DRESDNER BANK (SCHWEIZ) AG v. ANDREAS KESSLER AND ANOTHER

HCA 4709/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4709 OF 2003

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JUDGMENT

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1.  This is an application by the plaintiff to continue a Mareva injunction against the 2^nd defendant to the extent of US$400,000.  The plaintiff is a bank incorporated under laws of Switzerland. 

2.  The 1^st defendant used to be an employee of the plaintiff from May 1995 to August 2003 working as an account executive in the private asset management department.  He changed to work for a wholly-owned subsidiary of the plaintiff on 1 September 2003, but his employment was terminated on 14 November 2003 because his employer had discovered evidence suggesting that he had been fraudulently withdrawing moneys from the accounts of the plaintiff's clients.  Also on 14 November 2003, the Public Prosecutor of Zürich issued an application for an order for pre-trial confinement against the first defendant in connection with his alleged fraudulent withdrawals of moneys.

3.  The plaintiff says that one of the sums that the 1^st defendant had admitted to have misappropriated from the plaintiff was a sum of US$400,000 which had been remitted by him on 11 April 2003 to an account of the 2^nd defendant maintained with the Hang Seng Bank Ltd. in Sha Tsui Road, Tsuen Wan, Hong Kong.  The plaintiff further says that the 1^st defendant had said that he knew two German nationals Messrs. Seifried and Janak who needed money to fund a prospective business of Mr. Seifried with some Nigerian business partners in a German medical devices company.  The 1^st defendant therefore misappropriated moneys from the plaintiff and remitted them to various bank accounts in different countries including the US$400,000 which had been remitted to the Hang Seng Bank.  There is a remittance instructions filled in by the 1^st defendant which required the remittance of US$400,000 into the Hang Seng Bank account of the 2^nd defendant dated 11^th April, 2003.

4.  The plaintiff therefore applied for and obtained a Mareva injunction to the extent of US$400,000 against the 1^st defendant on 22 December 2003 before Deputy High Court Judge To.  The injunction was extended also by Deputy Judge To on 24 December 2003 to cover the 2^nd defendant and her account with the Hang Seng Bank.  The plaintiff’s cause of action against the 2^nd defendant as stated in the statement of claim is money had and received by the 2^nd defendant to the plaintiff’s use. 

5.  The 2^nd defendant made her first affirmation on 8 January 2004 to oppose the continuation of the injunction.  She said she had never heard of the 1^st defendant before reading the affidavit filed for the plaintiff.  She was a director and major shareholder of a business called Lap Shing (Hong Kong) Freight Forwarder Ltd. (“Lap Shing”).  She had been engaged in trading with African customers for 16 years.  Lap Shing was incorporated in September 1996 with $5 million paid-up capital.  She owned 2 million of its ordinary shares of one dollar each.  Most of the other shareholders were members of her family.  Lap Shing was engaged in the trading of electrical goods, clothes, shoes, daily consumable items and freight forwarding services.  It sourced merchandise from the Mainland and nearby places and sold them to Africa.  Its principal market was Nigeria.  About 22% of Lap Shing's sales turnover was derived from freight forwarding business.  The balance of 78% sales turnover was mainly from trading business.  Lap Shing has a trading arm called Lap Shing Trading Company.  For the financial year of 2003, Lap Shing achieved a sales turnover of about HK$185 million. 

6.  Lap Shing had two principal agents in Nigeria.  One of which was in Lagos and called AC & C Seaward Investment Company Ltd. (“AC & C”).  The director of AC & C was Mr. Chidi. 

7.  Lap Shing did freight forwarding business with Nigerian clients who had come to Hong Kong and gone to the Mainland to purchase goods destined for Nigeria.  They would pass their goods to Lap Shing to be packed into containers and shipped to Nigeria.  AC & C would then collect the freight in US dollars from these clients in Lagos on behalf of Lap Shing.  For most clients, AC & C would only release the goods to them after the freight had been paid.  AC & C would then arrange for the US dollars to be sent back to Lap Shing in Hong Kong. 

