ZIEF INCORPORATED v. TEKCHANDANI AJAI MOHAN (t/a D’ZINER COLLECTIONS (HONG KONG)) AND OTHERS

HCA 2459/2017

[2021] HKCFI 730

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2459 OF 2017

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________________________

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REASONS FOR DECISION

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1.  In a judgment handed down on 7 January 2021 (“the Judgment”), I gave judgment to the plaintiff (“P”) against the 4^th defendant (“D4”) in respect of the sum of HK$3,120,000 on the basis that D4 had been unjustly enriched at P’s expense to that extent.  I indicated in the Judgment that P would be entitled to interest on HK$3,120,000, and directed the parties to submit an order for the Court’s approval on the applicable pre-judgment interest rate and the date on which pre-judgment interest is to run.  I also made an order nisi that P’s costs in these proceedings (including any reserved costs) are to be paid by D4 to be taxed if not agreed (without a certificate for two counsel).

2.  After the handing down of the Judgment, the following applications were made:

(1)  P’s application for enhanced interest.

(2)  P’s application to vary my costs order nisi.

(3)  D4’s application for stay of execution pending appeal.

(4)  P’s application for payment out.

3.  I made various orders in relation to the above applications at the substantive hearing, and indicated that I would give my reasons later, which are set out below.

A.  EVENTS THAT TOOK PLACE AFTER THE HANDING DOWN OF JUDGMENT

4.  After the Judgment was handed down on 7 January 2021, P’s solicitors wrote to D4’s solicitors on 15 January 2021 seeking D4’s agreement to P’s proposed judgment ordering D4 to pay (1) interest on HK$3,120,000 from 3 February 2016 to 14 May 2020 at the rate of 6% per annum and thereafter at the rate of 10% above the judgment until payment and (2) P’s costs in the proceedings (including any reserved costs) on a party-to-party basis without certificate for two counsel up to 13 May 2020, and on an indemnity basis with certificate for two counsel from 14 May 2020, to be taxed if not agreed, and interest on such costs at the rate of 10% above judgment rate from 7 January 2021 until payment.

5.  By a letter dated 18 January 2021, D4’s solicitors referred to P’s solicitors’ letter dated 15 January 2021, and stated that they had ceased to act for, and had no instructions from, D4. 

6.  By a letter dated 19 January 2021 to P’s solicitors, D4 confirmed that Messrs Choy Yung & Co were no longer its solicitors, and made certain comments on P’s proposed orders on costs and interest.

7.  On 21 January 2021, P took out a summons to seek enhanced interest on the principal sum of HK$3,120,000 and costs, as well as costs on an indemnity basis.  The summons was supported by an affirmation referring to a sanctioned offer previously made by P to D4.

8.  On the same day (21 January 2021), P’s solicitors wrote to the Court enclosing P’s summons and asked the Court to deal with the P’s summons on paper.

9.  By a letter dated 26 January 2021, D4’s solicitors referred to P’s solicitors’ letters dated 21 January 2021, and informed the Court that Messrs Choy Yung & Co no longer had authority to act for D4 and that D4 would be applying to court for leave to represent itself through its director.

10.  I was not given the letter from P’s solicitors dated 21 January 2021 and D4’s solicitor’s letters dated 26 January 2021 until 3 February 2021.  Having considered the documents, I asked my clerk to liaise with the parties to fix a hearing for the determination of P’s summons.

11.  On 3 February 2021, Messrs Choy Yung & Co filed a Notice of Appeal on behalf of D4 against the Judgment.

12.  On 8 February 2021, the Court issued a notice of hearing for P’s summons to be returnable before me on 17 March 2021.

13.  By a letter dated 10 February 2021, P’s solicitors sought directions from the Court because D4 had (without P’s knowledge) obtained a sealed Judgment on 9 February 2021 (“Sealed Judgment”) from the Court stating (amongst other things):

“IT IS ADJUDICATED that the 4th Defendant do pay the Plaintiff a sum of HK$3,120,000.

IT IS FURTHER ADJUDICATED that there be an order nisi that the costs of Plaintiff in these proceedings (including any reserved costs) be paid by the 4^th Defendant, without a certificate for two counsel, to be taxed if not agreed and the above costs order nisi shall be made absolute 14 days from the date of this judgment.”

14.  I was not aware of the fact that D4 had obtained the Sealed Judgment until I was given a copy of P’s solicitors’ letter on 10 February 2021.  At the hearing, I asked Ms Dorothy Cheung, counsel for D4, to explain the circumstances under which the Sealed Judgment was obtained without P’s knowledge.  Ms Cheung stated that those instructing her wanted to comply with the requirement of lodging with the Registrar a copy of the sealed judgment within 7 days after the service of the notice of appeal (pursuant to RHC Order 59, rule 5(1)).  However, this desire to comply with the rule provided no justification for D4’s solicitors to unilaterally communicate with the Court’s clerk by telephone to have the judgment sealed on the basis of certain orders which they knew P was at the time trying to vary and supplement.  The Court takes a very dim view of the conduct of D4’s solicitors in obtaining the Sealed Judgment.

15.  On 11 February 2021, I asked my clerk to issue a letter to the parties to (1) inform them that the Sealed Judgment was issued without my knowledge, and (2) direct them to make submissions on the effect of the Sealed Judgment at the hearing on 17 March 2021.  This letter was issued on 19 February 2021.

16.  On 24 February 2021, P took out a summons to ask for an order that the sums of HK$450,000 and HK$400,000 that were respectively paid into court on 11 April 2018 and 3 May 2019 to be paid out of court to P’s solicitors.

17.  On 10 March 2021, D4 issued a summons for a stay of execution of the Judgment pending appeal.

B.  ENHANCED INTEREST

B1.  Can the Court Deal with Issue of Interest Now?

