BEDROCK MANUFACTURING EUROPE BV AND ANOTHER v. WHALET LTD

HCA 1026/2022

[2026] HKCFI 4942

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1026 OF 2022

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J U D G M E N T

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Introduction

1.  Online frauds are becoming increasingly common. Internet users are constantly warned to watch out for scams; fraudsters, meanwhile, are becoming ever more sophisticated in devising ways to trick victims into parting with funds. The present case arises out of one such scam. It is a claim by the Plaintiffs that three of their employees were duped into transferring a total of €1,161,248.79 into an account controlled by the Defendant, Whalet Limited (“Whalet”). The Plaintiffs’ employees were told via a series of WhatsApp messages and emails that the payments were needed to fund the purchase of a Hong Kong company by their parent company, Bedrock Manufacturing Company, LLC (“Bedrock”), which is based in Texas. However, no such purchase was contemplated or known about by Bedrock, and the employees had been tricked by someone falsely claiming to be the CEO of Bedrock, assisted by someone falsely claiming to be a lawyer acting for Bedrock.

2.  The transfer took place in three instalments between 21 March 2022 and 24 March 2022. Whalet – which is not alleged to have been a party to the fraud – converted each of the payments into RMB and transferred them in tranches to Shanghai Huifu Payment Co., Ltd (“Shanghai Huifu”), a company registered in the PRC that provides payment services to its clients based there. In so doing, Whalet was acting on what it believed to be the instructions of its client, Wenzhou Dizhu Clothing Co., Ltd (“Wenzhou”).

3.  The burden of proof that they were defrauded lies, of course, on the Plaintiffs, but Whalet now accepts (subject to some caveats, which I will deal with later) that the Plaintiffs have made out a prima facie case that the underlying transactions were indeed fraudulent.

4.  Although it is accepted that Whalet was not itself a fraudster, the Plaintiffs claim that it is nevertheless liable to restore the sums that were transferred. The claim is formulated under two headings: (1) unjust enrichment, and (2) constructive trust. To each of these claims Whalet advances a number of defences, which I will consider in due course.

5.  The fraudsters have not been identified and are not parties to this action; no claim has been made against them. On the basis that the Plaintiffs and Whalet are both the innocent victims of the fraud, the fundamental question for decision is whether the loss should fall on the Plaintiffs or on Whalet. There is no scope for apportionment.

Whalet’s business and Wenzhou

6.  Whalet is a company incorporated in Hong Kong. It is licensed as a Money Service Operator (“MSO”) under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap 615) to provide a “money service”. Under Schedule 1, Part 1, paragraph 1, a “money service” is defined as a “money changing service” or a “remittance service”. “Money changing service” is defined (in relevant part) as “a service for the exchanging of currencies that is operated in Hong Kong as a business”.

7.  As an MSO, Whalet’s business consists primarily of providing electronic payment services for sellers in the People’s Republic of China (“the PRC”) from overseas buyers. It receives the payments from the buyers, and passes them on to its clients. For this purpose, Whalet operates an account with DBS Bank (Hong Kong) Limited (“DBS”).

8.  By arrangement with DBS, Whalet’s account had assigned to it a series of “virtual accounts”, one for each of its clients, each having its own account number and a name comprising the name of the client prefixed by “WH-”. It is common ground that these were not separate accounts and that money paid in to any of them was held in a single account in the name of Whalet. The purpose of the virtual accounts was to enable Whalet to keep track of payments coming in so that it would know which of its clients was being paid. One consequence of this arrangement, however, is that the party who is paying would not know Whalet’s identity or its role in the transaction.

9.  Whalet’s client in the present case, Wenzhou, was a company incorporated in the PRC. Wenzhou’s point of contact with Whalet was Zhou Shou Dong[1] (“Mr Zhou”), a shareholder and legal representative of the company. There was some inconsistent evidence about the level of Mr Zhou’s shareholding of Wenzhou at the relevant time, and it was initially queried whether he did in fact have authority to represent Wenzhou. However, Mr Keith Tam on behalf of the Plaintiffs accepted that so far as the official records were concerned, Mr Zhou was a 90% shareholder, and there is no attempt to go behind that. For the purposes of this judgment, I have also assumed (and I think it is also accepted) that Mr Zhou did have authority to represent Wenzhou, but I do not think that anything turns on that point. I also do not need to decide whether Wenzhou was implicated in the fraud, nor does anything turn on what Mr Zhou knew or did not know.

10.  Wenzhou was taken on as a client by Whalet in March 2022, very shortly before the fraud took place. Mr Zhou was introduced to Whalet’s Sales Manager, Geng Pei Qi (“Mr Geng”), by a Mr Li, who represented an existing client of Whalet, in early March 2022, and Wenzhou’s application was approved on 10 March 2022. On the same day, Wenzhou was assigned a virtual account in accordance with the arrangement described above, in the name “WH-Wenzhou Dizhu Clothing Co., Ltd”, account number 79819700053. This was the account name into which the money paid by the Plaintiffs was deposited.

11.  Shortly after Wenzhou had been accepted as a client by Whalet, Mr Zhou made a request to add as potential payees the personal bank accounts of two individuals, Zhou Hua Jin and Lin Chang Zhong (“the Final Payees”), who were, he said, newly added shareholders of Wenzhou. However, their names did not appear as shareholders on the public records. Furthermore, Whalet had a policy of only making payments out to either the corporate bank of its client, or the personal bank account of the client’s legal representative. In this case, it would have meant that payments could only be made to Wenzhou’s account or that of Mr Zhou.

12.  However, after some discussion between Mr Zhou and Mr Geng, Whalet accepted a letter of authorisation from Mr Zhou as Wenzhou’s legal representative as sufficient to enable it to waive its usual rule and make payment to the two individuals named by Mr Zhou. It is argued by the Plaintiffs that it was wrong of Whalet to have agreed to this.

The fraud in detail

13.  The narrative of events leading up to the fraud is largely agreed. The story begins with a WhatsApp message on 31 March 2022 from someone claiming to be the CEO of Bedrock, Awenate Cobbina (“Mr Cobbina”). In fact, Mr Cobbina knew nothing of the message or its sender, and the message had come from a fraudster masquerading as Mr Cobbina. The fraudster has not been identified, and has been referred to in these proceedings as “the Fake CEO”.

14.  The message was sent to John Argento (“John”[2]), who was at the time employed as “Head of Europe” by the First Plaintiff, a subsidiary of Bedrock based in the Netherlands. The Fake CEO said he needed John’s support on a “very important and confidential operation”. He went on to explain that he had been working closely with “Josef Marx”, his lawyer at the Frankfurt office of McDermott Will & Emery, on a buyout of a company based in Hong Kong with offices in Europe. (The real partner at McDermott spelled his name “Joseph”, but this discrepancy was not picked up at the time and has not been commented on by either Counsel. It is possible that the spelling error occurred because the parties were using a voice-transcription function to write their messages – there is a reference in one of the messages to “Bloody voice texting”.)

15.  The Fake CEO claimed to have signed a Non-Disclosure Agreement with McDermott, which prevented him from disclosing any details about the deal. He told John to stand by and wait for a call from “Josef” and to “please be alone when he calls”, to which John replied, “I’ll be standing by.”

16.  There was then a WhatsApp message to John from someone claiming to be Joseph Marx timed at 13:09:37. Again, it is common ground that this person was not the lawyer from McDermott, and he has been referred to in these proceedings as “the Fake Lawyer”. The Fake Lawyer wrote – 

“Hi John how are you?

I am Josef (sic) Marx from McDermott Will & Emery Germany DE

I just received a message from Awenate to call you…

Are you available and alone now?”