8.  For trading of goods, Lap Shing would ship the goods to Nigeria and the goods or their title documents would be released to the clients upon payment in US dollars to Lap Shing's agents in Nigeria.  Quite a lot of the goods shipped over to Nigeria were stored in the warehouses of the agents. 

9.  The money collected by AC & C and other agents of Lap Shing would very often be brought back to Hong Kong physically in cash. The funds would also be remitted to Hong Kong through remittance agents in Nigeria. 

10.  When the Nigerian remittance agents did business with Lap Shing, they would remit the money to Lap Shing first.  After Lap Shing had confirmed to its agent in Nigeria the receipt of the money in Hong Kong, its Nigerian agent would reimburse the remittance agents with US dollars in cash.  The remittance was done in this unusual way because the remittance agents were not trustworthy.  Since this was a safer method for remittance of money, it was used by Lap Shing regularly. 

11.  These remittances were arranged by Lap Shing's agents in Nigeria and the remittance agents were not personally known to Lap Shing.  After a remittance had been made, the remittance agent would contact the 2^nd defendant or her brother Cheng Hon Man, who was a fellow shareholder of Lap Shing, and give them the relevant reference number for them to confirm the receipt of the funds with their bank.  As soon as the receipt of funds was confirmed, the 2^nd defendant would instruct Mr Chidi of AC & C either by telephone or fax to pay the remittance agents.  There were a number of remittances made in this way between 1999 and 2001 and she produced a bundle of fax correspondence relating to these transactions.  However, after 2001, Lap Shing basically communicated with the remittance agents by telephone only as the parties had more trust and confidence with each other.

12.  The 2^nd defendant also said that these remittance agents usually conduct money-changing businesses in buying and selling US dollars against the Nigerian currency for profit.  She had no knowledge on how they arranged their funding overseas and she was not bothered about this because she would receive the remittance first before her agents in Nigeria would pay the remittance agents, hence her risk in such transactions was negligible.  Sometimes, these remittance agents had a great demand for US dollars in cash and they would approach Lap Shing for remittance business as Lap Shing was known to have significant US dollar account receivables in Nigeria

13.  Regarding the US$400,000 which was remitted to her in Hong Kong in April 2003, the 2^nd defendant said that there was a remittance agent called Bashiru who approached AC & C and offered to remit US$400,000 to Hong Kong in return for the same amount of US dollars in cash from AC & C.  Though AC & C did not have US$400,000 in cash at that time, Bashiru was prepared to wire the whole sum to the 2^nd defendant first.  On 12 April 2003, the Hang Seng Bank notified the 2^nd defendant that an inward remittance of US$400,000 had arrived and this sum, after deduction of charges, US$399,993.50 was credited into her account.  She then got in touch with Mr Chidi who much to her surprise told her that Bashiru had been chasing him for reimbursement at gunpoint.  Chidi then paid Bashiru US$145,000 on 4 May 2003, US$61,600 on 10 May 2003 and US$192,970 on 3 June 2003 making a total of US$399,570 as reimbursement.  She also produced an e-mail dated 6 January 2004 from Chidi of AC & C the relevant parts of which read as follows:

"	And also if we have lot of money with us and cannot find anybody that is travelling to Hong Kong that can help first sent the money we also seek the help of exchange people that can help us transfer through the bank which we did not usually know (but we trust them) and Lap Shing always confirmed that they receive the money, sometimes they will even call us that they transfer some money to Lap Shing account and they will like us to pay the money to them with the bank charges, and we will confirm from Lap Shing (Mr. Ken) before paying same ! to the exchange people here.  That normally send one of the staff by the name Bashiru to come and collect the money.  We pay to him after he might have sign the amount for us on paper.  Sometimes Lap Shing (Mr. Ken) call to inform us that they receive some money in their account from Alhaji Bashiru that we should pay the same to them here in Nigeria, sometimes we may not have all the money so we pay bit by bit till we finish paying all the money.  The last money they collected from us here is $400,000 which Lap Shing call to inform us that they receive from Bashiru people that we should pay to them.  The record of the payment which Alhaji Bashiru and his people sign though the money was not paid at once is with us here.
	(3)	Though we did not know their office because they normally stay at the airport carpark, we trust them because any time they come to us that they transfer money to Lap Shing, Lap Shing also confirm that they receive the money and the same amount."

