CHEUNG YIU LEUNG v. CHEUNG CHONG MONEY EXCHANGE O/B CHEUNG CHONG LTD AND OTHERS

DCCJ 3533/2021

[2024] HKDC 1596

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3533 OF 2021

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BETWEEN

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JUDGMENT

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1.  The plaintiff commenced the present action against the defendants for, inter alia, restitution of $800,000 that was paid to the defendants (either directly or indirectly) as a result of fraud. The plaintiff relies on the unjust factor of mistake.

2.  The plaintiff has transferred two sums of $400,000 to the defendants. The first sum of $400,000 was transferred to the bank account of the 1^st defendant directly (“1^st Sum”).

3.  Another sum of $400,000 was first transferred to an account held under the name of “SIU CHUN HONG” and then to a joint account held by the 2^nd and 3^rd defendants (“2^nd Sum”). Part of the 2^nd Sum was subsequently transferred to the personal bank account of the 2^nd defendant.

4.  According to the police, both the 1^st and 2^nd Sums are “frozen”.

5.  Settlement has been reached between the plaintiff, the 2^nd and the 3^rd defendants.

6.  The remaining claim in the present trial is the one between the plaintiff and the 1^st defendant.

7.  It was the common ground between the plaintiff and the 1^st defendant that they never had any interactions (whether meetings or any form of communications) at all material times. In principle, they are putting each other’s cases to strict proof.

8.  As such, the parties’ respective cases should be analysed separately.

The plaintiff’s case

9.  The plaintiff claims that he transferred the 1^st Sum to the 1^st defendant on the mistaken belief that such sum was meant to be a proof of his ability to repay an intended loan from Hang Seng Bank. It was subsequently revealed that he was deceived by certain fraudsters who passed off as the staff of Hang Seng Bank. The details are as follows.

10.  In or around August 2020, the plaintiff, a practising barrister, made an online application to Hang Seng Bank for a personal loan. It was the first time he applied for any loan since the mortgage application for his residence in 1999. He also has not had any bank accounts with Hang Seng Bank since he went overseas for education in the 1980s.

11.  In the subsequent liaison, the plaintiff provided his personal information and documents to Hang Seng Bank as requested. The plaintiff recalled that such information was provided to Hang Seng Bank through email. However, the plaintiff could no longer retrieve such email as a result of the change of his computer.

12.  In late August 2020, the plaintiff received a call from an unnamed person who held himself out as a member of the staff of Hang Seng Bank. That person referred to the plaintiff’s application for loan and wanted to confirm the details of the loan, including the amount. That person gave the plaintiff an impression that he was well aware of the personal information that the plaintiff had provided to Hang Seng Bank previously. The plaintiff informed such person of his intention to raise a loan of minimum $2,000,000 and ideally $4,000,000 to cover the expenses of renovating his barristers’ chambers. No agreement was concluded in the said telephone conversation. The plaintiff regarded that as a mere follow-up for his loan application.

13.  On or around 22 September 2020, the plaintiff received a phone call from a person who identified himself as “Fan Chun Yan” (范俊仁) (“Fan”) and held himself out as a member of the staff of Hang Seng Bank. Fan referred to the plaintiff’s loan application and suggested that Hang Seng Bank could grant a loan of $2,000,000. However, in order to assess the plaintiff’s financial situation and the ability to repay, the plaintiff would have to deposit a “refundable guarantee deposit” (“Deposit”) in the amount of $400,000. Fan further alleged that the Deposit was only temporary in nature and would be refunded to the plaintiff once the loan application was approved. Also, the plaintiff did not have any bank accounts with Hang Seng Bank at the time, and he asked Fan to where he should transfer the sum of $400,000. In reply, Fan alleged that Hang Seng Bank would designate a financial institution to receive the sum.

14.  During the discussion, Fan was able to recite and refer to many personal details concerning the plaintiff. Fan also provided through WhatsApp a photo of his purported name card (in Chinese) which suggested that Fan was the “商務理財業務處助理副總裁” of Hang Seng Bank (“Fan’s Card”). Those matters led the plaintiff to believe that Fan had had sight of the said financial documents previously provided by the plaintiff to the Hang Seng Bank, and that he was a genuine staff member of the Hang Seng Bank.

15.  Fan and plaintiff continued to liaise over the phone. Fan suggested that he would make arrangement for the plaintiff to sign the loan documents. When the plaintiff asked which branch of Hang Seng Bank he should attend to sign the documents, Fan hesitated, and then suggested that the plaintiff could sign the documents at any branch, but he would confirm the exact time and location in due course.

16.  On or about 22 September 2020, the plaintiff received a call from Fan inviting him to attend to a financial institution called “Think Market” at 19/F of the Two IFC. Fan alleged that “Think Market” was running a foreign exchange business and was in charge of approving the plaintiff’s loan application. Fan requested the plaintiff to bring his identity card and address proof to find one “Mr Ng” at Think Market’s office. Fan further suggested that the plaintiff would receive details of how to remit the Deposit after all documents were signed.

17.  On or about 29 September 2020:

(a) At around 10:30 am, the plaintiff attended the purported office of “Think Market” at 19/F of Two IFC and was met by one “Mr Ng”, who was about 30 to 40 years old. Upon the request of “Mr Ng”, (i) the plaintiff handed over his identity card and address proof for “Mr Ng” to make photocopy, and (ii) the plaintiff also signed three documents, namely (a) an “Agreement” (協議書), (b) an “Account Opening Form” (客戶開戶申請表), and (c) a “Receipt” (收據). The plaintiff noticed on the signed documents that “Mr Ng” signed his name as “吳浩誠” (“Ng”).

