JS MICROELECTRONICS LTD v. ACHHADA DILIP G AND ANOTHER
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HCA 1202/2012
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO 1202 of 2012
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| BETWEEN | ||
| JS MICROELECTRONICS LIMITED | Plaintiff | |
| and | ||
| ACHHADA DILIP G | 1st Defendant | |
| PURI VIKAS | 2nd Defendant |
__________________
| Before: Madam Recorder Teresa Cheng SC in Court |
| Dates of Hearing: 4 – 6 August 2015 |
| Date of Handing Down of Judgment: 23 March 2016 |
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J U D G M E N T
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Table of Contents | |
| BACKGROUND FACTS | |
| LACK OF CREDIBILITY OF THE 2NDDEFENDANT | |
| The identity of the transferor of the sum of US$190,000 | |
| The print‑out exhibited by the 2nd defendant | |
| Police statements | |
| Sequence of bank transactions in the Nishimoto’s Account on 9 July 2011 (US$129,933 and US$190,000) | |
| Alleged telephone call on 9 July 2011 | |
| What happened to the US$60,000? | |
| Conclusion | |
| FINDING OF FACTS | |
| No sale of SD cards between the 1st and the 2nd defendants | |
| Transaction between 1stdefendant and 2nddefendant on 9 July 2011 was not for changing US dollars to HK dollars | |
| Fraud cloaked in sales contract | |
| The 2nddefendant ought to but failed to inquire about the source or purpose of the US$190,000 | |
| THE LEGAL PRINCIPLES | |
| Constructive trust | |
| Knowing receipt | |
| Ministerial capacity | |
| Change of position | |
| CONCLUSION | |
BACKGROUND FACTS
1. On 8 July 2011, the plaintiff entered into a sales agreement with Fortune Century Global (“FCG”) for the purchase of 70,200 Samsung Micro SD cards with 2GB capacity for a total price of US$195,156.00.
2. There is no dispute that Linawati is and was the principal of FGC. FCG was established towards the end of June 2011[1].
3. It is also not in dispute that the sales agreement was entered into by the plaintiff with the 1st defendant representing himself as an agent of FCG.
4. A purchase order was issued by the plaintiff on 8 July 2011[2]. Shipment date is stated as 9 July 2011, a Saturday.
5. An invoice was issued by FCG on 8 July 2011[3] where the Beneficiary Bank and Beneficiary Name are “Bank of China (Hong Kong)” and FCG respectively. The plaintiff’s bank is The Hongkong and Shanghai Banking Corporation Limited (“HSBC”).
6. There is another invoice in the bundle[4] covering the same transaction except that the Beneficiary Bank and Name are HSBC and Linawati respectively. Mr Chen Feng Heng (“Mr Chen”), manager of the plaintiff, said this was issued later in the evening on Friday, 8 July 2011. The reason he was told was that the payment had to be made on Saturday for the goods to be delivered on that day. However, the plaintiff’s bank could not do inter‑bank transfer on Saturday and so it was suggested by the 1st defendant that the purchase money be paid into Linawati’s account as set out in the second invoice.
7. Payment was made by the plaintiff to Linawati’s account on 9 July 2011 at around 12:15pm. Mr Chen waited at the office of FCG for the goods. He gave evidence that around 3 or 4pm, Linawati spoke with the 1st defendant on the phone. Mr Chen was told to and did go downstairs after Linawati’s phone call with a view to collect the goods from the 1st defendant, but there was no sight of the goods nor the 1st defendant. He then reported the matter to the police at around 5pm.
8. The documentary evidence reveals the following payments were made on 9 July 2011 at the respective times:
a. The plaintiff paid US$195,156 to Linawati’s account at 12:15pm. This is not disputed as it is evidenced by bank pay‑in‑slip[5].
b. At 12:37pm, at the request of the 1st defendant, Linawati transferred US$190,000 from her account into the HSBC account operated by the 2nd defendant and in the name of Nishimoto Manufacturing Company (“Nishimoto”)[6].
c. It is not disputed that Linawati kept the balance of US$5,156[7]
d. US$129,933 was then paid out from the Nishimoto’s account to a “WEALTH TRADER CO (FUNGKEE INV)” around 1:15pm.[8]
e. At 3:20:01pm, the 2nd defendant arranged and HK$1,010,230 cash was paid out to the 1st defendant in Hong Kong.[9]
9. Another payment of US$60,000 was said to have been made by the 2nd defendant to the 1st defendant on 9 July 2011, based on a date written on a document issued by Money Changers (HK) Limited. note number 0971.[10]
10. The 1st defendant was charged and convicted of two charges, fraud and money laundering on 13 June 2012 and was sentenced to 2.5 years of imprisonment.[11] At the trial the 2nd defendant was called as a prosecution witness. His two police statements were read out pursuant to section 65B of the Criminal Procedures Ordinance (Cap 221) and he was not cross‑examined.
11. The plaintiff commenced action against Linawati under HCA 1288/2011 and obtained judgment on 5 April 2012 for payment of the sum of US$195,156 with interest at judgment rate from 19 July 2011.[12]
12. This action was commenced against the 1st defendant and the 2nd defendant on 12 July 2012. An injunction was obtained for the freezing of the 2nd defendant’s assets on the same day.[13]
13. On 15 August 2013, final judgment in this action was entered against the 1st defendant for payment of US$195,156 with interest.[14]
14. At this trial, the plaintiff claims against the 2nd defendant for restitution of the sum of US$190,000 received on 9 July 2011. The plaintiff contends that a constructive trust was created over the sum of US$195,156. The 1st defendant was in breach of trust for misappropriating the said sum and the 2nd defendant was liable for knowing receipt of the sum of US$190,000 from the 1st defendant’s breach of trust. The plaintiff contends that the 2nd defendant either wilfully or wilfully shut his eyes and/or recklessly failed to make enquiries relating to the source or purpose of the sum. The plaintiff further submits that the constructive trust was established at the time of the commission of crime, that is when the 1st defendant and the 2nd defendant communicated at 10:29am on Saturday, 9 July 2011 Hong Kong time. This was before the money was transferred from the plaintiff to Linawati. As a constructive trust had been created, the plaintiff had and continued to have proprietary interest in the sum of US$195,156. The 2nd defendant had the requisite degree of knowledge of the fraud that would unfairly deprive the plaintiff of its assets thereby rendering the 2nd defendant liable to the plaintiff for the restitution of the sum of US$190,000.
15. The 2nd defendant contends that no trust was created by operation of law and no proprietary interest was created on the sum of US$190,000. The 2nd defendant was a bona fide purchaser for value without notice and that is a complete defence to any such claim. At best, the situation gave rise to a resulting trust and he would only be liable for the sum of US$67 (the US$190,000 receipt less the alleged payment out of US$129,933 and US$60,000) but that sum has already been paid into court. The 2nd defendant further denies he had “knowing receipt” of the sum of US$190,000 and the claim should be dismissed.
16. The plaintiff accepts that it has to prove:
a. the 1st defendant receiving the USD$190,000 held and dealt with that sum as a trustee and the disposal by the 1st defendant of those assets was in breach of its fiduciary duty to the plaintiff;
b. the beneficial receipt by the 2nd defendant of the assets from the 1st defendant which are traceable as representing the assets of the plaintiff; and
c. knowledge on the part of the 2nd defendant that the assets he received are traceable to a breach of fiduciary duty.
