KAM SIU HUNG v. WU CHUAN CHENG BEING THE ACCOUNT HOLDER OF THE ACCOUNT NUMBERED 510-190119-833 WITH THE HONGKONG AND SHANGHAI BANKING CORPORATION LTD AND ANOTHER

DCCJ 2721/2022

[2024] HKDC 217

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2721 OF 2022

____________________

____________________

————————————

REASONS FOR DECISION
AND DECISION ON COSTS

————————————

Introduction

1.  By way of her Order 14 summons dated 22 August 2023 (“the Summons”), the Plaintiff applied for final judgment against the 1^st Defendant for (1) a declaration to the effect that the 1^st Defendant held a sum of HK$319,070 as transferred into his account (on 22 October 2021) on trust for the Plaintiff; and (2) an order of payment of such sum to the Plaintiff.

2.  At the hearing on 19 January 2024, after carefully considering counsel’s submissions on both sides and the evidence before me, I dismissed the application and reserved my reasons for decision, and decision on costs, which are now set out below.

Plaintiff’s case

3.  The Plaintiff claims to be a romance scam victim, and during the period between 18 October 2021 and 1 November 2021, she was deceived by a man with nickname “奇豪John” (“John”) through WeChat messages into

(1)  depositing a sum of HK$78,000 in cash on 18 October 2021, and transferring another two sums of HK$200,000 (on 21 October 2021) and HK$267,000 (on 22 October 2021) from her account, into the account of one Li Tat Lam (“Li”) maintained with Hang Seng Bank (“Li’s Account”); and

(2)  transferring a sum of HK$944,200 to the account of one Chau Chi Yin maintained with Bank of China (Hong Kong) on 1 November 2021.

4.  The Plaintiff discovered the alleged fraud when John made further request of even more money and she grew suspicious of the matter and made a report to the Hong Kong Police.

5.  In her Statement of Claim, she pleaded that “on 5 November 2021, she visited the police to seek opinion in relation to her suspicions and by that time she confirmed that she had been defrauded as advised by the handling police officers.”

6.  She further pleaded that she was subsequently informed by the police officers that parts of the funds have been transferred to the 1^st Defendant’s HSBC bank account (for the amount of HK$319,070) (“D1’s Account”) and the 2^nd Defendant’s Livi Bank account (for the amount of HK$182,000).

7.  The Plaintiff averred that the two Defendants had held the funds as trustee or constructive trustee and are liable to account the same to her.

8.  On 8 December 2022, the Plaintiff obtained default judgment against the 2^nd Defendant, and subsequently on 9 November 2023 obtained a garnishee order against the 2^nd Defendant’s account maintained with Livi Bank.  But nothing in this application has turned on her claim against the 2^nd Defendant.

1^st Defendant’s case

9.  In gist, the 1^st Defendant produced a notarized affirmation dated 19 October 2023 deposing to the following effect to support his Defence filed on 22 May 2023:-

(1)  The 1^st Defendant has been a merchant carrying on the business of electronic accessories design and production since 2009.

(2)  On 7 November 2011, he incorporated a PRC company called Eastern Silk Road (Shenzhen) Electronic Co Ltd (“ESR”) in furtherance of his business.  He was at all material times its legal representative, shareholder and sole director. A relevant business license issued by the PRC authority to ESR was exhibited to his affirmation.

(3)  Since then, ESR has developed its presence on various e‑commerce platforms in Mainland and abroad.

(4)  On 2 August 2021, the 1^st Defendant set up a Hong Kong company, called Lontime Ltd (“Lontime”) to take over his shareholdings in ESR for his business restructuring.  He has likewise been Lontime’s sole shareholder and director, as supported by the exhibited Annual Returns.

(5)  On 19 August 2021, a shareholders’ meeting of ESR was convened to approve the shares transfer, and the said change was subsequently recorded in a Notice of Change issued by the Market Supervision Administration of Shenzhen on 9 October 2021, a copy of which was also exhibited in the 1^st Defendant’s affirmation.

(6)  In these circumstances, he had to put up the necessary funds (roughly about RMB 20,000,000) for Lontime for both the shares transfer and its operation. Considering his cashflow position at the time, he decided to do it in phases.

(7)  It was against the above background that he approached his business acquaintance called 黃德成 (“Mr Huang”) to raise a short-term loan.

(8)  On 22 October 2021, they entered into an oral loan agreement whereby Mr Huang agreed to lend him a sum of RMB 265,000 (at the exchange rate of HK$1:RMB 0.835) repayable by 20 December 2021 with interest at the rate of 9% per annum.

(9)  On the same date, Mr Huang arranged the transfer of HK$319,070 (as equivalent to the said RMB 265,000) to D1’s Account from Li’s Account.

(10)  The 1^st Defendant did not personally know Li, nor did he make any inquiry with Mr Huang as to from which bank account the loan would be transferred to him, as this did not appear to be a matter of importance to him.  He knew nothing of the Plaintiff’s deposit/‌transfer of her monies into Li’s Account either.

(11)  On 20 December 2021, the 1^st Defendant duly repaid the loan with the interest to Mr Huang by asking his wife (a lady called 楊蕙幀 in Chinese) (“Madam Ann Yang”) to transfer the relevant amount from her account to the bank account of one 潘祖明 (in Chinese) (“Poon”), as designated by Mr Huang.

10.  In these circumstances, the 1^st Defendant denied that he is a trustee, nor a constructive trustee as alleged, and contended in his Defence that he was a bona fide purchaser for value, which constitutes a valid defence to the Plaintiff’s claim.