(b) After all documents were signed, Ng suggested to the plaintiff that the account details for remitting the Deposit would be given to him later in the day, and the plaintiff should send him the transfer record of the Deposit afterwards.

(c) The plaintiff then left the office of “Think Market”, where he had spent about 30 minutes.

(d) About an hour after the plaintiff left “Think Market”, the plaintiff received a WhatsApp message from a person claiming to be Ng, who requested him to transfer the Deposit to a bank account no. 733165127001 with Public Bank (Hong Kong) under the name of “Cheung Chong Money Exchange O/B Cheung Chong Ltd.” (“D1’s Account”). There is no dispute that it was the 1^st defendant’s bank account.

(e) Given the term “Money Exchange” appeared in the account name, the plaintiff believed that the account belonged to a financial institution which matched with his expectation.

(f) Therefore, the plaintiff attended the headquarters of HSBC around noon and transferred the 1^st Sum to D1’s Account.

(g) The plaintiff then sent the transfer record from his personal email address to “yannismailbox@gmail.com” in accordance with the instructions of Ng.

18.  Two to three days after the 1^st Sum was remitted, Fan called the plaintiff again, and suggested that Hang Seng Bank could raise the loan amount to $4,000,000 on the condition that the plaintiff should made another Deposit. Fan reassured the plaintiff that this further Deposit would also be returned to the plaintiff within two weeks. The plaintiff expressed interest and requested some time to prepare for the sum.

19.  On 7 October 2020:

(a) The plaintiff sent a message to Fan through WhatsApp suggesting that he was ready to make the second deposit transfer.

(b) Subsequently, Ng sent a message to the plaintiff through WhatsApp, requesting the plaintiff to send the further Deposit to an account no. 01261510050000 under the name of one SIU CHUN HONG with Bank of China (Hong Kong) (“Siu’s Account”). Ng did not request to meet the plaintiff on that occasion.

(c) At around noon, the plaintiff attended the headquarters of HSBC and transferred the 2^nd Sum to Siu’s Account.

(d) The plaintiff then sent record of transfer to yannismailbox@gmail.com.

20.  One or two days after 7 October 2020, Fan contacted the plaintiff and requested him to attend the Hang Seng Bank office at Kowloon Bay, which was the address stated on Fan’s Card, on 12 October 2020 at noon. The proposed meeting was subsequently rescheduled to 14 October 2020 at noon.

21.  On 14 October 2020:

(a) The plaintiff attended the address as stated on Fan’s Card, but he was informed by the staff of Hang Seng Bank at the said address that Fan and Ng were unknown to them.

(b) Subsequently, the plaintiff repeatedly called the mobile numbers of Fan and Ng but to no avail.

(c) The plaintiff then realized that he had fallen victim to a scam.

(d) The plaintiff then made a police report at the Police Headquarters and gave a witness statement on the said occasion.

22.  In the beginning of November, the plaintiff was informed by the police that a few suspects were arrested, and both D1’s Account and Siu’s Account were frozen.

23.  On 18 November 2020, the plaintiff attended an identity parade and identified Ng. The plaintiff also gave another witness statement on the said occasion.

24.  It is also the plaintiff’s case that he had never met any persons that had featured in the case of the 1^st defendant.

The plaintiff’s case: credibility and reliability

25.  Insofar as evidence is concerned, the plaintiff relies mainly on his own testimony. He has not called any other witness. Documentary evidence is also limited. It is noteworthy that the plaintiff cannot produce any emails or WhatsApp messages featured in his case. The explanation given by the plaintiff was that he has lost the emails because of the change of computer, and he had a habit of deleting WhatsApp messages.

26.  Mr Stephen Siu, counsel for the 1^st defendant, argued that the plaintiff is not a reliable witness. He, however, refrained from making an outright attack on the credibility of the plaintiff. Mr Siu submitted that the plaintiff’s evidence should be approached with caution, particularly on his explanation as to what his subjective state of mind was when he transferred the 1^st Sum to D1’s Account.

27.  The plaintiff’s statement of mind is the key to one of the crucial issues in the present case, namely whether the plaintiff was labouring under a mistaken belief, or whether such mistake was (for the purpose of establishing a case of unjust enrichment) negatived by any doubt on his mind about the truthfulness of what the plaintiff was given to believe.

28.  The 1^st defendant, whether in cross-examination or in closing submissions, has pointed out a series of discrepancies or omissions of the plaintiff’s evidence set out in the witness statement and the police statement, for example:

(a) First, the inception of the plaintiff’s encounter with Fan was said to start from a “cold call” from a person claiming to be an employee of Hang Seng Bank’s loan department in the police statement given on 14 October 2020, whilst the plaintiff explained in the witness statement for the present proceedings that the first call he had with Fan was preceded by his online application to Hang Seng Bank;

(b) Second, the plaintiff did not tell the police that he got the impression in the first call that the purported employee of Hang Seng Bank already knew his personal information;

(c) Third, the plaintiff did not provide the documents he signed at “Think Market” to the police;

(d) Fourth, the plaintiff’s descriptions of what he saw at the office of “Think Market” in the police statement were different from his account in witness statement; and

(e) Fifth, the plaintiff’s descriptions of how he came to arrive at Hang Seng Bank’s branch stated on Fan’s Card in the police statement were different from his account in the witness statement.

29.  The 1^st defendant also heavily criticised the plaintiff’s explanations for his failure to produce any emails as well as the WhatsApp messages in the evidence. Mr Siu in his closing submissions invited the Court to draw an adverse inference against the plaintiff and to find that the plaintiff was not mistaken about the identities of Fan and Ng. Effectively, Mr Siu is suggesting that the plaintiff was not an honest witness and did not tell the truth of what actually happened.