Next, John spoke to the Fake Lawyer on the telephone, in the course of which the Fake Lawyer explained that John was to send money to Hong Kong as down payment for the supposed takeover bid. There is no direct evidence of this conversation, but it is clear from the WhatsApp messages that a call had taken place, because when he next communicated with the Fake CEO, John had been told what was required of him.

17.  The messages between the Fake CEO and John resumed at 13:21:35. John told the Fake CEO that, “I need to check how much cash we have on hand and confirm it to you. I should have this information in about 5-10 minutes.” Shortly thereafter, John wrote, “We should have approximately €500k on hand to make a payment from BV if necessary. That’s roughly $550k USD.”  The Fake CEO again emphasised the need for secrecy, specifically telling John that he did not want to involve Michele Santana, the Chief Financial Officer of Bedrock.

18.  Next, the Fake CEO asked John if he could “manage the payment with Andrea without giving any information about the acquisition?” “Andrea” is Andrea Van der Stouwe, who was the First Plaintiff’s Director of Finance, and the second of the three employees who was tricked by the fraudsters. John replied –

“I believe Michelle (sic) owns the final approval through Bank of America on all the wire transfers we make. I’d have to ask Andrea if there’s a workaround, but I doubt it, especially for such a large amount. Let me know how I should move next.”

19.  There followed further messages, as a result of which the Fake CEO and the Fake Lawyer both contacted Andrea, and she was added to the WhatsApp group.

20.  Finally, the third of the tricked employees, Kelly Pena (“Kelly”), was contacted via WhatsApp and added to the group. Kelly held the position of Finance Director of the Second Plaintiff.

21.  At 15:51:31, the Fake Lawyer sent a WhatsApp message to John giving him the following bank details to which he was to transfer the money –

“SWIFT/BIC Code: DHBHKHHXXX

Account Number: 79819700053

Account Name: WH Wenzhou Dizhu Clothing Co., Ltd

Bank Name: DBS Bank (Hong Kong) Limited

Bank Address: G/F, The Center, 99 Queen’s Road Central, Central, Hong Kong

Bank Code: 016

Branch Code: 451.”

The Fake Lawyer emphasised the need to get the name of the payee exactly rights, saying, “They are very strict in HK”.

22.  In addition to the WhatsApp messages, there were emails from the Fake CEO and the Fake Lawyer to John and Andrea giving additional details of when and how the first payment should be made. The Fake CEO and the Fake Lawyer both used deceptive email addresses: “awenate.cobbina@gmail.com” for Mr Cobbina (whose real email address was “awenate@gmail.com”) and “jmarx@mwe-de.com” for Joseph Marx (whose real address was “jmarx@mwe.com”).

23.  The first payment of €390,770 was made on or around 21 or 22 March 2022. It was arranged by Andrea. Over the next two days further WhatsApp exchanges took place between the fraudsters and John, Andrea and Kelly. The fraudsters said that they needed another transfer in the sum of US$858,623.61, but that it could be broken up into separate tranches. The timeline in the messages is scrambled because of the time‑zone differences, and it is unclear exactly when this amount was first mentioned. However, eventually it appears to have been agreed that the next instalment would be in the sum of US$450,623.61, with a further US$400,000 to follow.

24.  There were insufficient funds to make these payments in the First Plaintiff’s account, so the transfers were made instead from the Second Plaintiff’s account. The responsibility for arranging and authorising the two further payments fell on Kelly. The WhatsApp messages show that she was becoming increasingly troubled about what she was being asked to do, and at one point she wrote –

“I’m sorry I made this more complicated but I have never been involved in this type of thing and almost felt like I was doing something wrong sending this amount of money without others knowing.”

However, she was repeatedly reassured by the Fake CEO that he was responsible for everything, and that money would be reimbursed.

25.  John told the Fake CEO that there was a deadline to settle some urgent invoices, and was told in reply that the money would be reimbursed within a matter of days. The dates for the promised reimbursement were pushed back several times, but in the meanwhile the two final payments went through: €412,023.73 (equivalent to US$458,623.61) was transmitted to the Wenzhou virtual account on 23 March 2022, and a final payment of €358,455.06 (equivalent to US$400,000) on 24 March 2022.

Transmission of the funds by Whalet

26.  The first payment was received by Whalet on 23 March 2022.[3] On the same day, Wenzhou issued an instruction through Whalet’s online platform, telling Whalet to convert the sum into RMB and remit it in two payments to Shanghai Huifu. The instruction provided scanned copies of an invoice dated 20 January 2022 in the sum of €390,990 and a Bill of Lading dated 4 March 2022.

27.  Whalet did not recognise anything unusual in the instruction or the documents provided, and, having carried out what it considered to be appropriate checks, duly remitted the amounts. These were in turn paid on by Shanghai Huifu to the bank accounts of the two Final Payees in the PRC, who had been added as potential recipients at the request of Mr Zhou.

28.  The second payment was received by Whalet on 24 March 2022 in the sum of €412,023.73. Again, Wenzhou issued an instruction with supporting documentation for the sum to be remitted to Shanghai Huifu, and again Whalet complied. On the same day, Shanghai Huifu transferred the payments on to the Final Payees.

29.  The third payment was received by Whalet on 25 March 2022, and the same sequence of onward transmission again was made, with the funds again ending up in the accounts of Final Payees.

Discovery of the fraud

30.  By 28 March 2022, the money had not been returned as had been promised by the Fake CEO. It was at that point that John, Andrea and Kelly realised that they had been duped, and reported the matter to Bedrock. A report was filed with the Hong Kong Police on 29 March 2022, and the matter was reported to the Federal Bureau of Investigation.

31.  In the months that followed, the Plaintiffs pursued enquiries with the Hong Kong Police and eventually obtained Norwich Pharmacal orders against DBS. From the documents they obtained, the Plaintiffs learnt for the first time about the involvement of Whalet.

32.  The Writ in this action was issued on 15 August 2022, and on the same day Plaintiffs sought and obtained an injunction against Whalet restraining it from disposing of assets in Hong Kong up to the value of €1,161,248.79.

The witnesses

33.  The only oral evidence on behalf of the Plaintiffs was given by Lisa Gold Madden (“Ms Gold”[4]). At the time that she made her witness statement, Ms Gold was the General Counsel of the Plaintiffs, but she no longer held that position when she came to testify. She had no personal involvement with the events leading up to the payments, and only became involved after the fraud had been discovered. Her evidence of the key events was therefore based on the documents, and on conversations with the three employees who had been in direct contact with the fraudsters.

34.  Evidence on behalf of Whalet was given by four witnesses –

(1)  Liao Chenyu (“Mr Liao”), the sole shareholder and President of Whalet;

(2)  Chen Xing Rong (“Ms Chen”), a director and Vice-President of Whalet;

(3)  Mr Geng, the Sales Manager of Whalet mentioned above who handled the onboarding and communications with Wenzhou;

(4)  Liu Zhi Bin (“Mr Liu”), Whalet’s Risk Control Officer.

These witnesses all gave their evidence in Chinese through an interpreter, to whom I am grateful for his assistance.

Procedural matters

35.  Before dealing with the substantive issues in the case, there are two preliminary points that were raised at the start of the trial.

36.  By a summons dated 20 June 2026, the Plaintiffs sought retrospective leave to adduce and rely on some additional documents identified in a Supplemental List of Documents dated 6 May 2026. The summons was supported by an affirmation of Pang Ho Yan (“Mr Pang”) dated 17 July 2026.

37.  The documents in question comprise ten pages of official records relating to three PRC companies with similar names to Wenzhou and which, according to a photograph taken by Mr Liu, share some offices with it. Prima facie, these appear to be related companies, although their names suggest that they are in different lines of business. The translations with which I have been provided give their names, respectively, as “Wenzhou Dongyun Network Technology Co., Ltd”, “Wenzhou Taige Network Services Co., Ltd”, and “Wenzhou City Haozheng Game Card Online Store”.

