GRUPO PACIFICA INCORPORADA v. WORLDWIDE MARINE PRODUCT LTD AND OTHERS

HCA 2640/2014

[2020] HKCFI 1488

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2640 OF 2014

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SUMMARY ASSESSMENT OF COSTS

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1.  On 11 December 2019 the plaintiff in this matter issued a summons seeking a “wasted costs” order against the solicitors who had acted for the 1^st Defendant in the trial of this matter (“the Solicitors”).

2.  I heard and determined that application on 15 May 2020.  I dismissed the application, and awarded costs on an indemnity basis to the Solicitors.  I directed further that the costs be assessed summarily, following an exchange of submissions by the parties.

3.  The costs claim made by the Solicitors amounts to $1,311,330.20.  Reductions to the claimed costs totalling $941,510.20 (over 70%) are proposed on behalf of the plaintiff.  In large measure the basis for the proposed reductions is that the time incurred on behalf of the Solicitors was “excessive” having regard to the scope and nature of the application.  The plaintiff has approached the summary assessment somewhat akin to a taxation rather than by seeking to identify items unreasonably incurred.

4.  In addition, it is suggested by the plaintiff that there has been duplication of work as between (senior) counsel briefed to advise on the application, and (junior) counsel briefed to appear at the hearing.

5.  My view, as previously expressed, was that the application had no merits, and that this ought to have been readily apparent. I agree that there is some merit in the submission that certain items of costs, in particular the perusal and preparation of documents appear unreasonably high in amount, and have reviewed the claim accordingly. 

6.  The order was made on an indemnity basis however, and the Solicitors are entitled to be reimbursed for all of their costs except to the extent that these are unreasonable.  The benefit of any doubt as to whether an item is unreasonable is to be given to the receiving party.  Having considered the costs on that footing, my assessment of the Solicitors’ entitlement, and the plaintiff’s liability, is in the sum of HK$1,100,000.00.  There is to be an order accordingly.

Ms Athena Wong, instructed by Payne Clermont Velasco, for the plaintiff

Mr Vincent Lung, instructed by Mayer Brown, for Messrs. CC Partners

HCA 2640/2014

[2020] HKCFI 1486

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2640 OF 2014

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J U D G M E N T

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1.  This application relates to a matter which I previously heard and determined at trial. The current application is made by a summons taken out by the plaintiff on 11 December 2019 seeking a “wasted costs” order against the solicitors (“D1’s Solicitors”) who acted for the first defendant (“D1”). At the conclusion of that application I dismissed the plaintiff’s application and awarded costs to be to D1 on an indemnity basis. This summarises briefly my reasons for doing so.

2.  The underlying basis of any application for wasted costs against a solicitor is that costs have been incurred which otherwise would not have been incurred due to the solicitor in question having acted improperly or unreasonably.  Jurisdiction to make such orders arises both under the inherent jurisdiction, and also, specifically, under RHC Orders 52A and 62.

3.  There are 5 specific complaints made on behalf of the plaintiff; these being that D1’s Solicitors:

Ground 1:    “lent assistance in advancing misleading case/pursuing hopeless defence”;

Ground 2:    “connived incomplete disclosure in D1’s response to P’s” request for particulars;

Ground 3:    “connived incomplete disclosure re P’s Notice to Admit Facts”;

Ground 4:    “made false statements to P re licence to operate money service”; and

Ground 5:    “assisted in D1’s continuous breach of the Disclosure Order”.

4.  It is common ground between the parties that there is a two‑stage process in considering any application for a wasted costs order.  At the first stage the Court must be satisfied that it has before it evidence which, if unanswered, would be likely to lead to a wasted costs order being made, and that the extent or amount of wasted costs is likely to be such as to justify the application for a wasted costs order.  At the second stage the court is to consider whether it would be appropriate to make such an order after having considered the reasons advanced against the making of such an order.

5.  It was also common ground at the hearing before me that it was only the first stage that was to be considered at present.

6.  Having read the written submissions of counsel on behalf of the parties, and having heard submissions from counsel for the plaintiff, I was not at all satisfied that a prima facie case had been demonstrated.

7.  The grounds of complaint made on behalf of the plaintiff have, of course, to be understood in context.  The facts of the case were such that there was no dispute that D1 had received funds belonging to the plaintiff to which it had, or over which it asserted, no right or entitlement.  It was the defence case that the funds had been received in the course of D1’s business, and that the funds in question had been dispersed on the direction of others following receipt.  The claim was made on the basis of money had not received and/or a constructive trust and was defended on the basis of their having been a change of position on the part of D1 and/or “ministerial receipt”.  Following trial those defences were rejected.

8.  The core of the complaint presently made by the plaintiff is that the business which was being operated by D1 was that of an unlicensed money exchange service.  Specifically, it is asserted that the running of such a business without a licence is a contravention of provisions of the Anti-Money Laundering Ordinance (“AMLO”); that illegality had been raised as an issue by the plaintiff in its Reply; and that D1’s Solicitors should therefore have known that the defences of change of position and/or ministerial receipt would be bound to fail.  This submission is made, it appears, on the premise that illegality of the sort ascribed to D1 would certainly negate any element of good faith in D1’s conduct or, put the other way, would comprise and constitute bad faith on the part of D1.

9.  I do not accept that premise.  Whether the illegality evidences bad faith (or negatives good faith) is a matter to be considered having regard to the whole of the circumstances.

10.  Perhaps of equal significance however is that I do not accept that illegality by the failure to obtain a necessary licence was a pleaded issue.  Illegality was adverted to by the plaintiff in its pleaded reply, but only in vague and imprecise terms, and without any reference to the absence of a licence giving rise to illegality.   Nor was there any pleading by the plaintiff to the effect that such illegality would evidence bad faith conduct on the part of D1. 

11.  The plaintiff now seeks to rely on one answer given in cross examination as a plank on which to build specific complaints regarding the apparent absence of this licence.  By the application for the wasted costs order it is suggested that there was misconduct, or at the least negligence on the part of D1’s Solicitors in not identifying this issue, in allowing the defence to proceed in the face of what is said to be clear illegality, and in representing D1 in those proceedings.  It is submitted on behalf of the plaintiff that the existence of illegality made any contention of good faith on the part of D1 such a ‘non-starter’ as to mean that the defence could not be properly advanced.  As appears above, I do not agree.

12.  Nor do I agree therefore that the material before me comes even close to showing prima facie misconduct on the part of D1’s solicitors, notwithstanding the fact that the defence was one which it would always have been difficult to establish.

13.  For those reasons, in summary, I dismissed the application.

14.  In considering costs, I was advised by counsel appearing for D1 that a Calderbank offer had been made in April this year seeking to resolve this application on a “drop hands” basis.  That offer was not taken up when, in my view, clearly it should have been since, as appears above, it was an application which had no merit, not even achieving the low bar of demonstrating a prima facie case. 

15.  Therefore, I made a costs order in favour of D1 on an indemnity basis, with directions that written submissions be made as to the assessment of costs.

Ms Athena Wong, instructed by Payne Clermont Velasco, for the plaintiff

Mr Vincent Lung, instructed by Mayer Brown, for Messrs. CC Partners

HCA 2640/2014

[2018] HKCFI [2584]

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION No 2640 OF 2014

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REASONS FOR DECISION

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Introduction

1.  The plaintiff was the victim of D1’s fraud.  After trial, Recorder Houghton SC gave judgment on 24 September 2018 in favour of the plaintiff together with costs, on a nisi basis.

2.  The plaintiff has taken out 2 summonses:

(1)   To seek to vary the costs order nisi on the ground that it had done better than its sanctioned offer and that D1’s litigation conduct was unreasonable.  The plaintiff sought indemnity costs, and enhanced interest of 10% above judgment rate (“enhanced rate”) on the judgment sum and indemnity costs.

