GLOBENET DROID LTD v. HONG KONG HANG LUNG ELECTRONIC COMPANY (A FIRM)

DCCJ 3288/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3288 OF 2013

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JUDGMENT

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1.  Cases of fraud by email have become frequent visitors to the courts. This is one of such cases. Very often, as in the present case, the cause of action in such cases is unjust enrichment on mistake (or referred to as “money had and received” in the old common law form of action: see Cheong Shing Ltd v Yu Kwan (2008) 11 HKCFAR 594 at §54 per Litton NPJ) and very often, the defence raised in response is change of position in good faith (also known as bona fide change of position). Faced with both the plaintiff and the defendant as victims of the fraud, the court’s decision is not easy to make. No doubt, the court strives to reach a just resolution; and what is just has to be determined in accordance with legal principles distilled from the relevant authorities. This case provides a good opportunity to review the relevant authorities.

2.  Before the review, I should set out the background.  The evidence of the background of the present case is not very much challenged.

BACKGROUND

Witnesses

3.  Mr Diallo Mohamed Ali (“Mr Ali”), a director of the plaintiff, testified for the plaintiff.  Madam Lau Man San (“Madam Lau”), the sole proprietor of the defendant, and Mr Lambo Zou (“Mr Zou”), former employee of Shenzhen Zhuangzheng Electronic Technology Co Ltd (“Zhuangzheng”) (which established the defendant via Madam Lau), testified for the defendant.  Their evidence is largely unchallenged, and I accept the following evidence in full as my fact-findings.

Parties

4.  At the material times, the plaintiff was a subsidiary branch of Unidif International Lda (“Unidif”), a company incorporated in Angola, Africa, and mainly engaged in purchasing alkaline batteries to be sold in Angola, Africa.  It had an office at 13/F, Flat H1 Alpha House Nos 27-23, Nathan Road, Tsim Sha Tsui, Kowloon, Hong Kong (the “plaintiff’s office”), and had an email address Mohameddiaodiallo@gmail.com.  The owner of Unidif and the plaintiff was one Mr Diallo Mohamed Diao (“Mr Diao”), and one of the directors of the plaintiff was one Mr Ali.  The plaintiff had a bank account maintained with HSBC in Hong Kong.

5.  The defendant was a sole proprietorship, registered with the Business Registration with an address of Flat E, 6^th Floor, Far East Consortium Yuen Long Building, 29 Yuen Long On Lok Road, Yuen Long, New Territories, Hong Kong.  It was established by Madam Lau for and on behalf of Zhuangzheng, a limited company incorporated in Mainland China which was a manufacturer of, inter alia, home video projectors and LCD monitors.  It maintained a bank account with HSBC in Hong Kong (account no 0338-08866-838) (the “defendant’s HSBC bank account”).  The address provided for the defendant’s HSBC account was Shop No 4, Ground Floor, Kam Wing Building, Shui Che Kwun Street, Yuen Long, New Territories, Hong Kong.

The plaintiff’s dealing

6.  By early 2013, Mr Diao and his brother Boubacar (“Boubacar”) had been looking for supply of batteries.  They had come to know a company named Chung Pak Battery Works Ltd (“Chung Pak Battery”), and had been contacting it via a person purported to be “Nelson Zeng” using an email address nelson.zeng@yahoo.com.hk sometimes in the name of “nelson.zenq@chungpak.com”, sometimes in the name of “Nelson Zeng”.  Once or twice, “Nelson Zeng” also used the email address nelsonn.zeng@yahoo.com in the name of “nelsonzenq@chunqpak.com.

7.  Pausing here, I should explain how the email addresses and the owners of the email addresses show up in emails. In emails, in the senders and recipients’ details at the top, the names of the senders and recipients show up.  Quite often, as in the case here, the email address itself will be shown in < > after the name.  Thus, if a person by the name of “X” sends an email via abcde@abcde.com, X will be shown as “X <abcde@abcde.com>”.  “X” can be whatever the person likes to enter.  This can be set to look like an email address, as what “Nelson Zeng” did.  Here, the person purported to be “Nelson Zeng” was shown in the emails as “nelson.zenq@chungpak.com <nelson.zenq@yahoo.com.hk>”, “nelson.zenq@chungpak.com”, “Nelson Zeng <nelson.zenq@yahoo.com.hk>”, “nelsonzenq@chungqpak.com <nelsonn.zeng@yahoo.com>” or “Nelson Zeng”.  This is of course very confusing, and it obviously was the intention of the “Nelson Zeng” to confuse the readers of the email address into thinking that the person had an email address of a domain name “chungpak.com”, and that he was the true Nelson Zeng of the true Chung Pak Battery.

8.  In February 2013, in the email correspondence between Mr Diao and Boubacar on the one hand and “Nelson Zeng” on the other, “Nelson Zeng” once told Mr Diao that any payment to be made to Chung Pak Battery should be made to a bank account of its affiliate company. What that account was is not clear from the evidence.

9.  Having contacted Nelson Zeng, and apparently wanting to compare prices, in late May and June 2013, Mr Diao instructed Mr Ali to look for other suppliers for alkaline batteries.  Eventually, they decided to revert to Chung Pak Battery and place orders with Chung Pak Battery.  

10.  Subsequently, Unidif sent to Chung Pak Battery samples of alkaline battery for confirmation by Chung Pak Battery whether they could manufacture alkaline batteries of the same specifications as the samples.  Mr Diao also contacted Chung Pak Battery by phone and was told that the samples had reached them, and that they could manufacture such alkaline batteries.  Then, by email with Nelson Zeng at nelson.zeng@chungpak.com, the plaintiff placed orders with Chung Pak Battery 744,960 pieces of AM3 2A alkaline batteries and 422,400 pieces of AM# 3A alkaline batteries in the respective sums of US$94,609.92 and US$53,644.80.  These communications went well as they were made with the true Nelson Zeng and the true Chung Pak Battery.

11.  Later in June 2013, Mr Ali received from “Nelson Zeng” a Proforma Invoice dated 20 June 2013 under the letter head of “Hong Kong Hang Lung Electronic Company” in English but “Chung Pak Battery Works Limited” in Chinese.  The Proforma Invoice bore a company chop with “Hong Kong Hang Lung Electronic Company” in English but “Chung Pak Battery Works Limited” in Chinese.  The amount under that Proforma Invoice was US$98,190.84 and the recipient bank account was the defendant’s HSBC bank account.