14.  This e-mail from Chidi thus showed that Bashiru had sent money to Lap Shing without first telling Chidi about it, but would ask Chidi for reimbursement afterwards.  The reimbursement would sometimes be made bit by bit after the money had been sent to Hong Kong.  Chidi also did not know their office though they normally stay at the airport carpark.  This remittance agent Bashiru indeed conducted his business with Lap Shing in a quite unusual manner.  He was not remitting money on instructions of Lap Shing and Lap Shing did not have the necessary amount to be remitted when he sent the money over here.  The 2^nd defendant however reiterated that she had no knowledge of how Bashiru arranged the funding of the remittance to her and she was not concerned about it.  The remittance advice from Hang Seng Bank to her did not disclose the identity of the remitter and it only stated that the money came through the Bank of New York in New York. 

15.  The 2^nd defendant also produced two lists purportedly supplied by Chidi detailing the receipts of money from various customers of Lap Shing and payments to Bashiru.  She also exhibited three receipts purportedly signed by Bashiru for the three sums of money that Bashiru had received from Chidi as referred to above.  She said that she had been told by Chidi that Bashiru was doing business in association with one Bernard and she noted the name Bernard against the said the remittance in her bank passbook.  She further said that her account with the Hang Seng Bank was used for receiving US Dollars by Lap Shing.  She also produced the name cards of herself and that of her brother Cheng Hon Man which carried the full particulars of Lap Shing’s offices and the particulars of her bank account.

16.  After having received the US$400,000, the 2^nd defendant transferred it to a moneychanger called Loyal Company in Hankow Road for exchange into Hong Kong dollars at a better exchange rate.  The money in Hong Kong dollars was then transferred to Lap Shing’s bank account with the Hong Kong Bank and the Nanyang Commercial Bank Ltd.  She said that these were the proceeds of sale of goods or services of Lap Shing.

17.  In his 3^rd affidavit, Mr. Jamison of the plaintiff’s solicitors produced evidence to show that there was no restriction for remittance of capital and profit in foreign currency out of Nigeria.  The plaintiff thus contended that it was not necessary for Lap Shing to have resorted to remittance agents who apparently operated at the airport and were untrustworthy.  The plaintiff also noted that this Bashiru apparently had substantial sums of US dollars in the international banking system and, instead of remitting them to Nigeria, he remitted them to the 2^nd defendant in Hong Kong and then swapped it with her for US dollars in cash in Nigeria.  The plaintiff therefore submitted that the 2^nd defendant must have realised that the services offered by Bashiru bore out all the hallmarks of illegality and were highly likely to be some form of money laundering.  The plaintiff further submitted that the 2^nd defendant had chosen to turn a blind eye to the illegality and she could hardly have taken the funds in good faith and without notice of any impropriety.   

18.  In his 4^th affidavit, Mr. Jamison produced documents supplied to him by the Hang Seng Bank which evidenced several remittances to the 2^nd defendant’s account with the Hang Seng Bank which originated from banks in Lagos, Nigeria.  The plaintiff thus contended that the remittance of US$400,000 into her account on 12 April 2003 was not part of a transaction in the ordinary course of business.  

19.  The 2^nd defendant responded to the plaintiff’s case in her 3^rd affirmation.  She said that when she did business with Nigerian buyers, she wanted to receive the funds safely and at the best exchange rate.  She further said that Nigerian banks were known to be unreliable or untrustworthy and banks in Hong Kong did not accept letters of credit issued by Nigerian banks.  She also said that Nigerian banks would charge hefty fee and commission for foreign exchange transactions and would charge a hefty commission for deposit of US dollar in cash into an account there.  She also referred to one of her customers in Nigeria who had lost a large sum of money when doing remittance through one of the Nigerian banks.  She therefore took the view that putting money in banks upfront for remittance carried substantial risk and was not financially sound.  Her remittance agents on the other hand could remit funds to her economically and would do so before reimbursement by her agents in Nigeria.

