LI XIUHUA v. FT ELECTRONIC CO LTD AND OTHERS

HCA 1783/2021

[2023] HKCFI 1828

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1783 OF 2021

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J U D G M E N T

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A. INTRODUCTION

1.  This is the hearing of (i)  the Summons issued by the Plaintiff (“P”)  seeking summary judgment against the 4^th Defendant (“D4”)for, inter alia, the sum of HK$694,801.8 together with interest accrued (“O14 Summons”), and (ii)  the Summons issued by D4 for security for costs against P up to and including the exchange of witness statement in the sum of HK$174,400 (“Security for Costs Summons”).

B. BACKGROUND

2.  Insofar as P’s case is concerned, the factual background in support of P’s case is not seriously disputed by D4. This is not surprising given that D4’s case is that she did not have knowledge of the matter and merely lent her bank account (being the subject matter here)  to another entity for use (which I will go into later).

3.  In the circumstances, I would set out the brief factual background in support of P’s case as summarised by Mr So in his written submissions for P, and supplemented by further observations in Mr Wong’s written submissions for D4 (which are not seriously in dispute). 

4.  In gist, P’s case is that she was a victim of Internet fraud (“the Fraud”).  In or about August 2018, after being told of there being some “investment opportunities” by D7 and D8, P suffered a loss of US$881,117 and RMB 4,279,000 (“the Defrauded Money”)  through various remittances.   As to the sum of US$881,117, it comprises remittances from P into D5’s bank account and D6’s bank account (collectively “the 1^st Tier Bank Accounts”).   Shortly after each remittance was made, funds out of each remitted fund were further transferred into D1’s bank account, D2’s bank account, D3’s bank account and D4’s bank account (collectively “the 2^nd Tier Bank Accounts”). As to the sum of RMB 4,279,000, RMB 3,779,000 and RMB 500,000 out of it were transferred into the bank accounts of Zhang Juncai (张俊财)  and Wang Chuanzhong (王传忠)  in Mainland China.  P reported the Fraud to the Hong Kong Police on or about 18 November 2019 and to the Mainland Police on 19 November 2019. Eventually, D7, D8 and some other co-conspirators were convicted in 2021 in Mainland China.  As a result, P recovered RMB 1,466,500 for her loss in Mainland China, reducing her actual loss to US$881,117 and RMB 2,812,500 (“P’s Net Loss”).

5.  On behalf of D4, Mr Wong submits that it is incorrect to characterise D4’s bank account as a “2^nd tier” bank account in its entirety.  Instead, D4 wears the dual hats of being a 2^nd and 3^rd tier recipient.  According to Mr Wong:

(1)  On 28 October 2016, P transferred the sum of USD 90,000 from her bank account to D6’s bank account (i.e. a “1^st tier” bank account);

(2)  On even date, the USD 89,966.6 (being the net amount after deducting transaction fees from the sum of USD 90,000)  received in D6’s bank account was converted into HKD 694,801.8 out of which:-

(a)  HKD 400,000 was transferred to D4’s bank account (no. 848-708947-838)  (“D4’s Account”)  (i.e. a “2^nd tier” bank account in this sense); and

(b)  HKD 295,000 was transferred to a bank account of Bai Shu-yu (“Bai’s Account”);

(3)  On even date, a sum of HKD 295,000 was transferred from Bai’s Account to D4’s Account (i.e. a “3^rd tier” bank account in this sense).

6.  It can be seen from the above that, whilst P is pursuing D4 for the monies originating from the two transfers, P has fairly confined its claim against D4 to the sum of HKD 694,801.8 (as opposed to the sum of HKD 695,000), in recognition of the fact that the source of the money in D6’s bank account amounted to HKD 694,801.8 only after deduction of transaction fees (“Disputed Sum”).

7.  Turning to D4’s case, the background facts alleged by D4 are disputed by P.  I would have more to say on this when it comes to the analysis of the O14 Summons.  For present purposes and for ease of understanding, it is convenient to set out D4’s alleged background facts as summarised in Mr Wong’s written submissions for D4:

(1)  D4 says that she does not know P or any of the other Ds herein, has no knowledge of the Fraud and was not a party thereto.

(2)  Whilst admitting to be the holder of D4’s Account, D4 claims that she had at the material times lent D4’s Account to one Kong Hing Renminbi Exchange (Remit)  Ltd (“Kong Hing”), being a licensed money operator in Hong Kong, for the carrying out of its money exchange and remittance business (“Lending Arrangement”).  As such, D4 allegedly did not beneficially receive or retain the Disputed Sum and she had been a receiving trustee and/or agent of Kong Hing.

(3)  By way of background, between about 2005 and 2010, D4 and her younger sister ran a small clothing retail business with a retail store located at Allied Plaza, Kowloon.