18.  In §53 of the Judgment, I said:

“P is entitled to interest on HK$3,120,000. I direct the parties to submit an agreed order for the court’s approval within 14 days on the applicable pre-judgment interest rate and the date on which pre-judgment interest is to run, and give liberty to apply in the event the parties are unable to agree.”

19.  The Sealed Judgment does not deal with interest on HK$3,120,000.  Once a court order has been drawn up or perfected, the general position is that the court would be functus officio and cannot reconsider any further issues in the case: Andayani v Chan Oi Ling [2000] 4 HKC 233 at 237D-G (Keith JA).  There are, however, some exceptions to the general position.

20.  RHC Order 20, rule 11 provides that “[c]lerical mistakes in judgments or orders, or errors arising therein from any accidental slip or omission, may at any time be corrected by the Court on summons without an appeal”.  This is generally known as the “slip rule”.  It is well-settled that the “slip rule” can operate “at any time”, even after the sealing of the relevant order: Winston Camera & Radio Co Ltd v Combi (Singapore) Pte Ltd [1988] HKC 156 at 157E (Kempster JA); Man Ping Nam v Man Fong Hang (No 2) (2007) 10 HKCFAR 140 at §20 (Ribeiro PJ).  

21.  In order for the “slip rule” to be engaged, it is necessary to identify a clerical mistake, or an error arising from any accidental slip or omission, in a judgment or order.  One instance where such a mistake or error may be identified if the judgment or order does not reflect or encapsulate the true and objective intention of the Court: eg Adam & Harvey Ltd v International Maritime Supplies Co Ltd [1967] 1 WLR 445 at 448E-H (Harman LJ); Wing Wo Engineering Ltd v Tyco Engineering & Construction (Hong Kong) Ltd (unreported, CACV 1120/2000, 28 October 2002) §4.

22.  Similarly, it is well-settled that the court has an inherent or implied discretionary power to clarify the original order if the court’s intention appearing from the body of the judgment is manifest: Man Ping Nam v Man Fong Hang (No 2) (2007) 10 HKCFAR 140 at §10 (Ribeiro PJ).

23.  It is readily apparent from §53 of the Judgment that it was my intention to award interest to P on the sum of HK$3,120,000. Accordingly, it seems to me that the Court is not functus officio, and does have the power to deal with the question of interest now even after the sealing of the judgment.

B2.  Interest on HK$3,120,000 from 3 February 2016 to 13 May 2020

24.  As mentioned in §§5 and 6 of the Judgment, D4 received the sum of HK$3,120,000 from P on 3 February 2016.

25.  By a letter dated 15 April 2020, P made a sanctioned offer (“Sanctioned Offer”) to D4 to settle all of P’s claims against D4 for HK$2,500,000 (inclusive of interest) with no order as to costs in the action.  The Sanctioned Offer was stated to be open for acceptance without leave from the court within 28 days from 15 April 2020.  It was also stated in the letter that upon the expiry of the 28 days, D4 could only accept the Sanctioned Offer if (1) the parties agree on the liability for costs or (2) the court grants leave to accept it.  D4 does not appear to dispute that P had made a proper Sanctioned Offer on 15 April 2020.  The last day on which D4 could have accepted the Sanctioned Offer was 13 May 2020.

26.  P submitted that it should be entitled to pre-judgment interest from 3 February 2016 to 13 May 2020 at the rate of 6% per annum.  This was calculated by P on the basis of the well-established practice in Hong Kong of using 1% above prime rate as the appropriate pre-judgment interest rate (Polyset Limited v Panhandat Limited (unreported, FACV 28/2000, 25 April 2002) §13).  P has adduced evidence to show that the prime rates of HSBC and Hang Seng Bank were both 5% as at 21 January 2021.  However, this approach is wrong, because the prime rate in Hong Kong fluctuates from time to time and P has not used the prime rate(s) that were prevailing during the period from 3 February 2016 to 13 May 2020.

27.  The only point made by D4 to resist P’s claim for pre-judgment and pre-Sanctioned Offer interest was that the date should run from the date of the writ herein (25 October 2017), and not from the date of D4’s receipt of HK$3,120,000.  This submission has no substance.  It is well-established that pre-judgment interest is awarded not to punish a defendant, but to compensate a plaintiff for the return which he could have expected had he invested the amount in question, or to deprive a defendant of the profit which he wrongfully made out of the money he withheld: Tate & Lyle Distribution v Greater London Council [1982] 1 WLR 149 at 154B-F (Forbes J); Komala Deccof & Co SA v Perusahaan Pertambangan Minyak Dan Gas Bumi Negara (Pertamina) [1984] HKLR 219 at 223D-G (Cons JA).  Given that P was deprived of the use of HK$3,120,000 from 3 February 2016, there is no reason why pre-judgment interest should not run from that date.

28.  Accordingly, I ordered that P is entitled to interest on the sum of HK$3,120,000 from 3 February 2016 to 13 May 2020 at the rate of 1% over HSBC’s best lending rates that were prevailing at the material times.

B3.  Interest on HK$3,120,000 from 14 May 2020 to Date of Judgment

29.  P submitted that it has now obtained a more advantageous order than the Sanctioned Offer, and sought interest on HK$3,120,000 from 14 May 2020 at 5% above judgment rate until payment.  In this section, I will consider P’s entitlement to enhanced interest from 14 May 2020 until the date of the Judgment (7 January 2021).  The question of whether P is entitled to post-judgment enhanced interest will be dealt with in Section B4.

30.  There is no dispute that P has obtained a judgment that is more advantageous than the Sanctioned Offer.  RHC Order 22, rule 24 provides as follows:

“(1)  This rule applies where—

(a)  a defendant is held liable for more than the proposals contained in a plaintiff’s sanctioned offer; or

(b)  the judgment against a defendant is more advantageous to the plaintiff than the proposals contained in a plaintiff’s sanctioned offer.