LACK OF CREDIBILITY OF THE 2ND DEFENDANT
17. The plaintiff submits that the 2nd defendant is not credible.
18. The 2nd defendant filed an affirmation dated 7 September 2012[15] in support of an application to strike out this action. The 2nd defendant also made two police statements and a witness statement for this action.
19. The evidence of the 2nd defendant is contradictory, inconsistent, and incredible.
The identity of the transferor of the sum of US$190,000
20. In §4 of his affirmation dated 7 September 2012[16], the 2nd defendant exhibited a “print out from laptop from HSBC”[17]. He stated at §8:
“…the sum of US$190,000 was credited to my account by the first defendant, and merely passed through my account to the money changers’ accounts. They then gave the first defendant the cash in HK Dollars and US Dollars upon production of his passport to them. Therefore I retained no effective benefit for myself, save for the US$62.00 …” (emphasis added)
21. At the trial, the 2nd defendant changed his evidence and accepted that he could not tell from the bank information the identity of the transferor of the sum of US$190,000 at the time of transfer. He said under cross‑examination that he only assumed that it was from the 1st defendant by reason of the exchanges in the MSN, in particular, when the 1st defendant stated “now my girl going to bank”[18]. The MSN exchanges however do not bear that out. I am not persuaded that the 2nd defendant knew of the 1st defendant’s wife by reference to a greeting card as suggested by him, and the 1st defendant was referring to “my girl” not “my wife”.
The print‑out exhibited by the 2nd defendant
22. He was cross‑examined on the provenance of the “print out from the laptop from HSBC”[19]. He said that it was a simple “cut and paste” job of the information from his Nishimoto’s HSBC bank account. His answers were unconvincing: the dates in the entries are in two styles; the document was a word document; and the type scripts of the entries are not the same. This would not be so had it been a “cut and paste” job. Mr Bruce SC rightly pointed out that the correctness of the content of the document is not relevant to the issues, but the 2nd defendant’s answers relating to that go to his lack of credibility.
23. The police statements set out information which is contrary to his evidence now before this court. The 2nd defendant then tried to distance himself from the contents of his two police statements, saying, the statement was in Chinese which he did not know, and that there was no interpretation so that he just signed.
24. In fact, the two statements[20] recorded that there was an interpreter, and the 2nd defendant was accompanied by Mr Khosa of counsel when he made both statements. In the first police statement, the name of the solicitor was also identified.
Sequence of bank transactions in the Nishimoto’s Account on 9 July 2011 (US$129,933 and US$190,000)
25. His attention was drawn to the English translation of his police statement made on 8 March 2012[21], where he said:
“… [s]ince 2011‑7‑9 was Saturday and the bank hours were only before noon, I transferred out 129,933 USD from my company account … to G‑Three Consultants Company, [address], for the exchange before I received 190,000 USD as said by [the 1st defendant]. …” (emphasis added)
This sequence of events was not consistent with what the 2nd defendant is contending for now[22]. He tried to explain this inconsistency on the basis that the police statement was taken in Chinese etc.
Alleged telephone call on 9 July 2011
26. In the 2nd defendant’s witness statement before this court, when he could have set out all the information after checking the records, he did not mention any telephone call with the 1st defendant before the MSN exchanges, let alone about the SD cards. Yet in the box, he gave evidence that such telephone conversations took place and allegedly discussed the sale of SD cards. Later he changed again suggesting that the transaction was effectively one of currency exchange. For reasons set out in §§32–37, this is equally incredible. Whilst in the first police statement, there was a reference to a telephone call, nothing turned on it.[23]
What happened to the US$60,000?
27. The 2nd defendant contends that he only kept US$67 from the transaction on 9 July 2011 and that has been paid into court already. In the witness statement of the 2nd defendant, he suggested that on Saturday, he could not complete the deal with Hong Kong dollars, so he offered the 1st defendant US$60,000 in cash from his own credit account with Money Changers (HK) Limited.[24].
28. I do not need to make findings in respect of whether the sum was paid out or when it was paid out, nor do I rely on this matter here in the conclusion of this case but I find that this evidence is dubious when it is tested against the documentary evidence produced:
a. First, the transaction was not originally intended to be an exchange of US dollars to Hong Kong dollars as suggested by the 2nd defendant in §20 of his affidavit evidence. The 1st defendant in fact wanted cash in US dollars as can be seen in the MSN record of the 2nd defendant with the 1st defendant.[25]
b. Secondly, the so called “Statement of Accounts” of Money Changers (HK) Limited showing the account of the customer JVR INTL relied upon by the 2nd defendant indicated that the debit of US$60,000 from the account was only made on 11 July 2011, not 9 July 2011.[26] There is no evidence that JVR INTL was the trading name of the 2nd defendant for his money changing business.
c. Thirdly, the HSBC bank statement of JVR International issued on 30 July 2011 does not indicate any deduction from this account for a sum of US$60,000 whether on 9 or 11 July 2011. In the entries in the column of “details” in the bank statement[27], there is no reference to “dilip”. This can be contrasted with the 2nd defendant’s practice in the transfer from Nishimoto to Wealth Trader Co[28].
d. Lastly, this sum is said to have been paid out to the 1st defendant by the 2nd defendant in §4 of the 2nd defendant’s affirmation dated 7 September 2012 and said to be evidenced in the Money Changers (HK) Limited’s note.[29] I do not have to rule on the veracity of this document or statement, suffice it to note that the date of “09/07/2011” was handwritten and this note is contrary to the “statement of account” and the JVR International’s HSBC bank statement.
29. Based on the above and having noted the demeanor of the 2nd defendant, I find his evidence is unreliable and incredible.
No sale of SD cards between the 1st and the 2nd defendants
30. Mr Pirie referred to the first police statement of the 2nd defendant[30]:
“On 2011‑07‑09, I was in India on that day. At around 10:30 hours the same morning, I received Dilip’s call. ... In the phone call I received from Dilip, Dilip asked me about the price of SD card(s), I replied to Dilip that as it was a long distance call, we should shift to use MSN to communicate on the internet. I told Dilip via MSN on the internet about the price of SD card(s) at that time, later Dilip said that the price was unreasonable. We did not reach any deal after that. Later i.e. in the morning the same day (I could not remember the exact time), Dilip expressed to me via MSN on the internet that he wanted to do a business and make a transaction in Hong Kong dollar. As I had a better exchange rate for doing business i.e. better currency exchange rate than that in banks, therefore Dilip requested to do a business of currency exchange to me. I did not ask Dilip if there was anything about the business, I told Dilip that the rate was 7.75. Dilip said to me that the rate was reasonable. As I believed Dilip and I could make a profit from the currency exchange, I provided Dilip via MSN with my HSBC account … .” (emphasis added)
31. From these statements, Mr Pirie submitted that the money transaction was about SD cards. I do not agree.
a. If these statements were accurate, the 2nd defendant was describing two transactions being discussed in the morning of 9 July 2011. The first was the SD card(s) which “did not reach a deal” and another where 2nd defendant started to describe another transaction starting with the sentence “Later i.e. in the morning the same day…”. It is the latter that is the subject matter here.
b. The MSN record[31] between the 2nd defendant (named as “gary ho”) and the 1st defendant (named as “ddr ram”) of 9 July 2011 shows that the first contact was made at 10:29:02am Hong Kong time at the instigation of the 2nd defendant. It was about getting cash: the 1st defendant wanted US dollar cash. There was no discussion of any sale of SD cards at all on 9 July 2011.[32] The 2nd defendant then said sale of SD cards was merely discussed over a telephone conversation. As noted above, this was not mentioned in the witness statement for this case.
c. The MSN record shows the 2nd defendant asked when transfer would be made but neither the 1st nor the 2nd defendant mentioned when the SD cards would be delivered.