The relevant Order 14 principles

11.  The principles as relevant to Order 14 applications are trite. They are encapsulated in Hong Kong Civil Procedure 2024, vol 1, paras 14/4/1 to 14/4/4 and 14/4/9 to 14/4/10.  In particular, the burden is on the defendant to show that there is a triable issue, or that for some other reason there ought to be a trial.  The defendant has to show that his or her case is believable in the light of the affidavit evidence placed before the Court.  On the other hand, the Court must not embark on a mini trial by affidavits.

12.  In short, the procedure would be entirely inappropriate when the plaintiff’s entitlement to recovery is the subject of any serious dispute, whether of law or fact.

13.  In this case, I also bear in mind the Court of Appeal’s observation made in Li Mingren v Questex Development Inc & Anor, CACV 141/2014, 18 November 2015 (at para 13):-

“13. The principles guiding the court in deciding whether to give summary judgment are well-known. All that the defendant needs to show is a triable issue. But before the court looks at the defence, one must look at the plaintiff’s case first. As Ribeiro JA (now Ribeiro PJ) held in Billion Silver Development Ltd v All Wide Investments Ltd [2000] 2 HKC 262 (at 268) that:

“The importance of there being doubts or suspicion as to the plaintiff’s case is that such doubts detract from the plaintiff’s right to summary judgment. It is not to the point to dismiss them on the basis that they did not improve the quality of the defence and ‘raise it’ beyond the category of ‘shadowy’. If possibly genuine weaknesses were exposed in the plaintiff’s case, this casts doubt on the plaintiff’s right to invoke the summary procedure in the first place.” (Emphasis added)”

Analysis

14.  Before I move on to consider the Defence, looking at the Plaintiff’s case as presented in this application, it appears to me that she plainly failed to sufficiently demonstrate that the sum of HK$319,070 as transferred into the 1^st Defendant’s account (from Li’s Account) on 22 October 2021 (“the Subject Sum”) was indeed representing her property.

Unjust Enrichment

15.  It appears that Miss Manalie Chan (counsel for the Plaintiff) primarily relied on the doctrine of unjust enrichment to seek for the subject declaratory relief and recovery of the amount.  Pausing here, the Statement of Claim simply asserted the 1^st Defendant is a constructive trustee, but did not expressly plead ‘unjust enrichment’ as a cause of action (though arguably the required material facts in support were pleaded).

16.  However, when this Court closely scrutinized the evidence adduced by the Plaintiff to support her present application, no bank account statement of Li’s Account could be found.  As such, the Plaintiff would face with an insurmountable difficulty to demonstrate to this Court’s satisfaction that the Subject Sum can indeed be traceable to the Plaintiff’s monies deposited/‌transferred earlier into Li’s Account according to the tracing rules and principles.

17.  The implication is that the Plaintiff would also fail to prove, at least, one of the essential elements as required for establishing unjust enrichment, viz the enrichment was “at the expense of” the claimant. See: Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79, at 104.

18.  In this regard, DHCJ Jonathan Chang SC’s observation made in RPB SA v Xinwangyi Trade Limited [2022] HKCFI 2541 on such requirement is particularly pertinent. At para 23, the learned Deputy Judge said:-

“23. In considering the “at the expense of” question, the relevant principles were laid down by the UK Supreme Court in Investment Trust Companies v Revenue and Customs Commissioners [2018] AC 275. They have been helpfully summarized in AXHT Co Ltd v Freeway Finance Co Ltd [2020] 4 HKLRD 133 at [43] as follows:

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

(2)  A “but for” causal connection between the plaintiff’s being worse off and the defendant’s being better off is not sufficient of itself to constitute a transfer of value. Nor is the requirement satisfied by a connection between the parties’ respective benefit and loss merely by a matter of economic or commercial reality.

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

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

19.  Miss Chan did not make any submission that those scenarios mentioned in para 23(3)(a), (b) or (d) of that judgment were engaged here.  There is no pleaded case to that effect in the Statement of Claim either.

20.  In her affirmation, the Plaintiff only deposed at paras 21 and 22 that she was recently informed by the handling police officer that parts of her funds were transferred to the bank accounts maintained by the two Defendants.  She was further informed by the police that they had frozen the 1^st Defendant’s account since around November 2021.  These were the only evidence that Miss Chan relied on to try to persuade the Court that they can fill up the evidential lacuna.  With respect, I cannot agree.

21.  To begin with, all these are by nature hearsay evidence and bare assertions.  No doubt, they are open to cross examination at trial and apparently triable.  But fundamentally, even assuming for the moment that the Plaintiff was indeed so informed by the police, she simply could not tell this Court on what exact basis the police would come to such conclusion.  Strictly speaking, the police’s opinion evidence is irrelevant, and plainly insufficient to establish the Plaintiff’s proprietary interest in the Subject Sum for the purpose of this summary application.

22.  The police might simply adopt a broad-brush approach to say so by merely discerning some temporal proximity between the last sum of HK$267,000 transferred from the Plaintiff’s Account into the account of Li (first-tier recipient), and the Subject Sum transferred from Li’s Account to the account of the 1^st Defendant (the second-tier recipient) on the same day of 22 October 2021.

23.  Yet, we do not know of the exact time lapse in terms of minutes or even hours in between and whether there were any other intervening banking transactions, and if yes, the frequency and their corresponding amounts involved.  Nor would this Court know of whether the intervening incoming funds (if there were any) belonged to Li or any other third party(ies), and in such case whether those funds coming from Li and/or the other contributor(s) to the mixed fund were innocent or not.  See: Snell’s Equity, 34^th ed, paras 30-058 to 30-060.

24.  The above observation equally holds true for the earlier sum of HK$200,000 transferred to Li’s Account on 21 October 2021, which is even one day more remote.

25.  Also, this Court is in the dark as to the overall status of Li’s Account when the Plaintiff’s funds were deposited into the same.  Generally speaking, funds paid into an overdrawn bank account cannot be traced into.  See: CY Foundation Group v Cheng Chee Tock [2012] 1 HKLRD 532, per Barma J (as he then was) at paras 21 to 29, 31, 35 and 36.