38.  According to Mr Pang’s affirmation, the relevance of the documents the Plaintiffs wish to introduce is said to be explained in a letter dated 6 May 2026 from Kenix Yuen Law Firm, a copy of which is exhibited to the affirmation. However, the only explanation given in that letter is that the documents “will assist the Court in further understanding Annex ‘LZB-19’” – that is to say, the photographs of Wenzhou’s offices.

39.  Leaving aside the complaints made by on behalf of Whalet about the procedural deficiencies of the Plaintiffs’ late application, I am unable to see how information relating to other companies (whether or not they form part of Wenzhou’s corporate structure) might throw any light on the issues to be decided in this case. Whatever criticisms may be made of Whalet’s due diligence process in relation to its client, it cannot realistically be suggested that it ought also to have investigated other companies merely because they happened to share some office space or have names that suggest a corporate connection. Nor is there any evidence as to what such investigations might have brought to light that could have any relevance to this case. Furthermore (as appears from the narrative below), Whalet’s representatives only visited Wenzhou’s offices after the fraud had come to light, so it cannot be said to have any bearing on Whalet’s state of mind when it received or paid away the funds.

40.  For that reason, I considered that it would not be consistent with the “underlying objectives”[5] to allow the documents to be admitted, and I directed that they should be excluded.

41.  The second preliminary point concerned the admissibility of a short witness statement by Kelly. According to Ms Gold’s witness statement dated 25 January 2024, Kelly was at that date “about to sign” her witness statement; but, as I have noted above, Kelly has since left the employment of the Plaintiffs and is no longer willing to attend to give evidence. According to Ms Gold, Kelly has not responded to recent attempts to contact her, and on 20 July 2026, the Plaintiffs issued a hearsay notice.

42.  Whalet objected to the admission of Kelly’s statement, first on the grounds that the application was not supported by proper evidence, and secondly on the grounds that it would be prejudiced by being unable to cross-examine the only potential witness who had first-hand knowledge of the actual fraud.

43.  I nevertheless decided that the statement should be admitted. The statement is only seven paragraphs long, including the formalities, and (as Counsel conceded) it contains nothing that is not already repeated in Ms Gold’s evidence: in other words, it contains no evidence that is not already before the court.

44.  Furthermore, Ms Gold’s witness statement is itself hearsay in relation to anything that happened before the fraud had been discovered. Indeed, there appears to be nothing of relevance in Ms Gold’s report regarding the fraud itself that cannot be deduced from the documents, other than the statement at paragraph 11 that John had told her he had had telephone calls with the Fake Lawyer. Even without that statement, it is evident from the documented record that John had come into information that does not appear in the written conversations.[6]

45.  Whether or not Kelly’s witness statement is allowed, Counsel for Whalet would have no opportunity of cross-examining her. Whenever hearsay evidence is admitted, the court will take into account the fact that it had not been tested by cross-examination, so it seems to me that Whalet is in no worse a position – and the Plaintiffs in no better – if the evidence is admitted than if it is not. On that basis I allowed the statement to stand as hearsay evidence. In the event no reference has been made to it by either side.

46.  I now turn to the substantive issues in dispute.

The substantive claim

47.  Counsel for the Plaintiffs, Mr Keith Tam, said in his opening submissions that his principal claim was for restitution based on the principles of unjust enrichment, but that he also relied in the alternative on a constructive trust. I will therefore deal with unjust enrichment first.

Unjust enrichment

48.  It is common ground that the requirements for a claim in unjust enrichment are as set out in Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79 at [67]. The core questions are: (i) Was the defendant enriched? (ii) Was the enrichment at the plaintiff’s expense? (iii) Was the enrichment unjust? (iv) Are any of the recognised defences applicable?

49.  Mr Danny Tang (leading Mr Nicholas Hsu) on behalf of Whalet did not dispute that the first two questions were satisfied, but argued that the third question was not, because the Plaintiffs could not show that they had paid the money under a mistake and the enrichment was therefore not unjust. In addition, he relied on three defences: (i) bona fide purchaser; (ii) change of position; and (iii) ministerial receipt.

50.  The legal test as to whether a mistake by the paying party is operative to enable him to recover the money was considered in depth by the House of Lords in Kleinwort Benson Ltd v Lincoln County Council [1999] 2 A.C. 349. As their Lordships recognised, a mistake could be either a mistake of fact or a mistake of law. Kleinwort Benson was specifically concerned with mistakes of law, and in particular, the effect of a retrospective change in the law: if the payer had acted on a correct understanding of what, at the time of the transaction, was believed to be the law, but a subsequent decision by a higher court then overruled the earlier decisions, could the payer be said to have acted under a “mistake”? The majority held that it could. The test was not whether the payer could have discovered his mistake at the time, but whether, if he had known what the court knew at the date of the claim, the payment would not have been made.

51.  The alleged mistake in the present case is one of fact rather than law; this is not a case where the law has changed since the fraud took place. Rather, it is alleged by Whalet that the Plaintiffs’ employees all had doubts about the propriety of what they were being asked to do, but nevertheless decided to go ahead. This, it is said, means that they took the risk that they were wrong, and were not acting under a “mistake”. Mr Tang relies on Deutsche Morgan Grenfell Group plc v Inland Revenue Commissioners [2007] 1 A.C. 558 at [26] and Globenet Droid Ltd v Hong Kong Hang Lung Electronic Co [2016] 3 HKLRD 863 at [43].

52.  The principle is set out thus in Goff & Jones on Unjust Enrichment (2022) 10^th edn., §§9-24 to 9-25 thus –

“The view which has found favour in the literature, and in the most recent authority to address this point at length, requires the claimant’s belief to surmount a balance of probabilities threshold. That is, the test of whether the claimant was mistaken despite his doubts is whether the claimant believed that it was more probable than not that the facts or law were otherwise than they in fact were. If the claimant believed that it was more probably than not that the facts or law were as they in fact were, he is not relevantly mistaken.”

53.  The same approach has been adopted in Hong Kong. In Globenet (supra) at [43], Deputy Judge Gary CC Lam summarised it as follows –

“(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.”

54.  Applying those principles to the present case, it is necessary first to identify the mistake with which we are concerned. To the extent that John, Andrea and Kelly had doubts about the transaction, they were doubts about the extent of their individual authority, and the propriety of acting in secret. Mr Tang argues that the failure by John, Andrea and/or Kelly to respond to these doubts means that they, and therefore the Plaintiffs, assumed the risk that they were mistaken.

55.  However, I do not think this is the relevant mistake. The Plaintiffs’ three employees all clearly believed that they were dealing with the real CEO and the real lawyer from McDermotts. There is no indication than any of them suspected for a moment that the Fake CEO and the Fake Lawyer were imposters. They also did not doubt that Bedrock was genuinely involved in a potential buyout of a Hong Kong company. That was the operative mistake. To the extent that they took a risk, it was the risk that they had exceeded their individual authority, and might be criticised by their respective employers: it was not a risk that the transaction itself was not genuine.

56.  Moreover, this is not a case where a payment was made under an obligation to pay: the bid (had it been genuine) was one that Bedrock was voluntarily entering into. To the extent that John, Andrea and Kelly can be criticised for having failed to respond reasonably to their misgivings, the most that could be said is that they acted negligently; but as G Lam JA put it in Zhang Kan v SPH (Hong Kong) International Trading Co Ltd [2023] HKCA 996 at [21] –

“In general, a plaintiff will not be denied restitution of money paid by mistake merely because he has been negligent: see Goff & Jones (10^th ed), para. 9-34.”