12.  Subsequently, by an email of 25 June 2016 from the true Nelson Zeng, a Proforma Invoice under the letter head “Chung Pak Battery Works Limited” both in English and Chinese dated 25 June 2016 was sent to Boubacar, setting out the sums of US$94,609.92 and US$53,644.80 with an artwork charge of US$1,040.00, totalling US$149,294.72 and requesting the plaintiff to pay 70% deposit of the purchase price (approximately US$104,246.00). This Proforma Invoice bore the company chop of “Chung Pak Battery Works Limited” both in English and Chinese.  The recipient bank account in this Proforma Invoice, however, was a bank account maintained with China Construction Bank (the “CCB Account”) in Hong Kong, not the defendant’s HSBC bank account.  This Proforma Invoice was signed by the plaintiff and returned by email to the true Nelson Zeng.

The plaintiff’s payment

13.  On or around 4 July 2013, at the plaintiff’s office, Mr Ali made an online transfer of US$104,246.00 from the plaintiff’s bank account to the defendant’s HSBC bank account.  In his oral testimony, when asked why Mr Ali would still transfer the money to the defendant’s HSBC bank account (the one specified in the Proforma Invoice of 20 June 2013) instead of the CCB account (the one specified in the Proforma Invoice of 25 June 2013), given that the latter one was more recent, Mr Ali explained that he still preferred the defendant’s HSBC bank account as set out previously because (1) as mentioned in paragraph 8 above, “Nelson Zeng” had told Mr Diao that Mr Diao had to make payment to Chung Pak Battery’s affiliate account; (2) the recipient bank account in the Proforma Invoice of 20 June 2016 was an HSBC account, being the defendant’s HSBC bank account; (3) thus, Mr Ali thought that he could still make payments into the defendant’s HSBC bank account; and (4) transfer from the plaintiff’s HSBC account to another HSBC account would save some bank charges.  I accept his explanation – careless he was, the explanation is a logical one, and also inherently probable when considering that the plaintiff would not have any motive to transfer money to any unknown person for no purpose.

The defendant’s dealing

14.  As usual in cases of fraud by emails, the fraudster was dealing with both the plaintiff and the defendant. While “Nelson Zeng” was dealing with the plaintiff, in April 2013, Lambo Zou, then an employee of Zhuangzheng, received an email from a person named Robert Ford, inquiring about the products of Zhuangzheng and seeking quotations for his customers.  Subsequently, in an email to Lambo Zou on 14 May 2013, Robert Ford wrote:-

“...

My customers and financiers are really preparing to make the first payment as I promised you, but they want to transfer up to US$30,000 ...... to US$50,000 ...... into your account, because we have many other engagements in China, then my financier want to use this opportunity to send the total money we need to your account, then after you confirm the money has arrive in your account, I will now come and buy your product worth of US$3,000 to US$5,000 samples order depending on the amount received in your account.

...

We promise to buy your goods worth the underlined stated amount in each time we receive money into your account, while you will now give the balance by cash in your local Chinese currency (RMB)”

15.  It is not clear from the evidence when exactly the goods were ordered and when the purchase price was eventually agreed.  It is, however, tolerably clear that prior to 5 July 2013, the defendant had agreed with Robert Ford that the purchase price of the goods of the defendants should be US$16,500.00.  

16.  On or around 5 July 2013, by email, Lambo Zou, having received the US$104,260.00 (actually paid by the plaintiff as mentioned in paragraph 13 above), asked Robert Ford,

“1. Why are you doing this way?

2. Is Shenzhen Bank account instead of HK Bank account ok?

3. You paid 104,246USD, but now the total amount of the products is 16,500USD, you still have 87,746USD in our bank account, what are you going to do?”

17.  On 9 July 2013, at the request of Robert Ford, who, according to Madam Lau’s oral testimony, told the defendant that he would need the money to purchase goods himself, a sum of RMB535,250.00 (equivalent of the excess of US$87,746.00) was transferred from the bank account of one Mr Lau Sang Ming of the defendant maintained with Industrial and Commercial Bank of China in the PRC, an account opened for and on behalf of Zhuangzheng, to the bank account of Col Luxuana maintained with Bank of China in the PRC.  On 29 July 2013, a representative of Robert Ford took delivery of the goods, the purchase price of which was, as mentioned above, agreed to be US$16,500.00.

18.  In his oral testimony, Mr Zou said that he felt Robert Ford’s payment was unusual, and thus he advised his boss to cancel the transaction with Robert Ford.  Mr Zou also said that his boss discussed the matter with Madam Lau, who was in charge of the finance of Zhuangzheng, and his boss reverted within approximately 30 minutes to him saying that they did not think it necessary to cancel the transaction, but should follow Robert Ford’s instructions as to how to deal with the money.  This evidence, though surfacing only in the oral testimony for the first time, is unchallenged, and I accept it, as (1) his evidence is consistent with Madam Lau’s that she thought there was no problem in the payment; and (2) more importantly, he is an independent witness as he longer works in the defendant.

Discovery of mistaken payment and the plaintiff’s legal action

19.  On 31 July 2013, at the plaintiff’s office, Mr Ali sent an email to Nelson Zeng attempting to contact Chung Pak Battery, but received no response.  He then telephoned Chung Pak Battery, and one Mr Eddie Law answered the call, telling Mr Ali that all the email messages sent out from “Nelson Zeng” were not from Chung Pak Battery.  Thereafter, Mr Diao and Mr Ali visited the office of Chung Pat Battery to make inquiries, and eventually discovered that they may have been defrauded by the emails.

20.  As a result, the plaintiff has suffered loss and damage.

21.  The plaintiff commenced the present action on 28 August 2013.  As often in cases of email fraud, a pre-action Mareva injunction was obtained by the plaintiff on 16 August 2013 against the Defendant, and still is in force.

THE PLAINTIFF’S CASE

22.  The plaintiff claims the refund of US$104,246.00 on unjust enrichment on mistake.  In the prayer of the Statement of Claim, it claims:-

“(1) the sum of US$104,246.00;

(2) further or alternatively damages to be assessed”.

23.  The evidence of the background as set out above does not exactly tally with the facts pleaded in the Statement of Claim.  Be that as it may, the essential fact pleaded still is that the plaintiff paid the US$104,246.00 to the defendant’s HSBC bank account in the mistaken belief that this account was for Chung Pat Battery and the payment into it was for the order of batteries placed with it.  Whether this mistake, in the light of the evidence, is sufficient for the purpose of the plaintiff’s claim shall be discussed below.