26.  Snell’s Equity, 34^th ed, para 3-064 also provides that:-

“30-064 (a) Failure of identification and dissipation of proceeds If it is established by the rules of following and tracing that the specific proceeds of the property have been dissipated, then there will be no foundation for a proprietary remedy against the assets of the trustee. In the absence of such specific identification, the claimant may not assert a general lien over the trustee’s assets to reflect the extent to which they might have been swollen by the contribution of the claimant’s money. Accordingly, the effect of the trustee’s paying the claimant’s money into an overdrawn bank account is generally to render the money untraceable...” (emphasis supplied)

27.  Certainly, the burden of proof falls fairly and squarely on the Plaintiff’s shoulders to clearly show to this Court that the Subject Sum represented her property when invoking the summary procedure, and yet she adduced no valid or effective evidence to demonstrate that she can indeed trace her interests into such sum.

28.  In fact, this is a matter which can be readily explained by the Plaintiff by producing the relevant bank statements of Li.  If she and/or her lawyer had already got hold of a copy from the police, but chose not to disclose the same for this application, one would instantly smell a rat.

29.  But if the truth is that the Plaintiff only obtained the 1^st Defendant’s bank statements from the police, but somehow (for reasons unknown to the Court) Li’s bank statements were not given to her, this would naturally beg the question why there was such a selective disclosure by the police.  Or, if the 1^st Defendant’s bank statements did not come from the police, then this would give rise to even more suspicions of how come an ordinary person could come into possession of the 1^st Defendant’s bank statements in the first place^[1].  On the materials before this Court, the Plaintiff simply could not proffer any or any satisfactory explanation to account for all these dubious features.

30.  In any event, fundamentally speaking, the Plaintiff would in such case be jumping the gun to take out the present application, for failing to obtain Li’s relevant bank statements first (such as by applying for a Norwich Pharmacal Order directing Hang Seng Bank for its disclosure) to properly establish the requisite evidential link to contend that the unjust enrichment was indeed at her expense.

31.  In the light of the aforesaid, there are patent genuine weaknesses in the Plaintiff’s case and evidence to prevent her from obtaining summary judgment against the 1^st Defendant.

32.  In my judgment, it would also be obvious to the Plaintiff (with the benefit of advice from her legal team) that if the Subject Sum cannot be proved to be representing her property, the unjust enrichment claim would fail in limine for reasons as explained above, without the Court even having any need to consider whether any equitable defence can be made out.

33.  In terms of pleadings, before taking out the present application, the Plaintiff would also be fully aware that it was the 1^st Defendant’s pleaded case that apart from admitting a sum of HK$319,070 was transferred from Li’s account to the 1^st Defendant’s account on 22 October 2021, he expressly denied having received the Subject Sum from the Plaintiff’s funds whether as alleged or at all.^[2]

34.  In other words, whether the Subject Sum indeed represents the Plaintiff’s property would be a material issue in dispute, and should be at the forefront of her mind: if such matter cannot come up to proof, her claim would fail in toto.  This is plainly a triable matter which the Plaintiff had been or ought to have been conscious of before taking out her application.  In this light, the Order 14 summary procedure was plainly inappropriately invoked.

Constructive Trust

35.  For completeness sake, perhaps I should also mention that Miss Chan did rely on constructive trust as another basis for the Plaintiff’s claim in her submissions.

36.  She relied on the authority of Predicine Holdings Ltd v Bianchi (Hong Kong) Ltd & Ors [2021] HKCFI 123, in which, Coleman J at para 90 said:-

“90. When property is obtained by fraud, equity imposes a constructive trust on the fraudulent recipient, so that the money is recoverable and traceable in equity. Even if the recipient is not a party to the fraud, if his state of knowledge is such as to make it unconscionable for him to retain the money, the defrauded claimant has a tracing remedy, that is the property is held on constructive trust for the claimant.” (emphasis supplied)

37.  On the question of recipient’s knowledge, in Zief Incorporated v Tekchandani Ajai Mohan (t/a D’Ziner Collections (Hong Kong)) & Ors [2021] 3 HKC 69, the plaintiff made remittance as a result of fraud perpetuated on him to the account of 4^th defendant, who claimed to be a supplier of diamonds.  There was no suggestion that it was complicit in the email fraud.  Mr Recorder Eugene Fung SC refused to grant proprietary relief on the remitted fund, for the plaintiff failed to prove the requisite knowledge on the 4^th defendant’s part to justify an imposition of constructive trust.  The learned Recorder at paras 46 to 49 said:-

“46. To seek a constructive trust against D4, P submitted that in February 2016, D4 ought to have known about the fraud and knew about (1) the police’s freezing of its account, (2) P’s claim and (3) the fact that its bank would not release the rest of the money to it, such that its state of knowledge would make it unconscionable to retain the money. None of these matters regarding D4’s knowledge was pleaded by P to justify the imposition of a constructive trust. P further cited Guaranty Bank and Trust Co v Zzzik Inc Ltd [2016] HKCU 1679, (unreported, HCA 1139/2016, 18 July 2016) at §§28-34 in its written submissions. It is right to record that only brief submissions were made by P at the trial to support its claim for constructive trust.

47. For the reasons given below, I am not satisfied that P is entitled to a constructive trust against D4.

48. Constructive trusts provide proprietary relief. To obtain proprietary relief in relation to the HK$559,545 in D4’s Account, P must establish that the money claimed can be identified by the tracing process as representing the original property. In Federal Republic of Brazil v Durant International Corpn [2016] AC 297, Lord Toulson at §17 said:

‘The doctrine of tracing involves rules by which to determine whether one form of property interest is properly to be regarded as substituted for another. It is therefore necessary to begin with the original property interest and study what has become of it. If it has ceased to exist, it cannot metamorphose into a later property interest. Ex nihilo nihil fit: nothing comes from nothing.’