57.  In his closing submissions, Mr Danny Tang on behalf of Whalet argued that it was wrong to draw a distinction between doubts about the identity of the Fake CEO and doubts about the employees’ own authority to pay. He said that as a matter of causation, the failure to take reasonable steps to follow up on their doubts is inseparable from the decision to go ahead with the payments. In other words, the court should apply a “but-for” test: but for the employees’ failure to speak to Michele, the transaction went ahead and the Plaintiffs were defrauded. By not speaking to her, they, and consequently the Plaintiffs, took the risk that their misgivings were baseless.

58.  The problem with this argument is that the employees, and specifically Kelly, did follow up on their doubts; but unfortunately, because it never crossed any of their minds that the Fake CEO was not who he claimed to be, they sought confirmation from the wrong person. Given Kelly’s state of mind, it was perfectly reasonable for her to ask the person she believed to be her ultimate boss for reassurance, and it would have been improper for her to go directly to Michele against his explicit instructions. The operative mistake – the belief that the Fake CEO was the real Mr Cobbina – prevented her from discovering the truth.

59.  I should add that, as a matter of fact, I am not persuaded that the documentary evidence shows that “John and Andrea had doubts about the Alleged Fraud”, as Mr Tang puts it in his Opening Submissions §162. It is true that there were – at least with hindsight – a number of features that ought to have aroused their suspicions, but as I have said, negligence is not enough. I have seen nothing to suggest that anyone other than Kelly actually expressed any doubts.

60.  I also do not accept Mr Tang’s argument that the features of the fraud were so glaring that it is unreasonable to believe that anyone actually fell for it. He says that the Plaintiffs’ failure to call John or Andrea to give evidence means that the court should not assume from the absence or paucity of written evidence that they were not in fact suspicious. With hindsight it is easy to see what the victims of a fraud missed at the time, but I agree with Mr Tam that this was “a highly sophisticated and well researched scam” in that the Fake CEO and the Fake Lawyer were able to drop the names of the right personnel in the company. It is not enough for Whalet to say that the Plaintiffs were unreasonably gullible: at the very least, there would have to be some evidence that they knew they were taking a risk.  

61.  In my judgment, therefore, the requirement of mistake is satisfied. The Plaintiffs’ employees all mistakenly believed that the transaction was genuine, and cannot be said to have taken the risk that it was not. I therefore hold that, subject to Whalet’s defences (and to a further point I raise in paragraphs 98-101 below), the Plaintiffs have made out a prima facie claim in unjust enrichment.

Defences

62.  Whalet’s principal argument was that it is entitled to rely on one or more of the following defences available to a claim in unjust enrichment: (1) bona fide purchaser, (2) change of position, and (3) ministerial receipt.

63.  In relation to the bona fide purchaser and change of position defences, Mr Tang relied on Tecnimont Arabia Ltd v National Westminster Bank plc [2023] 1 All ER 57 at [166-169].

64.  It is not clear to me how the defence of bona fide purchaser is relevant to this case. Whalet was never a “purchaser” from the Plaintiffs. The expression is a contraction of “bona fide purchaser for value without notice” (sometimes referred to as “Equity’s Darling”), meaning a person who has bought an asset from someone who did not themselves have good title, or had only a limited title, and has then passed or sold it on to a third party without having had notice of the true original owner’s claim. Here, Whalet was in no sense a “purchaser” from the Plaintiffs, and was (in relation the Plaintiffs) a gratuitous recipient. The only question is whether it is entitled to rely on a change of position (having parted with the assets it had received) on the basis that it acted in good faith and without knowledge of the Plaintiffs’ claim. On this point, therefore, I agree with Mr Tam that the defence of bona fide purchaser is not open to Whalet in this case.

65.  Turning to the “change of position” defence, as noted by Judge Bird sitting as a Judge of the High Court in Tecnimont (at [162]) –

“The change of position defence was first recognised by Lord Goff in Lipkin Gorman (a firm) v Karpnale Ltd [1992] 4 All ER 512, [1991] 2 AC 548. He said ([1992] 4 All ER 512 at 534, [1991] 2 AC 548 at 580):

‘It is, of course, plain that the [change of position] 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. These are matters which can, in due course, be considered in depth in cases where they arise for consideration … 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.’ (Emphasis added.)”

66.  The Plaintiffs say that Whalet is not entitled to rely on the defence of change of position because it did not act in good faith and/or because its actions were illegal and/or because various alleged breaches of regulations and guidelines, which is alleged to constitute “commercially unacceptable conduct” and therefore bad faith. The fundamental question (as to which Mr Tam and Mr Tang agree) 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. In Niru Battery Manufacturing Co v Milestone Trading Ltd [2004] QB 985, Clarke LJ (as he then was) said that this question “depends upon the circumstances so that it is not possible to lay down absolute principles.”

67.  Difficult questions can arise as to the kind of knowledge on the part of the defendant that is sufficient to disentitle it from relying on the defence. In the present case, Mr Tam relies on a number of criticisms of Whalet, and in particular of Mr Liu, the Risk Control Officer, and of Mr Geng, the Sales Manager, as showing that it did not act in good faith. These failures, or alleged failures, were the main focus of Mr Tam’s cross‑examination of Whalet’s witnesses.

68.  I will start with the allegations that Whalet did not comply with its regulatory obligations as a licensed MSO. Three documents are relied on –

(1)  The MSO Licensing Guide (“the Licensing Guide”)

(2)  Schedule 2 of the Anti-Money Laundering and Anti-Terrorist Financing Ordinance (“the AMLO”)

(3)  The Guideline on Anti-Money Laundering and Counter‑Financing of Terrorism (For Money Service Operators) (“the Guideline”).

(1)  The Licensing Guide

69.  Paragraph 4.7 of the Licensing Guide requires a license holder to maintain a physical presence in Hong Kong. In full it provided as follows –

“An applicant who chooses to operate a money service without particular premises must maintain a physical presence in Hong Kong, which will be its local management office (LMO) and correspondence address of the business/ corporation. The LMO is a physical office which can be reached in person and through telephone by C&ED officers to perform the functions under the AMLO, as well as receive document/correspondence from C&ED such as circulars and notices to the licensee. Personnel in the LMO must be the sole proprietor, partner, director, ultimate owner and/or Compliance Officer (CO) of the licensee. As such, residential address/premises of an MSO or the address/premises of its service provider (if any), such as company secretarial firm, accounting firm, or solicitor firm, etc. will not be accepted by the CCE as the LMO of an MSO. This is necessary to provide a local office and the personnel of the licensee as a point of contact for interfacing with C&ED for the effective supervision of the licensee’s money service business. In addition, the landlord of the LMO must grant permission to the licensee to use the premises for money service business, which should be included in the tenancy agreement of the LMO or in a letter issued by the landlord to the applicant.

Failure to submit the information of LMO for licence application/renewal application is deemed as invalid application which will not be processed by C&ED and/or will result in refusal to grant licence. If a licensee fails to maintain the LMO or if the LMO fails to serve as a point of contact for interfacing with C&ED, such as without the presence of the licensee’s personnel, it will result in the suspension and/or revocation of the licence. C&ED will conduct check to ensure the suitability of premises applied to be a LMO.”

70.  Mr Liao was cross-examined about Whalet’s compliance with this requirement. He said that he divided his time between mainland China, Hong Kong and Singapore, and that he did not regard himself as permanently settled in any one of those locations. The only employee permanently resident in Hong Kong was Liu Qin, Lesley, who acted as an assistant to Mr Liu in relation to Money Laundering compliance. The company does maintain a permanent office in Hong Kong, although Mr Liao admitted that Ms Liu would often work from home.

