GRUPO PACIFICA INCORPORADA v. WORLDWIDE MARINE PRODUCT LTD AND OTHERS

HCA 2640/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 2640 OF 2014

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D E C I S I O N

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Introduction

1. This is the plaintiff’s application for leave to appeal against my decision handed down on 18 June 2015 (“the subject decision”) whereby I dismissed the plaintiff’s application to continue the ex parte Mareva injunction dated 23 December 2014 (against the 1^st defendant (“the said injunction”)).  There is also a related application for stay of execution.  This decision (as was the subject decision) only concerns the 1^st defendant (“Worldwide”).

2. The background leading to this action and the subject decision has been set out in the subject decision and will not be repeated here.

Leave to appeal

3. The grounds proposed to be put forth at the intended appeal have been set out in the draft notice of appeal.  In short, they are that the subject decision is wrong in that:

(a) (contrary to what has been decided) Worldwide cannot avail itself of the defence of “change of position” (“the ‘change of position’ defence”):

(1) the sums paid out by Worldwide:

(i) did not originate from the sum paid to Worldwide by the alleged fraudster (“Mr Park”);

(ii) were not paid by Worldwide, but by two individuals (“Yang” and “Zheng”); the latter’s connection to Worldwide is unknown to the plaintiff;

(2) the “change of position” was not made in good faith;

(3) the “change of position” could well be reversible;

(b) the transaction by which Worldwide paid out the sums was (1) illegal, and/or (2) a money laundering exercise;

(c) Worldwide’s affirmation evidence fails to comply with Ord 41 r 5;

(d) Worldwide’s affirmation should not be preferred over the plaintiff’s;

(e) Worldwide and the Shenzhen operation (“Tairan”) are two legal entities; consequently, the deponent of the affirmation was not in a position to speak on Worldwide’s behalf.

4. As the plaintiff puts it in its skeleton submissions:

“The central finding in [the subject decision] is in §§25 to 27 … where this Court in effect found that [Worldwide] can avail itself of the defence of change of position” (para 5 thereof).

5. The grounds summarized in para 3(a)(1)(i) and (ii) above have no merit.  As a matter of law, the “change of position” defence does not require precisely the same money to be paid out, or that the payment out should be to exactly the same individual(s) who earlier gave the money to the recipient (that is, the one who needs to rely on the defence).  All that the law requires is:

“… 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 … ” (Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548, 580 quoted at para 22, the subject decision).

6. Perhaps what the above grounds are in truth complaining is that there is insufficient affirmation evidence to support the “change of position” defence.  This should be more properly discussed in relation to the grounds summarized in para 3(c) to (e) above. The discussion can be found in para 18 below.

7. On Worldwide’s lack of good faith, the plaintiff puts forth the following matters:

(1) the money transfer by Worldwide for Mr Park was unusual, and Worldwide was reckless in not enquiring whether the transaction was tainted with illegality such as money laundering;

(2) the transaction itself was suspicious because the US dollars themselves were not transferred, and the transferors were not Worldwide itself.

8. Worldwide deposed in its affirmation that Mr Park was a business acquaintance of Tairan since early 2014 and Worldwide was only helping him out.  Para 7(1) above is another way of arguing that the transaction was in effect money laundering.  This will be discussed in para 14 to 17 below.  Para 7(2) above ignores Worldwide’s case, which is that it was asked to exchange US dollars into Renminbi (so a direct transfer of the US dollars was not intended), and to pay out the same to the individuals as directed, and it was merely following such directions.

9. It should also be noted that the alleged lack of good faith on Worldwide’s part was not emphasised at the plaintiff’s application to continue the said injunction; the plaintiff was of the view that, in a claim based on unjust enrichment and/or money had and received, the fides of Worldwide is irrelevant as a matter of law.  But even if Worldwide’s fides was a main issue, by reason of para 13 to 17 below, I would still have decided the dispute as before.

10. The plaintiff’s argument that the “change of position” defence should fail if the change can be reversed was not put forth during the earlier hearing (no evidence has been adduced by either party in this regard).  It is unclear what the plaintiff says would be the evidential basis showing that the paid-out sums could be easily reversed.  The plaintiff refers to Goff & Jones: The Law of Unjust Enrichment (2011) 8^th Ed in support of this part of its submissions.  However, that book observes:

“… it is notable that in analogous damages cases concerning the duty to mitigate, the courts have held that claimants need not undertake difficult litigation but may be required to act against third parties where this would be straightforward” (para 27-17 thereof).