(2)  The Court may order interest on the whole or part of any sum of money (excluding interest) awarded to the plaintiff at a rate not exceeding 10% above judgment rate for some or all of the period after the latest date on which the defendant could have accepted the offer without requiring the leave of the Court.

(3)  The Court may also order that the plaintiff is entitled to—

(a)  his costs on the indemnity basis after the latest date on which the defendant could have accepted the offer without requiring the leave of the Court; and

(b)  interest on those costs at a rate not exceeding 10% above judgment rate.

(4)  Where this rule applies, the Court shall make the orders referred to in paragraphs (2)  and (3) unless it considers it unjust to do so.

(5)  In considering whether it would be unjust to make the orders referred to in paragraphs (2) and (3), the Court shall take into account all the circumstances of the case including—

(a)  the terms of any sanctioned offer;

(b)  the stage in the proceedings at which any sanctioned offer was made;

(c)  the information available to the parties at the time when the sanctioned offer was made; and

(d)  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.

(6)  The power of the Court under this rule is in addition to any other power it may have to award interest.”

31.  RHC Order 22, rule 24 was introduced in Hong Kong (amongst other rules) as a result of the Civil Justice Reform and is closely modelled on the English Civil Procedure Rules 36.21.  The rules relating to sanctioned offers and payments aim to encourage the parties to take possible settlement seriously and to avoid unproductive prolongation of the litigation: Civil Justice Reform Final Report §292.

32.  The powers conferred by Order 22 rule 24 to order indemnity costs and a higher rate of interest are intended to provide a means of achieving a fairer result for the plaintiff, and to redress the perceived unfairness from the fact that damages, costs (even costs on an indemnity basis) and statutory interest will 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 an offer to settle on terms which (as events turned out) were less advantageous to him than the judgment which he achieved: McPhilemy v Times Newspapers Ltd (No 2) [2002] 1 WLR 934 at §§19 & 21 (Chadwick LJ); Golden Eagle International (Group) Ltd v GR Investment Holdings Ltd [2010] 3 HKLRD 273 at §10 (Lam J); Grupo Pacifica Incorporada v Worldwide Marine Product Ltd[2018] HKCFI 2584 at §17 (Au-Yeung J).

33.  Under the Order 22 rule 24 regime, where the plaintiff has “beaten” his own sanctioned offer, the court should consider ordering the defendant to pay additional interest at up to 10% above judgment rate, and indemnity costs, unless it considers it unjust to do so.

34.  D4 relied on 2 matters to contend that it would be unjust to pay enhanced interest, namely that it used its best endeavours to conduct the trial and that it did not incur additional time at the trial.  But these are plainly not reasons as to why the Sanctioned Offer was not accepted by D4 before the commencement of the trial.  No submissions were advanced by D4 by reference to any of the factors set out in Order 22 rule 24(5).  In my view, D4 has completely failed to demonstrate why it would be unjust to order against it interest at a higher rate under Order 22 rule 24(2).

35.  D4 further submitted that if the Court were minded to order a higher rate of interest, a rate of 2% above judgment rate should be used because the amount of the claim is a small amount.  I disagree. The amount sought by P is HK$3,120,000 and cannot on any view be described as a small amount for the purpose of Order 22, rule 24.

36.  The level of enhanced interest awarded must be proportionate to the circumstances of the case: OMV Petrom SA v Glencore International AG (No 2) [2017] 1 WLR 3465 at §38 (Sir Geoffrey Vos C).

37.  Given that (1) there was a reasonable discount in the sum offered by P in the Sanctioned Offer, (2) the Sanctioned Offer was made at an advanced stage of the proceedings (around 2 months before the PTR), and (3) D4 failed to respond to the Sanctioned Offer, I consider 5% above judgment rate to be an appropriate enhanced rate of interest.  Accordingly, I ordered D4 to pay to P interest on HK$3,120,000 from 14 May 2020 to the date of judgment (7 January 2021) at the rate of 5% above judgment rate.

B4.  Interest on HK$3,120,000 from Date of Judgment to Date of Payment

38.  P also sought interest at 5% above judgment rate on HK$3,120,000 from the date of Judgment to the date of payment.

39.  Section 49(1) of the High Court Ordinance (Cap 4) provides:

“Judgment debts shall carry simple interest—

(a)  at such rate as the Court of First Instance may order; or

(b)  in the absence of such order, at such rate as may be determined from time to time by the Chief Justice by order,

on the aggregate amount thereof, or on such part thereof as for the time being remains unsatisfied from the date of the judgment until satisfaction.”

40.  Post-judgment interest is a rate imposed where a judgment for a quantified sum has not been paid.  It is conventionally charged at a rate determined periodically by the Chief Justice by order, at a rate significantly higher than commercial rates of interest, designed to encourage and provide an incentive for prompt satisfaction of judgment debts: Man Ping Nam v Man Fong Hang (No 2) (2007) 10 HKCFAR 140 at §23 (Ribeiro PJ); Ming An Insurance Co (HK) Ltd v Ritz-Carlton Ltd (No 2) (2009) 12 HKCFAR 158 at §65 (Ribeiro PJ).  The current interest rate on judgment debts is 8% per annum.

41.  Although section 49(1)(a) of the High Court Ordinance confers power on the Court of First Instance to decide what rate to be applied to judgment debts, it seems to me that there must be good reasons for the court to depart from the convention of ordering post-judgment interest to be charged at judgment rate (ie the rate as determined from time to time by the Chief Justice).  

42.  P asked the Court to order a rate of 5% above judgment rate for post-judgment interest on HK$3,120,000 on the basis that D4 failed to accept the Sanctioned Offer.  However, I am not persuaded that the failure to accept a sanctioned offer provides sufficient reasons for the Court to order post-judgment interest at a rate higher than the judgment rate. 