(4)  In or about 2013, D4 was considering getting back to the clothing industry and starting a business of clothing retail on her own.  On or about 4 December 2013, D4 set up a sole proprietorship under the trading name of Concepet Trading Company.

(5)  D4 applied for and opened D4’s Account being a business integrated account under the name of her sole proprietorship in 2015.  As stated in the account opening form, it was intended to be a business on “Wholesale & Trading” and “Trading of textiles, clothing & footwear c.e.c.” and the nature of products offered would be “Fashion clothing.”  The purpose of opening D4’s Account was stated to be for “Business Operations” and “Intercompany Settlement”.

(6)  After being stably employed for some time by a money exchange company known as Kam Wui Renminbi Exchange Company (“Kam Wui”)  and for other personal reasons, D4 eventually did not pursue her start-up plan and did not carry out substantive business under her sole proprietorship.

(7)  D4 is still working as an employee at Kam Wui and earning a monthly income of about HKD 13,000, before deduction of contribution to her MPF fund.

(8)  Because of business reasons and starting from 2013, D4 came to know and had very frequent business communication and dealings, sometimes on a daily basis, with Kong Hing (being another money exchange company)  and one Ms Lai who was known to D4 to be the person in charge of Kong Hing.

(9)  To D4’s understanding of the industry, money exchange companies require bank accounts to carry out their business, but it is difficult for them to open multiple bank accounts.  As a result, it was common for them to borrow and make use of bank accounts of third parties, such as that of their personnel, for the carrying out of their business.  To D4’s knowledge, Kam Wui had also done so and borrowed at least one bank account from D4’s colleague for carrying out their business.

(10)  In or about July 2016, Ms Lai came to D4 indicating Kong Hing’s difficulty in opening bank accounts for their business and asked if D4 had bank account that can lend Kong Hing for their money exchange and remittance business.

(11)  To D4’s understanding and knowledge gathered through her years of work, Kong Hing was a licensed money exchange operator and both Kong Hing and Ms Lai had been honest and reliable business acquaintances.  At the time, Kong Hing, which was incorporated on 5 July 2007, was a business with some 10 branches, had already carried on business for some 9 years, and had met the stringent requirements issued by the Customs and Excise Department (“CED”)  and managed to renew its money service licence each and every term.

(12)  D4 agreed to help Kong Hing out and lend it D4’s Account.  D4 did not charge a fee because she saw it as a friendly gesture of helping out a business acquaintance and she did not need her account in any event.

(13)  By a notification dated 25 August 2016, Kong Hing applied for and later obtained the written approval from the Commissioner of Customs and Excise to use D4’s Account for its business dated 1 December 2016 with effect from 26 July 2016.

(14)  After D4 lent out her account to Kong Hing, D4 has not operated or made use of D4’s Account.  D4 has no knowledge over and did not beneficially receive any of the monies that were transferred into D4’s Account or beneficially pay out any of the monies that were transferred out of the same.

(15)  In particular, D4 has no knowledge of the Disputed Sum paid into D4’s Account on 28 October 2016.  It was not made to her and did not belong to her beneficially.

(16)  It was not until about March 2017 that D4 learnt that D4’s Account was frozen by the police.  Prior to that, she had never received any complaint or inquiries from HSBC, the Hong Kong Police or CED in relation to her lending of D4’s Account to Kong Hing or Kong Hing’s use of the same.

(17)  D4 was invited to render her assistance to the Hong Kong Police over the Fraud reported by P in or about September 2017.  Until this date, no further follow-up was required from D4 and no charges have been laid upon D4.

(18)  D4 understands that Ms Lai and Kong Hing were also invited to render assistance to the Hong Kong Police and are in the same position.  Also, Kong Hing remains a money service operator in Hong Kong who has renewed its licence recently in November 2022 and is conducting business as usual.

8.  As mentioned, P does not accept the alleged factual background advanced by D4.  In particular, P strenuously disputes the alleged Lending Arrangement between D4 and Kong Hing.

C. O14 SUMMONS

C1.  P’s position for the purpose of summary judgment

9.  As submitted by Mr So, P’s claims are based on the following causes of actions:

(1)  a claim in personam against D1 – D6 for money had and received and unjust enrichment;

(2)  a proprietary claim of traceable proceeds of the Defrauded Money such that D1 – D4 (where applicable)  held such traceable proceeds on trust for P;

(3)  a claim in personam against D1 – D6 based on constructive trust and knowing receipt of the Defrauded Money; and

(4)  a claim in personam against D1 – D8 for conspiracy to defraud the Plaintiff or dishonest assistance in perpetrating the Fraud causing P to lose the P’s Net Loss.