Transaction between 1st defendant and 2nd defendant on 9 July 2011 was not for changing US dollars to HK dollars
32. The main and crucial MSN statements that shed light on the nature of the transaction are set out below.[33] The time recorded is in Hong Kong time. The 2nd defendant was in Mumbai which is 2.5 hours behind Hong Kong.
“ … 9-Jul-11 10:29:02AM gary ho ddr ram hi 9-Jul-11 10:32:35AM gary ho ddr ram HOW MUCH AMOUNT 9-Jul-11 10:33:00AM ddr ram gary ho 190000 usd 9-Jul-11 10:33:02AM gary ho ddr ram HOW MUC NEED 9-Jul-11 10:33:53AM gary ho ddr ram CASH RIGHT 9-Jul-11 10:34:00AM ddr ram gary ho yes 9-Jul-11 10:34:04AM ddr ram gary ho i need cash 9-Jul-11 10:35:02AM gary ho ddr ram hkd ok 9-Jul-11 10:35:05AM gary ho ddr ram or usd only 9-Jul-11 10:35:13AM ddr ram gary ho usd give me sir 9-Jul-11 10:36:49AM gary ho ddr ram GIVE ME 10MINS I AM ARANGING 9-Jul-11 10:40:28AM gary ho ddr ram HKD IS NOT OK? 9-Jul-11 10:41:04AM ddr ram gary ho okay 9-Jul-11 10:42:02AM gary ho ddr ram HKD IS NO PROBLEM 9-Jul-11 10:42:08AM ddr ram gary ho i need erly 9-Jul-11 10:42:13AM gary ho ddr ram when can u arrange transfer 9-Jul-11 10:42:55AM gary ho ddr ram when can u transfer 9-Jul-11 10:43:38AM ddr ram gary ho now my girl going to bank 9-Jul-11 10:44:57AM gary ho ddr ram send her in 15mins 9-Jul-11 10:45:04AM gary ho ddr ram i am arranging 9-Jul-11 10:45:09AM gary ho ddr ram tell u where to collect from 9-Jul-11 10:47:09AM ddr ram gary ho okay 9-Jul-11 10:47:16AM gary ho ddr ram hkd is ok 9-Jul-11 10:59:42AM gary ho ddr ram when u transfer 9-Jul-11 11:00:16AM ddr ram gary ho BEFOR 11.30 …”
33. The next MSN record between the 1st defendant and the 2nd defendant took place on 11 July 2011[34], the day when the Hong Kong Police called the 2nd defendant whilst he was still in Mumbai. The 1st defendant wrote to the 2nd defendant at 6:29:21am stating“what means india wala kam sir you got money ready whats wrong me now not in hk now in china I don’t undrstnd this menag send me replay.” The 2nd defendant kept looking for the 1st defendant but in vain and at 1:07:37pm the 2nd defendant wrote “I have give you usd extra”and again at 2:26:07pm “U GET USD EXTRA”. There is no MSN response from the 1st defendant.
34. The 2nd defendant contends that the transaction was effectively one of currency exchange. I do not accept this. The transaction between the 1st defendant and 2nd defendant on 9 July 2011 was not intended to be a money changing business for US$190,000 to be converted to Hong Kong dollars as alleged by the 2nd defendant. It was a transaction for cash to be paid out to first defendant after a bank transfer of US$190,000 was paid into the 2nd defendant’s Nishimoto account.
35. When asked by the 2nd defendant “CASH RIGHT”, the 1st defendant replied “yes”. The 2nd defendant asked “hkd ok”, “or usd only”, the 1st defendant replied “usd give me sir”. The intention was for the 1st defendant to collect cash in US dollars.
36. The reference to “HKD” came about only after the 2nd defendant checked and asked “HKD IS NOT OK?” and the 1st defendant replied “okay”, followed by “i need erly”.
37. This money transaction had nothing to do with any SD cards. It was also not about changing US dollars to Hong Kong dollars. It was intended to be a transaction to pay the 1st defendant US dollar cash after receipt of US$190,000 by the 2nd defendant, and cash in Hong Kong dollars was only made when the US dollars could not be arranged.
Fraud cloaked in sales contract
38. The purported sale of SD cards by the 1st defendant as agent of FCG was not a genuine sales contract.
39. Instead of paying into FCG’s account, in the evening of 8 July 2011, directions were given by the 1st defendant and Linawati to the plaintiff for payment to be made to Linawati’s account.
40. Further arrangements were made between the 2nd and 1st defendants early in the morning of 9 July 2011 starting at 10:29am before the payment by the plaintiff. This is evidenced in the MSN record. The 2nd and the 1st defendants discussed about the cash and the currency to be paid out to the 1st defendant after the sum of US$190,000 was transferred to the 2nd defendant’s Nishimoto account.
41. Importantly, it was the 2nd defendant who, at the early hours of 8am Mumbai time, started the MSN discussion asking “HOW MUCH AMOUNT”. The 2nd defendant must have been aware before 8am Mumbai time that some monetary transaction would take place, but he was not sure of the amount of cash or currency he had to arrange to pass to the 1st defendant. As a result he asked the 1st defendant, who promptly replied.
42. The time of the fraud would therefore at the latest be 10:29am, 9 July 2011 Hong Kong time. It may well have been in the evening of 8 July 2011 when the second invoice was issued and that was why the 2nd defendant started the MSN conversation early the next morning.
The 2nd defendant ought to but failed to inquire about the source or purpose of the US$190,000
43. There is no dispute that the 2nd defendant received US$190,000 transferred from Linawati’s account.
44. The 2nd defendant had a money changer license at the relevant time. He did not inquire as to the source or purpose of the amount of US$190,000. He gave two reasons:
a. There were prior transactions between the 1st and the 2nd defendants and he trusted the 1st defendant would be the transferor.
b. The amount of US$190,000 is not an unusual amount for the 2nd defendant's business.
45. On the first reason, it is clear that it is unsupported by evidence.
46. The 2nd defendant contends that there were prior transactions to justify his not asking questions about the source or purpose of the fund. These transactions were set out in his affidavit and statement. The exhibits relied on to support this assertion do not show any transaction with the 1st defendant. They are evidence of payment to some companies with no reference to the 1st defendant, an email attaching a new year greeting card with no reference to the 1st defendant (or any “wife” of the 1st defendant) and some MSN with a person by the name of “Flash Memory Card & Mobile Phone (Tel: 6384 2715)” but they do not evidence any business transaction.