(2)   To seek costs for its application for the Mareva injunction against D1.

3.  D1’s solicitors have come off the record on 8 November 2018.  I was satisfied that D1 had been served with the summonses and that it had made no objections.

4.  For the 1^st summons, I made that the orders sought with some adjustments:  

(a)   On the judgment sum of US$449,963.60, D1 shall pay interest from the date of the writ to 2 March 2016 at the rate of P+1% (as ordered by Recorder Houghton SC) but interest thereafter be at an enhanced interest rate of 10% above judgment rate from 3 March 2016 until full payment (as varied);

(b)   D1 shall pay costs of the plaintiff in the action on party and party basis (as ordered by Recorder Houghton SC) up to and including 2 March 2016 and thereafter on indemnity basis (as varied); this provision shall apply to all costs reserved; 

(c)   D1 shall pay interest on such indemnity costs at an enhanced interest rate of 10% above judgment rate until full payment.

5.  For the 2^nd summons, I ordered all costs reserved under the orders dated 23 December 2014, 2 January 2015 and 16 January 2015 be to the plaintiff to be borne by D1, including certificates for counsel, to be taxed on party and party basis.  For the avoidance of doubt, interest shall be on the usual judgment rate.

6.  Here are my reasons.

Indemnity costs and enhanced interest rate

7.  Order 22, rule 24 of the Rules of the High Court provides that wherea plaintiff does better than its proposed sanctioned offer, the court may grant it costs on indemnity basis and enhanced interest rate on the judgment sum after the latest date on which the sanctioned offer could have been accepted without leave of the court.  The court will make such orders unless it is unjust to do so.

8.  In considering whether it is unjust to do so, the court is required to take into account all the circumstances of the case, including the terms of the sanctioned offer, the stage in the proceedings in which the sanctioned offer was made, the information available to the parties at the time the sanctioned offer was made and the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the offer to be made or evaluated: Order 24, r 24(5).

9.  The court should also consider the factors set out in Order 62, rule 5(1) when exercising its discretion as to costs, including the underlying objectives and the conduct of the parties.

10.  The plaintiff made a sanctioned offer on 3 February 2016 to accept US$440,000 in settlement of the case.  This was made after:

(a)   the pleadings have been closed;

(b)   the plaintiff has filed affirmation evidence in support of its application for the Mareva injunction; and

(c)   the Court of Appeal has overturned Chung J’s discharge of the  Mareva injunction and restored the Mareva injunction.

The last day for acceptance without leave of the court was 2 March 2016.

11.  The rest of the information D1 had was about its defence, which was exclusively within D1’s possession.

12.  Regrettably, D1 (through its solicitors) rejected the sanctioned offer in a hostile and dismissive manner, describing the plaintiff’s offer as “not genuine” and that it was “an attempt to try and seek higher interest rate and costs on indemnity basis at the conclusion of the case”.  D1 never came back with another offer.

13.  The plaintiff plainly did better than the sanctioned offer, as Recorder Houghton SC awarded damages in the sum of US$449,963.60 plus pre-judgment interest at P+1% from the date of the writ to judgment and thereafter at judgment rate. The plaintiff also got costs.

14.  Had D1 accepted the offer, the case would have been disposed of without a trial 31 months earlier.

15.  Since D1 had sufficient information to make an informed decision on whether or not to accept the sanctioned offer, its refusal of the sanctioned offer was totally unreasonable.  An order for indemnity costs and enhanced interest rate would not be unjust.

D1’s unreasonable defence

16.  D1’s rejection of the sanctioned offer was objectionable in the light of its unreasonable defence.  The unreasonable defence was recognized by the Court of Appeal at an early stage of the proceedings when the plaintiff appealed against Chung J’s discharge of the Mareva injunction.  Cheung JA commented that the transaction relied on by D1 for its defence was “extremely unusual” and that the payment instructions were “most unusual” (CACV 217/2015, 28 January 2016, §§5.6 and 5.8).

17.  The judgment of Recorder Houghton SC held that the defence of change of position was devoid of merits (§47) for lack of documents.  The other defence of ministerial receipt was only faintly argued (§49).

18.  Recorder Houghton SC also found that D1 had, in the illegitimate transaction, failed to act in a commercially acceptable way (§50).  D1 had chosen to act as a money exchange service with no consideration as to why it had been asked to do so, and no enquiry as to the source of funds and the basis of the underlying transaction (§47).

19.  These proceedings should never have been defended.  Damages, costs and statutory interest would not compensate the successful plaintiff for the inconvenience, anxiety and distress of having to resort to and pursue proceedings which he had sought to avoid by the sanctioned offer: McPhilemy v Times Newspaper Ltd (No2) [2002] 1 WLR 934, at §21.  Indemnity costs and enhanced interest rate were not unjust.

Other litigation conduct

20.  D1 had failed to comply with the 2 orders for disclosure of assets, one made together with the Mareva injunction before the sanctioned offer and one made after.

21.  D1 failed to answer a Notice to Admit Facts filed on 13 September 2016, and gave an unusual number of Notices of Non-Admission to challenge the documents disclosed by the plaintiff.  In the end, D1 did not challenge the facts relied on by the plaintiff to establish its case of unjust enrichment or constructive trust in its closing submission.

22.  There was other derogatory conduct of D1’s solicitors in the course of this litigation which had been set out in the 8^thaffidavit of Mr Adam Clermont.  I do not see the need to repeat them.

23.  In summary, taking into account D1’s unreasonable rejection of the sanctioned offer despite having sufficient documents to make an informed consent, its unreasonable defence, and its litigation conduct, it would not be unjust to make an order for indemnity costs and enhanced interest rate for the period after 2 March 2016.  I therefore varied the costs order nisi on costs accordingly.  That included all costs reserved.

Costs of the Mareva injunction applications

24.  The Mareva injunction was made on interim basis on 23 December 2014 and continued until it was discharged by Chung J on 18 June 2015.  The Court of Appeal, however, restored it on 19 January 2016, including the provision for costs to be reserved.

25.  The outcome of the trial plainly justified the application for the interim Mareva injunction. Costs of the Mareva injunction should follow the cause.  The Mareva injunction was ordered before the sanctioned offer was made and so costs should be on party and party basis.

Costs of these 2 summonses

26.  I ordered that costs of both summonses be to the plaintiff to be taxed on indemnity basis, at the enhanced interest rate until full payment.  This is because if the sanctioned offer had been accepted, these 2 summonses would have been unnecessary.

27.  I thank Ms Athena Wong for her assistance.

HCA 2640/2014

[2018] HKCFI 1930

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2640 OF 2014

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J U D G M E N T

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1.  The plaintiff in this matter was the victim of a fraud perpetrated in 2014, as a result of which sums of money to which the plaintiff was entitled were said to have been diverted to bank accounts held by the defendants.

2.  The plaintiff only became aware of the fraud in late October 2014and, on 23 December 2014 the plaintiff was granted Mareva injunctions against the 1^st defendant and the 2^nd defendant.  At one stage of the proceedings the injunction against the 1^st defendant was discharged, but the plaintiff appealed against that decision, and the injunction order was restored by the Court of Appeal on 28 January 2016.

3.  The proceedings against the 2^nd to 5^th defendants were concluded by the time the action came on for hearing.  Judgment was entered by the plaintiff against the 5^th defendant on 15 February 2017.  The action was withdrawn against the 2^nd, 3^rd and 4^th defendants on 16 November 2017, 28 October 2015 and 13 May 2015 respectively.  Accordingly the trial concerned only the plaintiff’s claims against the 1^st defendant.

