BAYI STEEL INTERNATIONAL MINERAL CORPORATION v. HONG KONG RUIXUE INTERNATIONAL GROUP CO., LTD

DCCJ 2160/2017

[2021] HKDC 43

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2160 OF 2017

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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 summary judgment against the defendant in the sum of USD128,091 (“the Sum”) on the ground that the defendant received the Sum without the plaintiff’s authorization or alternatively, the defendant was unjustly enriched at the expense of the plaintiff.

2.  At the hearing, the plaintiff was represented by counsel, Mr Phillip Ross.  The defendant was absent.

3.  When the present summons was taken out on 25 June 2018, the defendant was legally represented.

4.  By an Order dated 12 July 2018, directions were given by consent for, inter alia, the present summons to be adjourned to a date to be fixed for argument and for the defendant to file and serve its affirmation in opposition on or before 9 August 2018.

5.  By an Order dated 31 August 2018, it was ordered that unless the defendant do file and serve its affirmation in opposition by 10 September 2018 at 4 pm, the defendant shall be debarred from doing so.

6.  By an Order dated 19 September 2018, leave was granted to the defendant’s former solicitors to cease to be the solicitors for the defendant in this action.

7.  I was informed by Mr Ross at the hearing that the parties’ legal representatives attended the Registry of the District Court to fix the date of this hearing on 14 August 2018 pursuant to the Order dated 12 July 2018.  A clerk of the defendant’s former solicitors was present on behalf of the defendant.  This is verified by the Affirmation of Chan Ka Chuen Raymond, which was filed by the plaintiff subsequently on 6 November 2018.

8.  I was also helpfully informed by Mr Ross that the hearing bundle and the skeleton submission of the plaintiff were served on the defendant at its last known address available to plaintiff under cover of letters dated 16 October 2018 and 22 October 2018 respectively, both of which stated the date of the present hearing.

9.  In view of the above procedural history and the steps taken by the plaintiff’s solicitors, I was satisfied that the defendant was aware of but chose not to take part in the present hearing.  I was satisfied that it was appropriate for this hearing to proceed in the absence of the defendant.

THE PLAINTIFF’S CASE

10.  According to its Statement of Claim filed on 10 May 2017, the plaintiff is and was a non-Hong Kong company registered in Hong Kong and the defendant is and was a limited company registered in Hong Kong.

11.  On or about 16 February 2016, the plaintiff received an email from the Agricultural Bank of China (“ABC”) stating that the plaintiff had on 15 February 2016 transferred the Sum from the plaintiff’s account with ABC to a bank account with HSBC, of which the defendant was and is the account holder (“Transfer”), and the remittance instruction for the Transfer came from an email account which had the same address as that of the sole director of the plaintiff, Mr Cao Wei (“Mr Cao”).

12.  It is the plaintiff’s case that it never made or authorized the Transfer.

13.  The plaintiff phoned ABC and ABC informed the plaintiff that the Transfer had already gone through.

14.  It is the plaintiff’s case that the defendant was a stranger to the plaintiff and the parties had no relationship with each other, whether business or otherwise.

15.  The plaintiff suspected that the email system of the plaintiff had been hacked and reported the situation to the Hong Kong Police on 16 February 2016.

16.  The plaintiff was later informed by the Police that the defendant’s bank account with HSBC was frozen by the Police and the said Transfer was under investigation by the Police.

17.  The plaintiff therefore sues the defendant for the recovery of the Sum on the ground that the defendant had and received the Sum without the plaintiff’s authorization or alternatively, the defendant received the Sum without paying any consideration and was unjustly enriched at the expense of the plaintiff.

THE DEFENDANT’S CASE

18.  The defendant filed its Defence on 24 July 2017.

19.  The pleaded case of the defendant can be summarized in the following paragraphs.

20.  The defendant admitted that it had no knowledge of the plaintiff’s existence and never had any commercial transaction with the plaintiff.