71.  If Whalet is in breach of paragraph 4.7 of the Licensing Guide, it would mean that not only this, but all of Whalet’s transactions in Hong Kong were arguably unlawful. This would be a dramatic outcome, but I do not think it is supported by the evidence. Although it does appear that Whalet maintained the minimal presence in Hong Kong necessary to satisfy the licence requirements, I am not satisfied that the requirement was breached. Whalet does maintain an office in Hong Kong, and it appears from the evidence that Liu Qin, Lesley, qualifies as a Compliance Officer for the purposes of the Licensing Guide. The fact is that Whalet’s licence has not been suspended or revoked, and in the absence of any further evidence I think I must conclude that it continues to operate as a licenced MSO. It follows that the allegation of illegality on this ground is not made out.

72.  Next, it is alleged that Whalet was in breach of Paragraph 11.1(j) of the Licensing Guide. This provides that –

“Where bank account(s) is (sic) used for operation of the money service business, the bank account must be in the name of the licensee’s company, the sole proprietor, partner, director or ultimate owner of the licensee.”

The Plaintiffs say that, because of the use of the “virtual account”, they did not know that they were transferring moneys to Whalet, as the account into which they paid was not in Whalet’s name.

73.  There are two problems with this argument. The first is that it is accepted by the Plaintiffs that there was, in reality, only one account with DBS, and it was in Whalet’s name. That is sufficient to show that Paragraph 11.1(j) was not breached.

74.  The second is that the Plaintiffs showed no interest at all in the name of the account-holder. They simply made the transfers into the name that had been provided by the Fake Lawyer. They did not make any enquiries about the name or identity of the payee, or about what the relationship was between “WH-Wenzhou Dizhu Clothing Co., Ltd” and the bid they believed they were funding; they would have made the transfer to whatever account name they were provided with. There is no causative link between the name used on the account (whether or not it included the prefix “WH-”) and the Plaintiffs’ decision to pay the money. The significance of the virtual account name only came to light once the fraud had been discovered, and the Plaintiffs started to look into the question of whether, and from whom, they could try to recover their money.

(2)  Schedule 2 of the AMLO

75.  The Plaintiffs have identified a large number of provisions of Schedule 2 that they say were not complied with by Whalet. Some of these were pleaded in the Amended Statement of Claim, while others were only identified in the Amended Reply. Fourteen sections have been helpfully tabulated in Whalet’s written Opening Submissions. In response to a request from me after the close of evidence, Mr Tam for the Plaintiffs has provided an Annex to his written Closing Submissions in which he lists only five sections, together with references to the passages in the oral evidence on which he now relies: s 2(1); s 3(1)(c), (d) and (e); s 5(1); s 16; s 20(1)(b)(ii). In relevant part, these provisions are as follows[7] –

Section 2(1): “…identifying the customer and verifying the customer’s identity on the basis of documents, data or information provided by –

(i) a governmental body;

(ii) the relevant authority or any other relevant authority;

(iii) an authority in a place outside Hong Kong that performs functions similar to those of the relevant authority or any other relevant authority;

(iv) any other reliable and independent source that is recognized by the relevant authority.”

Section 3(1)(c), (d) and (e): An MSO “must carry out customer due diligence measures in relation to a customer in the following circumstances –

(c) …before carrying out for the customer an occasional transaction that is a wire transfer involving an amount equal to or above $8,000 or an equivalent amount in any currency, whether the transaction is carried out in a single operation or several operations that appear to [the licensed MSO] to be linked;

(d) when [the MSO] suspects that the customer or the customer’s account is involved in money laundering or terrorist financing.”

(e) when [the MSO] doubts the veracity or adequacy of any information previously obtained for the purpose of identifying the customer or for the purpose of verifying the customer’s identity.”

Section 5(1): An MSO “must continuously monitor the business relationship with a customer by –

…

(b) conducting appropriate scrutiny of transactions carried out for the customer to ensure that they are consistent with the [MSO’s] knowledge of the customer and the customer’s business and risk profile, and with [the MSO’s] knowledge of the source of the customer’s funds; and

(c) identifying transactions that are complex, unusually large in amount or of an unusual pattern; and have no apparent economic or lawful purpose, and examining the background and purposes of those transactions and setting out the findings in writing.”

Section 16: an MSO “must not open, or maintain, any anonymous account or accounts in a fictitious name for any customer.”

Section 20(1)(b)(ii): An MSO “must in relation to each customer, keep the original or a copy of the files relating to the customer’s account and business correspondence with the customer and any beneficial owner of the customer.”

76.  Taking these in turn –

Section 2(1)

(i)  Mr Geng gave evidence that the approval process took 6 hours. Mr Tam criticised Mr Geng for not having personally conducted a preliminary review of the customer’s qualification documents, despite the fact (as Mr Geng acknowledged) that Whalet’s internal Compliance Manual stated that marketing personnel were “responsible for conducting a preliminary review of the customer’s qualification documents”. Mr Tam also drew attention to the fact that in March 2022 Mr Geng was very new to the job, and had received very little (if indeed any) training by that stage.

(ii)  However, the Compliance Manual is not a statutory document and does not have the force of law. It was Mr Liu as the Risk Control Officer who was responsible for customer due diligence in deciding whether to open the account. Mr Liu explained that Wenzhou was required to provide a business certificate, an ID card of legal representatives, a photo of the representative holding the account opening application form and the information typed by the customer himself on Whalet’s registration website.

(iii)  That was sufficient to comply with Section (2)(1). The fact that Mr Geng did not properly fulfil his role does not invalidate the enquiries made by Mr Liu.

(iv)  Mr Tam’s Closing Written Submissions also refer to section 2(1)(b) of Schedule 2 (although this is not included in his Annex). That section requires an MSO to identify the beneficial owner and verify his identity. Again, Mr Liu confirmed that he did check the official website and ascertained that Mr Zhou was the 90% shareholder of Wenzhou. I do not think the section was breached.

Section 3(1)(c), (d) and (e)

(i)  Mr Tam relies on these provisions both in relation to the decision to accept Wenzhou as a client and in relation to the information sought by Whalet to confirm the veracity of the three purported sales.

(ii)  With regard to the “onboarding” process, the criticism relates to the decision to accede to Mr Zhou’s request for the two Final Payees to be added as potential recipients, and the fact that he rejected the purported “Shareholders’ Agreement” that had been provided by Mr Zhou.

(iii)  It is true that Mr Liu did not investigate Agreement or the discrepancy in the information provided by Mr Zhou about putative shareholding of the Final Payees, when a more diligent compliance officer might have done so. However, I do not think a failure to do so amounts to a breach of the section. Mr Liu was primarily concerned to ensure that payments could safely be made to the Final Payees without the risk of a later challenge by Wenzhou. This was not a matter of “verifying the customer’s identity”, and there would have been no reason to suspect that it was a signal that Wenzhou was “involved in money laundering or terrorist financing”. Nor is there any reason to think that a more thorough investigation of the Final Payees and their relationship with Wenzhou would have prevented the fraud from taking place.

(iv)  With regard to the veracity of the three purported sales, Mr Tam criticised Mr Liu for having failed to investigate certain discrepancies in the invoices and Bills of Lading provided by Wenzhou. In particular, he drew attention to the appearance of the prefix “WH-” before Wenzhou’s name in some of the invoices and Bills of Lading: “The clear inference to be drawn is that Wenzhou was using the “WH-” prefix to add legitimacy and to make the company name match the virtual name account name of Wenzhou.”

(v)  I do not agree that the use of the “WH-” prefix should have been seen as a “red flag”. There is nothing inherently suspicious in a seller issuing an invoice in the name of the account to which it wanted payment to be made. In any event, I accept Mr Liu’s evidence that although he noticed the “WH‑” prefix, he was more focussed on the Chinese name on the invoices.

(vi)  Nor am I persuaded that Mr Liu could have been expected to compare the layout of the invoices issued by Wenzhou with those issued by another of Wenzhou’s clients, Tai Shun. The resemblance is certainly striking once it has been pointed out, but it is only with hindsight that anyone would have thought to compare the invoices issued by one of Wenzhou’s clients with those of another.