43.  As explained earlier, the powers to award enhanced interest under Order 22 rule 24 are to redress the perceived unfairness from the fact that the successful plaintiff will not be sufficiently compensated for the inconvenience, anxiety and distress of having to resort to and pursue proceedings.  Such inconvenience, anxiety and distress (insofar as they exist) would ordinarily end when the successful plaintiff obtains the judgment. Moreover, as mentioned earlier, the purpose of post-judgment interest is not to compensate the successful plaintiff for such inconvenience, anxiety and distress, but to provide incentive to the losing defendant to promptly settle the judgment debt.  See McPhilemy v Times Newspapers Ltd (above) at §24 (Chadwick LJ); Lo Yuk Sui v Fubon Bank (Hong Kong) Ltd [2017] 2 HKLRD 477 at §§57-59[1] (P Ng J).

44.  In the end, I ordered D4 to pay to P interest on HK$3,120,000 from the date of judgment to the date of full payment at judgment rate.

C.  COSTS

45.  P has sought to vary the costs order nisi that I made in the Judgment by asking for an order that P’s costs in these proceedings (including any reserved costs) are to be paid by D4 to be taxed if not agreed (1) on a party-to-party basis with a certificate for one counsel up to 13 May 2020 and (2) on an indemnity basis with a certificate for two counsel from 14 May 2020.  P also sought from D4 interest on the costs incurred by P from 14 May 2020 at the rate of 5% above judgment.

46.  D4 accepted that it is open to P to seek to vary the costs order nisi, but submitted that it would be unjust to order indemnity costs and a certificate for two counsel in relation to the costs incurred by P from 14 May 2020. 

47.  D4 relied on the same grounds as those set out in paragraph 34 above to resist an order for indemnity costs and enhanced interest on costs.  For the reasons given above, I reject those grounds.  I consider that D4 has failed to demonstrate why it would be unjust to order against it indemnity costs under Order 22 rule 24(3)(a) and enhanced interest on costs under Order 22 rule 24(3)(b).

48.  However, given the nature of and the issues involved in the case, I do not think this is a case that merits the instruction of two counsel from 13 May 2020, or for the trial. 

49.  Accordingly, I varied my costs order nisi by ordering D4 to pay (1) P’s costs in these proceedings (including any reserved costs) (a) on a party-to-party basis with a certificate for one counsel up to 13 May 2020 and (b) on an indemnity basis with a certificate for one counsel from 14 May 2020, to be taxed if not agreed; and (2) interest on the costs incurred by P from 14 May 2020 to the date of judgment at the rate of 5% above judgment rate.

D.  STAY PENDING APPEAL

50.  In its Notice of Appeal, D4 puts forward 3 grounds to contend that the Court was wrong in the Judgment:

(1)  “The Recorder erred in law in holding that D4 was not a bona fide purchaser for value that D4 had not given valuable consideration for the HK$3,120,000 that it “purchased” because there was no promise to deliver the Diamonds to Plaintiff (at paragraph 32(3) of the Judgment).”

(2)  “The Recorder erred in law in holding (at paragraph 36 of the Judgment) that D4’s position cannot be said to have changed as D4 did not deliver the Diamonds to Plaintiff.”

(3)  “The Recorder erred in finding (at paragraph 38(10)) that D4 did not give any of the diamonds mentioned in the Aura and Amigo Invoices to Mr. Leo.”

51.  All D4 has done is to assert that what the Court said in paragraphs 32(3), 36 and 38(10) are in error.  Ms Cheung has not made any serious attempt to explain why each of the grounds has any reasonable prospects of success in the intended appeal.  I am not satisfied that the grounds of appeal put forward by D4 are arguable.  Accordingly, I dismissed D4’s application for stay of execution pending appeal.

E.  PAYMENT OUT

52.  P had previously paid into court two sums of money (HK$450,000 and HK$400,000) as security for D4’s costs and wished to have both sums paid out to its solicitors.  Both parties agreed that this application would stand or fall with D4’s application for stay of execution. Given that D4’s application for stay was dismissed, I ordered the sums of HK$450,000 and HK$400,000 paid into Court on 11 April 2018 and 3 May 2019 respectively, together with the interest accrued thereon, to be paid out of court to P’s solicitors.

F.  DISPOSITION

53.  I made a summary assessment of P’s costs at the hearing of the hearing.

54.  Given the circumstances under which the Sealed Judgment was obtained (as set out in Section A above), the Sealed Judgment would need to be amended to reflect the orders made in paragraphs 28, 37, 44 and 49 above.  As P has the carriage of proceedings, I give leave to P to amend the Sealed Judgment and to file an amended sealed judgment in due course.

Ms Joyce Leung, instructed by Haldanes, for the plaintiff

Ms Dorothy Cheung, instructed by Choy Yung & Co, for the 4^th defendant

HCA 2459/2017

[2021] HKCFI 38

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2459 OF 2017

________________________

________________________

________________________

J U D G M E N T

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1.  The plaintiff (“P”) has remitted over HK$3 million to the bank account of the 4th defendant (“D4”). P claims that it did so as a result of an email fraud perpetrated on it. D4 is a diamond trader and was not aware of any fraud. P brings a claim in unjust enrichment against D4. The claim is resisted by D4 on the grounds that it has supplied diamonds to P pursuant to a contract with P, and that it has a defence of bona fide purchase for value without notice and a defence of change of position to P’s claim. This is a trial only involving P and D4.

A.  THE RELEVANT FACTUAL BACKGROUND

2.  The parties have helpfully prepared a statement of agreed facts and an agreed chronology which were provided to the court before the trial.  The facts set out in this section are either derived from these agreed documents, or are undisputed or indisputable.