21.  It is the defendant’s case that it entered into a purchase agreement (“the Agreement”) with a business entity known as Grand Import & Export Co Ltd on 20 January 2016 for the sale and purchase of auto brake pads (“the Goods”) on behalf of Shenzhen Qianhai Laixi Technology Co Ltd.

22.  The defendant would act as the receiving party to receive payments on behalf of Shenzhen Qianhai Laixi Technology Co Ltd through its account with HSBC, which was the bank account in question (“HSBC Account”).

23.  According to the Agreement, Grand Import & Export Co Ltd was required to pay the defendant a total amount of USD150,000 with an initial payment of USD128,000 not later than 2 October 2016.

24.  In about February 2016, the defendant was informed by Grand Import & Export Ltd that the latter would arrange payment into the defendant’s HSBC Account.

25.  On 15 February 2016, pursuant to the Agreement, the defendant received a sum of USD128,089.07 in the HSBC Account as consideration for the Goods.

26.  The defendant was later informed by Grand Import & Export Ltd that the latter wanted to withdraw the said sum of USD128,089.07 as they could not accept the price of the Goods offered by the defendant.

27.  As the defendant had other trading business with Grand Import & Export Ltd and did not want to offend a customer, the defendant agreed to the termination of the Agreement and refund USD100,000 out of the said sum of USD128,089.07 at the request of Grand Import & Export Ltd.

28.  As a result, on 15 February 2016, the defendant paid the sum of USD100,000 together with a sum of USD68.22 being the bank charge to three bank accounts in Nigeria as nominated by Grand Import & Export Ltd.

29.  Grand Import & Export and the defendant also agreed that the balance of USD28,021 out of the said sum of USD128,089.07 would be kept by the defendant in its HSBC Account as a deposit paid by Grand Import & Export Ltd for the next purchase.

30.  It is the defendant’s case that it genuinely believed that the said sum of USD128,089.07 was paid into the defendant’s HSBC Account on 15 February 2016 pursuant to the Agreement by Grand Import & Export Ltd.

31.  The defendant denies that it was unjustly enriched at the plaintiff’s expense as the defendant already refunded part of the said sum of USD128,089.07 at the request of Grand Import & Export Ltd.  The defendant further pleaded that it is willing to return the remaining sum of USD28,021.09 to “to its right owner”.

32.  It is also the defendant’s pleaded case that the defendant was “merely another innocent party utilized by the fraudster as a vehicle to move the money to the alleged fraud”.

33.  In essence, the defendant’s case is that it received the Sum with a genuine belief that the same was paid into its HSBC Account by Grand Import & Export Ltd pursuant to the Agreement, and in any event, there is a change of position as it already refunded part of the Sum to and at the request of Grand Import & Export Ltd.

34.  The plaintiff did not file any reply to the defendant’s Defence and is taken to be joining issue with the defendant on the above matters raised by the defendant.

A PRELIMINARY ISSUE

35.  Given the nature of the allegations raised by the parties on pleading as explained above, at the hearing, I raised with Mr Ross a preliminary issue as to whether the plaintiff’s claim is caught by Order 14 rule 1(2), Rules of the District Court, Cap 336H (“RDC”), which provides that summary judgment is not available to “an action which includes a claim by the plaintiff based on an allegation of fraud”.

36.  The correct approach to determine whether “the fraud exception” applies was discussed in detail in Zimmer Sweden AB v KPN Hong Kong Ltd [2016] 1 HKLRD 1016.  In particular, the Court of Appeal set out the following principles at 1028:-

“18. In my view, having regard to the cases discussed above, the following points are clear.

(1) The court should determine whether “the fraud exception” applies at the time when the application for summary judgment is heard. Therefore the court should not be restricted to a consideration of the statement of claim only, but should examine all relevant materials existing at the time of the hearing, including subsequent pleadings and the affidavits. (It would be noted that in Pacific Electric Wire, the court even took into account the skeleton argument of the plaintiff ’s counsel at first instance. With respect I tend to the view that given the nature of skeleton submissions, they should be considered only where they serve to clarify an ambiguity in the plaintiff ’s case).