10.  Further, as confirmed by Mr So, P primarily relies on the claims of unjust enrichment and tracing against D4 for the purpose of the O14 Summons.  For the avoidance of doubt, Mr So emphasises that, if P succeeds in obtaining summary judgment, P would not pursue other causes of action against D4; conversely, if P is not successful in seeking summary judgment, P will continue to pursue all causes of action against D4 at trial.

11.  Therefore, as invited by Mr So, I would focus on the claims of unjust enrichment and tracing.

C2.  Applicable principles on summary judgment

12.  The relevant principles governing applications for summary judgment are trite.  On behalf of P, Mr So refers to the summary in Hong Kong Civil Procedure 2023, Vol 1 (which Mr Wong has no quarrel with):

(1)  Once the plaintiff has raised a prima facie sustainable case, the burden then shifts to the defendant to satisfy the court why judgment should not be given against the defendant (§14/4/1);

(2)  In a summary judgment application, the defendant must show that there are triable issues.  He has to satisfy the court that he has a real or bona fide defence which is credible or believable on the evidence before the court (§14/4/9);

(3)  In considering whether there are triable issues, the court will not take the alleged defence at its face value but test it against the evidence disclosed in the affidavit.  The mere assertion in an affidavit of a given situation does not, ipso facto, provide leave to defence (§14/4/9A);

(4)  The defendant’s affidavit must “condescend upon particulars” and should, as far as possible, deal specifically with the plaintiff’s claim and affidavit, and state clearly and concisely what the defence is, and what facts are relied on to support it (§14/4/4);

(5)  On the other hand, the court must not embark on a mini-trial on affidavits (§14/4/9);

(6)  The underlying policy of the summary procedure is to prevent a defendant from delaying the plaintiff from obtaining judgment in a case in which the defendant clearly has no defence to the plaintiff’s claim (§14/4/9);

(7)  A desire to investigate alleged obscurities and a hope that something will turn up in the investigation cannot, separately or together, amount to sufficient reason for refusing to enter judgment for the plaintiff. A defendant does not get leave to defend by putting forward a case that is all surmise and Micawberism (§14/4/3).

13.  In addition, Mr Wong refers to the summary of principles set out by Wilson Chan J in §§11-12 of Li Chuen Kwai v Po Lam Construction Development Ltd, HCA 2376/2013, 24 September 2014.  I do not consider it necessary to set out the same here, as the principles are indeed trite and I do not think that the resolution of the O14 Summons turns on such principles (as opposed to their application to the facts herein).   

C3.  Analysis of unjust enrichment claim

14.  It is common ground that the elements and approach for determining an unjust enrichment claim has been authoritatively set out by the Court of Final Appeal (“CFA”)  in Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004)  7 HKCFAR 79 at §§66-68, namely:

(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.

15.  As submitted by Mr So (which should not be in dispute), money deposited in a bank account became the property of the bank, which was under an obligation to pay an equivalent sum to the account holder on demand and to pay any amount due by the bank to the account holder as its customer against the written order of the customer addressed to the bank.  The account holder’s only property in respect of the bank account is a chose in action, being the right to recover from the bank on demand a sum equivalent to the amount standing to the credit of the account at any given time (i.e. a debt owed by the bank towards to account holder).  The account holder is neither the legal owner nor the beneficial owner of “the money” in the bank account, and the relation between a banker and customer is the ordinary relation of debtor and creditor: Foley v Hill (1848)  2 HL Cas 28 at 36; 9 ER 1002 at 1005; Joachimson v Swiss Bank Corp [1921] 3 KB 110 at 127; PT Asuransi Tugu Pratama Indonesia Tbk v Citibank N.A. [2023] HKCFA 3 at §13.  Money paid into a bank account belongs legally and beneficially to the bank and not to the account holder.  There is merely a single debt of an amount equal to the final balance standing to the credit of the account holder: Foskett v McKeown [2001] AC 102, 128 A – B.  Further, the questions of whether the defendant was enriched, and if so, to what extent, are tested at the date of receipt: Credit One Finance Limited v Yeung Kwok Chi & Ors [2020] HKCFI 2450 at §45.  On such analysis, where payment is made to a bank account, the account holder is enriched: Credit One Finance at §§46 & 47.

16.  Therefore, based on the background facts set out above, the prima facie position would appear to be that, D4 being the holder of D4’s Account maintained with HSBC and as a result of the transfer of the Disputed Sum, the debt owed by HSBC to D4 in respect of D4’s Account was increased correspondingly by the Disputed Sum, which is an enrichment of D4.  As the Disputed Sum originates from P’s monies, such enrichment would be at P’s expense, and it would prima facie be unjust given that the payment was made by P due to the mistaken beliefs as to the purposes for her transfers induced by the fraudulent misrepresentations by inter alia D7 and D8.  In the premises, I am satisfied that P has raised a prima facie sustainable case, and the burden then shifts to D4 to satisfy the Court why judgment should not be given against D4.