49. It is apparent from its bank statement that immediately after HK$3,119,985 was paid into D4’s Account on 3 February 2016, a further sum of HK$23,500 was paid into the account. The original sum had therefore become mixed with money from unknown source(s). Thereafter, various sums of money were paid out of the account. This left a sum of HK$559,545 as the remaining credit balance in D4’s Account as at 29 February 2016. P has not made any submissions to demonstrate that the credit balance of HK$559,545 can be established as the traceable proceeds of HK$3,120,000. In these circumstances, I am not satisfied that the credit balance currently standing in D4’s Account is the traceable proceeds of money that P mistakenly paid to D4.” (emphasis supplied)

38.  When this Court raised the question of the 1^st Defendant’s knowledge with Miss Chan, she submitted that the 1^st Defendant would acquire knowledge of the alleged fraud the latest by the time he read the Writ served on him.  That should be sometime before the 1^st Defendant filed the Acknowledgment of Service of the Writ on 13 February 2023,^[3] which is more than two years after the Subject Sum was transferred into the 1^st Defendant’s account.  Or, the earliest would be when the 1^st Defendant’s account was allegedly frozen by the Police since around November 2021.^[4]

39.  It is not the Plaintiff’s pleaded case (nor any evidence adduced) that Li and the 1^st Defendant were complicit to the alleged fraud. Importantly, as in the case of Zief, the material fact of the Plaintiff’s requisite knowledge (be it actual or constructive) and when such knowledge was acquired by the 1^st Defendant, were not pleaded in the Statement of Claim at all.^[5]  As such, the cause of action of “constructive trust” is in truth not made complete and good in the Statement of Claim.  In my judgment, this pleading defect is one of substance as in the case of Zief, and hence the present application resting on the cause of constructive trust should likewise be dismissed.  See: Hong Kong Civil Procedure 2024, vol 1, para 14/1/5.

40.  For completeness sake, Miss Chan submitted in her reply submission that Mr Yam in his skeleton did not take issue with the Plaintiff’s submissions that the Statement of Claim is complete and good. However, after seeing the authority of Zief as provided to both counsel by this Court before the hearing commenced, Mr Rex Yam did appear to take issue with such pleading point.

41.  Anyway, according to Zief, constructive trusts provide proprietary relief. Since the Plaintiff cannot demonstrate her interests in the original property can be traced into the Subject Sum as explained earlier, likewise no proprietary remedy would be available to her.  Viewed thus, regardless of whether the Plaintiff resorted to constructive trust or unjust enrichment, her claim under the Summons is bound to fail.

42.  Due to the above reasons, the Summons should be dismissed, even without the need of considering whether the equitable defences raised at this hearing are arguable or not.

The equitable defences

43.  That notwithstanding, since some coverage of the parties’  submissions were given on the defences of bona fide purchase for value, and bona fide change of position, this Court would also express its views on these matters for completeness sake, especially they would also have bearing on the question of costs.

44.  In Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548, bona fide purchase from a third party was recognised as a defence to personal restitutionary claim.

45.  The burden is on the 1^st Defendant to prove that he is a bona fide purchaser for value: Chan Chun Chung & Anor v PBM (Hong Kong) Ltd (2004) 7 HKCFAR 178, at para 14.

46.  At the hearing, Miss Chan initially sought to argue that since the defence of ‘bona fide change of position’ was not pleaded in the Defence, the 1^st Defendant should not be permitted to argue on such defence at this Order 14 hearing.  However, after exchanges with the Bench, Miss Chan very fairly agreed to withdraw such pleading objection.

47.  Each case has to be decided on its own merits. In my view, I saw it appropriate to exercise my case management power to allow the 1^st Defendant to argue at the hearing the defence of bona fide change of position which is closely related to “bona fide purchase for value” in this case.  In particular, this Court observed that submissions on the defence of ‘bona fide change of position” had already been raised in the 1^st Defendant’s skeleton submissions, as opposed to the situation in Kaefer AG v Winfield Marine Services Co Ltd [2022] HKCA 807 (as cited by Miss Chan), where the additional defence was only raised shortly before the start of the hearing.  And, the Court of Appeal in that case agreed with the observation made by the court below that the defence there is ‘unconvincing and lacks a ring of truth to it’ (paras 33 and 34), which is very different from the 1^st Defendant’s case here on the arrangements of the loan and its subsequent repayment, which in this Court’s view is believable, as shall be further discussed below.

48.  To begin with, it is material to note that the Plaintiff’s attacks on the 1^st Defendant’s case here are essentially mounted against the so-called incredibility of the loan arrangement, but without hammering on the 1^st Defendant’s constructive knowledge of the alleged impropriety of the Subject Sum as transferred into his bank account.

Credibility of the arrangements of the loan received and its repayment

49.  Miss Chan submits that the 1^st Defendant’s case contains many ‘inconsistencies’ and ‘loopholes’ which render his defence practically moonshine:-

(1)  the 1^st Defendant only revealed in his Further and Better Particulars of the Defence (“F&BP”) that Mr Huang arranged the Subject Sum be transferred from Li’s Account to the 1^st Defendant’s account whereas the Defence pleaded that Mr Huang arranged the transfer of the loan into the 1^st Defendant’s account.

(2)  Although it was the 1^st Defendant’s pleaded case that the Subject Sum was first injected into Lontime, the 1^st Defendant’s bank statement cannot show this was indeed so.  It was only when the 1^st Defendant deposed his affirmation, it was revealed for the first time that the Subject Sum was transferred as part of a sum of HK$3 million (as shown in the bank statement) withdrawn from the 1^st Defendant’s account into Lontime’s account.