The fraud

4.  The plaintiff agreed to purchase a ship (“the Golden”) from a Korean Company, Hae Ju Shipping Co Ltd (“Hae Ju”).  Both parties acted through others, the plaintiff acting through its agent, Apex Machinery Co Ltd and Hae Ju acting through another Korean company, Blue Marine Co Ltd (“Blue Marine”).  It later emerged that the company president of Blue Marine, Mr Park Dong Ok, was a director of the 2^nd defendant, and a person having control over the 2^nd defendant’s bank account with ANZ in Hong Kong.

5.  The agreement for the sale of the Golden set the price for the vesselat US$1,000,000, and this had been paid in full by the plaintiff to Blue Marine by 8 August 2014.  However Hae Ju and Blue Marine failed to deliver the vessel to the plaintiff, and by a letter dated 3 September 2014 the plaintiff sought the repayment of US$900,000 from Blue Marine.  US$100,000 was to be retained by Blue Marine against the possibility that the transaction could be reinstated.

6.  On 26 September 2014 the plaintiff wrote to Blue Marine, cancelling the agreement and again demanding the refund of US$900,000.  No payment was forthcoming, and the plaintiff wrote once more to Blue Marine seeking the repayment on 10 October 2014.

7.  There was no direct response to that correspondence from Blue Marine, but the plaintiff received from Blue Marine a bundle of documents on 22 October 2014 which included a “notice” that purported to be from the plaintiff to Blue Marine.  This “notice” purportedly instructed Blue Marine to make the refund which the plaintiff sought to the 1^st defendant and the 2^nd defendant at their respective accounts with the 3^rd and 4^th defendants.  One moiety was paid to the account of the 1^st defendant. 

8.  The notice appeared to be signed by the General Manager of the plaintiff, Mr Alan Go on behalf of the plaintiff.  The plaintiff’s (unchallenged) evidence is that the notice was not sent by the plaintiff, and the signature of Mr Go was forged.

9.  The bank records which have been obtained show that the payments were effected by Blue Marine such that a sum of US$449,963.60 was paid into the 1^st defendant’s account with HSBC on 28 August 2014.  The 1^st defendant accepts that such a transfer was made.

The pleaded cases

10.  The plaintiff pleaded its claim against the 1^st defendant based on four causes of action, alleging, first, the unjust enrichment of the 1^st defendant, alleging rights in respect of a constructive or a resulting trust, and finally alleging a proprietary estoppel against the 1^st defendant.  At the trial however the plaintiff restricted itself to its unjust enrichment and constructive trust claims.

11.  For its part the 1^st defendant contends that it was no more than an innocent recipient of the relevant funds, having, at the material time, no knowledge of either the plaintiff or the alleged fraud.

12.  The 1^st defendant proffers an explanation as to why and how the money came to be transferred to its account.  It says, in the Amended Defence dated 27 July 2015, that it is in the business of running a seafood wholesale trading business for a PRC company known as Shenzhen City Luohu District Tairan Marine Products Shop (“Tairan”).  The 1^stdefendant, it contends, “serves as a trading point between companies in the mainland and other countries from the accounts receivables and payables of Tairan”. 

13.  The 1^st defendant pleads that Tairan receives funds and settles payments with customers and suppliers in foreign currency, and the 1^stdefendant facilitates with such transactions.  It is contended that this business has an average monthly turnover in excess of HK$10,000,000.

14.  Tairan, it is said, began a business relationship trading seafood, with a company called Weihai Tongjin Trade Co Ltd (“Weihai”), represented by one Park Mingxue, in April/May 2014.  Trading seafood started in around June 2014, and was an active business, with Tairan purchasing over RMB 2,000,000 (about US$330,000) of seafood from Weihai during the first couple of months.

15.  In early August 2014 Mr Park Mingxue contacted Tairan to ask if it could assist him by receiving, on his behalf a sum in US currency, to be paid to him in China, in RMB.  If Tairan agreed, the USD sum was to be remitted to the 1^st defendant’s account in Hong Kong.  The evidence was that Tairan considered this to involve no risk because, if the money had not been received by it, no payment would be made either.  Therefore, Tairan agreed.  On 28 August 2014 a sum of US$449,963.60 was received by the 1^st defendant, from Blue Marine (“the Blue Marine Money”), and on the next day three payments were made, in China, in RMB, and one payment was made in Hong Kong, in disbursement of the sums received.  These disbursements will be described in more detail below, but there was no money transferred from the 1^st defendant to Tairan in China.  It is the 1^st defendant’s case that the US funds it received in Hong Kong were set off against Tairan in their course of business.

16.  Against that background the 1^st defendant says that it was an innocent recipient of the relevant funds, acting throughout in ignorance of the fraud. The 1^st defendant contends that it has ‘changed its position’ by disbursing the Blue Marine Money, such that it would be inequitable for it to be required to repay the monies received to the plaintiff.  The 1^stdefendant denies that any constructive trust has arisen in the circumstances.  Further the 1^st defendant relies on the defence of ministerial receipt.

The evidence

17.  The plaintiff called two witnesses, Ms Lesley Go who is the plaintiff’s corporate secretary, and Mr Dennis Ning, the General Manager of Apex.  Their evidence was straightforward, explaining the circumstances in which money was paid out, the refund demanded, and in due course, how the deception perpetrated against the plaintiff was discovered.  The chain of events they described was substantially evidenced in the documents, and their evidence was not seriously challenged.

18.  The 1^st defendant called three witnesses, only one of whom was cross examined at any length.  All were employees of Tairan.  Evidence was given by Ms Ye Liujuan, a finance officer of Tairan as to the way in which Tairan and the 1^st defendant conducted their business.  She spoke to the bank account records which were put in evidence by the 1^st defendant, and she was the officer who had made the arrangements for payments to be made in China in respect of the Blue Marine Money.

19.  Business between Tairan and Weihai (indeed, it appears between Tairan and all of its customers) was conducted in a non-traditional manner by instant messenger.  Ms Li Bixuan also gave evidence, principally to exhibit mobile telephone messages exchanged between Tairan and Weihai representatives and others, through which their seafood business was conducted.

20.  The primary witness on behalf of the 1^st defendant was Mr Zheng Binglong, the General Manager of Tairan.  His evidence largely corroborated, but also elaborated on, the matters contained in the pleaded Defence.  He explained that the 1^st defendant had been incorporated in Hong Kong for the purpose of holding foreign currency bank accounts for Tairan.  He described the HSBC account as being an active account, with some substantial transactions.

21.  The ‘core’ component of his evidence was an explanation as to why it was that the Blue Marine Money came to be paid to the 1^st defendant’s account.  Mr Zheng came to know Mr Park Mingxue in early 2014, and a business co-operation agreement involving Tairan and Weihai was signed in April or May of that year.  Trading began in June, and a further business co-operation agreement was signed in August.  It was also in early August that Park Mingxue asked Mr Zheng if Tairan could help him to receive a sum of money in US dollars for subsequent payment to him in China.  Mr Zheng agreed.  In due course a sum of US$449,963.60 was transferred into the bank account of the 1^st defendant. On the following day Mr Zheng received ‘instructions’ from Park Mingxue as to the payments to be made in the PRC.  In addition Park Mingxiue told Mr Zheng that there had been an ‘overpayment’ made by the remitter (Blue Marine) and that US$50,000 should be remitted back.  Mr Zheng’s evidence is that the transactions requested by Park Mingxue were made. 

22.  The instructions said to have been given by Park Mingxue were in unusual form, being for payment to one Lee Sau Fuk (“with a limit not more that RMB 500,000”); Park Ming Sing (“with a limit not more than RMB 1,000,000); and to Kam Fa Suk (also “with a limit not more than RMB 1,000,000”).