Section 5(1)

This section is relied on by Mr Tam in relation to the enquiries made by Whalet into the purported sales, which have been discussed under the previous heading. I do not think the requirements of section 5(1) add anything that has not been addressed in relation to section 3(1) above.

Section 16

For the reasons given above, I do not consider that Whalet’s use of a virtual account in the name “WH-Wenzhou Dizhu Clothing Co., Ltd” is a breach of this section.

Section 20(1)(b)(ii)

(i)  Mr Liu admitted in evidence that he did not keep written records of the cargo- tracking enquiries he had made online or of his due diligence work on the transactions. However, the documents that an MSO is obliged to keep under this section is limited to “the customer’s account and business correspondence and any beneficial owner of the customer”. Those documents were kept by Whalet, and appear in the court bundles.

(ii)  Paragraph 8.3 of the Guideline goes further, and says that an MSO “should” also keep various other documents. As noted below, the Guideline is not binding as a matter of law, and to the extent that Whalet’s records are incomplete, that fact does not give rise to a finding of illegality.

(3)  The Guideline

77.  The Guideline is published under section 7 of the AMLO. Subsection (4) provides as follows –

“A failure by any person to comply with a provision in any guideline published under this section does not by itself render the person liable to any judicial or other proceedings but, in any proceedings under this Ordinance before any court, the guideline is admissible in evidence; and if any provision set out in the guideline appears to the court to be relevant to any question arising in the proceedings, the provision must be taken into account in determining that question.”

Further, subsection (6) provides –

“A guideline published under this section is not subsidiary legislation.”

78.  Accordingly, the Guideline does not have statutory force, and any breach of or failure to comply with one of more of the Guidelines, even if clearly proved, would not amount to “illegality”. I therefore do not consider that the Plaintiffs allegations regarding the Guideline can carry much weight in relation to their claim. At most, any breach might be supportive, in a general way, of a lax attitude toward compliance on the part of Whalet, but no more than that.

79.  For all these reasons, I do not consider that the allegations regarding the Guideline assists the Plaintiffs in defeating the defence of good faith on the grounds of illegality.

Summary on the regulatory obligations

80.  Mr Tam did not attempt to identify any single breach of the regulatory framework that could be said, in isolation, to be of such a serious nature that Whalet’s MSO license was automatically rendered void and its activity therefore illegal. Instead, (and perhaps tellingly) his Written Closing Submissions argue that –

“[the] suspicious features must be viewed cumulatively. [Whalet’s] approach of viewing these features individually in isolation is to miss the forest for the trees.” [Underlining in the original.]

81.  In this context, I think it is important to bear two things in mind. The first is that, as Mr Tang pointed out, the regulations on which Mr Tam relies are concerned with money laundering and terrorist financing. This is not a case about money laundering or terrorist financing. The purpose of the regulatory requirements is not to protect members of the public from internet scams such as the one practised on the Plaintiffs. Consequently, the features that the compliance personnel are supposed to look out for are not the same as the features that should arouse suspicion if they were looking to catch fraudsters like the Fake CEO and the Fake Lawyer. Of course, there might often be an overlap, and it is possible that more rigorous compliance measures might have brought this fraud to light sooner. But that would have been a lucky by-product, not the purpose.

82.  The second point is that breaches of a strict regulatory regime do not, even if proven, necessarily import a want of good faith. As Sales J (as he then was) said in Jeremy D Stone Consultants Ltd v National Westminster Bank plc [2013] EWHC 208 (Ch) at [251] –

“such breaches would constitute strict liability regulatory failures which were insufficiently grave to debar NatWest from relying on the change of position defence, according to the standards of behaviour required by the relevant test of good and bad faith in Niru Battery.”

Referring to Regulation 8 of the Money Laundering Regulations 2007, he went on at [254] –

“Further, even if there had been a breach of regulation 8 it would, in my view, have been relatively technical in nature and would not have been of a character which would justify the Court in disbarring NatWest from relying on the change of position defence, according to the standard of good faith behaviour explained in Niru Battery.”

83.  The Regulation with which Sales J was concerned in that case provided that “A relevant person must conduct ongoing monitoring of a business relationship”, meaning –

“(a) scrutiny of transactions undertaken throughout the course of the relationship (including, where necessary, the source of funds) to ensure that the transactions are consistent with the relevant person’s knowledge of the customer, his business and risk profile; and (b) keeping the documents, data or information obtained for the purpose of applying customer due diligence measures up-to-date.”

84.  In my judgment, the breaches relied on by the Plaintiffs under the AMSO and the guidance issued pursuant thereto fall into the same category. The Plaintiffs have not established such “illegality” as would bar Whalet from relying on the change of position defence. Even if I had been satisfied that breaches had occurred, the breaches on which Mr Tam relies were all “relatively technical in nature”.

Other evidence of want of good faith

85.  Mr Tam’s Written Closing Submissions highlight five what he calls “red flags”. The first three relate to matters I have already dealt with, as they are also said to have constituted breaches of one or other of the regulatory requirements (namely, the use of the WH- prefix, the different versions of the shareholdings in Wenzhou, and the request for payments to be made to the Final Payees). To the extent that these features merited further investigation, Mr Liu did investigate. The most that can be said is that he allowed himself to be satisfied too easily. I do not think that is sufficient to establish a want of good faith. Had Mr Liu really been acting in bad faith, he would not have investigated at all.

86.  The fourth feature relied on is that Whalet noticed that the payers and purchasers were different companies for the same deal. Again, however, having noticed the discrepancy, Mr Liu did ask for an explanation, and was told by Mr Zhou that the companies were part of a single corporate structure. It is said that Mr Liu should not have been satisfied with this explanation – but it was, in fact, true.  

87.  The fifth feature was that Whalet was aware of the “suspicious remittance patterns in the Wenzhou account”. The payments all occurred over a period of only three days, and in only one case was a single large payment split into two tranches. Mr Tam refers to the admission by Mr Liu that there was “a possibility” that this might be indicative of money laundering activity, but there is no evidence that he actually considered this at the time, and the fact is that it was not money laundering. Mr Tam is seeking to put more weight on the evidence than it will bear.

88.  Overall, I think it is overstating the case to describe Whalet’s attitude as “complacent and blasé”. Even if that were a fair description, it falls short of showing a want of good faith. At most it could be said that Whalet’s customer due diligence could have been more thorough than it was. I suspect that the same could be said of virtually every other business: the difficulty with “due diligence” is that it is an open-ended requirement and it is a matter of judgment in any given situation as to what is “enough”. It is only with the benefit of hindsight that it is possible to say that something was missed that would, with more rigorous procedures, have been caught.

89.  As Mr Tam fairly pointed out, Whalet’s Risk Control Team was quite small (around five or six staff members), especially in the context of a client base of 20,000 to 30,000. On the other hand, it cannot be said that they made no effort at all, or that when something did arise that they were not happy with, they did not make any further enquiries. The complaint is that they did not go far enough.

90.  Mr Tam criticised the decision by Mr Liu to accede to the request by Mr Zhou to add the names of the Final Payees as potential recipients of distributions from Whalet. This was contrary to what the court was told by Liu and Mr Geng was the company’s policy, and was referred to in the evidence as a “rule” or “principle”.

91.  I am not persuaded that this takes the Plaintiffs anywhere. Mr Liu explained in his oral evidence that the purpose of the rule or policy was to protect Whalet’s clients. It is also obvious that it protected Whalet itself against claims by its clients that it had paid their money away to third parties without the client’s authority. It follows, too, that it was open to Whalet to modify or disregard its own rule if it was satisfied that the client had agreed. It was no part of the purpose of the rule to protect the party who had paid the money into Whalet’s account.