Bearing in mind the payment was made as directed by an alleged fraudster (on the plaintiff’s case), it can be inferred any recovery action by Worldwide is unlikely to be straightforward.

11. In relation to the ground summarized in para 3(b) above (illegality and money laundering), the plaintiff relies on the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (Cap 615) (Cap 615 was not referred to, whether verbally or in writing, at the hearing leading to the subject decision).

12. Particular reference has been made to the following provisions of Cap 615:

(a) “money changing service”, which is statutorily defined as “a service for the exchanging of currencies that is operated in Hong Kong as a business” (s 1, Part 1, Schedule 1 thereof);

(b) “money laundering”, which is statutorily defined as “an act intended to have the effect of making any property … that is the proceeds obtained from the commission of an indictable offence … not to appear to be or so represent such proceeds”;

(c) “remittance service”, which is statutorily defined as “a service of one or more of the following that is operated in Hong Kong as a business … sending, or arranging for the sending of, money to a place outside Hong Kong”.

13. There is no evidence that Worldwide has money changing and/or remittance services “operated in Hong Kong as a business” (para 12(a) and (c) above).  On the contrary, the affirmation evidence of Worldwide is that the service was only provided to Tairan’s customers or suppliers (and perhaps also its acquaintances).

14. Insofar as “money laundering” is relied upon by the plaintiff (para 12(b) above), it has not identified what indictable offence has been committed (and, if so, when and by whom it was committed).  The fraud alleged by the plaintiff was not about the vessel sale and purchase transaction, but the subsequent refund of US$900,000 (para 5, the subject decision).

15. The plaintiff relies on the decision in JS Microelectronics Ltd v Achhada [2013] 1 HKLRD 334.  But one of the important differences is that (a) the offence there has been identified, and (b) the offender there has been identified and convicted.  The same can be said of Dresdner Bank (Schweiz) AG v Andreas Kessler and Another HCA 4709/2003 (24 December 2004) (former employee misappropriated the plaintiff’s money).  In this action, Blue Marine/Mr Park was/were already in possession of the US dollars when the alleged forged documents were sent by them.

16. As was noted in the subject decision (para 8 and 33 thereof), it is unknown if the said sale and purchase transaction has been avoided (para 14 above is repeated here).  If the plaintiff should now allege that it has been (assuming the said transaction was voidable), there is no evidence it has in fact been avoided, because, so far, there is no evidence (or even a definitive case) that the said transaction has been terminated by the plaintiff (and if so, how (for example, a written acceptance of the breach) and when).

17. I pause here to observe that, despite having been alerted to the matter (para 33, the subject decision), the plaintiff was still unable to provide any information other than a claim was said to have been commenced in Korea.

18. The grounds summarized in para 3(c) to (e) above in essence attack the affirmation evidence adduced by Worldwide.  They will be considered together.  Briefly, these grounds are in truth nothing more than a re-run of the plaintiff’s earlier argument on this topic.  Accordingly, it is only necessary to refer to, and re-state, the reasons already given in the subject decision in relation thereto (para 12 to 20 thereof).  In addition, para 3(d) above is difficult to understand because the contents of the plaintiff’s affirmation are undisputed by Worldwide (and the plaintiff has adduced no direct evidence to contradict Worldwide’s account).  There is therefore no question of which factual version to prefer.

19. Other grounds set out in the draft notice of appeal include:

(1)   the subject decision misunderstands the plaintiff’s case regarding the package sent to the plaintiff by Blue Marine/Mr Park.  It is further said that Blue Marine was a legal entity independent of, and different from, Mr Park ;

(2)   the subject decision misstates the date when the plaintiff knew of the fraud;

(3)   the subject decision errs in doubting the amount claimed in this action;

(4)   the balance of convenience ought not be for discharging the said injunction, but ought to be for its continuation;

(5)   the costs of the application ought to be costs in the cause.