(3)  In the Defence, it was pleaded that the 1^st Defendant repaid the Loan by remitting a sum of RMB 268,920 to Mr Huang.  But in the F&BP, the 1^st Defendant ‘changed his version of event’ by saying that he arranged his wife, Madam Ann Yang, to repay such sum through her bank account to the account of Poon as designated by Mr Huang.

50.  With respect, I do not accept such submissions.  The F&BP do appear to be consistent with the Defence by providing the particulars of the specific methods used for the advancement of the loan, and its subsequent repayment.  Also, I see no convincing reason why the 1^st Defendant must transfer the loan amount (as received from Mr Huang) in an identical or similar magnitude to the account of Lontime, which was his own company, and the money was at his free disposal.

51.  Miss Chan further submits that the 1^st Defendant did not adduce any contemporaneous record or evidence of his communications with Mr Huang with respect to his receipt of loan and its subsequent repayment, nor Mr Huang came forward to file an affirmation to support the 1^st Defendant’s case.  And, it is incredible that the 1^st Defendant did not know the holders of the two accounts from which the loan was advanced, and to which the loan (with interest) was subsequently repaid into.

52.  These submissions seem to have some force at first glance. But upon further reflection, they are really evidential attacks and materials for cross-examination at the trial of this case, which cannot by themselves (or considered together with the other submissions of the Plaintiff) shut the 1^st Defendant away from the door of justice by way of summary procedure, which certainly should not be misused as a forum for mini trial by affidavits for this Court to choose which party’s version to believe.  Fundamentally, the issue is not whether the defendant’s assertions are to be believed but rather whether they are believable.

53.  By mounting attacks on the 1^st Defendant’s case of the loan advancement from Mr Huang and its repayment arrangement in the way she did, the Plaintiff was in effect suggesting that the transactions were fabricated.  Notwithstanding the burden to show a believable defence rests on the 1^st Defendant, in order for this Court to come to a conviction to say that the 1^st Defendant’s case is unbelievable on the materials before it, the quality and the state of the overall evidence must be so clear and in this particular case be commensurate with the gravity of such a serious allegation implicating him.  This is plainly not the case here.

54.  I accept the 1^st Defendant’s counsel, Mr Rex Yam’s submission that the arrangement of the short-term loan (and its subsequent repayment) ought not be considered in isolation, without proper regard to the factual background of the 1^st Defendant carrying out a restructuring of his companies/‌business at the time.

55.  In such a context, the 1^st Defendant’s case of borrowing from his business acquaintance at the time is believable, especially when such relevant background (against which the loan was advanced and subsequently repaid) was not really contested at all whether by way of pleadings, evidence adduced, or submissions from the Plaintiff’s side.  In my view, the issue of the existence of the loan transaction and its subsequent repayment are plainly triable.

56.  It also seems that Miss Chan had in the course of her oral submissions criticized the 1^st Defendant’s manner in receiving the loan from, and making the subsequent repayment to, the accounts of two persons (unknown to him) even under Mr Huang’s direction, as also failing to act in a commercially acceptable way.  Fairly speaking, I did not perceive this to be a convincing argument (if indeed so made) on the overall evidence before me.  In any event, this is a facts-sensitive issue and should be properly resolved by the trial judge after hearing the evidence tested under cross-examination.

57.  Apart from the aforesaid, Miss Chan also raised some other ‘technical’ points.  First, she initially submitted that the 1^st Defendant did not provide valuable consideration for receiving the Subject Sum from Li’s Account.  But, after this Court had explored with Miss Chan the rationale behind her submission, she clarified that her complaint really goes to the incredibility of consideration being provided.  Therefore, this Court does not understand Miss Chan to mean that, as a matter of law, no consideration or value was provided by the 1^st Defendant when he repaid the loan with interest to Mr Huang (if this Court accepts the 1^st Defendant’s case to be believable).

58.  In any event, in Ng Luk Mui v Shiu Tsun Wai Vincent [2011] 5 HKLRD 707 (an authority cited by Mr Yam), Kwan JA (as she then was) at para 32 held that:-

“32. First, the words “for value” in the context of a purchaser for value does not necessarily mean full value. It means any consideration in money, money’s worth and includes the satisfaction of an existing debt (Megarry and Wade, The Law of Real Property (7^th ed, 2008) para 8-008). It need not be shown that the consideration was adequate, provided it was not a nominal consideration (Snell’s Equity (32^nd ed, 2010) para 4-022). To defeat a prior equitable interest, a purchaser must have given value but he does not have to give full consideration for the court will not enquire into the adequacy of the consideration (Hong Kong Land Law (2^nd ed, 1997) para 2.3.2; Midland Bank Trust Co Ltd v Green [1981] AC 513, 531)...” (emphasis supplied)

59.  Speaking solely on the element of ‘for value’ in the context of bona fide purchase defence to unjust enrichment claim, it is in my view legally arguable that the satisfaction of an existing debt (as referred to in the above passage) can include the 1^st Defendant’s subsequent repayment (particularly with interest here) of the loan in question, which was also the very thing acquired under the ‘purchase’.

60.  As for the change of position, although the Court allowed the 1^st Defendant to argue such defence at the hearing, it appears that Mr. Yam could not really answer the point of ‘no reduction of assets’ as made by Miss Chan by referring this Court to some passages in Kaefer (supra)^[6].  That notwithstanding, I do not agree with Miss Chan’s submission that there is no room to argue that the causative link can be established in relation to the loan the 1^st Defendant received from Mr Huang (enrichment), and its subsequent repayment as made by him (change of position).