92.  There was then a suggestion in the documents that the reason Mr Zhou wanted the money to be paid to persons other than himself or Wenzhou was that it would save tax. There was no evidence as to whether this was a legitimate form of tax avoidance, or whether it would be considered to be unlawful tax evasion under Chinese law. Nor was there any evidence (or, indeed, argument) that Wenzhou was acting illegally under Chinese law by participating in the arrangement.

93.  I therefore consider that such criticisms of Whalet’s procedures as can fairly be made fall well short of establishing want of good faith. I attach no weight the criticisms made by Mr Tam of the investigations carried out by Whalet after it had paid away the funds and been notified of the Plaintiffs’ claim. At most, that evidence could be said to point to a general lack of attention in relation to due diligence, but it cannot show retrospectively that there was want of good faith at the crucial earlier stage.

“Commercially unacceptable conduct”

94.  For completeness, I would add that if “commercially unacceptable conduct” is a separate basis for denying a defendant the ability to rely on a change of position defence, I hold that the Plaintiffs also fail on this point.

95.  In Abou-Rahmah v Abacha [2006] EWCA Civ 1492, the claimants were the victims of a fraud committed by third parties. They brought a claim against the bank through which their money had passed, claiming damages for (i) knowing or dishonest assistance in a breach of trust, and (ii) restitution of money had and received. The judge at first instance held that the bank had probably suspected “in a general way” that its client might be implicated in money laundering, but had not suspected that the transactions in question involved money laundering. In those circumstances, he held (inter alia) that the bank’s conduct had not been contrary to normally acceptable standards of honest conduct.

96.  The majority of the Court of Appeal agreed. Both Arden LJ (as she then was) and Pill LJ upheld the judge’s finding that the bank’s decision to open the account despite its suspicions did not amount to conduct falling short of acceptable standards of honest conduct, and it would be inequitable to require the bank to make restitution. The defence of change of position succeeded.

97.  If anything, the factual findings against the bank in Abou‑Rahmah were stronger than those I have found in the present case. The bank had in fact had suspicions about its client, whereas here the most that could be said is that Whalet should have had suspicions. That is not enough to defeat its defence.

Ministerial receipt

98.  Where an agent receives a payment (or other asset) from a claimant for which the agent comes under an immediate duty to account to his principal, there is authority that the agent is entitled to rely on a defence of “ministerial receipt” even if he has not yet paid it over. See, for example, Jeremy D Stone Consultants Ltd v National Westminster Bank plc and Abou-Rahmah v Abacha. The reason is said to be that, because of his obligation to account to his principal, the agent never receives the benefit for himself and is never enriched; only the principal is enriched. It would probably be more accurate to say that “ministerial receipt” is not a defence at all, but is instead a reason why the underlying cause of action is not made out in the first place. This point is made in Goff & Jones (op. cit.) at 28‑03.

99.  There is some academic debate as to whether ministerial receipt is merely an early version of the change of position defence: see Goff & Jones on Unjust Enrichment, Chapter 28. The defence of change of position is, however, available to any recipient of funds, not just agents; if ministerial receipt exists separately, it is unique to agents. Furthermore, a recipient can only rely on a defence of change of position if he has actually transferred the asset to his principle in good faith and without notice of the claimant’s claim, whereas a defence of ministerial receipt is not so limited: the claim for unjust enrichment fails simply because the agent has not been enriched.

100.  Accordingly, although Mr Tang did not challenge the Plaintiffs’ argument that Whalet had been enriched by the transaction, the defence of ministerial receipt is potentially inconsistent with the idea that Whalet was ever enriched at all by the payments. In Jeremy D Stone Consultants Ltd v National Westminster Bank plc [2013] EWHC 208 (Ch), the claimants sued the defendant bank for losses they had suffered as a result of a Ponzi scheme operated by a friend of the family. One of the issues Sales J (as he then was) had to consider was whether the bank had been enriched. At [242-243], Sales J said this–

“242. As to the issue of enrichment, it is true that when the Claimants paid sums to NatWest for the account of SEWL, NatWest received those sums and added them to its stock of assets as monies to which it was beneficially entitled. However, the increase in its assets was matched by an immediate balancing liability, in the form of the debt which NatWest owed SEWL reflected in the increase in SEWL’s bank balance as a result of the payments. This is how the relationship between bank and customer works. There was no basis – at any rate none known to NatWest at the relevant time as the receipts came in, credit entries were made on the accounts and payments were made out against those credit entries – on which NatWest had any entitlement to withhold payment of sums representing credit balances on the accounts when instructed by SEWL to pay.

243. Therefore, in my judgment, NatWest was not enriched by the payments made by the Claimants into SEWL’s bank accounts (in that regard see Box v Barclays Bank Plc [1998] Lloyd’s Rep. Bank. 185 and Compagnie Commercial Andre SA v Artibell Shipping Co. Ltd 2001 SC 653, Court of Session, Outer House, at [16] per Lord Macfadyn). The Claimants’ proper unjust enrichment claim is against SEWL, whose assets were increased upon the making of the payments to its bank accounts by the increases in its balances on those accounts (representing the debt owed to it by NatWest).”

101.  The arguments on both sides of this question are discussed in some detail in Goff & Jones on Unjust Enrichment (2022) 10^th edition, Chapter 28, where the learned authors persuasively express the view that in the specific case of payment made by a third party to an agent, the agent comes under an immediate obligation to account for the money to his principal, and is therefore never himself enriched. However, the point was not argued before me, and it is unnecessary for me to decide it as I have, for other reasons, concluded that Whalet has good defences under change of position and ministerial receipt.

102.  Since I have found, on the facts of this case, that Whalet did in fact act in good faith and without notice, it is not necessary for me to decide whether it was in fact an agent and, if so, whether the defence of ministerial receipt does or does not require the agent to be acting in good faith. However, both of these points were argued before me at some length, and I will deal with it in case my findings on good faith are wrong.

Was Whalet an agent for Wenzhou?

103.  Mr Tam argued that Whalet was in a different position from a bank (which most of the decided cases on this topic have been concerned with), and declined to accept that Whalet was an agent for these purposes. He pointed out that there is no presumption that an MSO acts as an agent for its customers, relying on Anhui Hainiu Import & Export Trade Co Ltd v Smart Star Honor Limited [2023] HKCFI 3123.

104.  In Anhui Hainiu, the second defendant was a licensed MSO, and relied (inter alia) on an argument that it was the agent of its customers, and that another company (“Golden Thunder”) was its principal. The defence of ministerial receipt is dealt with at paragraphs [67]-[74] of the judgment. At [72], the Master held that the second defendant “did not adduce any credible evidence of any agency relationship between it and Golden Thunder.”  He then referred to the requirement under the AMLO that a licensed MSO must specify the bank accounts to be used for operating the money service, and that “any change of particulars (eg use of a new bank account) must be notified to the [Customs and Excise Department] within one month.”  Then, at [74], the Master concluded –

“In my view, the lack of any notice given by Golden Thunder to the C&E in respect of its (intended) use of D2’s bank account for its MSO business negates the suggestion of any agency relationship between it and D2.”

105.  This is puzzling because the duty to notify the C&E is that of the MSO, not the customer (in that case, Golden Thunder). But assuming that this is just a typo and that the Master intended to say it was D2’s failure to notify that was fatal to its defence, it is not clear why a failure to notify the C&E would “negate” the agency relationship. The existence of an agency depends on there being a contract between the principal and the agent: a failure to notify the C&E could, at most, be taken as evidence that no such contract existed in that case.