20.  Mr Jamison in his 6^th affidavit said that the Standard Chartered Bank had several branches in Nigeria and inquiries of his firm with this bank in Nigeria revealed that it would charge US$2,136 or about 0.53% for remitting US$400,000 from Nigeria to Hong Kong.  Mr Jamison also queried why were the 2^nd defendant’s remittance agents willing, without taking any commission, to swap US dollars outside Nigeria for the 2^nd defendant’s US dollars in cash inside Nigeria and to risk themselves to a substantial credit exposure to the 2^nd defendant and her business between the time when they pay the 2^nd defendant and the time when they were reimbursed.  The plaintiff thus submitted that the remittance agents were engaged in money laundering as they could not have made any profit from their arrangement with the 2^nd defendant.  Counsel for the plaintiff submitted that in remitting the US$400,000, Bashiru in fact suffered a loss in US$430.00 plus interest and bank charges on his side in addition to the risk.  Counsel further submitted that the payment of full value by the 2^nd defendant for the tainted remittance would not have improved her position as she knew or ought to have known that the remittance was tainted.  The 2^nd defendant’s position was the same as a buyer of stolen goods with knowledge.

21.  The plaintiff also relied on Honsaico Trading Ltd. v. Hong Yiah Company Ltd. [1990] 1 HKLR 235 and submitted that the 2^nd defendant had turned a blind eye to or could not have cared less on how or why Bashiru would remit funds to her or what funds was being remitted to her, knowing very well that if she should investigate, she would either uncover something illegal or this particular type of transaction would just stop.  But she wanted to continue with it and increase it.  The plaintiff thus submitted that the 2^nd defendant had exhibited an unacceptably low standard of commercial morality in her dealings with the remittance of money and the court should conclude that there was a real risk that the 2^nd defendant would attempt to defeat the interest of the plaintiff under any judgment that might be obtained. 

22.  Counsel for the 2^nd defendant summarised her case as follows:

(1)	she had no knowledge of the 1st defendant’s identity or what he might have done;
(2)	she had expected funds of US$400,000 from Nigeria at the material time;
(3)	she was notified by her banker that US$400,000 had been received into her that from Bank of New York;
(4)	she bona fide changed her position upon receipt of the US$400,000 by causing Lap Shing’s agents in Nigeria to reimburse Bashiru from whom she had expected the US$400,000 to come;
(5)	alternatively, she was at the material time the agent of Lap Shing and she received the US$400,000 as agent and paid the money to her principal before receiving notice of the plaintiff's claim.  (But there is no evidence to suggest that the plaintiff or the 1st defendant or Bashiru had treated her as Lap Shing’s agent.  The money will simply remitted into her account with the Hang Seng Bank.)

23.  Counsel argued that the 2^nd defendant had not been unjustly enriched, because in reliance on the receipt of the remittance and without notice of the 1^st defendant deeds or the plaintiff’s claim, she had remitted the funds to Lap Shing’s account.  Counsel further argued that there is no evidence of the risk that the 2^nd defendant will dissipate her assets so as to make any judgement useless. 

24.  Counsel for the 2^nd defendant however accepted that if (1) the money remitted to her had been stolen from the plaintiff and (2) she knew that the money was tainted with an unlawful purpose like money laundering or that she was reckless as to whether the money was so tainted, then there would be a cause of action against her for money had and received and the defence of change of position would not be available to her.  However, counsel submitted that even if the remittance was tainted, the 2^nd defendant was only careless and not reckless and the defence of change of position should be available to her (see paragraphs 40-007 to 40-008 The Law of Restitution by Goff & Jones 6^th ed.).  Counsel further submitted that a reasonable person in the position of the 2^nd defendant would not have made any enquiry.