30.  I have considered the evidence as a whole. Whilst the plaintiff’s evidence between the police statement and the witness statement differed to some extent, I do not find him an incredible witness, or there were grounds for any inference that the plaintiff in fact knew the true identifies of Fan and Ng:

(a) The gist of the police statement was not different from the witness statement.

(b) The police statement contained the key components of the plaintiff’s case in the present proceedings, in summary:

i. On 22 September 2020, he was approached by Fan, who claimed to be the “商務理財業務處助理副總裁” of Hang Seng Bank (which was the same title on Fan’s Card), and was told that in order to approve a loan of $2,000,000, the plaintiff should transfer a sum of $400,000 as deposit;

ii. He was subsequently approached by Ng and told to attend the office of Think Market at 19/F, Two IFC, for signing documents.

iii. On 29 September 2020, he met Ng and signed the documents at 19/F Two IFC, and Ng subsequently gave him the account details of the 1^st defendant to which he transferred the 1^st Sum on the same day, and the relevant records were emailed to yannismailbox@gmail.com;

iv. He was subsequently approached by Fan, who suggested that another loan of $2,000,000 could be granted to the plaintiff if he made another payment of $400,000 as deposit which would be refunded within two weeks upon the approval of the loan, and the plaintiff suggested he needed a few days to prepare the extra $400,000;

v. On 7 October 2020 he informed Fan through WhatsApp that the second sum of $400,000 was ready;

vi. On 8 October 2020, Ng sent the detail of Siu’s Account to him through WhatsApp;

vii. On 9 October 2020, the plaintiff transferred the 2^nd Sum to Siu’s Account and sent the relevant records to yannismailbox@gmail.com; and

viii. On 14 October 2020, the plaintiff attended the Kowloon Bay branch of Hang Seng Bank (same address as Fan’s Card) and was told by the staff that Fan was unknown to them, and then the plaintiff realised he had fallen victim to a scam.

(c) Put in context, the discrepancies that the 1^st defendant had highlighted in the closing submissions are not over any crucial details. In any event, such variations had not improved the plaintiff’s case in any material way.

(d) The plaintiff gave the police statement on 14 October 2020 afternoon, which was shortly after he discovered that he had fallen victim to a fraud causing him substantial loss. It would be normal that he was in a state of shock and frustration. When he was giving the police statement as a victim, it would be unfair to demand the same rigour from the plaintiff as if he was handling a client’s case as a barrister. The types of mental stress that the plaintiff would experience in those two capacities were incomparable.

(e) Also, even though the plaintiff was given a chance to correct the police statement, it was the police officer who came up with the first draft. The plaintiff’s evidence that he signed on the police statement upon being satisfied that the key points of his case were recorded. His evidence was not unreasonable.

(f) If the plaintiff were dishonest, as an experienced barrister, he could have followed the police statement word for word in the witness statement to avoid any criticisms. Instead, he chose to set out the details in the witness statement which were different from those in the police statement. In any event, the version of events in the witness statement was not materially more advantageous to the plaintiff than the version in the police statement.

(g) I therefore accept that the plaintiff was an honest witness, trying his best to recall the necessary details at every juncture when he was required to do so.

31.  As far as the plaintiff’s failure to produce the material emails and WhatsApp messages is concerned:

(a) It is trite that a party’s obligation to disclose a relevant document is premised upon the existence of the same.

(b) Therefore, the law of drawing an adverse inference upon a party’s failure to disclose a document is also premised upon the existence of such document in the first place.

(c) The plaintiff has given his explanations that he had lost the relevant emails given the change of his computer, and he could not provide the WhatsApp messages because he had deleted them. None of such explanation is impossible or inherently improbable.

(d) The 1^st defendant challenged the credibility of such explanations.

(e) For the emails, the 1^st defendant pointed out that the plaintiff claimed to be using an email account with Gmail, which should have kept copies of the relevant emails online. Also, the 1^st defendant pointed out the plaintiff’s evidence during cross-examination that the plaintiff never attempted to check with Gmail and Hang Seng Bank in order to recover the record of his application for loan submitted to Hang Seng Bank.

(f) These observations are far from cogent for the purpose of discrediting the explanations given by the plaintiff.

(g) The plaintiff testified that he was not a computer-savvy person, and there is no evidence to suggest the otherwise. Possibilities are either the plaintiff was using an email programme on his computer to fetch emails from and send emails through his Gmail account, or he directly logged into the Gmail account through web browser(s). He testified that he accessed and stored his emails on his computer. Whether there were any emails kept with the Gmail server depends on what the settings of the said account were. In order to contradict the plaintiff’s evidence, the 1^st defendant should have sought e-discovery of the plaintiff’s computer as well as his online Gmail account, rather than simply cross-examining the plaintiff in a vacuum.

(h) Also, the lack of effort to inquire with third parties such as Gmail or Hang Seng Bank in order to recover the application records should be put in context. There is no suggestion that the 1^st defendant had made any attempt to seek discovery of the records of the plaintiff’s application to Hang Seng Bank before trial. It is not the 1^st defendant’s burden to prove that such records never existed, or if they existed, it would be highly disadvantageous to the plaintiff’s case. However, there is also no basis to criticise the plaintiff for not being aware of the forensic significance of such records from the 1^st defendant’s perspective.