THE DEFENDANT’S DEFENCE

24.  In addition to putting the plaintiff to strict proof, the defendant raises the defence of bona fide change of position.  The defendant pleads in paragraph 14 of the Defence as follows:-

“Insofar as the Plaintiff’s claim is one of restitution and/or money had and received, the Defendant avers that there was a bone fide change of position in that:-

(a) of the amount of US$16,500.00, goods of Zhuangzheng of the same value were delivered to the representative of Robert Ford on or about 29^th July 2013 pursuant to the order placed by Robert Ford on Zhuangzheng...

(b) of the amount of US$87,746.00, the equivalent amount in RMB, ie, RMB535,250.00, was at the request of Robert Ford, transferred to a Bank of China bank account in Mainland China ... under the name of Col Luxuana on or about 9^th July 2013 ...

(c) since 4^th July 2013, there have been various deposits, withdrawals and/or transfers into and out of the Defendant’s HSBC Account for the purpose of the business of Zhuangzheng.  The amount of the net withdrawals from and/or net transfers out of the Defendant’s HSBC Account from 4^th July 2013 to the date of the Writ of Summons is more than US$104,246.00.”

THE PLAINTIFF’S REPLY

25.  In its reply, the plaintiff denies the defence, pleading at paragraph 6:-

“As for Paragraph 14 [of the defence], save that the Plaintiff’s claim is one of restitution and/or money had and received, the Plaintiff denies that there was a bone fide change of position of the Defendant. The Plaintiff avers that:

(a) the Defendant has actual knowledge of irregularity in payment for goods in that the monies in the sum of US$104,246.00 transferred into the Defendant’s HSBC Account highly exceeded the price of the goods ordered by Robert Ford in the sum of HK$16,500.00.

(b) the Defendant has actual knowledge that the sum of US$104,246.00 transferred into the Defendant’s HSBC Account does not come from Robert Ford and/or Col Luxuana;

(c) the Defendant has constructive knowledge and/or constructive notice of defective title to the sum of US$104,246.00 transferred into the Defendant’s HSBC Account, but has not taken reasonable precaution to prevent his alleged change of position...

(d) further and in the alternative, the Defendant has not acted in good faith by not making inquiries of the payer, i.e. the Plaintiff, and the Defendant has not taken reasonable precaution to prevent his alleged position...

(e) the sum of RMB535,250.00 (equivalent to US$87,746.00) paid to Col Luxuana’s Mainland Bank of China account...did not come from the Defendant’s bank account but from a bank account under the name of a third party, namely, Mr [Lau San Ming];

(f) the sum of RMB535,250.00 (equivalent to US$87,746.00) and/or any part thereof is still retained in the Defendant’s HSBC bank account and not paid out to Col Luxuana and/or anyone, which impressed a constructive trust on the sum of RMB535,250 (equivalent to US$87,746.00) and/or any part thereof in the Defendant’s HSBC bank account for the Plaintiff;

(g) the Defendant would have delivered the goods in the value of US$16,500.00 to Robert Ford in the ordinary course of things in any event.”

26.  Despite the trite requirement that any plea of knowledge has to be particularised, no particulars of actual knowledge and constructive knowledge have been provided.  Unsurprisingly, there is also no evidence of any such knowledge as pleaded.  Further, Ms Dorothy Cheung, acting for the plaintiff, fairly did not cross-examine the defendant’s witnesses in any way that would suggest any actual or constructive knowledge.  Also, despite the claim of constructive trust in §(f) above, this is not a relief sought in the Statement of Claim, and Ms Cheung did not address me on this in her Opening and Closing Submissions.  Thus, I will not deal with any of these here.

ISSUES

27.  In the circumstances, the issues before me are:-

(1)   Whether the defendant was unjustly enriched by the plaintiff’s payment of US$104,250.00 on 4 July 2013 into the defendant’s HSBC account; and

(2)   If so, whether the defendant can establish the defence of bona fide change of position.

UNJUST ENRICHMENT

28.  Unjust enrichment is a common law cause of action.  Once established, the plaintiff is entitled to the full repayment of the enrichment, subject to defence.  The analytical framework for unjust enrichment has been adopted by the Court of Final Appeal in Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79 at §67 as follows:-

“(a) Was the defendant enriched?

(b) Was the enrichment at the plaintiff’s expense?

(c) Was the enrichment unjust?

(d) Are any of the defence applicable?”

Enrichment at the expense of the plaintiff

29.  It is common ground that the defendant was enriched by the plaintiff’s payment of US$104,246.00 to the defendant’s HSBC account on 4 July 2013, and the enrichment was at the plaintiff’s expense.

30.  As to whether the enrichment was unjust, a plaintiff’s mistake that caused the enrichment on a “but for” test or in some cases on a “fundamental” or “dominant” test will suffice: Goff & Jones, The Law of Unjust Enrichment (8^th ed), §§9-31 and 9-49 – 9-53.  For the present purpose, I do not need to decide which test is appropriate, as the payment was made by the plaintiff under a mistake (induced by fraud) that the defendant’s HSBC bank account was for Chung Pak Battery and that the payment was thus made for the order placed with Chung Pak Battery.   Clearly, such a mistake satisfies whichever causation tests to be adopted.  In any event, the defendant raised no suggestion that the plaintiff made the payment question for some other reasons.

ANY OPERATIVE MISTAKE?

31.  Ms Candy Tang, acting for the defendant, contended that the mistake lacked the requisite qualities for the purpose of unjust enrichment.  In particular, she contended that (1) the plaintiff had so much doubt that he assumed the risk that the defendant’s HSBC bank account was not for Chung Pak Battery so much so that the plaintiff and/or (2) the plaintiff was ignorant in that he simply did not address his mind on whether the defendant’s HSBC bank account was for Chung Pak Battery.  Although this doubt and ignorance are not pleaded in the defence, as the burden falls on the plaintiff to prove a mistake of requisite qualities, if the evidence shows that the mistake lacked the requisite qualities, the plaintiff would fail his burden.

Legal principles

32.  A mistake need not be known to the payee.  A mistake is not the same as ignorance, inadvertence, forgetfulness or misprediction, although sometimes they are not easily distinguishable from mistake. Further, ignorance, inadvertence and forgetfulness, though per se not operative mistakes, can lead to a false belief or assumption that is operative: Pitt v Holt [2013] 2 AC 108 at §§104-105, 108 & 114 per Lord Walker giving the unanimous judgment on behalf of the UK Supreme Court.  The reason why mere ignorance, inadvertence or forgetfulness does not amount to an operative mistake is that “[i]f someone does not apply his mind to a point at all, it is difficult to say that there has been some real mistake about the point”: Pitt v Holt, supra, at §108.

