of USD900,000 and remittance of the same to Omega’s USD account. A photograph of the form was provided by Mr Lam on 19 November 2021. This gave the impression that Omega was effecting the money to be returned to Mr Han.

10.  Mr Han never received any refund from Omega. Ms Fu could no longer be reached. Nor could she be located at her residential address given in the Annual Return of Omega. The registered office of Omega was found to be occupied by another company. Mr Han therefore instructed Mr Ho to make a report to the police in January 2022.

11.  It transpired that on 23 November 2021, the Sum was transferred to the 1^st Defendant (“Autopal”). Mr Han did not know Autopal and did not consent to the transfer. He therefore commenced the present action against Autopal on 1 August 2022, and obtained a proprietary injunction against Autopal on the following day. Omega was added as a defendant in July 2023 but was absent throughout the proceedings.

12.  Autopal does not dispute that it has received the Sum, and further accepts that the Sum is traceable to Mr Han’s USD1,000,000 deposited with Omega. Its case is that it received the Sum as the purchase price for gold bars which it sold to Omega for USD873,891.50, and it converted the balance to HK$202,340 and transferred to one Lai Fai Ki as instructed by Ms Fu. It has therefore changed its position in good faith and is a bona fide purchaser for value without notice, and is not liable to return the Sum or pay damages to Mr Han.

13.  Mr Han puts Autopal to proof of the alleged gold bar transaction. Mr Cheung, who is one of Autopal’s directors and its majority shareholder, gave evidence at trial, which I summarize below.

14.  Autopal was incorporated in Hong Kong in 2011. It claims to be a trader in precious metals, including in particular gold. Mr Cheung is its sales manager.

15.  Mr Cheung was introduced to Ms Fu some years ago. Omega had made several gold bar purchases from Autopal in recent years, and would occasionally refer customers to Autopal. No issue has ever arisen from the dealings between Omega and Autopal, other than the subject transaction on 23 November 2021.

16.  In the morning of 23 November 2021, Ms Fu called Mr Cheung and said Omega wanted to purchase 15 kg of Heraeus gold bars from Autopal that day. Heraeus gold bars is a type of gold bars with international certification. Autopal happened to have 10 kg of gold bars (in the form of 10 kilobars) in stock. They were delivered by two customers for sale to Autopal earlier that morning. 5 are Heraeus gold bars. The other 5 are gold bars from the Middle East (without international certification) and command a lower value than Heraeus gold bars.

17.  Since Autopal did not have enough gold bars to meet Omega’s demand, no price was fixed between Mr Cheung and Ms Fu that morning. Mr Cheung asked Ms Fu to first deposit USD900,000 with Autopal. He estimated that the sum should be sufficient to pay for 15 kg of gold bars.

18.  In the meantime, Mr Cheung tried to source 10 more Heraeus gold bars from one of Autopal’s local suppliers, Cheung’s Gold Traders Limited (“Cheung’s”). He was told that Cheung’s only had 9 Heraeus kilobars. Mr Cheung purchased 5 of them, and exchanged the other 4 with 4 of the Middle East gold bars in Autopal’s office plus a top-up sum. The total price was USD290,979.91. Mr Cheung did not approach other suppliers to see if they can provide 10 Heraeus kilobars in one go or could supply the outstanding one. This is because he did not only have one client and cannot serve Ms Fu alone all the time. He also wanted to avoid repeating the same process of sourcing, fixing price and collecting gold bars with other suppliers.

19.  Mr Cheung then informed Ms Fu that he could only source 14 kg of Heraeus gold bars, and the remaining one would be a Middle East bar. He told her that 9 of the Heraeus gold bars would have to be purchased elsewhere, and in response she agreed to pay whatever price Autopal had paid for the purchase. He provided the invoice from Cheung’s to Autopal to her. He told her that the total price would be USD873,891.50 (which included a handling fee of USD1,000 charged by Autopal). She accepted it, and asked Mr Cheung to convert the remaining balance of her deposit (i.e. USD26,108.50) to HKD and transfer to one Lai Kai Fai.