(i) Similarly, the 1^st defendant had not attempted to contradict the plaintiff’s explanations about the WhatsApp messages through discovery. It is not uncommon that people delete text messages from their phones regularly for all kinds of reasons. There is no evidential basis to suggest the plaintiff was not telling the truth.

(j) In any event, I find it difficult to simply infer that the plaintiff was not mistaken about the true identity of Fan and Ng simply because the plaintiff failed to produce the emails and the WhatsApp messages. Fan misled the plaintiff with Fan’s Card, and there is no basis to suggest the plaintiff fabricated Fan’s Card or he did not believe in its authenticity at all.

(k) I therefore accept the evidence of the plaintiff in respect of the relevant emails and the WhatsApp messages. The basis for drawing any adverse inference is not established.

32.  The plaintiff’s actual state of mind when he made the payment of the 1^st Sum will be analysed in the later part of this judgment.

The 1^st defendant’s case

33.  The 1^st defendant relies on the defence of bona fide change of position.

34.  Since 2017, the 1^st defendant has been licenced by the Customs and Excise as a money service operator under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, Cap. 615 (“Ordinance”).

35.  During September 2020:

(a) Mr Chong King Fung (“Chong”), the company secretary of the 1^st defendant since its incorporation in 2017, was in charge of sales for the 1^st defendant. His day-to-day duty was to look for customers for the 1^st defendant. Before participating in the business of the 1^st defendant, Chong had spent 1 month in another money service operator to learn the trade. Before then, he was a salesperson in cosmetics. After joining the 1^st defendant, Chong learned about the relevant regulations and requirements of a money service operator’s operation by self-learning and speaking to colleagues.

(b) The internal operation of the 1^st defendant was run by its manager Mr Loh Christopher (“Loh”). Loh joined the 1^st defendant in March 2020. Before then, Loh had no experience in money service operations. After he joined the 1^st defendant in March 2020, he did not receive any formal training about the relevant regulations until 2021 when the 1^st defendant sponsored him to attend a certificate programme in relation to anti-money-laundering and anti-terrorists financing regulations at HKU SPACE.

(c) The sole shareholder and director of the 1^st defendant, Ms Chong Lai Lai, who is also the elder sister of Chong, has no role in the operation of the 1^st defendant. She was a coffee shop owner before the 1^st defendant was founded and had no experience in money service business.

36.  The 1^st defendant came across the plaintiff (on paper only) through one Choi Chun Fung (蔡振鋒, “Choi”). In 2017, Chong met Choi at a wedding banquet. Both Chong and Choi were of Fujian origin. At the wedding banquet, Chong was given to understand that Choi was in the business of insurance. Chong and Choi did not meet after the said wedding banquet until September 2020.

37.  On 11 September 2020, Choi attended the shop of the 1^st defendant and met Chong. Choi suggested to Chong that his friends, relatives and clients needed to remit funds to the Mainland. Chong inquired with Choi as to the source of funds and the use of them. Choi suggested that the funds were mostly sale proceeds of stocks in Hong Kong which needed to be remitted to the Mainland. Chong stated to Choi that the 1^st defendant did provide such remittance service, but Choi should provide information of his clients, such as identity documents and address proof, for the 1^st defendant to perform due diligence. Also, Chong requested Choi to provide identity documents and address proof if Choi were to handle the remittance on behalf of his clients as an agent. If the remittance sum was substantial, further documents would be required. Choi suggested to Chong that he understood the 1^st defendant’s requirements and exchanged mobile numbers with Chong for future contact.

38.  Choi subsequently sent a copy of his identity card and his address proof to Chong.

39.  On 29 September 2020:

(a) Choi contacted Chong and suggested that he needed to assist two clients, namely the plaintiff and one Mr Li Chi Hong (“Li”), to remit certain sums to the Mainland.

(b) Choi sent the respective copies of identity cards and address proof of the plaintiff and Li to Chong.

(c) Chong passed those documents to Loh for the preparation of relevant documents and due diligence.

(d) Loh searched a database base run by Dow Jones and confirmed that the names of Choi and the plaintiff did not appear on any watch list or sanction list. Their names were not on an anti-money laundering personnel list published by the United Nations either. Loh also did not find any negative news about the plaintiff and Choi.

(e) Loh however discovered that, whilst Li was not on any watch list or sanction list, there was negative news about him, namely he was once prosecuted by the Securities and Futures Commission and was fined by the Court.

(f) Based on Loh’s findings, Chong informed Choi that the 1^st defendant could provide service for the plaintiff but not Li.

(g) Subsequently, Choi suggested to Chong that the plaintiff needed to remit a sum of $400,000 to the Mainland. Choi further sent Chong a record of transfer of the 1^st Sum from the plaintiff to D1’s Account.

(h) Chong instructed Loh to verify if the 1^st Sum was received at D1’s Account and to prepare the necessary documentations for the Public Bank.

(i) At about 6pm, Loh informed Chong that the 1^st Sum was received at D1’s Account.

(j) Chong then arranged a sum of RMB348,800 to be remitted from the account of a customer of the 1st defendant in the Mainland (who happened to want to remit a similar sum to Hong Kong) to the account of one 楊趙杰 (“Yang”) with 廣發銀行in the Mainland (“Mainland Transfer”).

(k) Chong also signed on a Public Bank’s pro forma document prepared by Loh providing the details of the receipt of the 1^st Sum. Given a typo, Chong needed to signed on the corrected version again.

40.  In October 2020, the 1^st defendant was informed by Public Bank that some of its funds were frozen.

41.  After the present action was commenced, Chong attempted to contact Choi but to no avail.

The 1^st defendant’s case: credibility and reliability

42.  Both Chong and Loh testified in the trial. Their credibility as witness is not seriously challenged by the plaintiff. There is no suggestion that their evidence was in any way incredible or unreliable.