17.  In this regard, the Court has to consider the defence put forth by D4.  As Mr Wong put it, it has been the core of the whole of D4’s case that since she had lent her account to Kong Hing under the Lending Arrangement and did not receive the monies beneficially, there was no enrichment on her part and it was a ministerial receipt as an agent and/or trustee of Kong Hing.  According to Mr Wong, D4’s case is relevant to both the 1^st and 4^th elements of the approach laid down by the CFA in Shanghai Tongji. 

18.  In response, Mr So for P contends that (i)  the Lending Arrangement is not credible on the facts; and (ii)  the Lending Arrangement does not afford D4 a defence as a matter of law, given that D4 has not raised the defence of bona fide purchaser with value without notice or change of position.  It follows that if I am with Mr So either on the facts or on the law, then D4 would fail to satisfy the Court that she has a real or bona fide defence which is credible or believable on the evidence before the Court (in which event summary judgment for the unjust enrichment claim should be granted).

19.  First of all, insofar as the facts are concerned, Mr So contends that the Lending Arrangement is highly suspicious and unbelievable, based on inter alia the following observations:

(1)  There were already a large volume and amount of daily transactions with D4’s Account (up to over $10 million in a single transaction, and millions in daily balance), even well before the use of D4’s Account by Kong Hing was approved by the Director of Customs & Excise on or 1 December 2016.

(2)  No written documents or correspondence were ever made to record the alleged Lending Arrangement. Besides, the prevalence of account lending arrangement and the difficulty of Kong Hing in opening bank accounts are merely bare assertions without particulars. Further, such an arrangement will expose Kong Hing to high risk as at all material times D4 remains the effective account holder of D4’s Account (and hence able to deal with the monies in D4’s Account), whereas the licence holder of Kong Hing (Ms Lai)  only knew D4 for about 3 years based on business dealings when Ms Lai asked to borrow D4’s Account.  There is no explanation why Ms Lai did not approach the employees of Kong Hing (like what D4 alleged to be the arrangement of her employer Kam Wui which is also a licensed money exchanger), or her own family members but to seek help from D4. 

(3)  Likewise, such an arrangement would expose D4 to the risk of money laundering.  The explanation of D4 that there is no need to have written records is unbelievable and self-contradictory, particularly given D4 has been employed by Kam Wui since about 2013 and must therefore be familiarised with the anti-money laundering provisions for money exchange providers.

(4)  Most if not all of the explanations proffered by D4 in her affirmations are merely bare assertions without particulars.

20.  In my view, there is force in Mr So’s submissions.  But for the fact that there are contemporaneous documents which lend support to D4’s case, I would have been inclined to accept Mr So’s contention that the Lending Arrangement is highly suspicious or incredible.  Nevertheless, as pointed out by Mr Wong, there are at least documentary evidence on the following:

(1)  The setting up of Concepet Trading Company on 4 December 2013;

(2)  The setting up of the sole proprietorship’s business integrated account with HSBC in 2015;

(3)  The money operator licence issued by the Commissioner of Customs and Excise to Kong Hing dated 6 November 2014 covering the period between 6 November 2014 and 5 November 2016;

(4)  The Form 6 of Notification of Changes in Particulars under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap 615)  issued by Ms Lai of Kong Hing to the Commissioner of Customs and Excise applying to use D4’s Account to carry out its money service business dated 25 August 2016 (“Form 6”);

(5)  Letter from the Commissioner to Kong Hing approving its use of D4’s Account in its business dated 1 December 2016; and

(6)  The money operator licence issued by the Commissioner of Customs and Excise to Kong Hing dated 6 November 2022 covering the period between 6 November 2022 and 5 November 2024.

21.  In my view, the documentary evidence pertaining to the setting up of Concepet Trading Company, the opening of D4’s Account, and the money operator licence issued in favour of Kong Hing, help to give some support to the background facts alleged by D4, even though they are unlikely (in themselves)  to be determinative of the issue of facts for the purpose of summary judgment. 

22.  Nevertheless, it seems to me of critical importance that the Form 6 was executed on 25 August 2016, more than 2 months before the Disputed Sum was credited into D4’s Account.  As required by section 40(1)  of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap 615), “If there is any change in the particulars that are provided to the Commissioner in connection with a licensee’s application under section 30 or 31, the licensee must notify the Commissioner in writing of the change within one month beginning on the date on which the change takes place.”  In this connection, as stated in the Form 6:

(1)  Its purpose is to notify the Commissioner of Customs and Excise of the “Addition of Bank Account(s)  used for operating Money Service”;

(2)  Under “Particulars of the Addition of bank account used for operating the Licensee’s Money Service”, the effective date of the change is 26 July 2016 (i.e. within 1 month prior to the date of the notification of 25 August 2016 in the Form 6);

(3)  The name of the account holder is Concepet Trading Company (being the sole proprietor set up by D4); and

(4)  The account in question is D4’s Account held with HSBC.