25.  On the other hand, counsel for the plaintiff argued that the 2^nd defendant had wilfully turned a blind eye to how Bashiru had remitted the money to her or what sort of money that was remitted to her.  Counsel further referred to Papamichael v. National Westminster Bank plc and Another [2003] 1 Lloyd’s Rep. 341 at paragraph 209 and submitted that the 2^nd defendant was reckless in not making any inquiry that an honest and reasonable person in her position would have made.  Counsel thus disagreed that the defence of change of position would be available to her even on the wide version of this defence (The Law of Restitution by Andrew Burrows pp. 516 to 517). 

26.  On the evidence, the plaintiff has indeed established a good arguable case that that the US$400,000 remitted into the 2^nd defendant’s account was money stolen by the 1^st defendant from the plaintiff. 

27.  On whether there is also a good arguable case that the 2^nd defendant had been reckless in not making any enquiry on whether the money remitted was tainted with an unlawful purpose like money laundering, I find that Bashiru had in fact subsidized the 2^nd defendant in the remittance as he had absorbed the bank charges on his side and the interest for the funding because the reimbursement to him only came afterwards.  More importantly, Bashiru had to suffer a credit exposure for the US$400,000 for the period between the remittance of the same to the 2^nd defendant and the time when full reimbursement was made.  The 2^nd defendant’s evidence that Bashiru had to use a gun to threaten Chidi to obtain the reimbursement is very telling of the extent of the risk that Bashiru had assumed and the tension he was under.  In the end, the reimbursement still fell short by US$430.00.  In the circumstances, one wonders what sort of remittance business Bashiru was in.  It is more likely than not that the money remitted by him was tainted with some sort of illegality or it was involved with money laundering.  The evidence also suggest that this type of remittance had started in around June, 1999.  The remittances did not come from Nigeria directly but were from various banks in various countries of the world including Germany, USA, Australia, Japan, Canada, Cyprus, Malaysia, Indonesia, Bahamas, Switzerland and Turkey.  The 2^nd defendant had thus enjoyed such beneficial arrangements on numerous occasions prior to this transaction.  I doubt whether there is any bona fide remittance agent who would operate his business with such unusual mode and do so repeatedly. 

28.  The evidence also shows that the 2^nd defendant and her brother were on the soliciting side of such remittance business and Bashiru and Bernard were dictating how much funds and when to remit to the 2^nd defendant.  It was not a case where Chidi or other African agents of Lap Shing had money to be remitted to Hong Kong and they then called upon Bashiru/Bernard to remit it for them.  On such evidence, I find that there is a good arguable case that the 2^nd defendant had been reckless in not making any enquiry on whether the money remitted was tainted with an unlawful purpose like money laundering. 

29.  On the issue of risk of dissipation of assets, I also find that a good arguable case has been established that the 2^nd defendant has shown an unacceptably low standard of commercial morality in choosing to remit money through Bashiru in the manner described by her when she knew that she could have remitted money from Nigeria to Hong Kong through reputable banks.  Furthermore, the 2^nd defendant has a potential liability of HK$17.625 million in excess of her net asset worth.  In the premises, I find that there is a risk of dissipation of assets by the 2^nd defendant. 

30.  The plaintiff has also made some comments on the shipping documents produced by the 2^nd defendant to prove the business of Lap Shing.  I have considered the explanation by the 2^nd defendant and do not think those documents have revealed anything for concern.    

31.  The 2^nd defendant has also attacked the plaintiff for failing to serve the writ out of jurisdiction on the 1^st defendant on time, failing to provide security for costs within the time limited by court order and failing to use the right format in preparing affidavits for use in this application.  I accept the plaintiff’s explanations and apology to these matters. 

32.  In the premises, I allow the plaintiff’s application and make an order in terms of paragraph 1 of the plaintiff’s summons issued on 30^th December, 2003 with a costs order nisi that costs of this application be in the cause.