47. The following documentary evidence produced by the 1st defendant also indicates that the 1st defendant and the 2nd defendant had no prior transaction:
a. On 9 July 2011 the withdrawal of US$129,933 was remarked against “BIB‑DILIP” in the bank statement of Nishimoto.[35]
b. In the extracts of transactions of the Nishimoto’s bank account statements prepared by the 2nd defendant there are only two entries that are related to “dilip”, the 1st defendant, but both of which were on 9 July 2011[36].
c. As to the summary table for the bank statements of JVR International in bundle C4, there is no entry of “dilip” under “Notation” column, nor is there any reference of “BIB‑dilip” in the “details” column of the bank statements.
d. If the so‑called prior transactions were made with the 1st defendant, one would expect the bank statements at bundles C3 and C4 to remark “BIB‑dilip” as was the case for the withdrawal of the sum of US$129,933 that took place on 9 July 2011.[37] No such remark or reference can be found at times prior to 9 July 2011.
48. As to the second reason, Mr Pirie submitted that the amount of US$190,000 was not unusual in the type of transactions the 2nd defendant conducted. This, he said is evidenced in the Nishimoto and JVR International bank statements in bundles C3 and C4.
49. I have reviewed C3 and C4. The majority of the deposits are less than US$100,000. US$190,000 was a significant amount of money transfer in the context of the 2nd defendant’s money changer business at the time.
50. Given the context of the MSN communication, the lack of prior dealings, and the size of the amount involved, the 2nd defendant ought to have satisfied himself as to the source of the sum of US$190,000 as well as the reason why the 1st defendant wanted to get cash in US dollars (and ultimately Hong Kong dollars). This did not happen. The justifications of the 2nd defendant were neither believable nor established.
51. Further, I accept the submissions of Mr Bruce SC, that as the 2nd defendant held a money changer licence, the duty on him to satisfy himself as to the source of the funds and/or the reason for the request for cash to be paid to a particular individual in the same currency as the sum paid in is actually even higher as he is in a privileged position licensed to conduct a money changer business.
52. It is instructive to first note how Millet LJ explained the nature of a “constructive trust” in Paragon Finance v DB Thakerar & Co [1991] 1 All ER 400 at 409E:
“The second class of case is different. It arises when the defendant is implicated in a fraud. Equity has always given relief against fraud by making any person sufficiently implicated in the fraud accountable in equity. In such a case he is traditionally though I think unfortunately described as a constructive trustee and said to be ‘liable to account as constructive trustee.’ Such a person is not in fact a trustee at all, even though he may be liable to account as if he were. He never assumes the position of a trustee, and if he receives the trust property at all it is adversely to the plaintiff by an unlawful transaction which is impugned by the plaintiff. In such a case the expressions ‘constructive trust’ and ‘constructive trustee’ are misleading, for there is no trust and usually no possibility of a proprietary remedy; they are ‘nothing more than a formula for equitable relief’: Selangor United Rubber Estates Ltd. v Cradock [1968] 1 WLR 1555 at p. 1582 per Ungoed‑Thomas J.” (emphasis added)
53. In Westdeutsche Landesbank Girozentrale v Council of the London Borough of Islington [1996] AC 669, the House of Lords considered an interest rate swap agreement entered into between the parties. Subsequently it was held that such financial instruments entered into by local authorities were ultra vires and that such contracts were void. The bank brought an action for restitution against the Council claiming repayments plus interest and the parties disputed as to whether such interest should be awarded on a compounded basis. The court held that in the absence of fraud, equity would not award compound interest except against a trustee. Further the recipient of moneys under a contract subsequently held void or ultra vires did not hold it on a resulting trust.
54. In a dictum at p 715H, Lord Browne‑Wilkinson explained how a constructive trust could arise when the property is “a stolen bag of coins”. The plaintiff relies on that rationale as being applicable to the facts of this case, thereby leading to the imposition of a constructive trust:
“The stolen bag of coins
The argument for a resulting trust was said to be supported by the case of a thief who steals a bag of coins. At law those coins remain traceable only so long as they are kept separate: as soon as they are mixed with other coins or paid into a mixed bank account they cease to be traceable at law. Can it really be the case, it is asked, that in such circumstances the thief cannot be required to disgorge the property which, in equity, represents the stolen coins? Monies can only be traced in equity if there has been at some stage a breach of fiduciary duty, i.e. if either before the theft there was an equitable proprietary interest (e.g. the coins were stolen trust monies) or such interest arises under a resulting trust at the time of the theft or the mixing of the monies. Therefore, it is said, a resulting trust must arise either at the time or the theft or when the monies are subsequently mixed. Unless this is the law, there will be no right to recover the assets representing the stolen monies once the monies have become mixed.
I agree that the stolen monies are traceable in equity. But the proprietary interest which equity is enforcing in such circumstances arises under a constructive, not a resulting, trust. 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. Thus, an infant who has obtained property by fraud is bound in equity to restore it: Stocks v. Wilson [1913] 2 K.B. 235, 244: R. Leslie Ltd. v. Shiell [1914] 3 K.B. 607. Monies stolen from a bank account can be traced in equity: Bankers Trust Co. v. Shapira [1980] 1 W.L.R. 1274, 1282c–e. See also McCormick v. Grogan L.R. 4 H.L. 82, 97.” (emphasis added)
55. At p 761, Lord Browne‑Wilkinson set out that the object of the exercise is to do justice to those who have been unjustly deprived of the property:
“Those concerned with developing the law of restitution are anxious to ensure that, in certain circumstances, the plaintiff should have the right to recover property which he has unjustly lost. For that purpose they have sought to develop the law of resulting trusts so as to give the plaintiff a proprietary interest. For the reasons that I have given in my view such development is not based on sound principle and in the name of unjust enrichment is capable of producing most unjust results. The law of resulting trusts would confer on the plaintiff a right to recover property from, or at the expense of, those who have not been unjustly enriched at his expense at all, e.g. the lender whose debt is secured by a floating charge and all other third parties who have purchased an equitable interest only, albeit in all innocence and for value.
Although the resulting trust is an unsuitable basis for developing proprietary restitutionary remedies, the remedial constructive trust, if introduced into English law, may provide a more satisfactory road forward. The court by way of remedy might impose a constructive trust on a defendant who knowingly retains property of which the plaintiff has been unjustly deprived. Since the remedy can be tailored to the circumstances of the particular case, innocent third parties would not be prejudiced and restitutionary defences, such as change of position, are capable of being given effect. However, whether English law should follow the United States and Canada by adopting the remedial constructive trust will have to be decided in some future case when the point is directly in issue.” (emphasis added)
56. In the Attorney General for Hong Kong v Reid [1994] 1 AC 324, the Privy Council held that a person who makes a secret profit through the acceptance of a bribe would become a debtor in equity to the Crown for the amount of that bribe:
“When a bribe is offered and accepted in money or in kind, the money or property constituting the bribe belongs in law to the recipient. Money paid to the false fiduciary belongs to him. The legal estate in freehold property conveyed to the false fiduciary by way of bribe vests in him. Equity, however, which acts in personam, insists that it is unconscionable for a fiduciary to obtain and retain a benefit in breach of duty. The provider of a bribe cannot recover it because he committed a criminal offence when he paid the bribe. The false fiduciary who received the bribe in breach of duty must pay and account for the bribe to the person to whom that duty was owed. … As soon as the bribe was received, whether in cash or in kind, the false fiduciary held the bribe on a constructive trust for the person injured. …”[38] (emphasis added)
57. In the UK Supreme Court in FHR European Ventures LLP v Cedar Capital Partners LLC [2014] UKSC 45, Lord Neuberger gave the unanimous judgment of the court. The issue in the case relates to whether a bribe or secret commission received by an agent is held by the agent on trust for his principal, or whether the principal merely has a claim for equitable compensation in a sum equal to the value of the bribe or commission. If the bribe or commission is held on trust, the principal has a proprietary claim and therefore, if the agent becomes insolvent, they would have priority over the agent's other unsecured creditors. Secondly, if the proprietary claim to the bribe or commission is established, the principal can trace the bribe or commission in equity. The Supreme Court held that “a bribe or secret commission accepted by an agent is held on trust for his principal”[39] and the principal has a proprietary remedy in addition to his personal remedy against the agent.
