KING FU (HK) LTD v. HK PJIN TRADING CO., LTD

DCCJ 2076/2020

[2021] HKDC 1241

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2076 OF 2020

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JUDGMENT

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1.  This is the plaintiff’s application by summons for default judgment against the defendant.

2.  The defendant is absent.  I am satisfied by the affirmations of service filed by the plaintiff that the writ and the summons were duly served on the defendant.  The defendant has defaulted in giving notice of intention to defend and in serving a defence.

3.  According to the statement of claim:-

(a)  Both the plaintiff and the defendant are companies incorporated in Hong Kong.

(b)  On 3 October 2019, the plaintiff intended to transfer a sum of HK$140,000 (“the Sum”) to a HSBC account the holder of which had business dealings with the plaintiff.

(c)  Due to an inadvertent mistake, the plaintiff transferred the Sum to the defendant’s account with HSBC.

(d)  The plaintiff did not have any connection or dealing with the defendant, and the defendant had not given any consideration for the Sum.

(e)  Upon discovering the mistake, the plaintiff instructed its bank to recover the Sum from HSBC but to no avail.

(f)  The defendant did not respond to the plaintiff’s solicitors’ request to return the Sum.

4.  In this action, the plaintiff is claiming for:-

(i)   A declaration that the sum of $140,000 remaining in the account of the defendant held at HSBC (together with interest accrued thereon) is fund held on constructive trust by the defendant for the plaintiff and the plaintiff is the beneficial owner thereof.

(ii)  An order that the defendant do pay and return the said sum of $140,000 (together with interest accrued thereon) to the plaintiff forthwith.

5.  By the summons, the plaintiff additionally applied for an order that the defendant do within 7 days from service of the order execute such documents as may reasonably be required to instruct HSBC to transfer to the plaintiff the sum of HK$140,000 or such part of it as may be remaining in the defendant’s account, failing which the plaintiff be at liberty to apply for an order under section 38A of the District Court Ordinance, Cap 336 (“DCO”). 

Discussion

6.  As submitted by Miss Becky Wong, the plaintiff’s counsel, the plaintiff is claiming restitution of the Sum based on unjust enrichment on the ground of mistake.

7.  The principles for unjust enrichment are conveniently summarized in TTI Global Resources Hong Kong Limited v Hongkong Myphone Technology Co, Ltd [2021] HKCFI 306 cited by Miss Wong:

“17. The Plaintiff claims restitution against the 2^nd Defendant for the Multi Wise Payments of USD1,602,313.32 and against the 4^th Defendant for the Multi Wise/D4 Payment of USD4,370.75 and the Myphone/D4 Payment of USD181,629.32. Its claim is founded on unjust enrichment. As set out by the Court of Final Appeal in Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd,the test for unjust enrichment is as follows:

(1) was the defendant enriched?

(2) was the enrichment at the plaintiff’s expense?

(3) was the enrichment unjust? and

(4) are any of the defences applicable?

18. Enrichment requires the obtaining of a benefit. The benefits which may constitute enrichment include money, goods, etc. Here, funds were transferred from the Plaintiff’s bank account to the 2^nd and 4^th Defendants’. The law treats the transfer as equivalent to a direct transfer of value: see Chitty on Contracts. It can hardly be argued that the payments received by the 2^nd and 4^th Defendants are not enrichments.

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

20. The 2^nd and 4^th Defendants have no dispute about the Plaintiff’s case (except as to whether the Plaintiff had prior business dealings with the 1^st Defendant, which I have found in favour of the Plaintiff) and their receipt of the payments made by the Plaintiff. Obviously, the payments made by the Plaintiff to the 1^st and 2^nd Defendants were made by mistake, believing that they represented its customer, Hepililo. It is of course unjust for a person to keep a payment made to him by mistake. Payment by mistake is a well-established factor that can ground restitution: Guaranty Bank and Trust Co v Zzzik Inc Ltd. Prima facie, the 2^nd and 4^th Defendants were unjustly enriched at the Plaintiff’s expense. The same applies to the Multi Wise Payments made by the Plaintiff to the 2^nd Defendant, the Multi Wise/D4 Payment made by the 2^nd Defendant to the 4^th Defendant out of the Multi Wise Payment it received from the Plaintiff and the Myphone/D4 Payment made to the 4^th Defendant by the 1^st Defendant out of the Myphone Payment it received from the Plaintiff. Thus, the burden is shifted to the 2^nd and 4^th Defendants to show that their receipt of the benefit is not unjust.”[1]

8.  In Domtonia International Co Ltd v Tianma Communication Limited [2019] HKDC 415, it was said that:

“11. As a matter of principle, default judgment will only be given on a plaintiff’s claim provided that the pleaded facts give rise to the relief sought. This is because the basis for default judgments is that the facts as contained in the statement of claim were true and admitted by the defendant. The court’s task is therefore to look to the pleaded facts alone and no other evidence will be admitted: see, eg, Lam Chi Fat v Liberty International Insurance [2002] 3 HKLRD 480 at paras 26-27 per Ma J; Hong Kong Civil Procedure 2019 at 19/7/11.”