20.  Mr Cheung told Ms Fu to take delivery of the 15 gold bars from Autopal’s office at 3pm that afternoon, which she did with the help of a male acquaintance.

21.  Mr Cheung said that it is Autopal’s practice to pay its selling customer for delivered gold only after a buyer is lined up and the purchase price is paid. Prior to that, no price is fixed and agreed with its selling customer. After a buyer is lined up and a price is on offer, the selling customer can choose whether to sell. In this instance, the payment for the 10 kg of gold bars delivered to Autopal that morning was settled by USD Tether (“USDT”, a cryptocurrency whose value is linked to with that of USD) in the afternoon of 23 November 2021, after the sale to Ms Fu was agreed.

22.  Autopal produced WhatsApp messages between Mr Cheung and Ms Fu on 23 November 2021 to support its case. The authenticity of these messages is not challenged by Mr Han. I set them out in some detail below because Autopal relies heavily on them as evidencing the alleged gold bar transaction.

23.  At 0920, Ms Fu sent a screenshot of what appeared to be a bank transfer form which includes Autopal’s HKD account number, with the message “不要打這個？”. At 0921, Mr Cheung replied “錯”. Ms Fu then asked for “資料”, and Mr Cheung gave her Autopal’s USD account number. Ms Fu then sent 4 messages: “連BR”, “我在銀行”, “全套” and “連地址”. At 0925, Mr Cheung sent out a screenshot of the business registration certificate of Autopal, and repeated Autopal’s USD account number. This was followed by a screenshot from Ms Fu (with the time stamp cut off from the extract produced), showing the remittance of USD900,000 from an account ending with “182”, which matches the last three digits in Omega’s USD account number.

24.  At 1052, Mr Cheung sent a screenshot of one Heraeus gold bar. At 1152, Ms Fu replied “不要發群”. Mr Cheung said in his oral evidence that he did not understand what Ms Fu meant, and he therefore replied with a question mark. At 1218, Mr Cheung sent a screenshot of some Middle East gold bars with documents. At 1219, Mr Cheung sent the message “会有14条贺记条+1条中东条” (“there will be 14 Heraeus bars and 1 Middle East bar”). At 1357, Mr Cheung sent the message “三点上來1508取金”. Mr Cheung explained in evidence that “1508” was a typo, and he was meant to type out the time “1500”. At 1407, Mr Cheung sent a copy of Autopal’s invoice to Omega for the gold bars.

25.  At 1449, Ms Fu gave the name “Lai Fai Ki” and the bank name to Mr Cheung. At 1451, Mr Cheung replied with “26108.57*7.75=hkd202340”, and later he sent out a screenshot of a transaction advice which records the transfer of HK$202,340 from Autopal’s HKD account to one “Lai Fai Ki” at 1525.

26.  Mr Victor Yuen who appeared for Autopal submits that the WhatsApp record, the invoice issued by Autopal to Omega, and the transaction advice of the transfer of HK$202,340 to Lai Fai Ki upon Ms Fu’s instructions, show that it is more likely than not that the gold bar transaction did take place. Mr Yuen highlights, in particular, the contemporaneous and “real-time” (and I would add, coherent) nature of the WhatsApp messages, and that their contents tally with Mr Cheung’s evidence at trial. The messages also show that there were no other discussions between Mr Cheung and Ms Fu concerning gold trade and delivery on 23 November 2021. This points to the sale and purchase of 15 kg of gold bars for USD900,000 being the only dealing between Autopal and Omega that day. He also stresses that there was no criminal prosecution against Autopal, and there is nothing to suggest (nor was it alleged) that Autopal is complicit in the fraud against Mr Han.

27.  Mr Kenny Lau who appeared for Mr Han challenged the credibility and reliability of Autopal’s evidence. His main arguments are as follows.