3.  P is a limited company incorporated on 18 September 2012 under the laws of the Territory of the British Virgin Islands.  At the material times,

(1)  P belonged to a group of companies (“the Group”) engaged in the business of developing mobile gaming applications;

(2)  the Group was controlled and owned by Mr Kerry Pak (“Mr Pak”);

(3)  Hayes Corporation Limited and Primus Media Limited (“Primus Media”) were companies within the Group;

(4)  Ms Jenny Chiu (“Ms Chiu”) was an employee of Primus Media and the Corporate Secretary of the Group, and her main duty was to handle the financial matters of the Group, including in particular arranging for payments to be made to third parties for and on behalf of the Group; and

(5)  P operated and held a bank account (“P’s Account”) with the Hong Kong and Shanghai Banking Corporation (“HSBC”) and Mr Pak was the only person who could authorise and approve payments out of P’s Account.

4.  D4 is a limited company incorporated under the laws of Hong Kong.  Prior to 12 July 2016, D4 was known as Basilica Jewelry Limited.  At the material times, D4 held a bank account with the Bank of East Asia (“D4’s Account”).

5.  On 3 February 2016 at about 10:11am, Ms Chiu received an email entitled “Transfer to Basilica” purportedly from Mr Pak ([email protected]). In the email, Ms Chiu was provided with information about D4’s Account and was instructed to wire HK$3,120,000 to the same.

6.  On the same day, Ms Chiu arranged for the sum of HK$3,120,000 to be transferred from P’s Account to D4’s Account.  At 10:33am, Ms Chiu sent an email to a “Reply-To” email address ([email protected])[1] attaching a copy of the payment slip.  At 11:49am, Ms Chiu received an email purportedly from Mr Pak from the email address ([email protected]) confirming receipt of the same.

7.  On 4 February 2016, three sums of money (namely HK$179,400, HK$741,000, and HK$663,000) were transferred out of D4’s Account.

8.  On 4 February 2016 at about 5pm, Ms Chiu managed to contact Mr Pak by telephone and was told by Mr Pak that he did not give instructions to transfer any money to D4.  On the same day, Ms Chiu reported details of its remittance of HK$3,120,000 to the Hong Kong Police on grounds that it was made as a result of an email fraud perpetrated on P.

9.  On 12 July 2016, D4 changed its trading name to Creator Universal (HK) Limited.

10.  On 25 October 2017, P issued the present proceedings against, amongst others, D4.

B.  THE PLAINTIFF’S CASE

11.  P’s case is that it was a victim to an email fraud and that HK$3,120,000 was transferred to D4:

(1)   by mistake in that Ms Chiu believed that the sum was transferred pursuant to the instructions of Mr Pak and that Mr Pak had authorised and/or approved the same, and that but for the mistake, the payment would not have been effected;

(2)  in the absence of consideration in that D4 did not provide any consideration for the payment.

12.  In the circumstances, P claims that D4 is unjustly enriched by the payment of HK$3,120,000.

13.  Although a wide range of relief has been sought in its Amended Statement of Claim, P has confined the reliefs it seeks in its written closing submissions to (1) a personal restitutionary remedy in the sum of HK$3,120,000 and (2) a declaration that the remaining balance in D4’s Account is to be held on a constructive trust for P.

C.  THE 4TH DEFENDANT’S DEFENCE

14.  D4’s pleaded defence is as follows:

(1)  D4 denies that the payment of HK$3,120,000 by P to D4 was a result of fraud, or by mistake.  D4 contends that the payment was made pursuant to the following bona fide transaction (“the Purported Transaction”):

(a)  In about December 2015, one Mr Leo Alagy (“Mr Leo”) visited D4 and represented to Mr Jhaveri Vijen Girishchandra (“Mr Jhaveri”) of D4 that he wanted to purchase some diamonds from D4 and that he or his company could pay the purchase price by cash or bank transfer when the diamonds were available.

(b)  On or about 20 January 2016, Mr Leo placed and confirmed with D4 an order to purchase diamonds.   

(c)  By a contract made on 1 February 2016, D4 agreed to sell and Mr Leo acting on its behalf of P agreed to buy diamonds in the total quantity of 547.50 carats (“the Diamonds”) for HK$3,120,001.74.

(d)  On 3 February 2016, P paid HK$3,120,000 to D4 by bank transfer to D4’s Account and D4 received HK$3,119,985 (after HK$15 was deducted by D4’s bank as bank charge).

(e)  Upon confirmation of receipt of the payment of purchase price and in reliance of the receipt, D4 delivered to P (through Mr Leo acting on behalf of P) the Diamonds.

(2)  By virtue of the Purported Transaction, D4 was a bona fide seller for full valuable consideration and without notice.

(3)  On 4 February 2016, D4 made two payments of HK$179,400 and HK$741,000 to Aura Hong Kong (“Aura”), and one payment of HK$663,000, to Amigo Trading Company (“Amigo”), for part of the Diamonds that D4 sourced for the Purported Transaction.  D4’s position has changed by (a) the delivery of the diamonds to Mr Leo and (b) the payments to Aura and Amigo, and that it would be inequitable to require D4 to make any restitution, or alternatively to make restitution of HK$3,120,000 in full to P.

D.  THE ISSUES FOR DETERMINATION

15.  P and D4 have agreed a list of issues for the court’s determination at the trial.  In the light of the parties’ pleadings, I consider the agreed issues as appropriate.  The four agreed issues are as follows:

(1)  Whether the remittance of HK$3,120,000 made by P to D4 on or around 3 February 2016 was made by mistake and/or in the absence of consideration.

(2)  Whether D4 was a bona fide seller for value without notice.

(3)  Whether D4 changed its position such that it would be inequitable to require it to make restitution.

(4)  Whether P is entitled to the reliefs sought.