61.  The relevant facts of Kaefer (which Miss Chan sought to rely on to support her causation argument) are materially different from the present case.  In Kaefer, the fuels supplied by the defendant antedated its receipt of the traceable proceeds from the fraud as transferred to his account (which it allegedly believed to be the settlement of the fuel charges). However, the repayment of loan with interest made by the 1^st Defendant was as a result of the loan advanced to him earlier under his loan agreement with Mr. Huang, as contended.

62.  In Kaefer, the Court of Appeal held that there was no question of anticipatory change of position because the defendant could not have anticipated the payment of sum in question which came from an unknown third party (para 48).  Whereas, the 1^st Defendant’s case here is first of all not concerned with an anticipatory change of position.  And, although the Subject Sum was transferred from the account of Li (whom the 1^st Defendant did not personally know), this transfer was according to his knowledge arranged by Mr Huang, his business acquaintance.

63.  Notwithstanding the aforesaid, even the causal link between one’s enrichment and his expenditure is established, generally speaking, some types of spending (which include payment of debts) still do not count as a detriment because they do not reduce the defendant’s overall wealth. See : Goff & Jones on Unjust Enrichment (10^th ed), para 27-14.

64.  On the evidence before this Court, it is also observed that, according to the 1^st Defendant’s case, the repayment of the very debt as allegedly owed to Mr. Huang would release the 1^st Defendant from his liability to the former (his creditor), and hence prima facie his overall wealth was likewise not reduced: Goff & Jones on Unjust Enrichment (10^th ed), para 27-15.  

65.  The burden is on the 1^st Defendant to adduce the necessary evidence to demonstrate why this principle is not engaged in this case, but I do not see how the 1^st Defendant can answer this specific issue to make good his defence on bona fide change of position on the evidence before me.  See : Goff & Jones on Unjust Enrichment (10^th ed), para 27-08 and 27-09. 

66.  For completeness sake, Miss Chan also made some other peripheral or trivial points of submission to attack the credibility of the 1^st Defendant’s case, I have also fully considered them but do not see the need to expressly set them out and deal with each of them one by one to further length this judgment. For, they would either be subsumed under the Plaintiff’s main plank of arguments already dealt with above. Or, in any event they would not detract from my view that the 1^st Defendant has made out a believable defence on bona fide purchase for value raising triable issues, having considered the evidence as a whole before me.

The question of knowledge

67.  In relation to the bona fide element of purchase for value defence, it is incumbent on the 1^st Defendant to prove lack of knowledge (both actual and constructive) of the alleged impropriety of the Subject Sum transferred to his account (assuming that the Plaintiff can trace her interests into the same). See: Papadimitriou v Credit Agricole Corpn and Investment Bank [2015] 1 WLR 4265. At para 21 Lord Clarke said:-

“21. In the opinion of the Board the principles set out above apply here, subject to this. As stated in para 2 above, it was common ground before the Board (as it was in the courts below) that the claimant is entitled to trace the proceeds of sale of the collection into the hands of the bank unless it establishes that it was a bona fide purchaser for value without notice. In short, as Aldous JA said at para 33 (quoted below) it was for the bank to show that it lacked constructive notice of the impropriety of the relevant arrangements. This approach is consistent with that noted in a not dissimilar context in the well known statement of Collins MR in In re Nisbet and Potts’ Contract [1906] 1 Ch 386, 404.” (emphasis supplied)

68.  This Court closely examined the 1^st Defendant’s HSBC bank statements exhibited in the Plaintiff’s affirmation. It was discerned that when comparing the bank statement dated 24 December 2021 with the earlier one dated 24 November 2021, the overall credit balances as shown at the first page of the two statements are almost the same (apart from some minor differences), and the former statement do show any banking transactions, whereas the last banking transaction appeared in the latter statement was on 9 November 2021.  In other words, the status of the 1^st Defendant’s account after 9 November 2021 up to sometime in December 2021 can be consistent with the possibility of it being frozen. The repayment of the loan to Mr Huang was however only made on 20 December 2021.

69.  And, Mr Yam did not quarrel with the legal proposition as elicited from Predicine (supra) by Miss Chan that ‘knowledge does not have to be acquired at the time of receipt, but can be acquired subsequently while the money is still in the recipient’s hands.’ (para 91)

70.  As such, whether the police had indeed frozen the 1^st Defendant’s account before the repayment was made, and if so, whether and when the 1^st Defendant had knowledge of the same, and in such case whether he had made any inquiry thereafter, would certainly affect the Court’s view as to whether the 1^st Defendant had the relevant constructive knowledge.

71.  In this regard, in Goff & Jones on Unjust Enrichment (10^th ed), para 29-11 states thus:-

“According to Lord Browne-Wilkinson in Barclays Bank Plc v O’ Brien:

“… if the party asserting that he takes free of the earlier rights of another knows of certain facts which put him on inquiry as to the possible existence of the rights of that other and fails to make such inquiry or take such other steps as are reasonable to verify whether such earlier right does or does not exist, he will have constructive notice of the earlier right and take subject to it.”

Reviewing these words in Credit Agricole Corporation and Investment Bank v Papadimitriou, Lord Clarke considered that:

“… [a] bank’s knowledge of facts indicating the mere possibility of a third party having a proprietary right would not be enough to put the bank on inquiry but, on the other hand, it is not necessary for the bank to conclude that it probably had such a right. The test is somewhere in between. It may be formulated in this way. The bank must make inquiries if there is a serious possibility of a third party having such a right or, put in another way, if the facts known to the bank would give a reasonable banker in the position of the particular banker serious cause to question the propriety of the transaction.” (emphasis supplied)

72.  In his Defence, the 1^st Defendant denied that he had any knowledge (actual or constructive) of the Subject Sum being transferred to his account as a result of the alleged fraud^[7]. In his affirmation in opposition, he also deposed that: -

“36. 本人強調，在任何關鍵時刻，本人並不認識李达霖先生。本人對於原告人聲稱的匯款至李先生的戶口的情況毫不知情，亦從未獲告知任何相關事宜。” ^[8]

73.  However, apart from the absence of plea of the relevant knowledge of the 1^st Defendant in her Statement of Claim, the Plaintiff did not in her affirmation in support, nor filed any affirmation in reply to contend that the alleged fact of the 1^st Defendant’s account being frozen by the police should put him on inquiry of the alleged impropriety of the transfer of the Subject Sum to his account.