(2) Having regard to all the relevant materials, the question to be asked by the court is “does this action include a claim for which an allegation of fraud would have to be made by the plaintiff in order to establish or maintain that claim?” If the answer is affirmative, “the fraud exception” is engaged and the court has no jurisdiction to hear the summary judgment application, even if the plaintiff seeks to hive off that claim from another claim (eg for dishonoured cheque) for which summary judgment would have been available. That consequence follows from the wording of “the fraud exception” (Pacific Electric Wire at [19]).

(3) In considering whether an allegation of fraud would have to be made to establish or maintain a claim, one must look at the substance, and not the mere form, of the plaintiff ’s case. If all the factual constituents of fraud are alleged and relied upon, it does not matter whether the actual word “fraud” has or has not been used (Newton p.1301).

(4) The court must consider whether those factual constituents of fraud are relied upon in order to establish or maintain a claim. In Newton, the court accepted that the factual constituents of a Derry v Peek fraud had been set out in the pleadings. However, in order to establish the plaintiff ’s claims of breach of contract, breach of fiduciary duty and negligence, it did not need to make any allegations of fraud. On the facts of that case, the breach of contract, breach of fiduciary duty and negligence would still be established, even if the defendant had been completely honest, and was only mistaken (p.1302). It would appear from the report that the defendant had not pleaded a defence which the plaintiff needed to reply to by alleging fraud on the part of the defendant. This may be contrasted with A-1 discussed below.

(5) It may be that originally a claim (eg breach of fiduciary duty) may be established without the plaintiff having to make an allegation of fraud (as in Newton). But the nature of the defence (whether disclosed in a pleading or an affidavit) may be such that in rebuttal (whether in a Reply or in an affidavit in reply), the plaintiff would have to allege fraud, in which case, “the fraud exception” would be engaged. So for example, in A-1 the defence was that there was no breach of fiduciary duty because the receipt of money was pursuant to a declaration of dividend. In reply to this defence, the plaintiff alleged that the declaration was an ex post facto fabrication. Consequently, by the time of the hearing of the summary judgment application, the plaintiff would have to make out an allegation of fraud by the defendant in order to maintain the claim for breach of fiduciary duty.

(6) Finally, as to what is an allegation of fraud for the purpose of “the fraud exception”, this Court is bound by the judgment in Pacific Electric Wire to adopt the wide/liberal meaning. The rationale for adopting a wide meaning had been suggested by Kaplan J in Skink and adopted by this Court in the Pacific Electric Wire judgment. That judgment cannot be said to be plainly wrong. Further if the narrow meaning is adopted, the anomaly observed in Newton would arise, viz summary judgment would not be available for only one type of dishonest conduct, but available for all other types of dishonest conduct. To conclude, “the fraud exception” would be engaged where what is alleged is an intentional or reckless dishonest act (or omission) done with the purpose of deceiving.” (emphasis added)

37.  As stated above, it is the plaintiff’s pleaded case that the Sum was withdrawn from its account with ABC without its authorization, and it suspected that its email system was hacked (see paragraphs 4 and 6 of the Statement of Claim).

38.  According to paragraph 7 of the Statement of Claim, the plaintiff was informed by the Police that the defendant’s HSBC Account was frozen by the Police and the “unauthorized transaction causing the Plaintiff’s money to be transferred out is under Police’s investigation”.

39.  It is pleaded in paragraph 18 of the Defence that “the Defendant was not enriched from the alleged fraudulent transfer as pleaded by the Plaintiff and was merely another innocent party utilized by the fraudster as a vehicle to move the money of the alleged fraud”.

40.  In paragraph 2 of the plaintiff’s submission, this case is said to be concerned with “the wrongful payment of money belonging to the Plaintiff by the Defendant allegedly to third parties via their accounts in Nigeria” (my emphasis).