9.  Based on the pleaded case of the plaintiff which is deemed to have been admitted by the defendant,[2] I agree with Miss Wong that:

(a)  The plaintiff had directly transferred the Sum to the defendant, and the defendant was enriched at the expense of the plaintiff.

(b)  The plaintiff had no dealings with the defendant and the defendant had given no consideration for the Sum.  It is unjust or unconscionable for the defendant to retain the Sum.

(c)  The defendant had not put up any defence.

10.  I am satisfied that the plaintiff is entitled to monetary judgment against the defendant for the repayment of the Sum.

11.  Initially, the plaintiff was also seeking proprietary relief in terms of:

(a)  a declaration that the Sum is held on constructive trust by the defendant for the plaintiff;

(b)  the interest accrued on the Sum in the defendant’s account; and

(c)  an order that the defendant do execute such documents to instruct HSBC to transfer the Sum to the plaintiff, failing which the defendant be at liberty to apply for an order under section 38A of the DCO.

12.  In the written submissions, the plaintiff has prayed in aid Mesirow Financial Administrative Corporation v Best Link Industrial Co, Limited[3] and submitted that it is in genuine need for a declaration of trust.  However, the authorities cited by the plaintiff (including Mesirow) are all concerned with email fraud.  It was not clear what is the basis upon which the court may impose a constructive trust in circumstances like the present one where no fraud is alleged or pleaded.

13.  As the court explained in Tokić, DOO v Hongkong Sui Fat Trading Limited [2020] HKCFI 1822:

“12. As mentioned above, the Recorder [in 800 Columbia Project Company LLC v Chengfang Trade Ltd and others [2020] HKCFI 1293] referred in his decision to Williams v Central Bank of Nigeria [2014] AC 1189, a majority decision of the UK Supreme Court, where Lord Sumption JSC (with whom Lord Hughes JSC agreed) explained at §9 the two types of constructive trusts:

‘The first comprises persons who have lawfully assumed fiduciary obligations in relation to trust property, but without a formal appointment. They may be trustees de son tort, who without having been properly appointed, assume to act in the administration of the trusts as if they had been; or trustees under trusts implied from the common intention to be inferred from the conduct of the parties, but never formally created as such. These people can conveniently be called de facto trustees. They intended to act as trustees, if only as a matter of objective construction of their acts. They are true trustees, and if the assets are not applied in accordance with the trust, equity will enforce the obligations that they have assumed by virtue of their status exactly as if they had been appointed by deed. Others, such as company directors, are by virtue of their status fiduciaries with very similar obligations.

In its second meaning, the phrase ‘constructive trustee’ refers to something else. It comprises persons who never assumed and never intended to assume the status of a trustee, whether formally or informally, but have exposed themselves to equitable remedies by virtue of their participation in the unlawful misapplication of trust assets. Either they have dishonestly assisted in a misapplication of the funds by the trustee, or they have received trust assets knowing that the transfer to them was a breach of trust. In either case, they may be required by equity to account as if they were trustees or fiduciaries, although they are not. These can conveniently be called cases of ancillary liability. The intervention of equity in such cases does not reflect any pre-existing obligation but comes about solely because of the misapplication of the assets. It is purely remedial. The distinction between these two categories is not just a matter of the chronology of events leading to liability. It is fundamental. In the words of Millett LJ in Paragon Finance plc v DB Thakerar & Co [1999] 1 All ER 400, 413, it is ‘the distinction between an institutional trust and a remedial formula—between a trust and a catch-phrase’.

(See also §§54-56 of the speech of Lord Neuberger of Abbotsbury PSC, with whom Lord Hughes JSC also agreed)

13. In Hong Kong, the same distinction was recognised and confirmed by the Court of Final Appeal in Peconic Industrial Development Ltd v Lau Kwok Fai and Others (2009) 12 HKCFAR 139 at §§17-25, per Lord Hoffmann NPJ, with whom their other Lordships agreed).”[4]

14.  It is not the plaintiff’s case that the defendant is a de facto trustee and there is nothing on the pleading to suggest that the defendant has participated in any unlawful misapplication of trust assets so as to expose itself to equitable remedies.

15.  At the hearing, I referred Miss Wong to the discussion in Section H2 in the judgment of Zief Incorporated v. Tekchandani Ajai Mohan (T/A D’ziner Collections (Hong Kong)) [2021] HKCFI 38.  After taking instructions, Miss Wong confirms that the plaintiff would abandon its claim for proprietary relief. 

16.  For the above reasons, I enter judgment for the plaintiff against the defendant in the sum of HK$140,000.  The plaintiff has also waived pre-judgment interest and costs.