33.  Can a mistake be tainted by doubt?  In Kleinwort Benson Ltd v Lincoln CC [1999] 2 AC 349, where the bank paid money to the local authority under an interest rate swap agreement, agreements similar to which were subsequently held to be ultra vires local authorities and were thus void, the bank claimed the money back on unjust enrichment on mistake.  In that case, Lord Hope said at 410B-C:-

“A state of doubt is different from that of mistake. A person who pays when in doubt takes the risk that he may be wrong...”

34.  However broad this statement seems to be, Lord Hope subsequently in Deutsche Morgan Grengell Group plc v IRC [2007] 1 AC 558 explained at §59 that this statement is “capable of further refinement”, and that:-

“The difficult question is what degree of doubt is compatible with a mistake claim ...”

35.  What degree?  In Martine Trade SA v Pioneer Freight Futures Co Ltd BVI [2010] 1 Lloyd’s Rep 631 (overruled by the English Court of Appeal in Lomas v JFB Firth Rixson Inc [2012] 2 Lloyd’s Rep 548 on points not concerning the present case here), having reviewed the relevant case law on “doubt” at §§62-75, Flaux J held at §76 that:-

“In my judgment, the furthest that a court of first instance could or should go as to the current state of law is that there may be cases in which a payer can still be said to be under a mistake, even if he has doubts, provided that he paid concluding that it was more likely than not that he was liable to pay.”

36.  As Flaux J came to this conclusion after the extensive review of the authorities, and for the reason stated by the learned authors of Goff & Jones, The Law of Unjust Enrichment (8^th ed), supra, §9-21 (namely, the alternative approach of asking “whether the plaintiff would have acted as he did had he known the true facts for certain” is too broad and departs from what “mistake” is understood to mean), I adopt this “more likely than not” approach.

37.  Even if there was mistake in the “more likely than not” sense, the existence of doubt may mean that the mistake was just one of the causes of the payment in question.  “The greater the claimant’s doubts, the less likely it is that this hurdle will be satisfied, simply because it is more likely that there will be other reasons which caused him to act”: see Goff & Jones, The Law of Unjust Enrichment (8^th ed), supra, §9-22.  As mentioned above, this causation issue is not much an issue here.

38.  In addition, in Deustsche Morgan Grenfell, supra, Lord Hoffmann, apparently in his attempt to rationalise most, if not all, private transactions and activities with reference to the concept of the “assumption of risk”, said at §26 that:

“... The real point is whether the person who made the payment took the risk that he might be wrong. If he did, then he cannot recover the money. Speaking for myself, I think that there is a parallel here with the question of whether a common mistake vitiates a contract...”

Thus, if it is shown that the payee assumed, or must be taken to have assumed, the risk that he is actually not liable to pay, the enrichment was not mistaken in the “unjust” sense.  Although the learned authors of Goff & Jones, The Law of Unjust Enrichment (8^th ed), supra suggested that this “assumption of risk” is unnecessary: §§9-27 – 9-30, recently, in Pitt v Holt, supra, Lord Walker, referring to Deutsche Morgan Grenfell, supra, regarded this requirement of assumption of risk as uncontroversial (Pitt v Holt, supra at §114).  There is no authority in Hong Kong on this point, but I note that in the context of damages in contract law, the Court of Final Appeal (comprised of, inter alios, also Lord Walker NPJ) in Richly Bright International Ltd v De Monsa Investments Ltd (2015) 18 HKCFAR 232 adopted the requirement of “assumption of risk” proposed also by Lord Hoffmann.  As a consistent thread running through the law regulating private transactions, and also on the theory that in their private activities, individuals consider and take risks, and are held responsible for the risks taken, I adopt this requirement of assumption of risk in the context of mistake in unjust enrichment.  This requirement makes sense: for example, if there is a doubt that the bank account does not belong to the vendor, and if the payer is found to have assumed this risk even though he is still under a mistake on the “more likely than not” approach, I see no reason why the payer should not be held responsible for the risk he took.  

39.  I add, however, that in the usual course of things, where the payer think that it is highly likely (higher than “more likely than not”) that he has to pay, it may well follow that the risk that actually he does not have to pay must be so minimal or unrealistic for the payer to even address his mind on this risk, let alone assuming such risk.  In such a situation, convincing evidence would be expected to prove otherwise.

40.  Finally, when there exists a doubt, the plaintiff has to respond reasonably to his state of doubt.  Failure to do so sometimes is regarded as waiver of inquiry.  “Reasonably” here should not necessarily be determined with reference to the concept of negligence, but to the concept of good faith and whether the response has resolved the doubts: Goff & Jones, The Law of Unjust Enrichment (8^th ed), supra, §§9-24 – 9-25.  In my view, this requirement of “reasonable response” is intertwined with the “more likely than not” approach mentioned above.  If upon such reasonable response, the initial doubts still remain such that the plaintiff comes to the conclusion that it is more likely than not that he does not have to pay, then there is no mistake.  If upon the reasonable response, the initial doubts have been resolved such that the plaintiff comes to the conclusion that it is more likely than not that he has to pay, then there is mistake. 

41.  The requirement of “reasonable response” is also intertwined with the causation requirement mentioned above. The more the doubts are resolved upon reasonable response, the less the plaintiff is affected by other doubts and the more the plaintiff is affected by the mistake.

42.  The requirement of “reasonable response” is as well intertwined with the assumption of risk.  The logic is easy to follow: if despite the doubt over whether he has to pay, the payer did not reasonably respond to such doubt, the payer may be taken to have assumed the risk that he was actually not liable to pay.

43.  In summary,

(1)   To determine whether doubts in a mistake are sufficient to defeat the mistake, the question is whether the plaintiff still thinks that it is more likely than not that he has to pay.

(2)   Further, despite a mistake in the sense of (1) above, if the plaintiff assumed or must be taken to have assumed the risk that he actually does not have to pay, the enrichment is not unjust.

(3)   (a) Whether the plaintiff labours under such a mistake, (b) whether such a mistake did cause him to pay and (c) whether he has assumed the risk, may well depend on whether he has reasonably responded to his doubts.

ANALYSIS OF FACTS AND FINDING OF MISTAKE

44.  Ms Tang contended that the plaintiff was ignorant in that it did not address his mind at all to whether the defendant’s HSBC bank account was for Chung Pak Battery and thus there was no mistake.  I disagree.  However careless the plaintiff was, it is inherently improbable that the plaintiff would be so ignorant that as a purchaser, when paying the purchase price, he would not even address his mind on the identity of the holder of the bank account into which he was depositing the purchase price.  On the contrary, I find that the plaintiff did address his mind on the identity. This finding is consistent with the plaintiff’s evidence that when making the payment into the defendant’s HSBC bank account, he was thinking that it was an affiliate’s account for Chung Pak Battery (see paragraph 13 above).  Bearing in mind that the plaintiff simply did not have any motive for making any wrong payments, I accept this evidence.