58. In Armstrong DLW GmbH v Winnington Networks Ltd [2012] EWHC 10 (Ch), 835, Deputy High Court Judge Stephen Morris QC applied the dictum of Lord Browne‑Wilkinson in Westduetsche when he considered when a property would be subject to a trust:
“127. Mr Joffe puts forward an alternative analysis, which I prefer. It is the thief, B, who becomes the trustee of the property held on constructive trust for A, and when C receives the property he is receiving property from B which is already subject to a trust. This analysis is supported by the well known observation of Lord Browne‑Wilkinson in Westdeutsche Landesbank Girozentrale v. Islington LBC [1996] AC 669 at 715, …
128. Thus on this analysis, at the point of the theft, B becomes constructive trustee for A, and it is at that point that legal and equitable title to the property has become separated. Then, when the property is transferred to C, C is a recipient of property which has already become subject to a pre‑existing trust.
129. Lord Browne‑Wilkinson’s observation has subsequently been the subject of substantial judicial and academic analysis and comment (upon which I did not receive any detailed submission from the parties). Nevertheless, in my judgment, in so far as it relates specifically to the case of theft or a bare transfer (and perhaps also where there is a contract between A and B which is void), it is accepted as representing the law: see Goff & Jones, supra, §4‑040, and Chitty, supra, §29‑160.” (emphasis added)
59. Paragraph 128 of Armstrong dealt specifically with the timing when the property will become subject to a trust. This would be a relevant consideration in the context of the 2nd defendant, a recipient of property. If at the time of his receipt, the property has already become subject to a pre-existing trust, then the equitable remedy may become available to the plaintiff. This was considered in Grupo Pacifica Incorporada v Worldwide Marine Product Limited & Ors HCA 2640/2014, unreported (Court of First Instance, 29 July 2015). The court dismissed the application for leave to appeal. Unlike the position in this case as stated in Woo DHCJ’s judgment in JS Microelectronics Ltd v Achhada Dilip G & Anor [2013] 1 HKLRD 334, in Grupo, the recipients were already in possession of the property when the recipients became aware of the fraud, ie when the alleged forged document was sent to them. This factor weigh against the continuation of the Mareva injunction and the application for leave to appeal was dismissed.
60. It is clear from the authorities that equity grants relief against fraud by making any person sufficiently implicated in the fraud accountable in equity. Hence, where property is received or obtained by fraud, equity imposes a constructive trust on the fraudulent recipient or on a recipient who knowingly retains or receives the property of which the plaintiff has been unjustly deprived. The trust property is recoverable and traceable in equity.
61. In cases of fraud or theft, at the time of theft, the thief becomes the constructive trustee for the person who has been unjustly derived of the property. When that property is transferred to another person, the recipient receives the property which has become subject to a pre‑existing trust. The person unjustly deprived of the property is entitled to seek restitution from the recipient subject to defences such as bona fide purchaser without notice, ministerial capacity or a change of position of the recipient. The same would apply in the case of a bare transfer.
62. In the above examples, the person who has been unjustly deprived of the property may seek restitution against the thief and the recipient. The property is recoverable and traceable in equity.
63. Similarly, in situations where an agent or someone in a fiduciary position is concerned, a defendant who makes a secret profit or receives a secret benefit which consists of a bribe would become a debtor in equity to the principal. An agent who accepts or receives a bribe or secret commission as a result of his fiduciary position would be treated as having acquired that benefit on behalf of his principal so that it is beneficially owned by the principal. The plaintiff’s case here is not one of agency though.
64. A recipient may receive the trust property in different capacities. Where the property has been received beneficially, he may be liable to give restitution of its value in an action for knowing receipt.[40] It is necessary therefore to turn to the test of knowledge of “knowing receipt”.
65. In Bank of Credit and Commerce International (Overseas) Ltd & Anor v Akindele [2001] Ch 437, the test of knowing receipt is set out. The appellants were the liquidators contending that Akindele was liable to account to them for a sum of money as a construction trustee under both the knowing assistance and knowing receipts heads of constructive trust. One of the issues for the court was whether Akindele was liable for receiving the divestiture payment with knowledge of the breaches of trust of the employers, ie “knowing receipt”.
66. The court reviewed the law on knowing receipt:
1. Quoting Hoffmann LJ in El Ajou v Dollar Land Holdings Plc [1994] 1 All ER 685, 700, three essential requirements of knowing receipt have to be established:
“34. …. ‘ … first, a disposal of [the plaintiff’s] assets in breach of fiduciary duty; secondly, the beneficial receipt by the defendant of assets which are traceable as representing the assets of the plaintiff; and thirdly, knowledge on the part of the defendant that the assets received are traceable to a breach of fiduciary duty.’ ”
2. Dishonesty is not a necessary ingredient of knowing receipt. Nourse LJ, at 450C–F summarised the authorities.
i. Belmont Finance Corporation v Williams Furniture Ltd (No 2) [1980] 1 All ER 393 is a clear authority for the proposition that dishonesty is not a necessary ingredient of liability in knowing receipt.
ii. In Agip (Africa) Ltd v Jackson [1990] Ch 265, 292A Millett LJ held that in knowing receipt, it was immaterial whether the breach of trust was fraudulent or not.
iii. In Eagle Trust Plc v SBC Securities Ltd[1993] 1 WLR 484 at 497E, Vinelott J held that:
“… it is only necessary to show that the defendant knew that the moneys paid to him were trust moneys and of circumstances which made the payment a misapplication of them …”
3. Nourse LJ then summarised the test of knowledge for knowing receipt at p 455:
“ What then, in the context of knowing receipt, is the purpose to be served by a categorisation of knowledge? It can only be to enable the court to determine whether, in the words of Buckley LJ in Belmont Finance Corpn Ltd v Williams Furniture Ltd (No 2) [1980] 1 All ER 393, 405, the recipient can ‘conscientiously retain [the] funds against the company’ or, in the words of Sir Robert Megarry V‑C in In re Montagu's Settlement Trusts [1987] Ch 264, 273, ‘[the recipient’s] conscience is sufficiently affected for it to be right to bind him by the obligations of a constructive trustee’. But, if that is the purpose, there is no need for categorisation. All that is necessary is that the recipient's state of knowledge should be such as to make it unconscionable for him to retain the benefit of the receipt.