23.  In my view, one cannot look at the date of approval of the use of D4’s Account by Kong Hing (being 1 December 2016 which is after the event)  alone, but ignore the date of notification submitted by Kong Hing (being 25 August 2016 which was over 2 months before the transfer of the Disputed Sum)  in accordance with section 40(1)  of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap 615).  In particular, as stated in the Form 6, D4’s Account was already used for operating Kong Hing’s money service with effect from 26 July 2016.  Once it is accepted that Kong Hing did notify the Commissioner the use of D4’s Account on 25 August 2016 (on the basis that D4’s Account was already so used since 26 July 2016)  before the transfer of the Disputed Sum on 28 October 2016, it seems to me at least arguable or credible that such use of D4’s Account by Kong Hing since 26 July 2016 was pursuant to the Lending Arrangement as alleged by D4.  Further, whilst one may say that the details as to the terms of the Lending Arrangement may be questionable as it was not reduced into writing, it seems difficult to deny the fact that, as evidenced by the Form 6, some sort of arrangement akin to the Lending Arrangement must have been in place as between D4 and Kong Hing whereby Kong Hing was allowed by D4 to use D4’s Account for operating Kong Hing’s money service.

24.  Considering the matter in the round, whilst I accept that various queries or doubts may well be raised as to the commercial rationale or factual allegations in relation to the Lending Arrangement, I do not think that they are sufficient to enable the Court to ignore or brush aside the contemporaneous documents (particularly the Form 6)  at this stage.  It is obviously not the task of the Court to embark on a mini-trial on affidavits in an application for summary judgment, and the matter should be left for investigation and determination at trial.

25.  Second, assuming that the facts as alleged by D4 are believable or are to be believed, the Court has to consider whether this affords a defence to D4 as a matter of law.

26.  On behalf of D4, Mr Wong argues that D4’s defence is that of ministerial receipt, and such defence goes to both the 1^st and 4^th elements of an unjust enrichment claim as laid down by the CFA in Shanghai Tongji.  He says that they are overlapping, if not two sides of the same coin.  In particular, he places heavy reliance on the commentary by the learned authors in Goff & Jones, the Law of Unjust Enrichment (9^th edn.), §§28-02 to 28-03, as follows:

“On one view, this ‘payment over’ defence should be understood as an early version of the change of position defence, which has now been subsumed by the wider version of the defence that was recognised in Lipkin Gorman (wider in the sense that is not restricted to agents and is generally available). On another view, which we prefer, an agent who receives a benefit for which he must account to his principal should be able to resist a claim in unjust enrichment whether or not he pays the value of the benefit to his principal, and whether or not he takes good title to the property which he then uses as his own, because his obligation to account means that he never takes the value of the benefit for himself, and that the principal alone is enriched by the transaction.

  On this view, a claim in unjust enrichment lies against the principal, and no claim lies against the agent, because the agent is not enriched by his receipt.  If this is correct, then the results (though not the reasoning)  of the cases where the ‘payment over’ defence was allowed can be explained on the basis that the agent came under an immediate accounting duty when he received the benefit and should therefore have been entitled to escape liability, whether or not he actually paid the value of the benefit over to the principal.  And if this argument is correct, then ‘ministerial receipt’ is probably best understood as a denial that the agent has been enriched rather than as a defence to the claim.” [Emphasis added]

27.  Therefore, applying such argument and on the basis that the Lending Arrangement is believable, Mr Wong contends that D4 was not enriched and hence P could not establish the 1^st element (and also the 4^th element)  of the unjust enrichment claim against D4.  The legal analysis of the effect of such argument (if made out)  is that it is a denial that the agent (D4)  has been enriched, rather than operating as a defence to the claim on the basis that there is enrichment of the agent (D4).  It follows that, on D4’s case, P ought to pursue Kong Hing (not D4)  instead. 

28.  In support of such argument, Mr Wong further refers to the decision of DHCJ Paul Lam SC in The Yerrid law Firm v Qiansbaizi Trading Ltd [2021] HKCFI 620 at §§19-20.  In that case, the defendant similarly contended that it had lent out its bank account in question to a licenced money service operator for business and put up a defence of ministerial receipt.  DHCJ Paul Lam SC cited the passage in Goff & Jones quoted above and went on to state that:-

“In this case, D2 merely received the sum of US$200,000 as the receiving agent for Fuyan or Wanyuen. There is no suggestion that D2 was entitled to keep any part of this sum in its own right. For the present purpose, I accept that this is an argument with a real prospect of success.” [Emphasis added]

29.  It may be noted that DHCJ Paul Lam SC ultimately rejected the defence case on the ground of illegality, but it is clear from the above that he considered the defence of ministerial receipt as having a real prospect of success.  Whilst I can see counter-arguments to such defence (as explained below), I agree that such defence is at least bona fide arguable having regard to Goff & Jones and Yerrid law Firm. 