45.  Ms Tang contended that alternatively, the plaintiff had doubt whether the defendant’s HSBC bank account was for Chung Pak Battery but did not respond reasonably to such doubt by making inquiry with Chung Pak Battery and/or that the plaintiff assumed that risk that the defendant’s HSBC bank account was not for Chung Pak Battery.  Ms Tang also invited me to infer that in February 2013, when “Nelson Zeng” was suggesting an affiliate bank account (see paragraph 8 above), it was yet another bank account.  Again, I disagree, for the following reasons:-

(1)   The email address used by “Nelson Zeng” was so confusing that one would be readily induced into thinking that “Nelson Zeng” had an email address with the domain name “chungpak.com” and thus thinking that “Nelson Zeng” was really from Chung Pak Battery.

(2)   While the Proforma Invoice of 25 June 2013 set out a CCB Account for payment in, the plaintiff had been induced into thinking that Chung Pak Battery had another bank account into which the plaintiff may also make payment for orders placed with Chung Pak Battery, that is, the defendant’s HSBC account.  Despite the differences between this invoice and the Proforma Invoice of 20 June 2013 (in terms of the letterhead and the recipient bank accounts), and even accepting Ms Tang’s invitation that I should infer that a third bank account had previously been suggested to the plaintiff in February 2013, having considered the fact that the plaintiff’s emails and samples sent to Chung Pak Battery had been attended to (see paragraph 10 above), and bearing in mind that the plaintiff, as purchaser, would not have any reason for paying a wrong person, I find that there was simply no doubt in the plaintiff’s mind that he would be paying a wrong person.

(3)   I accept the defendant’s submissions that the plaintiff should have been more alerted given, among others, the differences of the Proforma Invoice of 20 June 2013 and that of 25 June 2013.  I am also prepared to find that the plaintiff was negligent in that had he telephoned Chung Pak Battery for clarification, there would not have been any mistaken payment.  However, as I have found that there was no doubt in the first place, I also find that no response was needed.  Even if there were any doubt, again, having considered the fact that the plaintiff’s emails and samples sent to Chung Pak Battery had been attended to (see paragraph 10 above), and bearing in mind that the plaintiff, as purchaser, would not have any reason for paying a wrong person, I would find that the plaintiff thought that it was highly likely (higher than more likely than not) that the defendant’s HSBC bank account was for Chung Pak Battery and this thought caused the plaintiff to make the payment in question.  I would also find that any risk of wrong payment that occurred to the plaintiff arising from this doubt was too unrealistic for the plaintiff to seriously think of, let alone assuming.

46.  In the circumstances, I find that in making the payment of the US$104,246.00 into the defendant’s HSBC bank account, the plaintiff laboured under a mistake of the requisite qualities for the purpose of unjust enrichment that the defendant’s HSBC bank account was for Chung Pak Battery and the payment was for the order placed by the plaintiff with Chung Pak Battery.

BONA FIDE CHANGE OF POSITION

47.  Having found an operative mistake for the purpose of unjust enrichment, I then have to determine whether the defendant can establish the defence of bona fide change of position (sometimes referred to as change of position in good faith).

General principles: Lipkin Gorman

48.  The starting point for discussion of the legal principles in relation to bona fide change of position is always the case decided by the House of Lords in Lipkin Gorman (A Firm) v Karpnale Ltd [1991] 2 AC 548.  As the law in this area is developing, it is of paramount importance to appreciate the facts of the relevant cases rather than just citing the principles which have to be understood in the factual matrices of the cases.  In Lipkin Gorman, Cass, a partner in the plaintiff firm of solicitors, was authorised to operate the firm’s client account at the bank. Unknown to other partners, Cass was a compulsive gambler. Without their knowledge, between March and November 1980, Cass withdrew cash from the client’s account by making out cheques for cash and sending the firm’s cashier to cash them.  The cashier, despite knowing Cass’ motive, still handed the money to him.  Cass used the money to fund his gambling at the defendant club, where the cash was exchanged for chips.  Cass used the chips for gambling and refreshments at the club.  The chips were currency within the club but were worthless outside the club and remained the property of the club.  Unused chips and chips representing winnings could be exchanged for cash or a cheque drawn on the club’s bank.  Cass then endorsed it and gave it to the club which, after some hesitation, accepted it in exchange for chips.  In total, Cass acquired £323,222.14 from the client account.  The solicitors commenced proceedings against the club on money had and received, a cause of action now subsumed under unjust enrichment.  The club raised two defences: (1) the club was a bona fide purchaser for consideration in respect of the money received; and (2) the club had bona fide changed its position.

49.  Lord Goff, delivering the lead judgment, found that there was no valuable consideration given at all when the money was exchanged for the chips, because the chips just represented the same value of the money and if Cass lost a bet, Cass would lose money; and if Cass won a bet, the club’s payment would in law be a gift to Cass: see 577C-G.  His Lordship then considered the defence of bona fide change of position. In the oft-quoted passage, his Lordship said at 579F-581B,

“...where an innocent defendant’s position is so changed that he will suffer an injustice if called upon to repay or to repay in full, the injustice of requiring him so to repay outweighs the injustice of denying the plaintiff restitution. If the plaintiff pays money to the defendant under a mistake of fact, and the defendant then, acting in good faith, pays the money or part of it to charity, it is unjust to require the defendant to make restitution to the extent that he has so changed his position. Likewise, on facts such as those in the present case, if a thief steals my money and pays it to a third party who gives it away to charity, that third party should have a good defence to an action for money had and received. In other words, bona fide change of position should of itself a good defence in such cases as these ...

I am most anxious that ... nothing should be said at this stage to inhibit the development of the defence on a case by case basis, in the usual way. It is, of course, plain that the defence is not open to one who has changed his position in bad faith, as where the defendant has paid away the money with knowledge of the facts entitling the plaintiff to restitution; and it is commonly accepted that the defence should not be open to a wrongdoer ... A prominent example will, no doubt, be found in those cases where the plaintiff is seeking repayment of money paid under a mistake of fact; but I can see no reason why the defence should not be available in principle in a case such as the present, where the plaintiff’s money has been paid by a thief to an innocent done ... At present I do not wish to state the principle any less broadly than this: that the 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. I wish to stress however that the mere fact that the defendant has spent the money, in whole or in part, does not of itself render it inequitable that he should be called upon to repay, because the expenditure might in any event have been incurred by him in the ordinary course of things ...