43.  Nor do I see any valid grounds for such suggestion. Chong and Loh were forthcoming in their oral testimonies. At times, they volunteered details that would be to the detriment of the 1^st defendant’s case (to be detailed below).

44.  I therefore accept that both Chong and Loh as truthful witnesses. There evidence will be further analysed when the 1^st defendant’s case analysed in detail.

Issues

45.  As held by the Court of Final Appeal in Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79, at §79, the useful framework for approaching a claim of unjust enrichment involves four questions:

(a) Was the defendant enriched?

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

(c) Was the enrichment unjust?

(d) Are any of the defence applicable?

46.  There is no dispute between parties that the 1^st defendant was enriched to the extent of the 1^st Sum, and such enrichment was at the plaintiff’s expense.

47.  The parties’ focus was on the third and the fourth questions. As the trial progressed, parties have crystalised the key issues as follows:

(a) Has the plaintiff established an operative mistake of fact or a mere misprediction? If the plaintiff was labouring under a mistake, was the plaintiff under any doubt as to whether his belief was true? If so, has he responded to the doubt reasonably?

(b) Has the 1^st defendant established the defence of bona fide change of position?

Operative mistake

48.  A “mistake” for the purpose of the law of unjust enrichment involves an incorrect belief or assumption about a past or present state of affairs: Goff & Jones: The Law of Unjust Enrichment, 10^th ed., §9-06.

49.  A claimant will not be denied recovery for mistake merely because he is negligent where he was unaware of the risk that his belief or assumption might be incorrect: Goff & Jones: The Law of Unjust Enrichment, 10^th ed., §9-034.

50.  As analysed above, the plaintiff’s case is based on the following mistaken beliefs about the state of affairs which were present when he transferred the 1^st Sum to D1’s Account:

(a) Fan and Ng were representatives of Hang Seng Bank;

(b) Fan and Ng were designated by Hang Seng Bank to handle the plaintiff’s application for a loan;

(c) D1’s Account was designated by Hang Seng Bank; and

(d) The payment of the 1^st Sum was required by Hang Seng Bank as part of the application for a loan.

51.  The 1^st defendant first argued that the plaintiff’s mistaken belief was only a misprediction of a future event, namely the intended loan would be granted after the payment of the 1^st Sum to D1’s Account, which did not ground a claim for restitution. The 1^st defendant relied on Dextra Bank & Trust Co Ltd v Bank of Jamaica [2001] UKPC 50 to support the said argument.

52.  With respect, such argument is simply a non-starter. The fallacy of the 1^st defendant’s argument is immediately apparent in paragraph 29 of Dextra Bank & Trust Co Ltd v Bank of Jamaica which was quoted in its submissions:

“….It is the contention of Dextra that the money was paid under a mistake, in that Dextra had intended to make a loan. The difficulty with this proposition is that this does not appear to have been a mistake as to a specific fact, like for example a mistake as to the identity of the defendant, but rather a misprediction as to the nature of the transaction which would come into existence when the Dextra cheque was delivered to the BOJ, which is a very different matter…” (emphasis added)

53.  As set out above, the fundamental elements of the plaintiff’s mistaken belief are all specific facts that were past or present as of the transfer of the 1^st Sum, rather than a mere misprediction of the nature of the transaction which would come into existence upon the payment of the 1^st Sum to the 1^st defendant. The plaintiff was induced by Fan and Ng to believe that he was all along following Hang Seng Bank’s instructions, and the payment of the 1^st Sum was required by Hang Seng Bank and was made to the agent of Hang Seng Bank. The plaintiff took no risk in transferring the 1^st Sum to D1’s Account. The plaintiff transferred the 1^st Sum on the belief that it was refundable whether the intended loan materialised or not.

54.  I therefore reject the argument of the 1^st defendant that the plaintiff was labouring under a mere misprediction.

55.  The second argument of the 1^st defendant was that if the plaintiff was labouring under a mistake (as opposed to a mere misprediction), such mistake was negatived by (i) his doubt as to the truthfulness of the matters that he was induced to believe, and (ii) his failure to respond to the doubt reasonably, or the plaintiff had waived any inquiry into true facts.

56.  Whether the plaintiff had doubts about the truth of what he was induced to belief is a subjective matter. A doubt was described as “a claimant’s conscious appreciation that the facts or law may not be as he believes them to be.”: Goff & Jones: The Law of Unjust Enrichment, 10^th ed., §9-18.

57.  As to the degree of doubt that is required to negative an operative mistake, a “mere passing uncertainty about whether there is liability in the mind of the payor…when considering what to do does not amount to doubt of the kind that might preclude recovery, and these difficult questions arise when the payor has persisting doubt when the decision to pay was taken and acted upon”: BP Oil International v Target Shipping Ltd [2012] 2 Lloyd’s Rep 245, at §223, emphasis added.

58.  The 1^st defendant referred to Derby v Scottish Equitable Plc [2001] 2 All ER (Comm) 274, at §§23-24, and argued that one does not have to be under a substantial degree of doubt to negative a mistake, as it would suffice if the plaintiff was put on inquiry but consciously decides to pay without making further inquiry. The 1^st defendant further argued that “it is unnecessary that the claimant has to be under a substantial degree of doubt; where a claimant is put on inquiry, it is sufficient to trigger the subsequent question of whether the claimant responded reasonably to the inquiry.” The 1^st defendant then proceeded to made substantial submissions on whether the test for assessing if a claimant had responded to the doubt or inquiry reasonably should be an objective or a subjective test.