41.  Relying in particular on the dictum in Zimmer Sweden AB v KPN Hong Kong Ltd, supra at paragraph 18(4), Mr Ross clarified at the hearing that the plaintiff was not alleging any fraud against the defendant or ABC. 

42.  On the face of the Statement of Claim, I accept that the plaintiff does not allege any fraud directly against the defendant. 

43.  It also seems to me that the plaintiff does not necessarily have to allege fraud against the defendant in rebuttal to paragraph 18 of the Defence. 

44.  Coupled with the above clarification from counsel about the plaintiff’s case, I am prepared to proceed on the basis that the “fraud exception” is not engaged. 

LEGAL PRINCIPLES ON SUMMARY JUDGMENT

45.  The legal principles governing summary judgment applications were helpfully summarized in Restaurant Products Guild, Inc v Xu, Aiqin t/a Taide Electronics Co, DCCJ 3103/2014, 5 April 2016, unrep, at paragraph 20:

“20. The legal principles for a summary judgment application under Order 14 are well established. The salient principles can be summarised as follows:-

(1)  The purpose of a summary judgment is to enable a plaintiff to obtain a quick judgment where there is plainly no defence.

(2)  The test at the summary stage is whether the defendant’s assertion is believable.

(3)  The mere assertion by a defendant of a given situation does not, ipso facto, provide leave to defend the case.  The onus is on the defendant to show that the defence is real and bona fide and not “frivolous or practically moonshine”.  Sufficient facts and particulars shall be given to show that there is a triable issue.  Bare allegations are not sufficient.

(4)  In considering whether there are triable issues, the court will test the defence against the evidence disclosed in the affidavits, the contemporaneous documents, and consider any inconsistence or inherent probabilities in the defence put forward.

(5)  Where it is satisfied not only that there is no defence but no fairly arguable point to be argued on behalf of the defendant, the court shall give judgment to the plaintiff.

(6)  Where there is a serious dispute of law or fact, or complex issues or voluminous evidence is involved, a summary judgment application is not appropriate.  However, it will not do the trick by the mere production of hefty affidavits and voluminous exhibits to create an illusion of complexity where none exists.  Where there are substantial issues of genuine complexity, the case shall go for trial but not to be determined summarily.

(7)  A summary judgement application should not become in substance a rehearsal of the trial or a trial on affidavit evidence.  The court is only to consider whether the defence is believable, but not whether the defence is to be believed.

(8)  Where the circumstances are such as to require close investigation, there ought to be a trial.

(9)  Where a defence can be described as “shadowy” or there is little substance in it or the case is almost one in which summary judgment should be ordered, the court should order a leave to defend on condition of payment into court.

(Hong Kong Civil Procedures 2015, paragraphs 14/4/8-9; Re Safe Rich Industries Ltd [1994] HKLY 183 per Bokhary JA (as the learned Non-Permanent Judge then was); Mass International Ltd v Hillis Industries Ltd [1996] 1 HKC 434; Crown House Engineering v Amec Projects Ltd (1990) 6 Const LJ 141 at 154 per Bingham LJ; approved in UMG Recordings Inc v Profit Chart Development Limited, CACV 262 & 263 of 2012, unreported, 19 February 2013; Paul Y Management Ltd v Eternal Unity Development Ltd, CACV 16/2008, unreported, 12 August 2008)”

ANALYSIS

46.  The defendant was absent from the hearing and has not filed any evidence. 

47.  It is however trite that a plaintiff must show to the court that summary judgment is appropriate on the ground that there is no defence to its claim (see Restaurant Products Guild, Inc, supra and also Order 14, rules 1-2, RDC).

48.  On its pleading, the defendant contends that it received the Sum with a genuine belief that the same was paid into its HSBC Account by Grand Import & Export Ltd pursuant to the Agreement.

49.  The plaintiff is specifically required by the defendant to prove its case that the Transfer was not made or authorized by the plaintiff as well as the plaintiff’s suspicion that its email system was hacked (see paragraph 13 of the Defence).