For these reasons I have come to the view that, just as there is now a single test of dishonesty for knowing assistance, so ought there to be a single test of knowledge for knowing receipt. The recipient's state of knowledge must be such as to make it unconscionable for him to retain the benefit of the receipt. A test in that form, though it cannot, any more than any other, avoid difficulties of application, ought to avoid those of definition and allocation to which the previous categorisations have led. Moreover, it should better enable the courts to give common‑sense decisions in the commercial context in which claims in knowing receipt are now frequently made, paying equal regard to the wisdom of Lindley LJ on the one hand and of Richardson J on the other.” (emphasis added)
67. Akindele was cited with approval in Thanakharn Kasikorn Thai Chamkat v Akai Holdings Ltd (2010) 13 HKCFAR 479. Lord Neuberger observes at §137:
“If the recipient’s reliance on the alleged agent’s apparent authority, when accepting the asset from the alleged agent on behalf of the principal, was dishonest or irrational, it seems to me that it would be unconscionable for the recipient to retain the asset against the wishes of the principal, or, to put it another way, the recipient would have the relevant ‘actual knowledge (or the equivalent)’. On the other hand, if the reliance was merely negligent, then I doubt that the unconscionability test would, at least normally, be satisfied — at best it would amount to ‘constructive knowledge’.”
68. It is then necessary to examine the degree of awareness required for liability to be established. In Snell’s Equity (33rd edition) at §§30‑071 and 30‑072:
“(a) Beneficial receipt. Where the defendant receives the property beneficially he may be liable to give restitution of its value in an action for knowing receipt. …
(b) Fault. The defendant must be at fault when he receives the trust property. This justifies his continuing liability to restore its value to the claimant even after he may no longer have the original property to restore by a proprietary claim. Fault means that the defendant must know enough of the facts surrounding the misapplication of trust property to make it unconscionable for him to retain the misapplication of trust property to make it unconscionable for him to retain the benefit of his receipt. The degree of knowledge which might make the defendant’s conduct unconscionable varies with the context. This allows the court to set a standard that is appropriate to exigencies of the transaction in question.
The degree of awareness which might fix the defendant with liability varies on a sliding scale between two extremes. At one end, the defendant may actually know the possibility that the money is paid to him in breach of trust or without proper authority. This would clearly be unconscionable. A defendant’s wilful decision to overlook a possible breach of trust or to his deliberate failure to make reasonable inquiries as to that possibility would be treated in the same way. At the other end of the scale, a mere negligent failure to appreciate that transfer to him was possibly improper would not be unconscionable. But the defendant’s failure to appreciate a probable breach which would have been obvious to a reasonable person in his situation may be enough to make his receipt unconscionable, at least in situations where there is an established practice of making inquiries into title. But in gratuitous transactions, where the defendant has no reasonable justification to rely unquestioningly on the trustee’s authority to transfer the property to him, it may be reasonable to impose a duty of inquiry on him. The recipient’s knowledge of facts that would put a reasonable person on inquiry might amount to unconscionable knowledge.” (emphasis added)
69. There is therefore a single test of knowledge for knowing receipt. The recipient’s state of knowledge must be such as to make it unconscionable for him to retain the benefit of the receipt. The defendant must be at fault when he received the trust property, that is, the defendant must know enough of the facts surrounding the mis‑application of the trust property to make it unconscionable for him to retain the benefit of his receipt. If the defendant had actual knowledge, that would be adequate. A defendant’s wilful decision to overlook a possible breach of trust or to his deliberate failure to make reasonable enquiries as to that possibility would render the receipt unconscionable. A reckless failure to appreciate a probable breach of trust (that is such probable breach would have been obvious to a reasonable person in his situation) would be adequate to render the receipt unconscionable. In the case of mere negligent failure to appreciate the probable breach of trust, it is unlikely that the unconscionability test would be satisfied. In other words, the approach to consider whether knowing receipt is established is to consider whether the circumstances would be such that an honest and reasonable person in the position of the defendant would put him on enquiry as to the source of the property being transferred to him.
70. The criminal conviction of the 1st defendant, the main perpetrator of the fraud, supports actual knowledge of the fraud on his part. As to the 2nd defendant, as discussed in §§43–51 above, I find that he was willfully overlooking the possible fraud or breach of trust and deliberately or recklessly not making reasonable inquiries of possible breaches when it would have been obvious to a reasonable person in his situation. This is adequate to find that his receipt of the US$190,000 was unconscionable.
71. Mr Pirie relies on a passage at §30‑076 in Snell's Equity, where the degree of fault imposed on somebody handling money in a ministerial capacity is discussed:
“(b) Fault. A higher degree of fault is required to justify the liability of a person who merely handles money in a ministerial capacity than would be sufficient to justify liability for knowing receipt in the same circumstances. Where the defendant acts as an agent, his primary duty is to comply with his principal’s instructions. …”
72. In Bith, LLC v GCA Forex Corp HCA 1743/2008, unreported (Court of First Instance, 6 May 2009), Chu J considered the defence of ministerial capacity. In that case, the defendant had received from an escrow account a sum of money that it has transferred out. The defendant denied its knowledge of any fraudulent scheme. It relied on the defence of ministerial capacity as it was acting as an agent and hence its liability is not strictly restitutionary. The court rejected the argument because even on the defendant's case, the defendant did not act in conformity with its duty as an agent when it transferred a sum of money to the personal account of its manager. The transfer was admitted as being for the personal purpose of an individual, a member of the family which used the defendant as a corporate vehicle for making financial investment. On that basis, the defendant did not deal with the money in any ministerial capacity and was in fact intermeddling in trust money.
73. In this case, the 2nd defendant had a money changer license. I accept the submissions of Mr Bruce SC that the 2nd defendant was in a privileged position and therefore a higher duty would be expected of him. Given the amount of the fund involved as compared to its normal business, he should have made enquiry as to the source of the fund even accepting the 2nd defendant’s case that he was merely exchanging money from US dollar to Hong Kong dollar for the 1st defendant (which he was not). The argument of ministerial capacity does not assist the 2nd defendant at all for one cannot be allowed to rely on this argument by being reckless or negligent as to its duty. An honest and reasonable person would have enquired about the funds before conducting the money exchange. This is particularly so for a person with money changing license. The current guidelines for the money changing business are not applicable to the facts here but it does reflect common sense and reasonable practice expected of a licensed money changer.
74. Mr Pirie also referred to Twinsectra Limited vs Yardley [2002] UKHL 12, stating that the plaintiff is not alleging dishonesty here. In Twinsectra, the court was considering the situation where solicitors held money on behalf of a client in connection with the purchase of land. The plaintiff commenced proceedings contending that the first solicitor allegedly dishonestly assisted the second solicitor in breach of trust. The holding of money for a purpose of acquiring the property in an escrow account of a solicitor is adequate for a trust to be created. As to the liability of an accessory to a breach of trust, the majority (Lord Millett dissenting) held that:
“A person may dishonestly assist in the commission of a breach of trust without any idea of what a trust means. The necessary dishonest state of mind may be found to exist simply on the fact that he knew perfectly well that he was helping to pay away money to which the recipient was not entitled.”[41]
75. Lord Hutton formulated the test thus: “for liability as an accessory to arise”, “the defendant must himself appreciate that what he was doing was dishonest by the standards of honest and reasonable men”.[42] The court was dealing with a case of knowing assistance following the Privy Council decision of Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 and thereby requiring dishonesty to be established.