59.  Two points in the 1^st defendant’s said argument should be rejected.

60.  First, the phrase “being put on inquiry” by no means suggests a minimal threshold for the definition of a doubt. Derby v Scottish Equitable Plc was not an authority of such proposition. Instead, the English Court of Appeal in that case simply affirmed the contrast between carelessness, however culpable, and the situation where the paying party is on inquiry but consciously decides to pay without making further inquiry (see §24). In other words, the need for a subjective doubt, as opposed to merely being objectively negligent, is necessary to negative a mistake.

61.  Ultimately, the test of whether the claimant was mistaken despite his doubts is “whether the claimant believe that it was more probable than not that the facts or law were otherwise than they in fact were.”: Goff & Jones: The Law of Unjust Enrichment, 10^th ed., §9-23. “[A] payer can still be said to be under a mistake, even if he has doubts, provided that he paid concluding that it was more likely than not that he was liable to pay.”: Marine Trade SA v Pioneer Freight Futures Co Ltd BVI [2010] 1 Lloyd’s Rep 631, at §76, emphasis added, adopted in Globenet Droid Ltd v Hong Kong Hang Lung Electronic Co [2016] 3 HKLRD 863, at §36.

62.  Second, I take the view that the law does not introduce an objective test into the assessment of whether a claimant has responded reasonably to a doubt or an inquiry. In Globenet Droid Ltd v Hong Kong Hang Lung Electronic Co, Deputy District Judge Gary Lam (as he then was) held, and I respectfully agree, that:

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

63.  In fact, Derby v Scottish Equitable Plc was an example where the inadequacy or negligence in the investigation carried out in good faith to address the initial inquiry was held not to be a waiver of inquiry or cancelling the mistake.

64.  It is only consistent with the subjective nature of a doubt to require a good faith response to an initial doubt (rather than an objectively reasonable one with reference to the concept of negligence). If there is an initial doubt, and the claimant did not honestly resolve it, the doubt simply persists on his mind, and the mistake is negatived. If a claimant responds to an initial doubt in an objectively unreasonable manner, and yet, he claims that the doubt has been resolved, it might provide a basis to infer that the doubt has in fact not been resolved. However, it is no more than an evidential matter. To introduce an obligation to respond to a doubt in an objectively reasonable manner with reference to the concept of negligence would fundamentally change the subjective nature of a mistake. The terminologies such as “assumption of risk” or “waiver of inquiry” do not suggest that whether a doubt has negatived a mistake is an objective question. The ultimate question should remain the same: when the claimant pays, does he subjectively believe that, more likely than not, he is liable to pay?

65.  The 1^st defendant’s argument that the plaintiff’s mistake was negatived by a doubt boils down to two points:

(a) The plaintiff did have inquiry about the truthfulness of Fan and Ng’s assertions but his response to such initial doubt was unreasonable in the objective sense (rather than in the sense of lack of good faith); and

(b) As shown in the plaintiff’s evidence during cross-examination, the plaintiff would still transfer the 1^st Sum as instructed irrespectively of the validity or invalidity of Fan and Ng’s assertions.

66.  For reasons set out above, I have rejected the objective test for assessing the “reasonableness” of a response to an initial doubt.

67.  The 1^st defendant’s factual arguments that the plaintiff did in fact have initial doubt about Fan and Ng’s assertions were also invalid on evidence.

68.  Whether in the witness statement or in his oral testimony, the plaintiff had consistently explained that he all along had never doubted the truthfulness of what was said to him by Fan and Ng for the following reasons:

(a) He was not familiar with the operation of banks and loan applications;

(b) Personally, since the mortgage application for acquiring his family residence in the 1990s, he had never applied for loans from banks until the subject incident of the present proceedings;

(c) Professionally, his legal practice did not involve any banking matters;

(d) When he made the loan application to Hang Seng Bank, it was in the middle of the COVID pandemic, which was a time when many institutions were deploying unusual measures to sustain their business operations amidst various restrictions imposed by the government;

(e) Therefore, it appeared to him to be possible that Hang Seng Bank outsourced part of its operation to third parties at the time;

(f) Fan could refer to his personal information submitted to Hang Seng Bank and produce the Fan’s Card to prove his identity and capacity as the representative of Hang Seng Bank; and

(g) Both “Think Market” and the 1^st defendant were financial institutions, and their involvement in his loan application appeared reasonable to him.

69.  The 1^st defendant’s argument that the plaintiff simply made the payment of the 1^st Sum irrespective of the validity or invalidity of the 1^st defendant’s authority to receive the 1^st Sum is incompatible with the plaintiff’s clear evidence. Whilst the plaintiff explained that he did not have concerns when he acceded to the request for the payment of the 1^st Sum because the transaction would be traceable, he was justifying his confidence in Fan and Ng rather than the lack of it.

70.  All in all, any suggestion that the plaintiff believed that, more likely than not, Fan and Ng did not represent Hang Seng Bank is both inherently improbable and contrary to the evidence.

71.  I therefore find that the plaintiff has established an operative mistake for the purpose of his claim for unjust enrichment.

Bona fide change of position

72.  The defence of bona fide change of position was described by Lord Goff in Lipkin Gorman (A Firm) v Karpnale Ltd [1991] 2 AC 548, at pp. 579F, 581-583, as follows:

“...Where an innocent defendant’s position is so changed that he will suffer an injustice if called upon to repay or to repay in full, the injustice of requiring him to repay outweighs the injustice of denying the plaintiff’s restitution.

...