50.  The plaintiff’s claim is based on money had and received or alternatively unjust enrichment (see paragraphs 17 of the plaintiff’s submission).

51.  The plaintiff submitted that the enrichment to the defendant’s HSBC Account of the plaintiff’s money on 15 February 2016 was without fault by the plaintiff and may likely be the result of hacking into the plaintiff’s email account (see paragraph 18 of the plaintiff’s submission).

52.  Central to the plaintiff’s claim is its allegation that on about 16 February 2016, the plaintiff received an email from ABC stating that the plaintiff had on 15 February 2016 caused the Sum to be transferred “by using the email address of the Director of the Plaintiff, [Mr Cao]” (see paragraph 3 of the Statement of Claim).

53.  In his affirmation, Mr Cao explained the Plaintiff’s usual remittance process and the alleged circumstances leading to the Transfer as follows:-

“9.  The usual remittance process is as follows:

(i)  I will instruct the account of the Plaintiff, Tung Yat-ling (“Ms. Tung”), to fax or e-mail the Plaintiff’s remittance instruction to ABC.

(ii)  Then, Ms. Tung will fax or e-mail an Application for Outward Remittance form imprinted with the Plaintiff’s company chop and my signature to ABC.

(iii)  ABC employee will then call me to confirm the remittance instruction and only then will the remittance be authorized.

10.  On 16^th February 2016, Ms. Tung asked me if I had given a remittance instruction to ABC via my e-mail on 15^th February 2016, authorizing a transfer in the sum of US$128,091.00 (“the Sum”) from the Plaintiff’s ABC account to a HSBC account (Account number: 817-879109-838), of which the Defendant was and is the account holder (“Defendant’s Bank Account”) (“the Transaction”).

11.  I informed Ms. Tung that I had not given any such remittance instruction nor have I authorized the Transaction. We immediately contacted ABC, but they informed us that the Transaction had already gone through. It is now produced and shown to me marked exhibit “CW-1” a copy of the remittance advice of the Transaction.

12.  Upon further enquiry, ABC informed us that they received the said remittance instruction from an e-mail account which had the same address as mine. As we suspected that my e-mail account was hacked, we reported the situation to the Hong Kong Police (“the Police”) on 16^th February 2016.

13.  We were later informed by the Police that the Defendant’s Bank Account had been frozen by the Police and the said Transaction was under investigation.”

54.  The plaintiff’s own evidence above begs the question as to why ABC would have allowed the Transfer to go through if the plaintiff did not actually authorize it by following the usual remittance process, namely no “Application for Outward Remittance form imprinted with the plaintiff’s company chop and Ms Tung’s signature” was ever faxed or emailed to ABC, and no employee of ABC ever telephoned Ms Tung or the plaintiff to confirm the remittance instruction in question. 

55.  This is more so as there is no allegation of fault on the part of ABC.

56.  I note, however, that the plaintiff has not produced any document which may be capable of showing that the Transfer was not authorized by the plaintiff, such as the email allegedly received by ABC from someone using the plaintiff’s email address on about 15 February 2016, the email allegedly sent by ABC to the plaintiff on about 16 February 2016 informing the plaintiff of the Transfer (as pleaded in paragraph 3 of the Statement of Claim), written correspondence showing any enquiries subsequently made by the plaintiff to ABC about the Transfer or any statement given by the plaintiff to the Police. 

57.  On the contrary, in the affirmation of Mr Cao, the email allegedly sent by ABC to the plaintiff on about 16 February 2016 was not specifically mentioned. 

58.  The only contemporaneous document produced by the plaintiff is the remittance advice dated 15 February 2016, which shows that the Sum was transferred from the plaintiff’s account with ABC to the HSBC Account with the defendant being the named beneficiary and upon “[plaintiff’s] ORDER dated 15 Feb 2016”.

59.  The Defence was filed on 24 July 2017.  The present application was taken out on 25 June 2018, which was accompanied by the Affirmation of Mr Cao dated 22 June 2018. As such, by the time the evidence for this application was prepared, the plaintiff was fully aware of the defence raised by the defendant.