106.  In any event, Anhui Hainiu is distinguishable from the present case.

a.  First, it is common ground in this case that Whalet operated only one account, so there was no change that needed to be notified. Even if a failure to notify the C&E could be said to negate the relationship of agency, there was no such compliance failure in the present case.

b.  Secondly, the evidence in the present case does include evidence of an agency agreement between Whalet and Wenzhou. Mr Tam quoted the following provisions from the terms of the Service Agreement between Whalet and Wenzhou –

“Our Company accepts your instructions in the following ways…such instructions…shall become the sole instructions for Our Company to make payments or collect funds on your behalf or conduct other operations…”

It seems to me that the words “to make payments or collect funds on your behalf” quite clearly import a relationship of principal and agent, even if it is only a limited agency for the payment and collection of funds.

107.  Anhui Hainiu does not establish any general rule about whether MSOs are or are not agents. In every case, the question is one of evidence, and all the Master said was that there was no evidence that the second defendant was the agent of Golden Thunder in the case before him. It is not contended that all MSOs are necessarily agents of their clients or customers (although it seems likely to me that in many cases, if not most, they would be).

108.  Mr Tam also relied on Bright Gold Ltd v Mega Well Development Ltd [2020] 4 HKLRD 26 (CA) as authority for the proposition that acting for a client does not necessarily import a relationship of agency. However, the Bright Gold case was concerned with an “Estate Agent”, and the passage on which Mr Tam relies is making that point that the expression “estate agent” is a misnomer: estate agents are not “agents” in the legal sense. Lam V-P, giving the judgment of the court, went on to quote Lord Millett NPJ in ING Baring Securities (Hong Kong) Ltd v Commissioner of Inland Revenue (2007) 10 HKCFAR 417, [137]-[138] –

“In Kennedy v De Trafford [1897] AC 180 Lord Herschell observed (at p. 188) that “No word is more commonly and constantly abused than the word ‘agent’. An agent properly so called is a person who acts on behalf of another, called the principal, so as to affect the principals’ legal relations with a third party: see the definition in Bowstead and Reynolds on Agency (op. cit.) p.1.”

A person who has authority to make payments and collect funds on behalf of another clearly, in my view, falls within this definition.

109.  Accordingly, I am satisfied that Whalet received the payments from the Plaintiffs as Wenzhou’s agent. It is true that its role was not identical to that of a bank, but that does not matter: what matters is that it could not be said to be receiving or making payments on its own behalf.

110.  That is, however, only the first step in establishing the right to rely on a defence of ministerial receipt. It remains to be decided whether as a matter of law the defence requires a finding that the agent acted in good faith.

Does the defence of ministerial receipt depend on the agent acting in good faith?

111.  Since I have decided that Whalet did act in good faith, the defence would succeed on either view of the law. For the sake of completeness, therefore, I will merely note that it seems to me that the weight of authority, as well as logic, falls in favour of the view that an agent can rely on ministerial receipt even when he has not yet paid over the funds to his principal.

112.  One test situation would be where the agent still holds the money with knowledge of the payer’s claim, but the principal is insolvent. In those circumstances, would the agent be under a duty to pay the money over to the liquidator, leaving the payer to prove in the insolvency, or would the payer be entitled to recover the full amount from the agent, thereby securing priority over the other creditors? What if the agent had already paid over some of the money before he had notice, but still retained some of it afterwards? It would seem to me arbitrary if the payer enjoyed priority in respect of the retained amount, but was in the same position as other creditors in respect of the balance.

Constructive trust

113.  The Plaintiffs’ alternative claim is based on constructive trust. Mr Tam accepted in opening that since Whalet was no longer in possession of the funds, the claim for proprietary relief could not succeed, but he maintained that the Plaintiffs were still seeking personal relief as against Whalet as a constructive trustee.

114.  In his Written Closing Submissions, Mr Tam summarises the requirements of a claim in constructive trust as follows –

“(1) A disposal of the plaintiff’s assets in breach of trust or fiduciary duty;

(2) The beneficial receipt by the defendant of assets which are traceable as representing the assets of the plaintiff (and D must have received property in which Ps have a pre-existing or continuing proprietary interest); and

(3) Knowledge on the part of the defendant that the assets he received are traceable to a breach of trust or fiduciary duty.”

115.  This summary confuses two distinct types of claim, both of which are confusingly called “constructive trusts”. On the one hand, there are constructive trusts properly so-called, which arise by operation of law where the defendant has accepted or assumed the role of trustee (such as a trustee de son tort). On the other hand, there are cases where there is no relationship of trust between the plaintiff and the recipient, but the recipient may nevertheless be held liable to account in equity “as if he were a constructive trustee”. For a detailed discussion of the distinction, see Lewin on Trusts (2026) 20^th edition, §8-010 et seq.

116.  Further confusion arises from the fact that constructive trusts of the second kind can arise in two different circumstances. One is where the assets in question were held under a pre-existing trust or fiduciary arrangement, and the recipient is held liable as a knowing recipient. In such cases, the recipient has not assumed any kind of fiduciary role – quite the opposite – but the court nevertheless requires him to account “as if he were a trustee”. The second is where there was no pre-existing trust of the assets (so there can be no claim for “knowing assistance in a breach of trust” or “knowing receipt in breach of trust”), but the recipient has acquired them unlawfully (such as a case of theft or fraud). Such claims were recognised by Lord Browne-Wilkinson in Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 (at p 716C) –

“Although it is difficult to find clear authority for the proposition, when property is obtained by fraud equity imposes a constructive trust on the fraudulent recipient: the property is recoverable and traceable in equity.”

This was said in the context of a stolen bag of coins.

117.  These distinctions are sometimes important when it comes to considering whether the relief is proprietary or purely personal, as well as whether the recipient can rely on statutes of limitations: see Williams v Central Bank of Nigeria [2014] AC 1189. In the case before me, however, there is no issue of limitation, and (as Mr Tam accepted) there is no possibility of proprietary relief since Whalet is no longer in possession of the assets.

118.  Where the distinction may, however, be important is in relation to the state of mind necessary to establish liability. The test in such cases is whether the conscience of the recipient is sufficiently affected to make it inequitable for him not to be treated as a trustee. As Lord Browne-Wilkinson put it in Westdeutsche Landesbank at 705D –

“Since the equitable jurisdiction to enforce trusts depends upon the conscience of the holder of the legal interest being affected, he cannot be a trustee of the property if and so long as he is ignorant of the facts alleged to affect his conscience, i.e. until he is aware that he is intended to hold the property for the benefit of others in the case of an express or implied trust, or, in the case of a constructive trust, of the factors which are alleged to affect his conscience.”

This is a somewhat higher threshold than merely being put on enquiry.

119.  Here, of course, Whalet never undertook any fiduciary duties towards the Plaintiffs, so a constructive trust in the true sense could not have arisen. Nor were the assets held under a pre-existing trust. The Plaintiffs’ claim, if it is to succeed, must therefore be based on showing that Whalet wrongfully received the assets knowing that they had been paid under a mistake, or that it paid them away having had notice of the Plaintiffs’ rights such as to affect its conscience.

120.  Once again, given the finding that Whalet has a good defence to the unjust enrichment claim because it acted in good faith, the Plaintiffs’ claim under the heading of constructive trust adds nothing to their case.

Conclusion

121.  In summary –

(1)  In relation to the claim for unjust enrichment, I find that the Plaintiffs made the payments under a mistake of fact;

(2)  Assuming (since the contrary was not argued) that this resulted in Whalet being unjustly enriched, Whalet is nevertheless entitled to rely on the defence of change of position without notice;

(3)  Alternatively, Whalet has a good defence of ministerial receipt;

(4)  In relation to the alternative claim that Whalet is liable to account for the Plaintiffs’ loss on the basis that it was a constructive trustee, I find that it has not been shown that Whalet acted in bad faith or in a commercially unacceptable way. It follows that the Plaintiffs’ claim under this ground also fails.

122.  I will invite Counsel to agree the appropriate order as to costs, failing which they should make written submissions on the issue.

123.  Finally, I would like to thank all Counsel involved for their helpful submissions, both written and oral.