E.  ISSUE 1: WHETHER P MADE THE PAYMENT BY MISTAKE AND/OR IN THE ABSENCE OF CONSIDERATION

E1.  Circumstances under which HK$3,120,000 was paid by P to D4

16.  The question of how the sum of HK$3,120,000 was transferred from P’s Account to D4’s Account is a question of fact.  The court needs to make additional findings of fact further to those made in Section B above. 

17.  In making my findings of fact in this case, I adopt the following general principles as to fact finding and assessment of credibility set out in Hui Cheung Fai v Daiwa Development Ltd (unreported, HCA 1734/2009, 8 April 2014) at §§77-80:

“77. Generally speaking, contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility: Onassis v Vergottis [1968] 2 Lloyd’s Rep 403 at 431 (Lord Pearce) …

78. In deciding whether to accept a witness’s account, importance should also be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events: eg Lam Rogerio Sou Fung v Tan Soon Gin George (unreported, HCA 2576/2005, 5^th May 2011) §39 (Chu J).

79. In determining a witness’s credibility, I have also attached importance to the consistency of the witness’s evidence with undisputed or indisputable evidence, and the internal consistency of the witness’ evidence. The latter type of consistency is often tested by a comparison between the witness’ oral testimony and his or her witness statement.

80. I have cautioned myself against the dangers of too readily drawing conclusions about truthfulness and reliability solely or mainly from the appearance of witnesses: Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336 at §§36-37 (Bokhary PJ).

81. The practical approach to assessing credibility of witnesses in a case such as the present may have best been summarised by the words of Robert Goff LJ, as he then was, in The Ocean Frost [1985] 1 Lloyd’s Rep 1 at 57:

‘Speaking from my experience, I have found it essential in cases of fraud, when considering the credibility of witnesses, always to test their veracity by reference to the objective facts proved independently of their testimony, in particular by reference to the documents in the case, and also to pay particular regard to their motives and to the overall probabilities. It is frequently very difficult to tell whether a witness is telling the truth or not; and where there is a conflict of evidence such as there was in the present case, reference to the objective facts and documents, to the witnesses’ motives, and to the overall probabilities, can be of very great assistance to a Judge in ascertaining the truth.’

82. Whilst these words were spoken in the context of a fraud case, I believe they are applicable to any case where a witness’ credibility features prominently in the court’s determination…”

18.  Both Mr Pak and Ms Chiu gave oral testimony at the trial and were cross-examined by D4.  Both of them gave evidence in a straight-forward manner, and their evidence was entirely consistent with their respective witness statement and the contemporaneous documents.  I find them as reliable and credible witnesses and accept their evidence in their entirety in relation to the circumstances under which the HK$3,120,000 was transferred from P’s Account to D4’s Account. 

19.  In particular, I make the following additional findings of fact:

(1)  P became a victim of email frauds perpetrated by unknown person(s).  It appears that the frauds were committed either by unknown persons (a) gaining access into Mr Pak’s email account at Primus Media and sending emails without his knowledge, and/or (b) creating a forged email address and circulating emails without Mr Pak’s knowledge.

(2)  Ms Chiu received a number of emails purportedly from Mr Pak’s email address with Primus Media ([email protected]) which instructed her to make certain wire transfers, namely (a) an email received on 26 January 2016 to transfer US$100,000 to the bank account of the 1st and 2nd defendants, (b) an email dated 28 January 2016 to transfer US$250,000 to the bank account of the 3rd defendant and (c) the email dated 3 February 2016 to transfer HK$3,120,000 to D4’s Account.

(3)  When Ms Chiu received the email dated 3 February 2016 for the transfer of HK$3,120,000 to D4’s Account, she believed that the email was sent by Mr Pak.  However, that email was not sent by Mr Pak and was sent by an unknown person without the knowledge or approval of Mr Pak.

(4)  Mr Leo was never an employee or agent of P.  P never authorised Mr Leo or anyone else to have dealings with D4.  The chop that was affixed on D4’s invoice dated 1 February 2016 by Mr Leo (“D4’s Invoice”) was not P’s company chop.  P and D4 did not enter into any contract for the sale and purchase in respect of the Diamonds.

(5)  When Ms Chiu arranged to transfer HK$3,120,000 from P’s Account to D4’s Account, she mistakenly believed that she was following the instructions of Mr Pak.  

(6)  In D4’s written opening submissions, it was asserted that when Ms Chiu made the transfer of HK$3,120,000 to D4’s Account on 3 February 2016, she “saw the risk, took it and proceeded to transfer the sum” and that the transfer was not made by mistake.  In D4’s written closing submissions, it was submitted that P did not make the transfer to D4’s Account by mistake because the circumstances were “so unusual that [Ms Chiu] is taken to have run the risk of making the wrong payment”.  However, D4’s pleaded case is that there was no mistake of P because P transferred HK$3,120,000 to D4 pursuant to the Purported Transaction.  It is not open to D4 to depart from its pleaded case as to why it says P was not operating under a mistake in transferring the money to D4.  In any event, I find that Ms Chiu was not taking any risk when she arranged the transfer of the HK$3,120,000 from P’s Account to D4’s Account.  As found earlier, she did so because she mistakenly believed that the instruction to transfer came from Mr Pak and that Mr Pak had authorised and approved the same.

(7)  As a result of the frauds, Mr Pak instructed Ms Chiu to dissolve Primus Media.  Primus Media was dissolved on 7 July 2017.

E2.  Whether P made the payment by mistake

20.  It is well-established that the following framework is adopted in determining the validity of a claim in unjust enrichment: (1) Was the defendant enriched? (2) Was the enrichment at the plaintiff’s expense?  (3) Was the enrichment unjust?  (4) Are any of the defences applicable? See Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79 at §67 (Ribeiro PJ) and Yukio Takahashi v Cheng Zhen Shu (2011) 14 HKCFAR 558 at §26 (Ribeiro PJ).  If the first three matters are established by the plaintiff, it is then for the defendant to prove that there is a defence: Samsoondar v Capital Insurance Co Ltd [2020] UKPC 33 at §18 (Lord Burrows).