76. In this particular case, the plaintiff is not relying on a knowing assistance to establish liability. Twinsectra does not assist the 2nd defendant.
77. Clarke LJ has summarized the development of the defence of change of position emanating from the case of Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 in his judgment in Niru Battery Manufacturing Company & Anor v Milestone Trading Limited & Ors [2004] 2 WLR 1415 at §§145–162, in particular, the following passages:
“[147] There is to my mind no indication in the speech of Lord Goff or of Lord Templeman to suggest that the defence of change of position is only lost where the defendant is guilty of dishonesty or other wrongdoing, although it would of course be lost in those circumstances. The underlying principles to be derived from the speech of Lord Goff seem to me to be these.
(i) The question is whether it would be unjust to allow restitution (or restitution in full). (ii) It will be unjust to allow restitution where an innocent defendant’s position has so changed that the injustice of requiring him to repay outweighs the injustice of denying the claimant restitution. (iii) The defence of change of position is not, for example, available to a defendant who has changed his position in bad faith, as where he has paid away the money with knowledge of the facts entitling the claimant to restitution. (iv) Nor is it available to a wrongdoer. (v) In general terms, the defence is available to a defendant whose position has so changed that it would be inequitable to require him to make restitution or to make restitution in full.
[148] The emphasis in Lord Goff’s speech is upon whether it would be unjust or inequitable to allow restitution. It is not upon whether the defendant has been dishonest. …
[149] In short, as I read the speeches in Lipkin Gorman case, the essential question is whether it would be inequitable or unconscionable, and thus unjust, to allow the recipient of money paid under a mistake of fact to deny restitution to the payer.” (emphasis added)
78. The essential question as laid down by Clarke LJ depends on the facts of the particular case. The 2nd defendant seems to suggest that as he had paid out the money to the 1st defendant, it should be relieved of liability. I accept the plaintiff's submissions that what the 2nd defendant did with the trust property is neither here nor there. The 2nd defendant’s act of paying out to the 1st defendant perpetrated the loss of the plaintiff and it would be inequitable or unconscionable to allow the 2nd defendant to deny restitution to the plaintiff. I do not accept that a change of position defence would be available or applicable in the circumstances of this case. Putting the dubious position of the US$600,000 aside, it would be inequitable and unjust for a person in the circumstances and position of the 2nd defendant to deny liability simply by distributing the property to the 1st defendant or indeed a third party, and paying into court whatever he has retained. The unconscionability of the 2nd defendant’s acts deprived him of any defence of the change of position relied upon by Mr Pirie.
79. In Foskett vs Mckeown & Ors [2001] 1 AC 102, the court was concerned with an expressed trust by reason of certain purchasers entrusting a sum of money to M who, in breach of trust, used part of the money from the purchasers to pay annual premiums for two life insurance policy. He committed suicide and the purchasers claimed return of the trust property, tracing to the proceeds of the insurance policy. The court held that the remedy claimed by the purchasers was a proprietary remedy and therefore they can trace and recover from the proceeds of the life insurance policy the premiums of which were paid out of their trust money together with interest. Having determined that the purchasers have equitable proprietary rights to the sum assured which was paid in the terms of the policy, the purchasers would be entitled to trace the funds into the proceeds of the policy.
80. Once a proprietary right is established, there is a range of remedies which include constructive trust. The plaintiff, the owner of the property, is entitled to seek relief against anyone who has wrongfully dealt with the property. The wrongdoer’s acts in dealing with, handling or disposing of the trust property or mixing it with his own and use it for other purposes would not affect the plaintiff’s rights if he has successfully traced the property.[43]
81. The fact that the 2nd defendant has disposed of all or part of the US$190,000 does not affect the plaintiff’s right against the 2nd defendant on the basis of a constructive trust. The US$190,000 was paid into Nishimoto’s account by Linawati, and it was paid out to the 1st defendant. The way in which the 2nd defendant handled the whole or part of the trust property evidences his knowing receipt of the trust property thereby justifying the right of the plaintiff in seeking restitutionary remedy against him.
82. The fraud instigated by the 1st defendant was couched in terms of sales of SD cards under a contract entered into between the plaintiff and FCG. The goods were never delivered and there was never any evidence that such goods would be delivered. The 1st defendant and Linawati caused the purchase price for the SD cards in this purported sales contract to be paid into Linawati’s account. The 1st and the 2nd defendants had conversations about receipt of the sum of US$190,000 and for this to be converted into cash to be received by the 1st defendant in Hong Kong. This arrangement between the 1st and 2nd defendant started at 10:29am on 9 July 2011 before the money was transferred to Linawati’s account and before the money was received by the 2nd defendant.
83. The MSN records of the 1st and 2nd defendants do not evidence any discussion about sales of SD cards as was suggested by the 2nd defendant in his police statements. The MSN records also do not suggest that the 2nd defendant was to act as a money changer as he purported to suggest at this trial. The discussions were clearly for US dollars to be transferred into the account of Nishimoto operated by the 2nd defendant, and then to be converted into cash for the 1st defendant. The conversion of part of this US$190,000 into Hong Kong dollars was a result of a check conducted by the 2nd defendant as to the availability of cash in US dollars.
84. This amount of US$190,000 is not the usual amount of money that would be transacted by the 2nd defendant whether in his money changing business or otherwise. There is also no evidence that the 1st and 2nd defendants have transacted in the past in relation to any sale of SD cards thereby allowing the 2nd defendant to place trust on the 1st defendant so as to assume that the money was from the 1st defendant or was for purchase of SD cards. The suggestion by counsel of the 2nd defendant that cash would have been needed for sale of SD cards necessitating the money to be transferred to the 2nd defendant and for cash to be arranged by him to be paid out to the 1st defendant is simply unsustainable.
85. As an honest and reasonable person, and in particular as a reasonable money changing license holder, the 2nd defendant ought to have made inquiry as to the source of the fund. Not only did he fail to make inquiry with the 1st defendant, he also accepted that at the time of transfer he had no idea as to who the transferor was. Yet, in those circumstances, the 2nd defendant had no difficulty and without hesitation caused cash in Hong Kong dollars to be paid out to the 1st defendant in Hong Kong for an equivalent amount of US$129,933 and possibly also the US$600,000 on the same day.
86. I accept the plaintiff's contention that a constructive trust was created over the sum of US$195,156 by reason of the 1st defendant's misappropriation of the said sum before the 2nd defendant's receipt of US$190,000. The plaintiff therefore had and continues to have proprietary interest in the sum of US$195,156. The 2nd defendant has beneficially received US$190,000 as part of the trust property and as the trust has already been created prior to its receipt, it is traceable and has been traced and established as representing the asset of the plaintiff. The 2nd defendant had either willfully or willfully shut his eyes and/or recklessly failed to make any inquiry relating to the source or purpose of the amount of US$190,000 that was transferred to the Nishimoto’s account. The state of knowledge of the 2nd defendant as I have found above makes it unconscionable and unfair for the plaintiff to be deprived of its assets and for the 2nd defendant to retain the benefit of the receipt.
87. As a result, subject to any defence of the 2nd defendant, a restitutionary claim is established by the plaintiff against the 2nd defendant for the sum of US$190,000.