... The defence of change of position is akin to the defence of bona fide purchase; but we cannot simply say that bona fide purchase is a species of change of position. This is because change of position will only avail a defendant to the extent that his position has been changed; where bona fide purchase is invoked, no inquiry is made (in most cases) into the adequacy of the consideration...” (emphases added)

Applying the aforesaid principle to that case, Lord Goff concluded that the solicitors firm was entitled to recover not fully but only to the extent of the money won by the club and lost by Cass in the amount of £150,960 only.

50.  While Lord Goff in Lipkin Gorman left the defence of bona fide change of position to develop on a case by case basis, in a society of the rule of law, “the court must proceed on the basis of principle, not sympathy, in order that the defence of change of position should not ... ‘disintegrate into a case by case discretionary analysis of the individual facts, far removed from principle’”: see Scottish Equitable Plc v Derby [2001] 3 All ER 818 at §34 per Robert Walker LJ.  The courts must bear in mind the rationale of the defence: 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”: see Goff & Jones, The Law of Unjust Enrichment, supra, §27-03.

Degree of knowledge: Niru Battery

51.  In relation to the degree of knowledge that would forfeit the defence, after a decade or so of development subsequent to Lipkin Gorman, in Niru Battery Manufacturing Co & anor v Milestone Trading Ltd & ors [2004] QB 985, the English Court of Appeal had a chance to expound what count as “lack of good faith” in the context of the defence.  For the facts of that case, I can do no better than quoting the headnote summarising the salient facts of that case:-

“The first claimant entered into a contract with the first defendant to purchase a quantity of lead with payment by letter of credit, opened by the second claimant bank, against presentation of a bill of lading and an inspection certificate as to quality issued by the fifth defendant. The fourth defendant bank, at the request of the third defendant, financed the temporary acquisition of warrants to enable the lead to be inspected and sampled, continuing to hold those warrants as security pending reimbursement of the price. In order to progress the transaction the second defendant was persuaded to issue a false bill of lading, which in turn led to the issue of an inspection certificate by the fifth defendant. The fourth defendant presented the bill of lading and the inspection certificate, together with other documents, to the second claimant for payment. Before payment was made the fourth defendant, without informing the claimants, disposed of the warrants and credited the proceeds to a member of the third defendant's group of companies which was unconnected with the transaction. The second claimant subsequently remitted the sums due under the letter of credit to the fourth defendant which dealt with those funds in accordance with the third defendant's instruction. The claimants sought damages for deceit and negligence. The judge found the third defendant liable in deceit and as an accessory to a breach of trust, and the fifth defendant liable in negligence. With regard to the fourth defendant the judge found that its employee who had dealt with the matter had not known that the bill of lading was false but had known that the fourth defendant had sold the warrants and so had realised that the second claimant had paid by mistake, and that, although he had not been dishonest, good faith had required him to inquire of the second claimant to ascertain the position and not to pay the money away in the meantime. The judge accordingly acquitted the fourth defendant of deceit but, rejecting its defence of change of position, held it liable in restitution.”

52.  The fourth defendant there appealed. In dismissing the appeal, Clarke LJ, delivering the lead judgment (to which Dame Elizabeth Butler-Sloss P agreed and Sedley LJ agreed in terms of reasoning), summarised at §§147-149 the general legal principles derived from Lipkin Gorman as follows:-

“147. The underlying principles to be derived from the speech of Lord Goff seem to me to be these. (i) The question is whether it would be unjust to allow restitution, or restitution in full. (ii) It will be unjust to allow restitution where an innocent defendant's position has so changed that the injustice of requiring him to repay outweighs the injustice of denying the claimant restitution. (iii) The defence of change of position is not, for example, available to a defendant who has changed his position in bad faith, as where he has paid away the money with knowledge of the facts entitling the claimant to restitution. (iv) Nor is it available to a wrongdoer. (v) In general terms, the defence is available to a defendant whose position has so changed that it would be inequitable to require him to make restitution or to make restitution in full.

148. The emphasis in Lord Goff’s speech is upon whether it would be unjust or inequitable to allow restitution. It is not upon whether the defendant has been dishonest.

149. In short, as I read the speeches in Lipkin Gorman case, the essential question is whether it would be inequitable or unconscionable, and thus unjust, to allow the recipient of money paid under a mistake of fact to deny restitution to the payer.” (emphases added)

I pause here to note that these three paragraphs have recently been applied by Recorder Teresa Cheng SC in JS Microelectronics Ltd v Achhada, unreported, HCA 1202/2012, 23 March 2016 at §77.

53.  Clarke LJ then proceeded to consider what is “good faith”.  His Lordship started with the basic question: “whether it would be inequitable or unconscionable to deny restitution”, recognising that the principle in Lipkin Gorman involves “a balance between the interests of the payer and those of the payee” (see §§152-153). Drawing on the law of knowing receipt, his Lordship at §157 approved a statement from Nourse LJ in BCCI v Akindele [2001] Ch 437 at 456 for the law of bona fide change of position:-

“Moreover, if the circumstances of the receipt are such as to make it unconscionable for the recipient to retain the benefit of it, there is an obvious difficulty in saying that it is equitable for a change of position to afford him a defence.” (emphasis added)

54.  Having held that dishonesty is not required to (although it will) defeat the defence of bona fide change of position, his Lordship then at §164 approved a statement by the judge below (Moore-Bick J) ([2002] 2 All ER (Comm) 705 at §135):-

“I do not think that it is desirable to attempt to define the limits of good faith; it is a broad concept, the definition of which, in so far as it is capable of definition at all, will have to be worked out through cases. In my view it is capable of embracing a failure to act in a commercially acceptable way and sharp practice of a kind that falls short of outright dishonesty as well as dishonesty itself. The factors which will determine whether it is inequitable to allow the claimant to obtain restitution in a case of mistaken payment will vary from case to case, but where the payee has voluntarily parted with the money much is likely to depend on the circumstances in which he did so and the extent of his knowledge about how the payment came to be made. Where he knows that the payment he has received was made by mistake, the position is quite straightforward: he must return it. This applies as much to a banker who receives a payment for the account of his customer as to any other person ... Greater difficulty may arise, however, in cases where the payee has grounds for believing that the payment may have been made by mistake, but cannot be sure. In such cases good faith may well dictate that an inquiry be made of the payer. The nature and extent of the inquiry called for will, of course, depend on the circumstances of the case, but I do not think that a person who has, or thinks he has, good reason to believe that the payment was made by mistake away without first making inquiries of the person from whom he received it.” (emphases added)

“The need to make inquiries of Bank Sepah is not a matter to be viewed in terms of a duty owed by one banker to another; it is a matter to be viewed in terms of a duty of good faith which a person who has received a payment that he has good reason to think was made under a mistake owes to the person who made it. If under those circumstances the payee fails to make inquiry of the payer before disposing of the money he can properly be described as failing to act in good faith because he acts in the knowledge that he may be infringing the rights of another despite having the means of avoiding that consequence.” (emphases added)

55.  I add a note that since the need to make inquiries arises from a duty of good faith, it follows that whether the inquiries would have prevented the change of position is irrelevant, as inquiries were required because of good faith, not because of any attempt to prevent further loss to the payer.  Further, more fundamentally, bona fide change of position, by definition, is concerning a change of position. 