An unjust enrichment claim can be obviated only where it can be shown that the defendant’s position has so changed that it would be inequitable in all the circumstances to require him to make restitution.”

73.  Such formulation has been consistently followed by the Courts in Hong Kong, which regarded it as having the greatest persuasive effect: Credit One Finance Ltd v Yeung Kwok Chi & Ors [2021] 1 HKC 598, at §63.

74.  In deciding whether a defendant should be entitled to successfully rely on a defence of change of position, the fundamental issue is the justice or injustice of enforcing a restitutionary claim in respect of a benefit conferred. But the Courts must proceed on the basis of principle, and not sympathy, in order that the defence of change of position should not disintegrate into a case-by-case discretionary analysis of the justice of individual facts: Credit One Finance Ltd v Yeung Kwok Chi & Ors, at §69.

75.  The burden is on the defendant to establish that (i) he has suffered a detriment (e.g. reduction of asset), (ii) such detriment was causally linked with his enrichment, and (iii) the defendant changed his position in good faith: Goff & Jones: The Law of Unjust Enrichment, 10^th ed., §§27-08, 27-11, 27-46.

76.  There is no dispute that the 1^st defendant has suffered detriment as a result of the Mainland Transfer, and such detriment was causally linked to the enrichment, namely the receipt of the 1^st Sum.

77.  The main dispute is whether the 1^st defendant made the Mainland Transfer in good faith.

78.  The defence of change of position is not open to one who has changed his position in bad faith, and it is commonly accepted that the defence should not be open to a wrongdoer: Lipkin Gorman (A Firm) v Karpnale Ltd, at p. 580C.

79.  In Niru Battery Manufacturing Co & Anor v Milestone Trading Ltd & Ors [2004] QB 985, at §164, the English Court of Appeal approved a judgment in the court below explaining the breadth of bad faith:

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

80.  The business of the 1^st defendant, as a licensed money service operator, is subject to the regulatory regime under the Ordinance.[1]

81.  Pursuant to section 5 of the Ordinance:

(a) Schedule 2 of the Ordinance has effect with respect to the 1^st defendant as a money service operator: section 5(1); and

(b) If the 1^st defendant knowingly contravenes, inter alia, sections 3(1), 3(1A) and 23 of Schedule 2 of the Ordinance, the 1^st defendant commits an offence and is liable to a maximum fine of $1,000,000 and to imprisonment for 2 years: section 5(5).

82.  Pursuant to section 2 of Schedule 2 of the Ordinance, if a person purports to act on behalf of the customer, the 1^st defendant shall adopt, inter alia, the following customer due diligence measures:

(a) identifying the person and taking reasonable measures to verify the person’s identity on the basis of documents, data or information provided by a governmental or a relevant authority: section 2(1)(d)(i); and

(b) verifying the person’s authority to act on behalf of the customer: section 2(1)(d)(ii).

83.  Pursuant to sections 3(1)(a) & 3(1)(b) of Schedule 2 of the Ordinance, the 1^st defendant must carry out customer due diligence measures in relation to a customer before establishing a business relationship with the customer, and before carrying out for the customer an occasional transaction involving an amount equal to or above $120,000. Customer due diligence must also be carried out before carrying out for the customer a wire transfer involving an amount equal to or above $8,000 under section 3(1A) of Schedule 2.

84.  Pursuant to section 23 of Schedule 2 of the Ordinance, the 1^st defendant must take all reasonable measures:

(a) to ensure that proper safeguards exist to prevent a contravention of any requirement under, inter alia, sections 2 and 3 of Schedule 2 of the Ordinance; and

(b) to mitigate money laundering and terrorist financing risks.

85.  Money laundering is defined under Schedule 1 of the Ordinance as an act intended to have the effect of making any property that is the proceeds obtained from the commission of an indictable offence under the laws of Hong Kong, or of any conduct which if it had occurred in Hong Kong would constitute an indictable offence under the laws of Hong Kong; or that in whole or in part, directly or indirectly, represent such proceeds, not to appear to be or so represent such proceeds.

86.  In such context, the requirements under the Ordinance on how the 1^st defendant should conduct its money service business weigh heavily on the assessment of whether the 1^st defendant had acted in a commercially acceptable or unacceptable way for the purpose of the defence of bona fide change of position. Should a defendant’s enrichment and/or change of position involve any material breach of such statutory requirements, the defendant should be held as acting in a commercially unacceptable way and fail on the bona fide change of position defence: Arrow ECS Norway As v M Yang Trading Ltd & Ors [2018] 5 HKC 317, at §§31(4)(6) and 36; Yip Wai Hung v Shang Hai Bsuiness Information Limited [2023] HKDC 401, at §50.

87.  In the present case, the evidence is clear that the 1^st defendant did not act in a commercially acceptable way in arranging for the receipt of the 1^st Sum and the making of the Mainland Transfer.

88.  From Choi’s initial approach to the 1^st defendant on 11 September 2020, to the Mainland Transfer being made on 29 September 2020, the 1^st defendant had only performed the following steps of due diligence:

(a) Collecting the identity document and address proof of Choi;

(b) Collecting the identity document and address proof of the plaintiff;

(c) Inquiring through Chong with his relative as to whether Choi was in insurance business, and only verbal confirmation but not proof was obtained;

(d) Speaking with Choi about the reason of arranging the transfer for his clients with no objective proof whatsoever;

(e) Online search of the anti-money-laundering watchlists and news search about Choi and the plaintiff.

89.  Crucially, the 1^st defendant never asked for any proof of Choi’s authority to act on behalf of the plaintiff to tranfer the RMB equivalent of the 1^st Sum to Yang.