28.  First, there is no mention in Mr Cheung’s witness statement that 10 kg of gold bars were delivered to Autopal on 23 November 2021. There is also no record showing their delivery. Mr Cheung could not name the customers who delivered the gold bars. He did not record the serial numbers of the gold bars delivered, or take photographs of them, if not for Autopal’s own protection. It is unthinkable that the selling customers did not ask for a receipt from Autopal, but were content to leave the gold bars with Autopal.

29.  Second, it is incredible for the selling customers to leave the 10 kg of gold bars with Autopal without receiving payment, and not knowing whether (and when) they would be paid if at all. When asked why Autopal did not make immediate payment, Mr Cheung said that he planned to first sell the gold bars so that he would have the cash flow to pay the selling customers. The bank statements however show that Autopal did not lack funds on 23 November 2021. In any case, Mr Cheung confirmed that the selling customers were selling the gold bars to Autopal, rather than consigning them for Autopal to sell on their behalf. There is no reason why the selling customers did not ask for immediate payment.

30.  Third, the bank statements do not show any payment for the 10 kg of gold bars. Mr Cheung’s claim that the selling customers were paid by USDT is not mentioned in his witness statement. Autopay did not disclose any statement or record showing the alleged payment by USDT to the selling customers, or indeed any document showing its purchase of the 10 kg of gold bars from them at all. The allegation of payment by USDT is a convenient made-up in an attempt to explain the absence of transaction record in the bank statements.

31.  Fourth, Mr Cheung’s witness statement claims that Autopal was 5 kg of gold bars short on Omega’s demand and he therefore contacted Cheung’s to make up the shortfall. This contradicts his oral evidence that Autopal contacted Cheung’s and ask for 10 Heraeus kilobars. His witness statement also did not mention that Ms Fu had demanded a specific brand of gold bars from Autopal.

32.  Fifth, it is incredible for Mr Cheung to request Ms Fu to deposit USD900,000, and for Ms Fu to agree to do so, without first agreeing the price and without knowing if Autopal could meet Omega’s specific demand for 15 Heraeus kilobars, before Mr Cheung approached Cheung’s to ascertain the costs of meeting the shortfall. It turned out that Omega had overpaid by a not insubstantial sum.

33.  Sixth, there is no record of collection of 15 kg of gold bars by Ms Fu from Autopal on 23 November 2021. Again, Mr Cheung did not mark down the serial numbers of the gold bars sold to Ms Fu, or take photographs of them, or ask Ms Fu to sign on any document to acknowledge receipt of the gold bars.

34.  Finally, Autopal’s bank statements record transfers of substantial sums into and out of the account with entities which Mr Cheung confirmed in evidence are not gold suppliers or customers but their nominated parties. There are often multiple transactions within the same day, and in rounded numbers. Mr Cheung explained that these are funds for the sale and purchase of gold and are rounded-off sums because the price has not yet been fixed at the time of the transfers, but he could not identify any refund of excess balance or payment to make up shortfall. This resembles a remittance business, rather than trading in precious metals. I would also add that Autopal has not produced a single invoice showing its sale of gold or any other precious metals to customers.

35.  In response, Mr Yuen emphasizes that the Court should not reject Autopal’s case because of what one may perceive as “sloppy” manner of operation or lack of record-keeping. Mr Cheung displayed a strong understanding of gold trading and it would be absurd to suggest that Autopal, with Mr Cheung as its main operator and director, was not conducting a business of precious metal trading, contrary to what was stated in its financial statements and business registration certificate. He stresses that just because Autopal may be operating a remittance business (which Autopal denies), this is not mutually exclusive with the existence of its principal business of trading in precious metals.

36.  In my view, the Court must make a holistic assessment of the evidence as a whole. Whilst the WhatsApp messages on their face support Autopal’s case, they must not be viewed in isolation, and must be assessed in light of Autopal’s overall case and specifically its account of events on 23 November 2021. Although Mr Han has not challenged the authenticity of the WhatsApp messages (because he was not privy to them), it is wrong for the Court to proceed on the basis that what was recorded therein must necessarily be truthful as opposed to it being, for example, a self-serving record between Mr Cheung and Ms Fu. Coupled with the fact that Mr Yuen has no real answers to Mr Lau’s criticisms summarized above, I find that the totality of the evidence presented to me undermines Autopal’s case that it is a trader in precious metals and the receipt of the Sum was part of such business operation in the manner narrated by Mr Cheung.