23.  Transfers of RMB 500,000, RMB 985,600 and RMB 974,000 were made to Lee Sau Fuk, Park Ming Sing, and Kam Fa Suk respectively, all on 29 August 2014.  A transfer of US$50,000 was also made on 29 August, to Blue Marine in respect of the supposed overpayment.  Finally, in accounting fully for the money received by the 1^stdefendant, a balance of US$195.73 remained, in respect of which a further transfer of RMB 1,204.48 was made to Park Ming Sing.

24.  Thus, as a matter of book-keeping, the sums received (in Hong Kong), and the sums paid (in China), balance.

25.  There is a complication however which is as to the receiving and paying parties.  Mr Zheng Binglong described in his witness statement that Tairan “held two bank accounts in the PRC” but neither was in its own name.  These accounts are in the names of two members of staff, Yang Zhihang and Zheng Jiarong.  Thus the four payments made in the PRC to Mr Lee, Mr Park and Mr Kam were made from these accounts.  No relevant transaction involved payment into or out of an account in the name of Tairan. 

The submissions

26.  The plaintiff sets out its case on the unjust enrichment of the 1^st defendant and/or the existence of a constructive trust based on the premise that the 1^stdefendant has indeed been enriched at the expense of the plaintiff.  The issue, so far as the plaintiff is concerned, is as to whether the 1^st defendant is able to avoid liability for that enrichment in reliance on either the defence of change of position, or the defence of ministerial receipt.  The burden lies on the 1^stdefendant to show unconscionability in any return of the funds received: JS Microelectronics v Achhada [2013] 1 HKLRD 334.

27.  The 1^st defendant agrees that those two defences are central to its liability, or otherwise, and does not accept that it has been “enriched”, having (it contends) disbursed the money received in the way described above. 

28.  The 1^st defendant’s position is that it accepts having received the Blue Marine Money but has a defence because it did not use the plaintiff’s money, and nor did it retain any of it.  As such, it is submitted, there has been no enrichment, unjust or otherwise.  Furthermore, it is submitted, the position of the 1^st defendant has changed since it was in receipt of the funds in question by virtue of the disbursements such that it would be inequitable to require the 1^st defendant to make repayment to the plaintiff.

29.  The 1^st defendant points to the fact that the payments made by the two employees of Tairan, taken together with the repayment to Blue Marine, exactly match the sum received by the 1^st defendant.  The payments are said to be causally linked to the receipt of the Blue Marine Money in that the accounts of the 1^st defendant, and those of the employees of Tairan, are all beneficially owned by Tairan.

Discussion

30.  Without doubt the 1^st defendant has received money to which it had (and claims) no entitlement by reason of the fraudulent conduct of other persons.  The 1^stdefendant was, in that sense at least, enriched, but the key question is whether the subsequent actions of the 1^st defendant have changed its position in a way that would make it unjust to require restitution to the plaintiff of the money received.

31.  Allied to that ‘conduct’ question is the other defence relied on, namely ‘ministerial receipt’.  Did the 1^st defendant receive the plaintiff’s funds in a purely administrative way, much as a bank might have done, and deal with those funds in that capacity?

32.  There is no dispute that the plaintiff must establish that the 1^st defendant has been enriched at the plaintiff’s expense, and, moreover, that the enrichment of the 1^st defendant in that way was unjust.  Thereafter, an onus lies on the 1^st defendant to establish its defence, once receipt by it of money to which it had no entitlement is established.

Change of position

33.  There is no dispute between these parties in regard to the principles.  A change of position defence will not be available to a defendant which has not acted in good faith.  (Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548)  Moreover, the change of position by the defendant must have a causal connection to the enrichment.

34.  In the present case the stance taken by the 1^st defendant is that these requirements are met, by, firstly, “merging” the different corporate and non-corporate persons involved.  Secondly, the 1^st defendant submits that it was under no notice of dishonest conduct and, as such, acted in good faith in the relevant transactions.

35.  In my judgment, it is not legitimate for the 1^st defendant to simply ‘adopt’ transactions made by Tairan in China.  It is trite that the 1^st defendant, Tairan, and the bank account holders in China are, or are to be treated as, separate legal entities.  Common beneficial ownership does not entitle the beneficial owner to disregard the corporate personality of the company when circumstances suit it to do so.

36.  It is, therefore, incumbent on the 1^st defendant to show, in the context of its defence that the 1^st defendant itself has changed its position in a relevant way.  There is no evidence as to this, although the defence is premised on some accounting process as between the 1^st defendant and Tairan.  There is no clear ‘inter-company’ accounting mechanism in place. The accounts documents of the 1^st defendant were not disclosed on discovery, although application was made by the 1^stdefendant during the trial for leave to discover these documents.  This seems an unnecessary application; relevant documents must be disclosed, and parties do not need leave for this.  Leave would have been needed to adduce and rely on such documents, but no such application was made, perhaps because, according to Mr Zheng, these documents had been retained by the 1^st defendant’s accountants, pending an audit process that was itself awaiting the conclusion of the trial.  In other words, no such documents were available.

37.  In any event, the beneficial ownership of money in the 1^st defendant’s bank account is open to doubt.  Mr Zheng Binglong says that it is beneficially owned by Tairan, but the document that was used to open the account shows the beneficial owner to be “Zheng Yang”.  There was no satisfactory explanation for this discrepancy forthcoming from Mr Zheng.  His evidence that the assets of the 1^stdefendant are beneficially owned by Tairan is in flat contradiction to the account opening documents.  I prefer the documentary evidence.

38.  Although the defence of the 1^st defendant amounts, in effect, to a contention that Tairan has changed its position since receipt of the funds, the evidence as to Tairan’s accounting and business arrangements is minimal.  To say the least, Tairan appears to do business very informally, and without the burden of accounts, so far as the evidence goes.

39.  The bank documents showing payments made by Yang Zhihang and Zheng Jiarong in the PRC establish that payments were made by those individuals corresponding to the (general) instructions said to have been given by Park Mingxue, and the value of the money received by the 1^st defendant.  Mr Zheng’s evidence is that these payments were made by those individuals in their capacity as employees of Tairan, but no documents support this.  No explanation was offered for this bizarre business arrangement, and no explanation as to how this might have been accounted for in the accounts of Tairan, much less the 1^stdefendant.  The 1^st defendant’s stance is that this does not matter because, it says, all of the funds in question are under the same beneficial ownership.

40.  It is relevant to consider, in any investigation as to whether it would be inequitable to require money to be repaid to a plaintiff, whether a transaction by which money has been disbursed by a recipient of funds can be reversed.  Counsel for the 1^st defendant points out that the payments out of the individuals’ accounts in China were made only a matter of a day or so after the money waspaid in to the 1^st defendant’s account in Hong Kong.  On that basis he submits that “nothing could be done” to reverse the transaction once payment out was made.

41.  Plainly that is not correct.  Whether the 1^st defendant is treated as acting at arm’s length with Tairan, or as part of an unincorporated ‘group’, the notional set-off between the 1^st defendant and Tairan could be readily reversed.  So also could the ‘transaction’ between Tairan and Weihai.  Mr Zheng’s evidence was that business with Weihai continued until late 2016, and so a set-off could have taken place at any time if Tairan so wished.  Even if, as counsel for the 1^st defendant submitted, this business relationship concluded at the end of 2014, that came after the 1^st defendant was notified that a fraud had been committed, by the grant of the injunction order on 23 December 2014.  I have no doubt that this transaction could and should have been reversed by Tairan, and certainly by the 1^st defendant.

42.  I do not accept that the 1^st defendant is entitled to avail itself of a change of position defence when, as here, the relevant ‘change of position’ (if any) was by others.  But if that were wrong then, in my judgment, the fact that this transaction could have been reversed would negate any such defence.