60.  Counsel for the plaintiff fairly accepted that the contemporaneous documents referred to above should have been easily (but were not) made available for the purpose of the present application. 

61.  Counsel also fairly accepted that, upon the evidence before the Court, the plaintiff was unable to say why ABC would have somehow allowed the Transfer to go through if (according to the plaintiff’s case) the usual remittance process had not been followed by both the plaintiff and ABC.

62.  In other words, even on plaintiff’s own evidence, there remains a serious question as to whether the Transfer took place (and hence the defendant had and received the Sum) without the plaintiff’s authorization, as alleged by the plaintiff.  I find this to be fatal to the plaintiff’s application for summary judgment.

63.  I turn now to the further defence that there is a change of position as the defendant already refunded part of the Sum to and at the request of Grand Import & Export Ltd.

64.  On the legal principles relating to the defence of change of position, counsel for the plaintiff referred to Globenet Droid Ltd v Hong Kong Hang Lung Electronic Co [2016] 3 HKLRD 863, in which Deputy District Judge Gary CC Lam stated at 886-887:-

“59.  In summary, the following legal principles in relation to the defence of bona fide change of position can be distilled:

In general

(1)  “[T]he 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”.

(2)  The rationale of the defence is to “strike a fair balance between the plaintiff’s interest in restitution and the defendant’s interest in making spending decisions freely without fear that a claim in unjust enrichment might later invalidate the assumptions that he makes about the means at his disposal”.

In respect of knowledge

(3)  “Good faith” is a broad concept incapable of exact definition. Much depends on the circumstances in which he changed his position and the extent of his knowledge about how the payment came to be made. Examples of absence of good faith include (a) “a failure to act in a commercially acceptable way”, (b) “sharp practice of a kind that falls short of outright dishonestly”, and (c) “dishonestly”.

(4)  Where the payee has grounds for believing that the payment to him may have been made unjustly (for example, by mistake), but cannot be sure, good faith may well dictate that an inquiry be made of the payer. The nature and extent of the inquiry called for will depend on the circumstances of the case.

(5)  Cases of knowing receipt may be drawn on to understand the concept of good faith in the defence.

(6)  Relative fault between the payer and payee has no place in English law….” (emphasis added)

65.  Relying on the above legal principles, the plaintiff submitted that the defence of change of position is not available because the defendant did not make any enquiries when it refunded part of the Sum at the request of Grand Import & Export Ltd.

66.  However, on its pleading, the gist of the defendant’s case is that the defendant genuinely believed that the Sum was received from Grand Import & Export Ltd pursuant to the Agreement and it was subsequently requested by the latter to refund part of the Sum, which the defendant did in order not to offend its customer (see paragraph 10 of the Defence). 

67.  The defendant is therefore alleging that he did not believe that it was unjustly enriched at the time when he made the refund, in which case the duty to make inquiries might not arise.

68.  Whilst the defendant has not adduced any evidence to support this defence, I am unable to say on the evidence presently before the court that the defence of change of position is completely unarguable, bearing in mind that there is a factual dispute as to whether the defendant had and received the Sum without the plaintiff’s authorization in the first place, which of itself is not capable of being resolved at the present stage as analyzed above.

69.  Given the above analysis, I am also unable to agree with the plaintiff’s alternative submission as to conditional leave to defend.

DISPOSITION

70.  For the above reasons, I dismiss the plaintiff’s application.

71.  The plaintiff is unsuccessful in its application.  However, given that the defendant did not file any evidence despite an “unless” order and chose to be absent from the hearing, I make a costs order nisi that there be no order as to costs in respect of the plaintiff’s summons filed on 25 June 2018 (including all costs reserved), which shall become absolute if no application to vary the same is made within 14 days from the date of this decision.

72.  Lastly, it remains for me to thank counsel for his assistance, and to offer my sincere apology for the time taken for delivering this decision.