88. The defence of ministerial capacity does not assist the 2nd defendant. Given his privileged position as a licensed money changer, it is reasonable to expect the 2nd defendant to be even more alert to the need to enquire the source of money and raises the hurdle by which he has to overcome. Furthermore, I have found that the MSN discussions was neither for the sale of SD cards nor for money changing business. It would be unconscionable and unjust for the 2nd defendant to be able to rely on the ministerial capacity defence.
89. Insofar as any suggestion that the 2nd defendant was merely acting as an agent of the 1st defendant, such argument can be easily dismissed as the 2nd defendant had no idea of the identity of the transferor at the time of transfer. There cannot possibly be any agency upon which the ministerial capacity could have been relied upon as a defence.
90. The change of position defence is also dismissed. It is only available if the change of position was made in good faith and I do not find that. The mere rapid transfer out of sums to the 1st defendant when the trust property was received by the 2nd defendant does not amount to a change of position defence exempting the 2nd defendant’s liability. Furthermore, once a proprietary right has been established, the 2nd defendant’s act in dealing with, handling or disposing of the trust property would not affect the plaintiff’s right.
91. As to the defence of bona fide purchaser without notice, it is plain that it cannot be established.
92. As a result, I find in favour of the plaintiff’s claim and the 2nd defendant is liable to the plaintiff for the sum of US$190,000.
93. In the light of the findings above, costs should follow the event and the 2nd defendant should bear and pay the plaintiff’s costs.
94. Given that there is an injunction freezing the 2nd defendant’s account, the parties are at liberty to seek appropriate directions for the final disposal of all other issues in this case.
| (Teresa Cheng SC) | |
| Recorder of the High Court |
Mr Andrew Bruce SC and Ms Gigi Lo, instructed by Chak & Associates, for the plaintiff
Mr Nicholas Pirie and Mr David Khosa, instructed by Wong & Co, for the 2nd defendant
[1] C1/2073, Linawati’s police statement dated 6 January 2012, p 4.
[2] C1/2152, JS Microelectronics Limited’s purchase order dated 8 July 2011.
[3] C1/2067, Fortune Century Global’s invoice dated 8 July 2011, Number INV‑110709.
[4] C1/2066, Fortune Century Global’s invoice dated 8 July 2011, Number INV‑110709.
[5] A2/235, HSBC foreign currency account counter withdrawal form dated 9 July 2011, amount transferred US$195,156.
[6] A1/94, District Court's Reasons for Verdict of HKSAR v Achhada Dilip G, §28; C3/2432, Nishimoto’s HSBC bank statement dated 30 July 2011, p 3; C1/2077, Linawati’s police statement dated 6 January 2012, p 8: identifying the HSBC bank account number of Nishimoto.
[7] C1/2082, Linawati’s police statement dated 6 January 2012, p 13.
[8] A2/282, email from the 2nd defendant to Fung Kee dated 9 July 2011 at 1:15pm stating that the transfer had been made; C3/2432, Nishimoto’s HSBC bank statement dated 30 July 2011, p 3, stating a withdrawal of US$129,933 on 9 July 2011 with “Details” as “BIB‑DILIP”.
[9] A2/157, MSN record between 2nd defendant and “Wong” on 9 July 2011 at 3:20:01pm; See also: A1/105, District Court’s Reasons for Sentence of HKSAR v Achhada Dilip G: “… PW5 [Mr Puri Vikas, the proprietor of Nishimoto Manufacturing Company] arranged for the defendant [ACHHADA Dilip G] to collect HK$1,010,230 cash from PW8 [Mr Lam Lee Loi, proprietor of G‑Three Foreign Exchange situated at Middle Road] …”
[10] A2/262
[11] A1/84‑102, District Court’s Reasons for Verdict of HKSAR v Achhada Dilip G. A1/104‑108, District Court’s Reasons for Sentence of HKSAR v Achhada Dilip G.
[12] A1/130‑131, JS Microelectronics Ltd v Linawati HCA 1288/2011, 5 April 2012.
[13] A1/46‑51, Injunction, HCA 1202/2012 dated 12 July 2012.
[14] A1/52‑53, Final Judgment, HCA 1202/2012 dated 15 August 2013.
[15] A1/63‑73, Affirmation of the 2nd defendant dated 7 September 2015.
[16] A1/64, Affirmation of the 2nd defendant dated 7 September 2015, §4.
[17] A2/135, Affirmation of the 2nd defendant dated 7 September 2015, Exhibit PV1.
[18] A2/154‑157, Affirmation of the 2nd defendant dated 7 September 2015, Exhibit PV9, records of MSN exchanges; See also §32.
[19] A2/135, Affirmation of the 2nd defendant dated 7 September 2015, Exhibit PV1.
[20] A2/212‑214, the 2nd defendant’s police statement made on 8 March 2012; A2/216‑222, the 2nd defendant’s police statement made on 11 January 2012; A2/180‑182, English translation of the 2nd defendant’s police statement made on 8 March 2012; and A2/183‑186, English translation of part of the 2nd defendant’s police statement made on 11 January 2012.
[21] A2/181, English translation of the 2nd defendant’s police statement made on 8 March 2012, p 2.
[22] B/1016, Witness Statement of the 2nd defendant, §26: “On the 7th July 2011 … $190,000.00 was added and then the sum of US$129,000.00 was transferred to Wealth Trader Co. (Fung Kee), …”
[23] See §30 and §31.
[24] B/1014, Witness Statement of the 2nd defendant, §20.
[25] See §§32–37.
[26] A2/137, showing: “… [SNo.] 9 [Transaction Date] 11/07/2011 [Narration] AGST USD 60000 PAID TO DILIP CHADDA…”
[27] C4/2638, JVR International’s HSBC bank statement dated 30 July 2011, p 2.
[28] See §8c and footnote 8.
[29] A2/262.
[30] A2/184‑185, English translation of part of the 2nd defendant’s police statement made on 11 January 2012, §4; A2/216‑222, the 2nd defendant’s police statement made on 11 January 2012.
[31] See §32 below.
[32] A2/154‑156, MSN record between “ddr ram” and “gary ho” on 9 July 2011.
[33] A2/154‑156, MSN record between “ddr ram” and “gary ho” on 9 July 2011.
[34] A2/156, MSN record between “ddr ram” and “gary ho” on 11 July 2011.
[35] C3/2432, Nishimoto’s HSBC bank statement dated 30 July 2011, p 3; see also §8c.
[36] C3/2634, extracts of transactions in HSBC bank statements of Nishimoto with notations of “dilip”, marked by the 2nd defendant, one was deposit of US$190,000 and the other was withdrawal of US$129,933.
[37] C3/2432, Nishimoto’s HSBC bank statement dated 30 July 2011, p 3.
[38]Attorney General for Hong Kong v Reid [1994] 1 AC 324 at 331B–E.
[39]FHR European Ventures LLP v Cedar Capital Partners LLC [2014] UKSC 45 at §46.
[40]Snell's Equity, §30‑071.
[41]Twinsectra Limited vs Yardley [2002] UKHL 12 at §24 per Lord Hoffmann.
[42]Twinsectra Limited vs Yardley [2002] UKHL 12 at §35.
[43]Foskett vs Mckeown & Ors [2001] 1 AC 102 at 128D–E, 129B–D.