Lack of good faith

43.  The 1^st defendant does not dispute that a lack of good faith on its part would preclude it from relying on a change of position defence.  It submits however that the plaintiff seeks to show a lack of good faith by advancing an argument that the business operated by the 1^st defendant is an illegal (unlicensed) money service, a contention which is not pleaded.  Tairan has used the 1^st defendant, on the basis of Mr Zheng’s evidence, as a vehicle by which foreign currency has been accepted and disbursed in China in RMB. 

44.  In fact, insofar as the change of position’ defence is concerned the plaintiff relies simply on the 1^st defendant having failed to act in a commercially acceptable way.  Reliance is placed on the decision of the Court of Appeal in England in Niru Battery Manufacturing Co v Milestone Trading Ltd [2003] EWCA Civ 1446; [2004] QB 985. 

45.  As is spelled out in that judgment, a defence of change of position does not require a plaintiff to show dishonesty on the part of the defendant in order to defeat the defence.  Rather the question as to whether a defendant has acted in good faith is part and parcel of the overall enquiry as to whether it would be inequitable to call on the defendant to make restitution to the plaintiff.  As described by Clarke LJ at paragraph 147, the question includes consideration as to whether “the injustice of requiring him to repay outweighs the injustice of denying the claimant restitution.”

46.  Accepting that the 1^st defendant’s knowledge of the factual background is the same as that of Mr Zheng, then the 1^st defendant was told that this was part of a ‘normal’ commercial transaction for Weihai.  Receiving money on behalf of other companies, Weihai included, other than in the course of seafood trading, was not part of the 1^st defendant’s business, it says.  As a one-off currency transfer, of a relatively substantial amount of money, some form of due diligence investigation on the part of the 1^st defendant might have been expected. The evidence shows no such investigation or enquiry.

47.  The 1^st defendant has therefore chosen to act as a money exchange service for Weihai with no consideration as to why it has been asked to do so, and with no enquiry as to the source of funds or the basis of the underlying transaction. None of this establishes dishonesty or complicity in the fraud on the part of the 1^st defendant.  This failure to act in a commercially acceptable way is sufficient, in my judgment, to defeat the 1^st defendant’s defence of having acted in good faith however.

Ministerial receipt

48.  On the facts as I have found them above, there was no actual change of position on the part of the 1^st defendant.  No payment out was made by the 1^stdefendant of the Blue Marine Money received.  A defence of ministerial receipt may nevertheless be established in circumstances in which a party, such as the 1^st defendant, acts as an agent to whom he is obliged to account: see generally Goff & Jones, The Law of Unjust Enrichment (8^thEd) at 28-02.

49.  I do not think such a defence, which was only faintly argued, is available to the 1^st defendant however.  There is no pleading (or evidence) that the 1^stdefendant acted as agent for Weihai, much less was under any obligation to account.  The pleadings implicitly place the 1^st defendant as an agent of Tairan, but, as referred to above, the evidence falls short of demonstrating even that relationship, much less any accounting arrangement.

50.  But even were the evidence otherwise, I would be unprepared to accept a ministerial receipt defence in circumstances in which an illegitimate transaction such as that in the present case which could, on the 1^st defendant’s evidence, have been reversed, and the supposed obligation to account avoided.

51.  I do not accept that the 1^st defendant has made out its status as agent to another, and nor has it established the necessary obligation to account, therefore.  This defence fails.

Conclusion

52.  For the above reasons I accept that the 1^st defendant has been enriched at the expense of the plaintiff in circumstances in which it would not be inequitable (but rather the reverse) to require the 1^st defendant to repay the relevant amounts to the plaintiff.  I do not accept that the 1^st defendant has established either limb of its defence.  There will be judgment for the plaintiffin the sum of US$449,963.60 to which will be added interest at a commercial rate of prime +1% from the date of the writ to judgment.

53.  Costs of the action are to be to the plaintiff, to be taxed if not agreed this order being made on an order nisi basis.

HCA 2640/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 2640 OF 2014

____________

____________

______________

D E C I S I O N

______________

Introduction

1. This is the plaintiff’s application for leave to appeal against my decision handed down on 18 June 2015 (“the subject decision”) whereby I dismissed the plaintiff’s application to continue the ex parte Mareva injunction dated 23 December 2014 (against the 1^st defendant (“the said injunction”)).  There is also a related application for stay of execution.  This decision (as was the subject decision) only concerns the 1^st defendant (“Worldwide”).

2. The background leading to this action and the subject decision has been set out in the subject decision and will not be repeated here.

Leave to appeal

3. The grounds proposed to be put forth at the intended appeal have been set out in the draft notice of appeal.  In short, they are that the subject decision is wrong in that:

(a) (contrary to what has been decided) Worldwide cannot avail itself of the defence of “change of position” (“the ‘change of position’ defence”):

(1) the sums paid out by Worldwide:

(i) did not originate from the sum paid to Worldwide by the alleged fraudster (“Mr Park”);

(ii) were not paid by Worldwide, but by two individuals (“Yang” and “Zheng”); the latter’s connection to Worldwide is unknown to the plaintiff;

(2) the “change of position” was not made in good faith;

(3) the “change of position” could well be reversible;

(b) the transaction by which Worldwide paid out the sums was (1) illegal, and/or (2) a money laundering exercise;

(c) Worldwide’s affirmation evidence fails to comply with Ord 41 r 5;

(d) Worldwide’s affirmation should not be preferred over the plaintiff’s;

(e) Worldwide and the Shenzhen operation (“Tairan”) are two legal entities; consequently, the deponent of the affirmation was not in a position to speak on Worldwide’s behalf.

4. As the plaintiff puts it in its skeleton submissions:

“The central finding in [the subject decision] is in §§25 to 27 … where this Court in effect found that [Worldwide] can avail itself of the defence of change of position” (para 5 thereof).

5. The grounds summarized in para 3(a)(1)(i) and (ii) above have no merit.  As a matter of law, the “change of position” defence does not require precisely the same money to be paid out, or that the payment out should be to exactly the same individual(s) who earlier gave the money to the recipient (that is, the one who needs to rely on the defence).  All that the law requires is:

“… a person whose position has so changed that it would be inequitable in all the circumstances to require him to make restitution, or alternatively to make restitution in full … ” (Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548, 580 quoted at para 22, the subject decision).

6. Perhaps what the above grounds are in truth complaining is that there is insufficient affirmation evidence to support the “change of position” defence.  This should be more properly discussed in relation to the grounds summarized in para 3(c) to (e) above. The discussion can be found in para 18 below.

7. On Worldwide’s lack of good faith, the plaintiff puts forth the following matters:

(1) the money transfer by Worldwide for Mr Park was unusual, and Worldwide was reckless in not enquiring whether the transaction was tainted with illegality such as money laundering;

(2) the transaction itself was suspicious because the US dollars themselves were not transferred, and the transferors were not Worldwide itself.

8. Worldwide deposed in its affirmation that Mr Park was a business acquaintance of Tairan since early 2014 and Worldwide was only helping him out.  Para 7(1) above is another way of arguing that the transaction was in effect money laundering.  This will be discussed in para 14 to 17 below.  Para 7(2) above ignores Worldwide’s case, which is that it was asked to exchange US dollars into Renminbi (so a direct transfer of the US dollars was not intended), and to pay out the same to the individuals as directed, and it was merely following such directions.

9. It should also be noted that the alleged lack of good faith on Worldwide’s part was not emphasised at the plaintiff’s application to continue the said injunction; the plaintiff was of the view that, in a claim based on unjust enrichment and/or money had and received, the fides of Worldwide is irrelevant as a matter of law.  But even if Worldwide’s fides was a main issue, by reason of para 13 to 17 below, I would still have decided the dispute as before.