21.  In the present case, there does not seem to be any issue that D4 was enriched to the extent of HK$3,120,000 and that the enrichment was at P’s expense.  The first disagreement between P and D4 lies in whether P can establish any ground for restitution, or any “unjust factor”.

22.  As mentioned earlier, D4’s pleaded case is that P paid the HK$3,120,000 pursuant to a binding contract, namely the Purported Transaction.  However, Mr Leo was never authorised by P and had no authority to enter into any transaction with D4.  Therefore, the Purported Transaction is invalid and the HK$3,120,000 was not paid by P to D4 pursuant to the Purported Transaction or any valid contract.

23.  The defendant’s enrichment is unjust if it is caused by a mistake of fact or law made by the plaintiff.  It is prima facie unjust for a recipient of money to retain the payment when, if the payer had known the true state of affairs, he would not have paid: see Kleinwort Benson Ltd v Lincoln CC [1999] 2 AC 349 at 399C-D (Lord Hoffmann). If Ms Chiu had known that Mr Pak never instructed her to transfer HK$3,120,000 from P’s Account to D4’s Account, it is clear that she would not have caused the payment to be made.  In these circumstances, and on the basis of the findings of fact made above, I find that D4’s enrichment of HK$3,120,000 is unjust.

E3.  Whether P made the payment by failure of consideration

24.  P also relies on failure of consideration as an alternative ground for restitution.

25.  “Consideration” in the context of a claim in unjust enrichment is different from that in the law of contract. “Consideration” for the purposes of the law of unjust enrichment does not mean the quid pro quo for there to be a binding contract as it is used in the law of contract.  In the law of unjust enrichment, “consideration” refers to the condition which formed the basis of the plaintiff’s transfer to the defendant of the benefit in question.  In Shanghai Tongji (above) §79, Ribeiro PJ referred to it as “the anticipated performance for which the money was paid, or the ‘basis or purpose’ of the payment”.

26.  Where total failure of consideration is relied upon as the “unjust factor”, it is crucial to correctly identify and characterise the transaction providing the basis for the defendant’s enrichment, and it is only then can one identify the relevant anticipated performance and ascertain whether it has totally failed: see Shanghai Tongji (above) §80 (Ribeiro PJ).

27.  In the law of unjust enrichment, the usual consideration that fails which gives rise to restitution is the promised counter-performance.  If money was paid to secure performance and if performance fails, the inducement which brought about the payment is not fulfilled: see Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32 at 48 (Viscount Simon LC); Shanghai Tongji (above) §79 (Ribeiro PJ).

28.  In the present case, prior to the transfer of HK$3,120,000, P has never had any dealings with D4.  P never anticipated any performance by D4.  Although P did not obtain any benefit from the transfer of money, it does not seem appropriate to describe D4’s enrichment as a total failure of consideration.  In any event, given that I have already concluded D4’s enrichment was unjust because of the mistaken belief that P was under, it is unnecessary for P to rely on total failure of consideration as an alternative ground for restitution.

E4.  Conclusion on Issue 1

29.  For the above reasons, subject to the defences to be discussed below in Sections F and G, P is prima facie entitled to recover HK$3,120,000 from D4.

F.  ISSUE 2: DEFENCE OF BONA FIDE PURCHASE FOR VALUE WITHOUT NOTICE

30.  D4 submits that the defence of bona fide purchase for value without notice is a general defence to all claims for unjust enrichment (whether personal or proprietary).  This appears to be accepted by P as a matter of general principle.  However, it is right to note that there are academic views that the defence is not a general defence in the law of unjust enrichment and is only applicable where the plaintiff’s restitutionary claim is founded on the vindication of property rights: see eg W Swadling “Restitution and Bona Fide Purchase” in W Swadling (ed), The Limits of Restitutionary Claims: A Comparative Analysis (1997); G Virgo, The Principles of the Law of Restitution (3rd ed, 2015) p 656.  Nonetheless, given it is common ground that the defence is generally applicable to all restitutionary claims (and assuming, without deciding, that the agreed premise is correct), I shall proceed to determine whether the defence can be established on this basis. 

31.  The burden of establishing the bona fide purchase defence is on the defendant: Barclays Bank plc v Boulter [1999] 1 WLR 1919 at 1924G-H (Lord Hoffmann); Chan Chun Chung v PBM (Hong Kong) Ltd (2004) 7 HKCFAR 178 at §14 (Litton PJ).  One of the conditions that must be satisfied is that the defendant must have provided value for the transfer of the property. 

32.  D4’s pleaded case is that it has given valuable consideration pursuant to the Purported Transaction, namely the Diamonds.  P submits that given that there was no binding contract between P and D4, D4 could not have provided valuable consideration.

(1)  In Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548, Cass (a partner of a firm of solicitors), without authority, had drawn on the firm’s bank account to gamble.  The firm brought proceedings for money had and received against the casino where Cass had spent the money.  One of the contentions advanced by the casino was that the claim of money had and received did not lie because it gave valuable consideration for the money it received.  The House of Lords held, amongst other things, that the casino provided no consideration for the money paid over by Cass, and therefore was not a bona fide purchaser for value without notice to have an absolute defence to restitution.  The reason why the defence failed was because the value by the casino was given under a void wagering contract and therefore did not count for the purpose of establishing that it was a bona fide purchaser for value. Lord Goff said:

“In my opinion, when Cass placed a bet, he received nothing in return which constituted valuable consideration. The contract of gaming was void; in other words, it was binding in honour only … But it does not follow that, when Cass placed the bet, he received anything that the law recognises as valuable consideration. In my opinion he did not do so. Indeed, to hold that consideration had been given for the money on this basis would, in my opinion, be inconsistent with Clarke v Shee and Johnson 1 Cowp 197. Even when a winning bet has been paid, the gambler does not receive valuable consideration for his money. All that he receives is, in law, a gift from the club.” [p 575C-F]