37.  Given Autopal bears the burden of proof that the gold bar transaction with Ms Fu did take place as alleged, even though the threshold is on a balance of probabilities which is not a particularly high one, for the reasons set out above I am not satisfied on the evidence that Autopal has discharged its burden.

38.  In terms of legal analysis, I am satisfied that Mr Han has made out a case against Omega for breach of contract. Mr Han and Omega agreed through intermediaries that Omega would convert Mr Han’s USD1,000,000 to RMB and remit to Mr Nu in the Mainland. Only RMB322,140 was remitted to Mr Nu. Omega must therefore pay damages to Mr Nu for the shortfall. However, since the Statement of Claim limited the damages claim to USD900,000, not USD1,000,000 less RMB322,140, and despite the Court’s query there is no application to amend the pleadings, Mr Han is bound by his pleading, with the result that the damages payable by Omega to Mr Han will be limited to USD900,000, with interest at HSBC prima rate plus 1% from 18 July 2023 (the date when Omega was joined as a defendant) up to the date of Judgment, and thereafter at judgment rate until full payment by Omega.

39.  As regards Autopal, the Sum is traceable property of Mr Han and is held on trust by Autopal for Mr Han (which arises either by way of a Quistclose trust, or a trust arising due to the fraudulent misappropriation committed by Omega). This would mean that Mr Han would have a proprietary claim against Autopal for the Sum and all its traceable proceeds, unless Autopal can establish that it is a bona fide purchaser for value without notice. In addition, there is a further claim based on unjust enrichment, the unjust factor being mistake, against which the defence of change of position in good faith is raised by Autopal. In light of my finding above, neither of these defences is made out by Autopal on the facts, when it has failed to prove, on a balance of probabilities, the gold bar transaction with Ms Fu.

40.  Mr Lau confirms that Mr Han elects to call for an account and inquiry of what has become of the trust property, rather than a monetary judgment against Autopal. I therefore order against Autopal as follows:

(1)  There be a declaration that Autopal holds the Sum (and all its traceable proceeds) on trust for Mr Han;

(2)  There be an account and inquiry against Autopal for the Sum and all its traceable proceeds; and

(3)  Autopal do pay any sum found due to Mr Han (together with interest) upon the taking of such account and inquiry.

41.  I will now hear parties as to costs.

( Submissions on costs )

42.  Costs should follow the event. Mr Han’s costs of this action should therefore be borne by Autopal and Omega. Two questions arise in this regard.

43.  First, whether Autopal and Omega should jointly and severally bear Mr Han’s costs. In my view, it is unfair to make such an order. Mr Han’s claims against Autopal and Omega, whilst arising from the same transaction, focus on different and distinct stages. In particular, the dispute at trial is over the existence of the gold bar transaction, and Autopal did not put up a positive case to refute Mr Han’s dealings with Omega. The fair order is therefore for Autopal and Omega to bear Mr Han’s costs in this action as against each of them, to be taxed if not agreed. How such costs should be apportioned will be left for taxation.

44.  Second, Mr Yuen argues that in any event, Autopal should only bear 80% of Mr Han’s costs. This is because of the confusing way in which Mr Han’s case was presented at trial. Specifically: (1) there was no identification of the type of trust said to have arisen over the Sum until closing submissions; and (2) arguments on whether Autopal has constructive notice of Mr Han’s proprietary interest in the Sum, or has acted in good faith, were not pursued at the end.

45.  In my view, there should be no apportionment of costs just be ticking the number of items pursued and succeeded at trial. The Court makes an assessment of who is the overall winner and award costs accordingly, unless any discreet point has been taken which significantly prolonged the trial length or necessitated costs. While I agree that Mr Han’s case could have been formulated and presented in a better way, there is nothing to lead me to conclude that any part of Mr Han’s costs should be discounted as a result.