10. The plaintiff’s argument that the “change of position” defence should fail if the change can be reversed was not put forth during the earlier hearing (no evidence has been adduced by either party in this regard).  It is unclear what the plaintiff says would be the evidential basis showing that the paid-out sums could be easily reversed.  The plaintiff refers to Goff & Jones: The Law of Unjust Enrichment (2011) 8^th Ed in support of this part of its submissions.  However, that book observes:

“… it is notable that in analogous damages cases concerning the duty to mitigate, the courts have held that claimants need not undertake difficult litigation but may be required to act against third parties where this would be straightforward” (para 27-17 thereof).

Bearing in mind the payment was made as directed by an alleged fraudster (on the plaintiff’s case), it can be inferred any recovery action by Worldwide is unlikely to be straightforward.

11. In relation to the ground summarized in para 3(b) above (illegality and money laundering), the plaintiff relies on the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (Cap 615) (Cap 615 was not referred to, whether verbally or in writing, at the hearing leading to the subject decision).

12. Particular reference has been made to the following provisions of Cap 615:

(a) “money changing service”, which is statutorily defined as “a service for the exchanging of currencies that is operated in Hong Kong as a business” (s 1, Part 1, Schedule 1 thereof);

(b) “money laundering”, which is statutorily defined as “an act intended to have the effect of making any property … that is the proceeds obtained from the commission of an indictable offence … not to appear to be or so represent such proceeds”;

(c) “remittance service”, which is statutorily defined as “a service of one or more of the following that is operated in Hong Kong as a business … sending, or arranging for the sending of, money to a place outside Hong Kong”.

13. There is no evidence that Worldwide has money changing and/or remittance services “operated in Hong Kong as a business” (para 12(a) and (c) above).  On the contrary, the affirmation evidence of Worldwide is that the service was only provided to Tairan’s customers or suppliers (and perhaps also its acquaintances).

14. Insofar as “money laundering” is relied upon by the plaintiff (para 12(b) above), it has not identified what indictable offence has been committed (and, if so, when and by whom it was committed).  The fraud alleged by the plaintiff was not about the vessel sale and purchase transaction, but the subsequent refund of US$900,000 (para 5, the subject decision).

15. The plaintiff relies on the decision in JS Microelectronics Ltd v Achhada [2013] 1 HKLRD 334.  But one of the important differences is that (a) the offence there has been identified, and (b) the offender there has been identified and convicted.  The same can be said of Dresdner Bank (Schweiz) AG v Andreas Kessler and Another HCA 4709/2003 (24 December 2004) (former employee misappropriated the plaintiff’s money).  In this action, Blue Marine/Mr Park was/were already in possession of the US dollars when the alleged forged documents were sent by them.

16. As was noted in the subject decision (para 8 and 33 thereof), it is unknown if the said sale and purchase transaction has been avoided (para 14 above is repeated here).  If the plaintiff should now allege that it has been (assuming the said transaction was voidable), there is no evidence it has in fact been avoided, because, so far, there is no evidence (or even a definitive case) that the said transaction has been terminated by the plaintiff (and if so, how (for example, a written acceptance of the breach) and when).

17. I pause here to observe that, despite having been alerted to the matter (para 33, the subject decision), the plaintiff was still unable to provide any information other than a claim was said to have been commenced in Korea.

18. The grounds summarized in para 3(c) to (e) above in essence attack the affirmation evidence adduced by Worldwide.  They will be considered together.  Briefly, these grounds are in truth nothing more than a re-run of the plaintiff’s earlier argument on this topic.  Accordingly, it is only necessary to refer to, and re-state, the reasons already given in the subject decision in relation thereto (para 12 to 20 thereof).  In addition, para 3(d) above is difficult to understand because the contents of the plaintiff’s affirmation are undisputed by Worldwide (and the plaintiff has adduced no direct evidence to contradict Worldwide’s account).  There is therefore no question of which factual version to prefer.

19. Other grounds set out in the draft notice of appeal include:

(1)   the subject decision misunderstands the plaintiff’s case regarding the package sent to the plaintiff by Blue Marine/Mr Park.  It is further said that Blue Marine was a legal entity independent of, and different from, Mr Park ;

(2)   the subject decision misstates the date when the plaintiff knew of the fraud;

(3)   the subject decision errs in doubting the amount claimed in this action;

(4)   the balance of convenience ought not be for discharging the said injunction, but ought to be for its continuation;

(5)   the costs of the application ought to be costs in the cause.

20. The first thing to note regarding the matters mentioned in para 19(1) to (3) above are that they fall under the heading “Background”.  Secondly, the focus there is that they brought up the issue (or at least ambiguity) mentioned in para 8 and 33, the subject decision (repeated in gist in para 14 to 16 above).

21. As regards para 19(1) above, while the distinction (of legal entities) can be made as a matter of law, it must be noted it is in effect the plaintiff’s own case Blue Marine was controlled by Mr Park (para 4.2, plaintiff’s skeleton submissions; para 4, the subject decision; para 22(c) below).

22. The plaintiff now contends that it only became aware of Mr Park being the controller of Eminent Vantage since January 2015 (and hence it became aware of the alleged fraud since then) (para 19(2) above).  That matter is not critical to the subject decision, and was intended to be a note of one of the unusual features in this action. In any event, that contention overlooks the fact that (shortly after the plaintiff received the package in October 2014):

(a) it ought to have known of the falsity of the notice which allegedly came from the plaintiff itself (para 6(b)(2), the subject decision), and/or the letter allegedly sent by the plaintiff’s own agent (para 6(b)(1), the subject decision);

(b) it should be apparent to the plaintiff in October 2014:

(1) the package which contained the said two documents (among others) was sent to the plaintiff in October 2014 by Blue Marine;

(2) the forged documents were purportedly sent to Blue Marine earlier (by the plaintiff and the plaintiff’s own agent);

(c) Mr Park was Blue Marine’s president who signed the vessel sale agreement (thus, the plaintiff ought to have known, believed or suspected that Blue Marine was controlled by Mr Park (see also para 20 above)).

The said package should therefore have alerted the plaintiff to some rather unusual events involving Blue Marine/Mr Park relating to the fund it regarded to be its own.

23. The matter mentioned in para 19(3) above is misconceived.  What the subject decision observed as being unusual was not the amount claimed, but the reason given therefor claimed (see para 7 thereof).  It is now argued that there was nothing unusual because the averment in the statement of claim only refers to the reason for limiting the claim in September 2014 (which implicitly means that that reason is (or subsequently was) no longer valid).  However, as has been observed in para 14 to 17 above, it is still unclear if the vessel sale transaction has been terminated.

24. In view of the matters set out above, I do not consider there is any merit in the matter mentioned in para 19(4) above.

25. Further to the above, as has been stated in para 4 above (and acknowledged in the quoted passage of the plaintiff’s skeleton submissions), the matters set out in para 19(1) and (2) above did not form the central finding (but were taken into account when determining the balance of convenience). 

26. Finally, it is within the court’s proper discretion to award costs against an unsuccessful applicant of an application for interlocutory injunction.  There is accordingly no substance in para 19(5) above.

Stay of execution

27. The main argument in support of this application (leaving aside there is strong prospect of success in the intended appeal (which has been rejected above)) is that the intended appeal would be rendered nugatory if an interim stay is not granted.

28. Having decided that there is no merit in the intended appeal, I do not consider it proper to grant a stay of execution pending the plaintiff’s appeal.