90.  Chong in his testimony insisted that the facts that (a) Choi could provide the identity documents and address proof of the plaintiff, as well as that (b) the 1^st Sum was transferred from the plaintiff’s personal account to D1’s Account were sufficient proof of Choi’s authority to act on behalf of the plaintiff.

91.  I do not accept what Chong suggested was sufficient for the purpose of sections 2(1)(d)(ii) and 23 of Schedule 2 of the Ordinance:

(a) Chong admitted that he obtained the details of Yang’s account from Choi, who asserted that Yang was the plaintiff’s friend.

(b) Other than the bare assertion, which did not sound suspicious to Chong, Choi never produced any materials that could in any way prove that the plaintiff’s fund was realised from sale of stock, and more importantly he did intend to transfer the RMB equivalent of the 1^st Sum to Yang.

(c) Statutory requirement aside, it should be common sense that a financial institution which come across an agent’s request to transfer funds on behalf of the principal to a third party should regard proof of the principal’s instruction on who is the recipient as essential.

(d) The mere receipt of the plaintiff’s personal documents and the 1^st Sum directly from the plaintiff’s personal account sheds no light on who was the plaintiff’s intended recipient.

(e) When he was asked why did he not request for any direct proof of authority, such as an authorisation letter, or contact detail of the plaintiff, Chong candidly admitted that he thought if he made such request, Choi would take the business opportunity away from him. In fact, he would not make such requests to any other agents in similar situations for the same reason.

(f) Instead of demonstrating how the 1^st defendant’s practice was in compliance with the relevant statutory requirements, Chong’s evidence simply proves that, in return for business opportunities, the 1^st defendant systemically disregarded the requirement to seek proof of authority from any agents.

(g) Chong accepted that as a money service operator, the 1^st defendant is exposed to the risk of getting intermeddled with the proceeds of crime.

(h) As a result of the 1^st defendant’s non-compliance with the requirement to obtain proof of authority, Choi managed to abuse the 1^st defendant on two other occasions, resulting in two further sums in the total amount of $170,000 being transferred into D1’s Account. Such funds were suspected to be proceeds of crime.

(i) I therefore find that the 1^st defendant had failed to comply with sections 2(1)(d)(ii) and 23 of Schedule 2 of the Ordinance.

92.  I do not consider Loh’s evidence to be able to alter the conclusion above:

(a) Loh suggested that if the agent is assisting the principal to transfer a sum over $500,000, the 1^st defendant would request the agent to produce documentary proof of the source of funds and the purpose of transfer.

(b) However, Loh admitted that the purpose of such request, and setting the threshold as $500,000, was to satisfy the requirements of Public Bank. $500,000 is the threshold adopted by Public Bank for requesting documentary proof of the source of fund and the purpose of the transfer.

(c) I do not see how such arrangement could absolve the 1^st defendant’s own liability to conduct sufficient due diligence under the Ordinance. There is no evidence as to why Public Bank set the threshold at $500,000. In the end, the 1^st defendant’s liability is separate from Public Bank’s liability. It also only demonstrated how the 1^st defendant had substantially neglected its duty to conduct relevant due diligence by simply mechanically following Public Bank’s practice.

(d) The two examples adduced by Loh to demonstrate how due diligence was conducted by the 1^st defendant are not comparable to the facts of the present case. Both transfer requests came from the principals, not agents, and therefore there was no need to verify authority.

93.  For reasons above, the 1^st defendant has failed to establish the defence of bona fide change of position as a result of its commercially unacceptable conduct.

94.  For completeness, the 1^st defendant argued that the since the illegality principle in Tinsley v Milligan [1994] 1 AC 340 has been replaced by the principle in Patel v Mirza [2016] UKSC 42 as a result of the ruling of the Court of Appeal in Monat Investment Ltd v All Persons in occupation of part of No. 16, Ma Po Tseun, Mui Wo, Lantau Island & Anor [2023] HKCA 479, illegality no longer automatically defeat the defence of change of position in good faith; instead, the Court shall apply the test in Patel v Mirza to decide whether the illegality has negatived the good faith.

95.  For reasons I have stated above, the failure of the 1^st defendant to carry out proper due diligence was by itself a commercially unacceptable behavior. There is no need to invoke the illegality principle whether under Tinsley v Milligan or Patel v Mirza. Even if one were to apply the test in Patel v Mirza to the facts of the present case, the result will remain the same:

(a) The underlying purpose of imposing the relevant requirement of due diligence under the Ordinance was exactly to avoid the money service operators being abused for facilitating the handling of proceeds of crime or money laundering, as the 1^st defendant has been in the present case;

(b) I do not see any negative impact on any public policy by denying the 1^st defendant the defence of bona fide change of position based on the facts of the present case; and

(c) I do not regard the denial of such defence for the 1^st defendant to be disproportionate. The failure of the 1^st defendant to conduct proper due diligence was not a peripheral or technical breach of the Ordinance. Instead, it was a direct failure to comply with the relevant requirement, and such failure was the direct cause for the 1^st Sum to be paid into D1’s Account and the Mainland Transfer to be made to Yang.

Reliefs

96.  At the opening submissions, the plaintiff abandoned the claim for punitive damage and focused solely on the claim for restitution.

97.  For reasons above, I grant a monetary judgment of $400,000 against the 1^st defendant, with interest thereon at the rate of 1% above the HSBC Hong Kong Dollars Prime Rate from 29 September 2020 until judgment, and at judgment rate from the date hereof until payment.

98.  I also make an order nisi that costs of the action be to the plaintiff, with certificate for one counsel, to be taxed if not agreed.