30.  On behalf of P, Mr So argues that D4’s case of being an agent of Kong Hing in the legal sense is unsupported by evidence, and D4’s case also fails to satisfy the 3 certainties of an express trust.  Given my view above that the Lending Arrangement is believable, I am unable to accept at this stage that D4 cannot possibly make out a defence of ministerial receipt, on the basis that D4 received the Disputed Sum as agent of Kong Hing such that the money received was held on trust by D4 for Kong Hing.  Indeed, this is prima facie supported by the notification in the Form 6, whereby Kong Hing notified the Commissioner that D4’s Account was used for operating Kong Hing’s money service with effect from 26 July 2016 (up to and inclusive of the date of transfer of the Disputed Sum on 28 October 2016).

31.  I note further that P has sought to rely on Credit One Finance at §§46-47 in support. Whilst that is a decision in support of the general proposition that, where payment is made to a bank account, the account holder is enriched, that decision did not deal specifically with the defence of ministerial receipt.  It is therefore not sufficient to rely on such general proposition to brush aside the legal argument relied on by D4.

32.  In my view, however, one may counter the argument of ministerial receipt by saying that, in the event where the agent has already paid over the money to the principal, then the defence should more properly be regarded as one of change of position.  If so, it may be argued that in cases where the agent has not paid over the monies in question to the principal, it should not be open to the agent to rely on the defence of ministerial receipt to deny a plaintiff of an unjust enrichment claim.  Instead, the agent may apply for interpleader relief on the basis that the agent has no claim to the monies, but there may be competing claims as between the plaintiff and the principal for the monies.  If no interpleader relief has been applied for and the principal has not sought to intervene and claim ownership of the monies, there is probably no good reason why the plaintiff must be compelled to pursue the principal when the monies remain in the bank account of the agent.  Having said that, it may be argued to the contrary that, if a defendant can demonstrate that it merely acted as an agent and did not receive the funds in its own right, the onus should not be on such defendant to seek interpleader relief (although this could be an option), and the burden remains on the plaintiff to sue the right party (i.e. the principal).

33.  At the end of the day, given that the Court did not have the benefit of full arguments on the law and in view of the fact that the learned authors of Goff & Jones prefer the argument of ministerial receipt which DHCJ Paul Lam SC accepted as having a real prospect of success, I do not consider it right to express any conclusive view at this stage for the purpose of the O14 Summons.  Moreover, it is obviously open to P to consider joining Kong Hing to this action, so that the real issues could be dealt with by the Court.  Of course, whether this is necessary or appropriate would, ultimately, depend on whether the defence of ministerial receipt is accepted as a matter of law.

34.  For all these reasons, I am of the view that, on balance, D4 has a real or bona fide defence to P’s unjust enrichment claim which is credible or believable on the evidence before the Court.

C4.  Analysis of tracing claim

35.  On behalf of D4, Mr Wong submits that P is misconceived to describe tracing as a standalone cause of action.  He argues that “tracing” is not a claim or cause of action as such; it is only “the process by which a new asset is identified as the substitute for the old” and it is “in itself neither a remedy nor a claim, just a process which needs to be gone through if a claim is to succeed”: Lewin on Trusts (20^th edn.)  Volume II at §§44-005 to 44-006.  D4 thus takes it and proceeds on the basis that P meant she seeks to assert a proprietary claim over the credit balance of HKD 694,850.92 (i.e. the Disputed Sum)  in D4’s Account.

36.  I agree with D4 that tracing is not a standalone claim.  In the circumstances, given my view above that D4 has a real or bona fide defence to P’s unjust enrichment claim, it is not strictly necessary for me to deal with the “tracing” claim (which is contingent on a substantive claim having been made out).  In other words, if P is not successful in her unjust enrichment claim, there is no underlying basis for P to seek to assert a proprietary claim over the Disputed Sum by the process of tracing.  Therefore, I do not consider it necessary to deal with the parties’ arguments on tracing in details.  For present purpose, I need only make a few observations.

37.  First, D4 relies on Cheng J’s decision in JSP International SRO v Alacrity Ltd & Ors [2022] HKCFI 977 at §26 and argues that it is incumbent upon P to clearly plead to a case supported by sufficient particulars that D4 or her former tier recipient, D6, was a “fraudulent recipient” as such, which D4 submits P has failed completely. In particular, the only overt act that have been pleaded is the mere fact that D6’s account was used to receive and part with the alleged trust money, whereas the only particular to support D4 to be fraudulent is that the Disputed Sum being allegedly traceable proceeds went into D4’s Account.  Having considered D4’s argument, I tend to agree (but without expressing any conclusive view)  that insufficient particulars are given by P in support (see JSP International SRO at §§25-30, 42-47).