29. However, in view of the lack of confirmation by Worldwide that the subject sum is still retained in its HSBC bank account, an interim stay ought to be granted in the plaintiff’s application for leave to appeal up to 4:00 pm on 13 August 2015 or further order, on condition that the plaintiff takes out an application to the court of appeal for leave to appeal on or before 6 August 2015.

Conclusion

30. The application for leave to appeal is dismissed.  There be an interim stay of execution in terms of para 29 above.

Other matters

31. The parties’ written submissions also mentioned various other points.  These have not been expressly set out or dealt with above.  This is so only because of the need to balance between the length of the decision and its comprehension.  It does not mean those other points are thought to be irrelevant (or have been overlooked).  To avoid doubt, those other points have also been considered.

Costs order nisi

32. There is no apparent reason to depart from the usual rule that costs should follow the event.  I consider that four-fifths of the costs be allocated to the application for leave to appeal, and one-fifth thereof be allocated to the application for an interim stay of execution (which should be made the costs in the cause of the intended application for leave to appeal).

33. There will accordingly be a costs order nisi pursuant to Ord 42 r 5B(6) that four-fifths of the costs be paid by the plaintiff to Worldwide.

34. I consider summary assessment of costs to be appropriate.  The costs referred to in para 33 above shall thus be so assessed. For this purpose:

(1) Worldwide be at liberty to lodge with court and serve a statement of costs within 7 days from today;

(2) the plaintiff be at liberty to lodge with court and serve a statement of objections within 7 days thereafter.

HCA 2640/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 2640 OF 2014

____________

____________

______________

D E C I S I O N

______________

Introduction

1.  This is the plaintiff’s application for the continuation of a Mareva injunction granted ex parte in December 2014 (against the 1^st and 2^nd defendants (“the said injunction”) (the 3^rd and 4^th defendants are banks licensed in Hong Kong and are not the targets of the said injunction)).  Appearing at the hearing to oppose this application was the 1^st defendant (“Worldwide Marine Product”) (and the latter’s application to discharge the said injunction).  The plaintiff informed that the court documents had not been successfully served on the 2^nd defendant (“Eminent Vantage”); naturally it did not appear at the hearing.

Background

2.  The background leading to this action (as described by the plaintiff) is, and consequently the facts upon which the plaintiff’s claim is premised are, a bit unusual.  It/they can be summarized as follows.

3.  The plaintiff was the purchaser of a vessel called “Golden” (“‘Golden’”) from a company which appeared to be the owner of “Golden”.

4.  Both contracting parties acted through their own agents; the vendor acted through an agent Blue Marine Co Ltd (“Blue Marine”). It is the plaintiff’s case Blue Marine has been controlled by a Korean national surnamed “Park” (“Mr Park”).  The sum claimed in this action, US$900,000, was part of the purchase price earlier paid by the plaintiff to Blue Marine (the remaining US$100,000 was the deposit).

5.  The plaintiff’s pleaded case is that it was the victim of a fraud (the same case has been put forth at the ex parte application).  At the hearing before me, the plaintiff clarified that the fraud put forth concerns the refund of the plaintiff’s money earlier paid over to Blue Marine in performance of its contractual obligation as the purchaser.

6.  The unusual features of this alleged fraud are these.  One, Mr Park, allegedly the fraudster who perpetuated the fraud, was the source of the evidence on which the plaintiff’s claim (founded on fraud) is based. According to the plaintiff’s pleaded case:

(a) not having “Golden” delivered by its owner or Blue Marine, in September 2014 the plaintiff informed Blue Marine by letter that the purchase was “cancelled” and asked for the refund of US$900,000;

(b) instead of refunding the said sum, in October 2014 Blue Marine sent a package to the plaintiff.  Inside the package were documents (among others) which the plaintiff now pleads are:

(1) a forged letter purportedly sent by the plaintiff’s agent to Blue Marine in September 2014;

(2) a forged notice purportedly sent by the plaintiff to Blue Marine in August 2014;

(c) the above documents are now relied on by the plaintiff as evidence of:

(1) forgery and falsity;

(2) the plaintiff’s said sum having been deposited with the defendants (half of it with Worldwide Marine Product and half of it with Eminent Vantage).

It is unusual for a fraudster not to simply vanish, but instead to provide the fraud victim with materials on which the victim can build a case.

7.  Two, the other unusual feature is the reason given for the amount of the plaintiff’s claim.  Rather than claiming for the whole of US$1 million it paid over earlier (having informed the other party the agreement was “cancelled”), the plaintiff chooses to claim for US$900,000.  The statement of claim pleads the following reason for the claim:

“[it] did not seek the return of the remaining US$100,000 as it wanted to keep the funds on deposit in case the transaction could be completed at a later date” (para 9 thereof).

8.  Why para 7 above is unusual is this:

(1) as the victim of a fraud, the plaintiff at least arguably could have the right to avoid the sale and purchase agreement;

(2) even if the sale and purchase agreement is not regarded as related to the fraud perpetuated in October 2014 (see para 6(b) and (c) above), as the innocent contracting party to the sale and purchase agreement, the plaintiff should have the right to accept any repudiatory breach on the part of the owner of “Golden”.

Not having done either of sub-para (1) or (2) above, it is doubtful if the fraud has been avoided, alternatively, if the repudiation of the sale and purchase agreement (by non-delivery) has been accepted.

9.  Further to para 8 above, it is unclear why the plaintiff should think the sale and purchase agreement might still be completed despite having knowledge or belief of the fraud of Blue Marine/Mr Park since about October 2014.

10.  There is no dispute (for the purpose of this application) about half of US$900,000 having been deposited into a US$ bank account of Worldwide Marine Product.

The case against Worldwide Marine Product

11.  From the materials enclosed in Blue Marine’s said package, the plaintiff contends that about half of the claimed sum has been shown to have been deposited with Worldwide Marine Product (as stated above, this is not denied).

12.  From this starting point, the plaintiff further contends that it has established a good arguable case against Worldwide Marine Product irrespective of whether the latter was a knowing party to the fraud. The contention can be summarised as follows:

(a) the evidence adduced by Worldwide Marine Product is so unsatisfactory it should be found to be either inadmissible or (if admissible) to have little or no evidential weight;

(b) in any event, the evidence so adduced does not give rise to any valid defence.

The above will be elaborated below.

13.  As regards the allegedly unsatisfactory evidence:

(1) the deponent was not an employee of (nor was her otherwise legally connected with) Worldwide Marine Product;

(2) the deponent fails in many instances to sufficiently identify the source of her information, belief or knowledge;

(3) some of the more important documentary exhibits lack sufficient “chain of evidence”.

14.  In relation to para 12(a) (and para 13) above, it is important to note the following.  The evidence adduced by Worldwide Marine Product is to the following effect:

(a) the more substantial operation is a business in Shenzhen called “深圳市羅湖區泰然海產品店” (“Tairan”);

(b) Worldwide Marine Product was described as Tairan’s Hong Kong “trading point” in the affirmation.  This phrase has been accepted by both parties to mean it was Tairan’s Hong Kong financial and/or foreign exchange arm;

(c) Worldwide Marine Product was never a substantial operation.  Reportedly it has only 2 Hong Kong staff.  Both parties accept that its most important asset in Hong Kong is the credit balance kept at an HSBC bank account (into which the claimed sum was deposited, and still retained) (“the HSBC a/c”).

15.  Based on the above, the plaintiff contends that Worldwide Marine Product is nothing much more than:

(1) the HSBC a/c identified in the said injunction;

(2) Tairan’s Hong Kong “window” company, which has been operating an “underground bank” business exchanging currencies and/or sums for Tairan’s customers.  At the very least, the US dollar-to-Renminbi transfer Tairan agreed to effect for Mr Park was in the nature of an “underground bank” transaction.