74.  At the hearing, this Court heard no submission from counsel on both sides in relation to this particular aspect of evidence (as mentioned in paragraph 68 above) touching on the question of constructive knowledge either. In my judgment, the net position is that without the knowledge of the 1^st Defendant being seriously challenged at this hearing, but the Plaintiff rather chose to mount the attack on the Defence in the way she did, mainly focusing on the ‘incredibility’ of the loan transaction itself, and other legal points as discussed above, the question of knowledge remains a triable issue.

75.  In light of the aforesaid, this Court was satisfied that the pleaded facts and evidence adduced by the 1^st Defendant have sufficiently established an arguable defence of bona fide purchase for value for the purpose of opposing this Order 14 application.

76.  Given the above analysis, this Court is also of the view that the Plaintiff ought to have known that the 1^st Defendant has raised a defence in his pleading warranting him unconditional leave to defend on triable factual and legal issues.  In my view, this position has remained unchanged after the Plaintiff had the further benefit of reading the 1^st Defendant’s affirmation in opposition.

77.  In these circumstances, it was wholly inappropriate for the Plaintiff to invoke the summary procedure against the 1^st Defendant. It would likewise be just and right for this Court to dismiss the Summons by reference to the defence of bona fide purchase for value as raised by the 1^st Defendant.

Decision on Costs

78.  The 1^st Defendant asked for costs of the application to be paid forthwith.

79.  Miss Chan very sensibly did not try to argue that the Plaintiff should not be ordered to pay costs, or that costs should be in the cause.

80.  However, she submitted that since the issue as to whether the Subject Sum indeed represents the Plaintiff’s property on the available evidence was raised by the Court, but not by the 1^st Defendant, a discount on the costs should be made. Although Miss Chan said that there are authorities to support her argument to that effect, but none was produced in the end.

81.  With respect, I do not accept Miss Chan’s submission.

82.  In Simba-Toys (Hong Kong) Limited v Fullmore Corporation Ltd (unrep, HCA 1599/2008, 5 March 2009), DHCJ A Chow (as he then was) faced with a costs order nisi variation application made by the plaintiff, who lost its Order 14 application when the Court found that the plaintiff in fact had no locus standi to sue (which was likewise not raised by the defendant), and ordered the defendant to have the costs of the application in any event.

83.  At paras 4 to 6 of the judgment, his Lordship had the following to say:-

“4. In respect of the costs of the Order 14 application, essentially, the Plaintiff’s application is based on the fact that the ground of my decision to dismiss the summary judgment application, namely, that the Plaintiff has no locus standi to sue, was not a contention relied on by the Defendant (either before the application was issued or at all). It is also said that this case does not come within Order 14 Rule 7 of the Rules of the High Court. That rule applies where the case is not within the order or where the plaintiff knew that the defendant relied on a contention which would entitle him to unconditional leave to defend.

5. I accept that Order 14 Rule 7 of the Rules of the High Court does not apply to the present case. However, I do not believe that the court has no power to dismiss an Order 14 application where it is plain that the plaintiff has no locus to sue (as I believe it to be the case here). The fact of the matter is that the Plaintiff has no cause of action against the Defendant in this action.

6. It is correct that the issue of locus standi was never raised by the Defendant. However, I consider that, prima facie, the duty was on the Plaintiff to ensure that it had proper standing to sue before it made an application for summary judgment against the Defendant. In all the circumstances, I am not persuaded that the costs order nisi should be varied as sought by the Plaintiff.” (emphasis supplied)

84.  I would respectfully adopt his Lordship’s reasoning here and consider that costs should likewise be paid by the Plaintiff to the 1^st Defendant, with no discount applied for the fact that it was the Court (but not the 1^st Defendant) who raised the point of lack of proper evidence for establishing the traceable proceeds from the alleged fraud into the 1^st Defendant’s account for the Plaintiff to make good her own case.  I see no unreasonable conducts on the 1^st Defendant’s part in filing his Defence and subsequently his affirmation in the way he did in opposing this Order 14 application.  Though, whether a percentage of costs should be deducted owing to the defence of bona fide change of position (raised only for the first time in the 1^st Defendant’s Skeleton Submission and also argued at the hearing) not being made out is another matter, and I shall return to this point later.

85.  Further, I think that an order has to be made not only that the Plaintiff should pay the 1^st Defendant’s costs but also forthwith in order to discourage any plaintiff from taking an opportunistic approach to mount an Order 14 application which was in fact plainly unjustified in terms of law and/or evidence.

86.  After taking a balanced view of all the available materials, I fail to see the Plaintiff (and her legal team) can proffer any reasonable explanation to convince me that the evidential lacuna was given rise by their sheer neglect to spot it in the first place before issuing the present application, and this continued to be so until the hearing^[9].

87.  In passing, it is observed that Miss Chan was very meticulous in making her submissions, in particular, she could take every conceivable point (evidential or legal) to attack the 1^st Defendant’s defences raised for this Order 14 application.

88.  In stark contrast, when it came to the question as to whether the 1^st Defendant had constructive knowledge of the alleged impropriety of the Subject Sum being sourced from the Plaintiff’s funds, this particular issue appeared to be ‘submerged’ in the background, or largely taken for granted by the Plaintiff, exhibiting an unnatural ‘easy-going’ attitude towards it.