38.  Second, D4 argues that out of the Disputed Sum, HKD 295,000 of it went through Bai’s Account and, without the actual bank statements listing out the dealings in Bai’s Account (and pleading to the same), it is not known how many dealings were carried out in Bai’s Account that day, and it is not even known whether the payment out took place before the payment in.  I tend to agree with D4 that this could have an impact on P’s tracing exercise in relation to the sum of HKD 295,000.

39.  Third, D4 contends that, as revealed by the bank statements, D4’s Account was operated as a running account where there have been very frequent withdrawals and additions after the payment into of the allegedly traceable proceeds on 28 October 2016 on a daily basis until 7 February 2017.  D4 further contends that, where there are competing equitable interests in the credit balance of a bank account as between innocent contributors, the principle of subordination does not apply and under the first in first out rule (or presumption)  in Clayton’s Case, payments out of an account are attributed to payments into the account in the order in which payments were made in:  Lewin on Trusts at §§44-067 to 44-68.  If one proceeds on the basis that Kong Hing would have an interest in the credit balance of D4’s Account, it is arguable that the rule in Clayton’s Case prima facie applies such that after some 3 months of daily payments in and out as revealed in the bank statements, no part of the Disputed Sum still remains in D4’s Account.  On behalf of P, Mr So argues that the above consequence should not follow since Kong Hing has not come forward to set up a competing claim over the Disputed Sum.  Nevertheless, this begs the question whether the ministerial defence should prevail in law – if so, P has not sued the right party (i.e. Kong Hing)  and P cannot shift the blame to Kong Hing for not coming forward. 

40.  Fourth, D4 contends that P’s right to trace proceeds is in any event subject to the lowest balance rule: see Lewin on Trusts at §44-071; The Maitri Trust v Hong Fei Sheng (HK)  Trading Co., Ltd [2020] HKCFI 2764, DHCJ Dawes SC at §§22-27.  During oral submissions, Mr So accepted that the lowest balance of D4’s Account should be HKD 30,514.66 and USD 0.36 on 26 January 2017.  Hence, even on P’s case, her right to trace is only limited to that sum (which is relatively small compared with the Disputed Sum, i.e. less than 5% thereof).

41.  Fifth, D4 also takes issue with P’s argument that D4 has “acquired knowledge of the fraud” when she was served with the court documents.  D4 relies on Zief Incorporated v Tekchandani Ajai Mohan (T/A D’ziner Collections (Hong Kong))  & Ors [2021] HKCFI 38, where Recorder Eugene Fung SC expressed reservation on using the “conscience” approach to impose a constructive trust, and opined that the mere fact that the defendant was aware of the claim was not sufficient knowledge.  On behalf of P, Mr So argues that in the present case D4 never pleads any case about the source of money, and hence by the time D4 was served with the pleadings and injunction order, she should know that it is a fraud case.  However, one must not forget that it is D4’s case that D4’s Account was operated by Kong Hing and this arguably supports a belief that the monies should belong to Kong Hing instead (despite being served with P’s pleadings). Again, without expressing a conclusive view, I agree that the matter is at least arguable on both sides.

42.  For all these reasons, I am not inclined to grant summary judgment for the tracing claim to P in any case (even if, contrary to my view, P could pursue tracing as a standalone claim).

D.   SECURITY FOR COSTS SUMMONS

D1.  Applicable principles

43.  The principles on security for costs are trite, and Mr So has summarised them on behalf of P (which Mr Wong does not quarrel with).

44.  To begin with, the Court has broad discretion and it should be exercised in light of all the circumstances.  It is certainly not a rigid rule that an overseas plaintiff should be ordered to provide security.  The Court may take into account the merits of the case, and whether the plaintiff’s claim is “genuine and strong” no order for security would be granted: Hong Kong Civil Procedure 2023 Vol 1, §23/3/3.

45.  The burden however is and always remains on the defendant to demonstrate that it is just to order security.  In Lim Yi Shenn v Wong Yuen Yee [2012] 3 HKLRD 505, Recorder Horace Wong SC stated at §58:

“The burden is upon the defendants to satisfy me that it is just to make an order for security for costs. It is accepted, as indeed is well-settled, that there is no inflexible rule to order a foreign plaintiff to provide security for costs, although, as mentioned above, the approach of the court is to order security unless there is anything to show that it is not just to so order. It might be said that there is an evidential burden on the plaintiff to adduce some evidence to displace the initial inclination to order security (described by Godfrey J as the prima facie position in Walt Disney Co v Disney Property Agency, supra), but the legal burden rests always with the defendant making the application to satisfy the Court that it is just to make the order.” [Emphasis added]

46.  The existence of a regime of reciprocal enforcement between Hong Kong and the foreign jurisdiction, in the absence of other relevant evidence, shows that it is not just to make an order under O 23 r 1(1)(a):  Lim Yi Shenn at §69.