16.  The contention summarized in para 15(1) above is in support of the plaintiff’s argument that Worldwide Marine Product has (i) no “real” local presence, and (ii) only an extremely liquid asset (these are supportive of the plaintiff’s case concerning “real risk of dissipation”).

17.  The contention summarized in para 15(2) above is in support of the plaintiff’s case concerning illegality (said to arise out of the illegal contract between Worldwide Marine Product and Mr Park (avoiding Mainland foreign exchange prohibition)).

18.  Having taken the stance outlined in para 16 and 17 above, it would be unfair for the plaintiff to then “turn around” and levy the criticism set out in para 12(a) and 13(1) above.

19.  As regards para 13(2) above, the deponent describes herself as Tairan’s “finance officer” (a better translation of the Chinese term “財務主管” may be “officer-in-charge of finance”).  All that the law requires is that an affidavit of a business operation be deposed to by its responsible officer (such as a director, company secretary, officer and the like): cp Hong Kong Civil Procedure 2015, Vol 1, para 41/5/1 (Mutual Luck Investment Limited v Chiu Yim Man and Others HCMP 6047/1998 (29 April 1999), (cited by the plaintiff) does not take the matter further than has been stated there).  This deponent satisfies that requirement.  I consider her to be a responsible officer of Worldwide Marine Product.  I find her failure to specifically name the individuals who she described as her colleagues more a matter of a failure to provide further factual details, than a ground for discredit and/or for diminishing the evidential weight of her affirmation.  The same applies to her use of the word “we” which in context were references to Worldwide Marine Product.

20.  As regards para 13(3) above, it is true:

(a) the bank transfer slips evidencing the transfers to third-party transferees (as directed by Mr Park) do not show the transferor as Worldwide Marine Product, but two individuals respectively surnamed “Yang” and “Zheng”;

(b) the defence affirmation is unduly economical about these documents.

However, for these documents to be ignored would mean they probably are either untrue documents, or at least were gathered from unrelated sources to fabricate this part of the defence case; either would be too far-fetched.

21.  As to whether Worldwide Marine Product has established a valid defence (even assuming its affidavit evidence is accepted), the plaintiff relies heavily on the following legal principles.  In Goff & Jones: The Law of Unjust Enrichment (2011) 8^th Ed, the learned authors said:

“[after referring to Lipkin Gorman v KarpnaleLtd [1991] 2 AC 548 (the casino defendant there innocently received fund fraudulently obtained earlier from the plaintiff)] Relying on a number of leading common law authorities, the House of Lords held that the casino, which was unable to invoke the defence of bona fide purchase, was unjustly enriched at the expense of the claimant firm when (however innocently) it had received the cash from Cass [the fraudster], which represented the traceable proceeds of the firm’s credit balance. The casino was prima facie liable for the sum received, subject to the defence of change of position.” (emphasis supplied) (para 8-42 thereof)

22.  The plaintiff also quoted the following from the Lipkin Gorman decision:

“At present I do not wish to state the principle any less broadly than this: that the defence is available to a person whose position has so changed that it would be inequitable in all the circumstances to require him to make restitution, or alternatively to make restitution in full. I wish to stress however that the mere fact that the defendant has spent the money, in whole or in part, does not of itself render it inequitable that he should be called upon to repay, because the expenditure might in any event have been incurred by him in the ordinary course of things. I fear that the mistaken assumption that mere expenditure of money may be regarded as amounting to a change of position for present purposes has led in the past to opposition by some to recognition of a defence which in fact is likely to be available only on comparatively rare occasions.” (emphasis supplied) (p 580 thereof)

23.  Two matters in the Lipkin Gorman decision have to be noted:

(1) “Conversion does not lie for money, taken and received as currency … But the law imposes an obligation on the recipient of stolen money to pay an equivalent sum to the victim if the recipient has been ‘unjustly enriched’ at the expense of the true owner” (p 559 thereof);

(2) the end result was that the casino was liable to pay the plaintiff: “limited to the net amount of stolen money which the [casino] retains, will not inflict a net loss on the [casino] as a result of the transactions between the [casino] and the thief … The [claimant] will recover part of their stolen money and the [casino] will only lose the winnings the [casino] was not entitled to make out of the [claimant’s] money” (p 563 thereof (see also pp 582-3 thereof)).

24.  Following the above line of reasoning (para 21 to 23 above), it will be safe to conclude, for example, that licensed banks which innocently received money which may be the fruits of theft (and/or other cases where the depositors have no title to the money) can avail themselves of the defence of change of position when they pay out the same to the depositors or as directed by the latter.

25.  Leaving aside for the moment the illegality issue, the position of Worldwide Marine Product was not much different than that of licensed bank (see also para 20(a) above).

26.  The last-mentioned issue (illegality) can be discussed relatively briefly.  Reliance is here placed by the plaintiff on the contention that the transaction aimed to avoid the foreign exchange regulatory regime of the Mainland.  That the law of such regime is part of Mainland law, and accordingly in the context of Hong Kong is treated as foreign law, must be trite.  Foreign law is a subject-matter for evidence.  This is particularly so in the area of foreign exchange law because this area is well known to differ with jurisdiction (Hong Kong, for example, has relatively little foreign exchange restriction).

27.  The short point here is that neither party has adduced evidence on what the state of Mainland law is concerning foreign exchange control in the Mainland (including, in particular, whether the offending contracts are illegal, and if so, the consequences (if any) of such illegality).

28.  Because of the conclusion reached, I do not consider the plaintiff to be able to establish a good arguable case against Worldwide Marine Product; alternatively, the strength of the plaintiff’s case is such that the balance of convenience is in favour of not continuing the said injunction.

29.  Finally, again because of the conclusion reached, it is unnecessary to consider the real risk of dissipation.  I will only state for the record that, if it were necessary to do so, I would have concluded that there is such risk (bearing in mind the matters set out in para 14 and 15 above).

The case against Eminent Vantage

30.  The plaintiff adduces evidence that Eminent Vantage is effectively controlled by Mr Park.  Neither Eminent Vantage nor Mr Park has any prima facie right to the plaintiff’s money.  Accordingly, I am satisfied that the said injunction should continue against Eminent Vantage until 28 days after service of the relevant court documents on Eminent Vantage or further order.

Conclusion

31.  The application against Worldwide Marine Product is dismissed (and the said injunction is discharged).

32.  The application against Eminent Vantage is determined in the manner as set out in para 30 above.

Other matters

33.  In the course of the parties’ submissions (and as a result of a challenge by Worldwide Marine Product), it was disclosed (without evidence) that a claim has been commenced against Blue Marine/Mr Park in Korea.  This disclosure regrettably was brief, and no details are known as to, for instance, the nature of the claim, its progress and the response of Blue Marine/Mr Park thereto.

34.  The parties’ written submissions also mentioned various other points.  These have not been expressly set out or dealt with above.  This is so only because of the need to balance between the length of the decision and its comprehension.  It does not mean those other points are thought to be irrelevant (or have been overlooked).  To avoid doubt, those other points have also been considered.

Costs order nisi

35.  There is no apparent reason to depart from the usual rule that costs should follow the event.  There will accordingly be a costs order nisi pursuant to Ord 42 r 5B(6) that the costs of this application be:

(a) as between the plaintiff and Worldwide Marine Product, the defendant’s costs in the cause;

(b) as between the plaintiff and Eminent Vantage, the plaintiff’s costs in the cause.

Mr Nicholas Cooney, SC leading Mr Minju Kim, instructed by Payne Clermont, for the plaintiff

Mr Jonathan Wong and Mr Kevin Li, instructed by CC Partners, for the 1^st defendant

The 2^nd and 3^rd defendants were not represented and did not appear (the claim against the 4^th defendant was discontinued on 13 May 2015)