56.  Sedley LJ, with whom Dame Elizabeth Butler-Sloss P also agreed, also held at §180 that bad faith or dishonesty is not required to defeat the defence.  His Lordship said at §187 that the defence “requires the donee to show that it acted on real or reasonably supposed facts justifying the payment away.”  His Lordship, like Clarke LJ, also thought it appropriate to draw on the legal principles of knowing receipts in relation to the requisite knowledge for the defence.  He agreed at §190 with the opinion of Lord Bingham and Lord Goff delivered on behalf of the Privy Council in Dextra Bank & Trust Co Ltd v Bank of Jamaica [2001] UKPC 50 that a balance of fault test (or known as relative fault) for bona fide change of position should be rejected and that mere negligence is not enough to defeat the defence.  At the end of the judgment at §192, his Lordship succinctly set out what the true issue or policy consideration was:-

“When [the fraudster] walks away, leaving the victims of his fraud to fight out who is to carry the loss he has caused them, it is a strange kind of equity which would make the innocent claimants bear their own loss because the defendant bank has paid away their money recklessly, venally and ... in bad faith, but not dishonestly.”

Change of position

57.  In relation to change of position, causation is required.  The test is “whether he entered into a transaction that he would have not entered into but for his enrichment”: see Goff & Jones, The Law of Unjust Enrichment, supra, §27-05; Scottish Equitable Plc v Derby, supra at §31 per Robert Walker LJ.  Thus, if a defendant relied on expenditures as change of position, they cannot be expenditures in the ordinary course of things but have to be “extraordinary”: see Dextra Bank & Trust Co Ltd v Bank of Jamaica, supra at §38 per Lord Bingham and Lord Goff, although it is not necessary that the money expended was the money received: see Goff & Jones, The Law of Unjust Enrichment, supra, §27-25.  Further, reliance is usually required: see Goff & Jones, The Law of Unjust Enrichment, supra, §27-27 – 27-28.

58.  In respect of payment of debt and acquisition of assets, “in general it is not a detriment to pay off a debt which will have to be paid off sooner or later” unless the loan was a long term one on advantageous terms: see Scottish Equitable Plc v Derby, supra at §35 per Robert Walker LJ, because a defendant’s wealth remains the same when he pays off a debt.  By the same token, in general, “[w]here a defendant buys an asset which remains in his hands at the time of the action, the defence is disallowed to the extent that he is still enriched”, unless it would be legally or practically impossible or cause significant difficulties in reversing the change, for example, the asset purchased with the enrichment is difficult to be re-sold and the defendant does not have other resources to repay the enrichment: see Goff & Jones, The Law of Unjust Enrichment, supra, §27-13 – 27-17.  The same applies to services such that the defence is allowed only to the extent of the value of the services: Goff & Jones, The Law of Unjust Enrichment, supra, §27-19.

Summary

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 dishonesty”, and (c) “dishonesty”.

(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.

In respect of change of position

(7)   The change of position has to be caused by the enrichment, generally, in that he would not have entered into the transaction but for the enrichment. Reliance is usually required.

(8)   Bearing this causation requirement in mind, in general, only expenditures that are not in the ordinary course of business of the payee can be regarded as change of position.

(9)   Further, change of position in question usually causes detriment to the payee and the detriment has to be practically or legally irreversible or significant difficulties would arise in reversing the detriment.

(10)   Following from (9) above, in general, payment of debts or acquisition of assets readily re-saleable is not regarded as change of position.

ANALYSIS OF FACTS FOR BONA FIDE CHANGE OF POSITION

Paragraph 14(b) of the defence

60.  It is logical to start with paragraph 14(b) of the defence, as the transaction there (namely, the payment out of the excess of US$87,746.00 (or RMB535,250.00) on 9 July 2013) occurred almost the earliest, which would have impact on paragraphs 14(a) and (c) of the defence (except for the evidence of only three payments out on 8 July 2013 in support of paragraph 14(c)) if the transaction was found to be not in good faith.  Applying the above legal principles, as regards the payment out of the excess of US$87,746.00 (or RMB535,250.00) to the bank account under the name of Col Luxuana on 9 July 2013, I consider the following circumstances:-

(1)   The amount of excess was not nominal, compared with the goods in question of the value of US$16,500.00.  Both Madam Lau and Mr Zou said that this was unusual.  Indeed, when looking at the sale transactions of the plaintiff within one month after the payment of the excess (evidence adduced by the defendant in support of paragraph 14(c) of the defence), there was not a single deposit that went beyond the corresponding invoiced amount.

(2)   Robert Ford was the first-time customer of the defendant.  It cannot be said that there was any trust between the defendant and him.  While the defendant may wish to build up a good relationship with him and thus was amenable to his requests, it was still very unusual that Robert Ford would be willing to pay so much excess into a bank account of the defendant whom he did business for the first time. 

(3)   It was even more unusual when Robert Ford had told the defendant that the money came from his customers, alleging in his email of 14 May 2013 that his customers would like to deposit US$30,000 – US$50,000 into the defendant’s HSBC account.  The customers were even one more level away from the defendant.  It was further more unusual when eventually, the amount transferred into the defendant’s HSBC account was US$104,246.00, more than double the initial proposed upper limit of US$50,000.00.

(4)   Equally unusual is that when the defendant inquired of Robert Ford about what to do with the excess, Robert Ford simply requested the defendant to refund the excess in another currency (RMB) to a designated account.  The defendant had been told that the excess came from Robert Ford’s customers wishing to place further orders in the future, but now inconsistently, Robert Ford simply asked the defendant to refund the excess to a designated account, which was not in the name of Robert Ford.  As mentioned above, Madam Lau, when giving evidence for the defendant, said that Robert Ford told the defendant that he would need the money to purchase goods himself.  However, this would not and could not make Robert Ford’s request less unusual and less inconsistent, and still could not explain why Robert Ford would unusually pay such a substantial excess in the first place.