89.  This observation is made when noting at the same time that the material facts of the requisite knowledge was not pleaded by the Plaintiff in the Statement of Claim to support the cause of action of constructive trust.

90.  Further, this Court does not think that the Plaintiff’s legal team would have any difficulty to appreciate the elementary legal requirement that the Subject Sum transferred into the 1^st Defendant’s account had to be traceable to the Plaintiff’s funds in order to substantiate the cause of action of unjust enrichment (and constructive trust also). Especially, propositions of such kind are prevalent in the very authorities produced from the Plaintiff’s side.

91.  In DBS Bank (Hong Kong) Ltd v Happy Grace International Development Ltd [2019] HKCFI 2864. Para 9 states thus:-

“9. “At the plaintiff’s expense” would be shown if the benefit obtained by the defendant is an asset which is traceable to the plaintiff’s asset. Mistake of fact is a well-established unjust factor.” (emphasis supplied)

92.  In another authority, Predicine (supra), the requirement of traceable proceeds was also mentioned at paras 108 and 152 of the judgment:-

“108. Mr Ng summarises that each of the causes of action against D3 raises a serious issue to be tried, and that there is also a serious issue to be tried as to whether the D3 Sum represents the traceable proceeds of the sum extracted from P by the Fraud…

…

152. Nevertheless, I think it is appropriate to order disclosure for the purposes of the proprietary claim, and the relevant tracing exercise, so as to enable P to identify and trace further in relation to proceeds which represent the defrauded sum…” (my emphasis)

93.  In yet another authority relied on by the Plaintiff, TTI Global Resources Hong Kong Ltd v Hongkong Myphone Technology Co Ltd & Ors [2021] HKCFI 306, para 19 also touches upon the benefit obtained by the defendant had to be traceable to the plaintiff’s asset.

“19. In Lipkin Gorman (A Firm) v Karpnale Ltd, the House of Lords held that “at the expense” is generally established when the enrichment was obtained by direct transfer, but it is also proved if the benefit obtained by the defendant is an asset which is traceable to the plaintiff’s asset. There is no dispute that the funds thus transferred belonged to the Plaintiff. Thus, prima facie, the 2^nd and 4^th Defendants were enriched at the expense of the Plaintiff.” (emphasis supplied)

94.  However, evening assuming that they have really failed to spot the deficiency of the Plaintiff’s case up to the hearing until it was pointed out by the Court, I would likewise fail to see why it would not be just for the 1^st Defendant to get back his costs forthwith (rather than having to wait for its taxation after trial) when the Plaintiff plainly failed to ensure that it had proper evidential basis to pursue the summary procedure, thereby mounting a patently unwarranted application here. See: Fairmile Consultants Limited v Esquel Enterprises Limited [2020] HKCFI 253, paras 10, 11 and 25.  

95.  As such, it remains my clear view that this case was plainly unsuitable for summary judgment having considered all the circumstances of this case, including the Plaintiff’s knowledge of the state of the parties’ pleadings, and the absence of production of bank statements of Li’s account as discussed above. See: Hui Tung v World Win Consultants Ltd [2023] HKCA 442, paras 1, 10 to 12.

96.  Viewed thus, the Plaintiff (who has been legally represented from the outset of this action) was, at best, guilty of a gross neglect in not spotting a glaring insufficiency of evidence to establish that the Subject Sum was indeed representing her property (a plainly triable issue), or at worst deliberately taking a chance that such material deficiency could somehow escape the Court’s scrutiny over her case and evidence.

97.  In light of the aforesaid, considering the question of costs from whatever angles, this Court sees it just and appropriate that the Plaintiff should pay the 1^st Defendant costs of the Summons forthwith.

98.  That notwithstanding, since the defence of bona fide change of position is a separate and distinct defence from the bona fide purchase defence[10], and was not made good by the 1^st Defendant, I think that a fair portion of costs should be deducted for that reason.

99.  First of all, the Court observed that the work done and time spent by the parties on this defence (which was in fact raised by the 1^st Defendant as a short legal point basing on the same facts for his bona fide purchase defence) are much lesser than those on the issues of credibility of the loan arrangement and the bona fide purchase defence.  And Miss Chan also took several points on the causation issue in response to the bona fide change of position which this Court does not accept.  After further taking into account the overall conducts of the parties towards this Order 14 application, I consider it just and fair to make a 10% costs deduction under the circumstances of this case.

100.  Therefore, this Court orders that the Plaintiff do pay 90% of the 1^st Defendant’s costs of the Summons forthwith with certificate for counsel, to be taxed if not agreed.

101.  Lastly, it remains for me to thank counsel for their assistance.

[1] Plaintiff’s Skeleton Submissions, para 28: “Parties are not in dispute that P had never had any dealing with D1 that would justify the payment of the Sum to D1...”

[2] See: SOC, para 9 and Defence, para 6

[3] The 1^st Defendant resided in Mainland China at the material times. After the Writ was issued on 15 July 2022, the Plaintiff obtained an order from Registrar M Soong to serve the Writ out of jurisdiction on the 1^st Defendant on 13 December 2022.

[4] See: Plaintiff’s Affirmation, para 22

[5] Unlike constructive trust, since unjust enrichment is a personal restitutionary claim, the onus of proving lack of knowledge rests on the defendant facing with such claim: see paras 45 and 67 below.

[6] Kaefer, paras 47 and 48

[7] Defence, para 8

[8] 1^st Defendant’s affirmation, para 36

[9] Nor did this Court hear any submission that it was due to a wrong exercise of judgment by the Plaintiff that bring about the present application to render it unfit to order her to pay costs forthwith.

[10] See : Kaefer (supra), para 30