47.  On behalf of D4, Mr Wong refers further to a number of authorities and commentaries on securities for costs.  Again, I do not consider it necessary to set them out in full, and the legal principles are trite.  I should however mention that one of the points emphasised by Mr Wong is that the existence of any reciprocal enforcement of judgments is only one factor to be taken into account in the courts’ discretion, and the overall consideration remains whether it is just to order security.

D2.  Analysis

48.  Having considered all relevant considerations, I am not minded to order security for costs against P.

49.  First of all, I am of the view that P has a genuine and strong claim of unjust enrichment against D4.  As I have explained above, it is necessary for D4 to succeed both on facts and on law to make out the defence of ministerial receipt.  So far as the question of law is concerned, I already mentioned above that I can see counter argument to the defence of ministerial receipt.  Also, D4 has only been able to rely on the academic views of the learned authors of Goff & Jones, coupled with the view of DHCJ Paul Lam SC for the purpose of a summary judgment application rather than a trial (particularly where he rejected the defence ultimately on the ground of illegality).  Therefore, P has raised a prima facie sustainable case and would have been entitled to summary judgment, but for the potential defence of ministerial receipt raised by D4, the legal validity of which remains to be tested.

50.  I am also conscious of the fact that, instead of incurring substantial legal costs to defend P’s claims, D4 could have applied for interpleader relief, particularly when it is D4’s case that she claims no interests in the Disputed Sum herself as she merely received it as agent for Kong Hing.  Had D4 done so, it would not be necessary for D4 to engage itself in substantive litigation with P whereas Kong Hing could have come forward if it so wishes, and it would also not be necessary for D4 to seek security for costs against P.  Of course, I recognise that interpleader relief is merely an option which D4 may consider, but I see no reason why the Court cannot take into account the practical reality as one consideration in the exercise of its discretion.

51.  Moreover, I also take note of the fact that, despite having obtained various documents from Kong Hing for disclosure in this action to support her defence, D4 apparently has not asked Kong Hing (or otherwise disclose to this Court)  the basis for any competing claim to ownership of the Disputed Sum by Kong Hing.  During oral submissions, Mr Wong simply says that D4 is unable to put up a positive case of the whereabouts of the funds and the purpose of the funds, and that is a matter for Kong Hing.  Whilst it may be said that Kong Hing is a separate party, one must not forget that even on D4’s own case, she acted as an agent or trustee for Kong Hing, and she is able to obtain various documents from Kong Hing.  It would thus appear a bit evasive if D4 somehow elected not to obtain any information from Kong Hing as to the whereabouts of the funds and the purpose of the transfer of the Disputed Sum.

52.  Second, I also accept Mr So’s argument that Australia is included in Schedule 1 of the Foreign Judgment (Reciprocal Enforcement)  Order, Cap 319A and, by similar arguments as advanced in §§61 to 69 in Lim Yi Shenn,it can be inferred that the procedure for enforcement of a Hong Kong judgment therein would be similar to that provided in the Foreign Judgment (Reciprocal Enforcement)  Ordinance, Cap 319.  This is a relevant consideration that the Court may take into account (among other factors)  in refusing security for costs.

53.  Third, I can see some force in Mr Wong’s argument in reliance of P’s failure to settle the costs order in the sum of HKD 40,000 awarded in favour of D4 by Linda Chan J on 27 January 2022 after dismissing P’s ex parte application for injunction.  Such costs order was only settled on 12 July 2022, after a further court order was made on 17 June 2022.  There was therefore a delay of about 5 to 6 months.  Having said that, Mr So on behalf of P argues that there were in fact without prejudice correspondence between the parties (which the Court is not privy to).  Taking into account the period of delay (which is not overly substantial)  and the relatively small amount of the costs order, I am not minded to attach too much weight to such factor alone in the ultimate balancing exercise.

54.  For all these reasons, I do not consider it just to order P to pay security for costs to D4.  In the circumstances, it is not strictly necessary for me to deal with the quantum of security sought, although I would be inclined to order security in the region of HKD 120,000 if I am minded to order security.

E.  DISPOSITION

55.  In the premises, I grant unconditional leave to D4 to defend P’s action, but I dismiss D4’s application for security for costs.

56.  Since I have accepted arguments from both P and D4, I further order on a nisi basis that the costs of the O14 Summons and the Security for Costs Summons be in the cause.

57.  It remains for this Court to thank Mr So for P and Mr Wong for D4, for their helpful submissions and assistance rendered to the Court.