61.  Madam Lau, when giving evidence for the defendant, said that while she felt that the payment was unusual, she did not think that there was any problem or irregularity because (1) the money came from an HSBC account and to her, as HSBC would open an account for a client only upon stringent scrutiny, the fact that the money from HSBC eased her mind; (2) Robert Ford was able to produce a payment advice issued by HSBC showing the payer’s account number; and (3) the money came from Hong Kong but not, say, Africa.  Given the above circumstances, I do not find that these three factors really eased her mind.  As a matter of common sense, it is inherently improbable that a payee would think that there was no problem or no irregularity when a person known to the payee only recently pays him a large amount of money for no proper reason, despite inter HSBC accounts, and then quickly asks the payee to transfer out that money, again, in an unusual way and for a reason inconsistent with what that person has told the payee previously.  Ms Tang’s contended that I would understand why the defendant did as it did if I would view the matter from the perspective of a PRC company and from a PRC businessperson who had not had experience of dealing with such an unusual payment and who would like to accommodate Robert Ford as a new customer as much as possible.  Such contention is unacceptable.  I disagree.  I do not see why a PRC company, and/or a PRC businessperson, and/or a person who had not had experience of dealing with such an unusual payment, have to be taken as less common-sensical.  The fact that Mr Zou, a PRC resident working in the PRC, advised cancelling the transaction speaks for itself.  I also do not see why it would make any difference when the plaintiff would like to be more amenable to Robert Ford; this may explain why the defendant did as it did, but this does not detract any unusualness from the payment in and payment out.  Therefore, I find that Madam Lau, at the time of the payment out of the excess, did think that the payment in and the payment out were unusual, problematic and irregular.

62.  While not sufficient to make the defendant know all the facts that point to a mistake as in Niru’s case, the above circumstances should have caused a person to think that the excess payment to the defendant and/or the refund to a bank account of an unknown person may be infringing some others’ rights.  The above circumstances, in my judgment, fall squarely within what Clarke LJ describe as “cases where the payee has grounds for believing that the payment may have been made by mistake, but cannot be sure”.  “In such cases good faith may well dictate that an inquiry be made of the payer.” 

63.  However, the defendant did not make any sufficient inquiries.  A general inquiry of “Why are you doing this way?” (see paragraph 16 above) was not sufficient.  In any event, Robert Ford did not reply to this general inquiry, and the defendant did not urge any proper reply from Robert Ford.  Further, specifically, it did not inquire why more than double had been paid into its account; it did not inquire about who Col Luxuana was; it did not inquire about why refund would be necessary if the money, as had been told, came from Robert Ford’s customers for future orders; or simply, it should have made an inquiry with the bank informing the bank of the circumstances of the payment.  On such evidence, I find that the defendant should have made, but did not make any, sufficient inquiries in the circumstances. Thus, in respect of the payment out of the excess, there was no good faith.

Paragraph 14(a) of the defence

64.  The delivery of the goods took place on 29 July 2013 after the refund of the excess.  As I found the defendant had grounds to believe that the payment may have been made by mistake, and since the goods were purchased with money from the very same payment, my finding that the defendant lacked good faith by failing to make the necessary inquiries should also cover the change of position by the delivery of goods for US$16,500.00.  For the sake of completeness, lack of good faith also means that any attempt to run the defence of bona fide purchase for consideration would also fail.

Paragraph 14(c) of the defence

65.  Applying the legal principles (set out in paragraphs 57-58 above) in relation to what amounts to change of position, those matters set out in paragraph 14(c) of the defence and the evidence in support thereof cannot sustain any plea of change of position, as (1) there is no plea and evidence that those transactions were entered into as a result of the enrichment; (2) those transactions were expenditures and acquisition of assets in the ordinary course of business of the defendant; and (3) there was no change in the overall assets and liabilities of the defendant despite those transactions.  In respect of (3), Ms Tang contended that but for the mistaken payment, the defendant would not have entered into the transactions for acquisition of raw materials for over US$140,000.00 on 8 July 2013 with the money from the defendant’s HSBC bank account.  However, bearing in mind that there is no evidence that the raw materials could not be readily re-sold for cash and in any event there is no evidence that the defendant does not have other resources to repay the enrichment, Ms Tang’s such contention does not advance the defendant’s defence any further.

66.  Before I leave the causation issue, I should say that during the examination-in-chief of Madam Lau, before asking, Ms Tang fairly applied to me for leave to ask Madam Lau questions about certain transactions in an attempt to elicit answers that those transactions would not have taken place but for the payment of the US$104,246.00.  She contended that the good reasons required under Order 38 rule 2A(7) of the Rules of District Court (Cap 336H) were that (1) the answers were relevant; and (2) the answers were to address the question I raised at the beginning of the trial whether those transactions were caused by the payment.  This causation issue should have been known to the defendant, and adducing evidence on causation at this late stage would highly prejudice the plaintiff’s right to a fair and adequate opportunity to investigate or verify, to say the least, by discovery or interrogatories.  I did not think that there were any good reasons, and thus I refused Ms Tang’s application.

67.  In any event, even assuming there were causation and change of position, as regards those transactions taking place after the payment of the excess the circumstances surrounding which I have found to fall squarely within what Clarke LJ describe as “cases where the payee has grounds for believing that the payment may have been made by mistake, but cannot be sure”, given my finding that the defendant failed to make any good faith inquiry, paragraph 14(c) still cannot amount to any bona fide change of position due to lack of good faith.  As regards the payments out on 8 July 2013 totalling more than US$140,000.00 for the acquisition of raw materials, given the unusualness of the payment of such a substantial excess into the defendant’s HSBC bank account for no proper reason (see paragraph 60(1) – (3) above), I have no difficulty in finding that these payments were made also not in good faith.

CONCLUSION AND ORDER

68.  Having found that the defendant has failed to establish the defence of bona fide change of position or any part thereof, it must follow that the plaintiff should be able to recover US$104,246.00.

69.  Thus, I order that the defendant do pay the plaintiff US$104,246.00 or its equivalent in Hong Kong Dollars, with interest thereon in accordance with sections 49 and 50 of the District Court Ordinance (Cap 336).  I also make an order nisi that the defendant do pay the plaintiff costs of this action, to be taxed if not agreed, with certificate for counsel.