20. The first thing to note regarding the matters mentioned in para 19(1) to (3) above are that they fall under the heading “Background”.  Secondly, the focus there is that they brought up the issue (or at least ambiguity) mentioned in para 8 and 33, the subject decision (repeated in gist in para 14 to 16 above).

21. As regards para 19(1) above, while the distinction (of legal entities) can be made as a matter of law, it must be noted it is in effect the plaintiff’s own case Blue Marine was controlled by Mr Park (para 4.2, plaintiff’s skeleton submissions; para 4, the subject decision; para 22(c) below).

22. The plaintiff now contends that it only became aware of Mr Park being the controller of Eminent Vantage since January 2015 (and hence it became aware of the alleged fraud since then) (para 19(2) above).  That matter is not critical to the subject decision, and was intended to be a note of one of the unusual features in this action. In any event, that contention overlooks the fact that (shortly after the plaintiff received the package in October 2014):

(a) it ought to have known of the falsity of the notice which allegedly came from the plaintiff itself (para 6(b)(2), the subject decision), and/or the letter allegedly sent by the plaintiff’s own agent (para 6(b)(1), the subject decision);

(b) it should be apparent to the plaintiff in October 2014:

(1) the package which contained the said two documents (among others) was sent to the plaintiff in October 2014 by Blue Marine;

(2) the forged documents were purportedly sent to Blue Marine earlier (by the plaintiff and the plaintiff’s own agent);

(c) Mr Park was Blue Marine’s president who signed the vessel sale agreement (thus, the plaintiff ought to have known, believed or suspected that Blue Marine was controlled by Mr Park (see also para 20 above)).

The said package should therefore have alerted the plaintiff to some rather unusual events involving Blue Marine/Mr Park relating to the fund it regarded to be its own.

23. The matter mentioned in para 19(3) above is misconceived.  What the subject decision observed as being unusual was not the amount claimed, but the reason given therefor claimed (see para 7 thereof).  It is now argued that there was nothing unusual because the averment in the statement of claim only refers to the reason for limiting the claim in September 2014 (which implicitly means that that reason is (or subsequently was) no longer valid).  However, as has been observed in para 14 to 17 above, it is still unclear if the vessel sale transaction has been terminated.

24. In view of the matters set out above, I do not consider there is any merit in the matter mentioned in para 19(4) above.

25. Further to the above, as has been stated in para 4 above (and acknowledged in the quoted passage of the plaintiff’s skeleton submissions), the matters set out in para 19(1) and (2) above did not form the central finding (but were taken into account when determining the balance of convenience). 

26. Finally, it is within the court’s proper discretion to award costs against an unsuccessful applicant of an application for interlocutory injunction.  There is accordingly no substance in para 19(5) above.

Stay of execution

27. The main argument in support of this application (leaving aside there is strong prospect of success in the intended appeal (which has been rejected above)) is that the intended appeal would be rendered nugatory if an interim stay is not granted.

28. Having decided that there is no merit in the intended appeal, I do not consider it proper to grant a stay of execution pending the plaintiff’s appeal.

29. However, in view of the lack of confirmation by Worldwide that the subject sum is still retained in its HSBC bank account, an interim stay ought to be granted in the plaintiff’s application for leave to appeal up to 4:00 pm on 13 August 2015 or further order, on condition that the plaintiff takes out an application to the court of appeal for leave to appeal on or before 6 August 2015.

Conclusion

30. The application for leave to appeal is dismissed.  There be an interim stay of execution in terms of para 29 above.

Other matters

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

Costs order nisi

32. There is no apparent reason to depart from the usual rule that costs should follow the event.  I consider that four-fifths of the costs be allocated to the application for leave to appeal, and one-fifth thereof be allocated to the application for an interim stay of execution (which should be made the costs in the cause of the intended application for leave to appeal).

33. There will accordingly be a costs order nisi pursuant to Ord 42 r 5B(6) that four-fifths of the costs be paid by the plaintiff to Worldwide.

34. I consider summary assessment of costs to be appropriate.  The costs referred to in para 33 above shall thus be so assessed. For this purpose:

(1) Worldwide be at liberty to lodge with court and serve a statement of costs within 7 days from today;

(2) the plaintiff be at liberty to lodge with court and serve a statement of objections within 7 days thereafter.