“… contracts by way of gaming or wagering are void in English law … It is obvious that each time a bet is placed by the gambler, the agreement under which the bet is placed is an agreement by way of gaming or wagering, and so is rendered null and void. It follows … that the casino, by accepting the bet, does not thereby give valuable consideration for the money which has been wagered by the gambler, because the casino is under no legal obligation to honour the bet. Of course, the gambler cannot recover the money from the casino on the ground of failure of consideration; for he has relied upon the casino to honour the wager - he has in law given the money to the casino, trusting that the casino will fulfil the obligation binding in honour upon it and pay him if he wins his bet - though if the casino does so its payment to the gambler will likewise be in law a gift. But suppose it is not the gambler but the true owner of the money (from whom the gambler has perhaps, as in the present case, stolen the money) who is claiming it from the casino. What then? In those circumstances the casino cannot, in my opinion, say that it has given valuable consideration for the money, whether or not the gambler's bet is successful. It has given no consideration if the bet is unsuccessful, because its promise to pay on a successful bet is void; nor has it done so if the gambler’s bet is successful and the casino has paid him his winnings, because that payment is in law a gift to the gambler by the casino.” [p 577C-F]

(2)  It appears that the effect of the House of Lords’ decision in Lipkin Gorman is that to be valuable consideration for the purposes of the defence of bona fide purchase for value without notice, the value must be given under a valid contract.

(3)  On the authority of Lipkin Gorman, it does not seem to me that D4 had given valuable consideration for the HK$3,120,000 that it “purchased” because there was no promise to deliver the Diamonds to P.  D4 did not advance any submission to contend that valuable consideration was nonetheless provided in the event that there was no contract between P and D4.  Accordingly, I am not satisfied that the defence has been made out.

33.  Insofar as D4 seeks to rely on bona fide purchase as a defence to P’s proprietary claim, there is a further reason why I am not convinced that D4 can establish such a defence in this case.

(1)  The defence of bona fide purchase for value without notice is an exception to the general rule of nemo dat quod non habet (no one gives what they do not have) to grant the defendant good title to a property in situation where the title would otherwise be defective. For example, when X steals P’s property and sells it to D, D will obtain title to the property if he is a bona fide purchaser for value without notice, even though X (being a thief) would not otherwise be able to confer title which he does not have. 

(2)  This is why the defence has been described by Professor Andrew Burrows as “bona fide purchase from a third party” (The Law of Restitution (3rd ed, 2011), p 573). 

(3)  In his article “Restitution and Bona Fide Purchase” in The Limits of Restitutionary Claims: A Comparative Analysis (1997), Professor William Swadling at p 94 said:

“… the defence of bona fide purchase has no work to do in the standard two-party situation. As we have seen, the defence forms an exception to the normal rule of nemo dat. It operates to allow a transferor to confer a title which he does not have. By contrast, two-party restitution cases are concerned with transfers by persons who had a good title to the enrichment concerned. Although their intent to give may be in doubt, their capacity to do so is not in question. And since the transferor in the two-party restitution case starts with a good title to the enrichment in question, there will be no need for the transferee to invoke any exception of nemo dat. The fact that the defendant gave value in exchange for what he received should not blind us to this fundamental fact.”

(4)  In A Burrows, A Statement of the English Law of Unjust Enrichment (2012), the defendant is said to have a defence of purchaser in good faith, for value and without notice if he/she “(a) is a purchaser in good faith of the benefit for value, without notice, of the claimant’s right to restitution, from a person other than the claimant, and (b) can rely on an exception to the rule that no person can give a better title than the person has.” (section 27(1)) [emphasis added]

(5)  Similarly, Justice James Edelman and Professor Elise Bant describe the defence as operating “in cases including those brought for unjust enrichment where more than two parties are involved” and state that the “requirement for more than two parties is because in the simple two-party case the transferor usually has good title”.  They further state that in “unjust enrichment, the bona fide purchase defence operates only in relation to a three-party situation in which the defendant is a subsequent purchaser from a third party whose title to an asset is defective”. See Unjust Enrichment in Australia (2nd ed, 2016), pp 372-373.

(6)  D4 has not produced any authorities to demonstrate how a defendant in a two-party situation (namely a direct recipient of the enrichment) can rely on the defence of bona fide purchase for value without notice to defeat a plaintiff’s claim in unjust enrichment. 

34.  For the above reasons, I am not satisfied that D4 has demonstrated on a balance of probabilities that the defence of bona fide purchase for value without notice should succeed.

G.  ISSUE 3: DEFENCE OF CHANGE OF POSITION

35.  It is well-established that the defence of change of position 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 (Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548 at 580F (Lord Goff)).   Further, there must be a causal link between the receipt of the benefit by the defendant and his/her change of position, and the appropriate test of causation is at least the “but for” test (Scottish Equitable plc v Derby [2001] 3 All ER 818 at §31 (Robert Walker LJ); Credit One Finance Ltd v Yeung Kwok Chi[2020] HKCFI 2450 at §§66-70).

36.  D4 relies on the defence of change of position to contend that it should not be liable to P’s claim for unjust enrichment.  D4’s pleaded case (in §§6(d), 6(e), 6(f), 6(j) and 6A of its Amended Defence) is that it received HK$3,119,985 pursuant to the Purported Transaction, that it “delivered to [P] acting by Mr Leo on its behalf the Diamonds”, and that “[its] position since the receipt of [HK$3,119,985] has so substantially changed by (i) the delivery of the Diamonds and (ii) the payments to Aura and Amigo”.  Given that P and D4 did not enter into any contract for the sale and purchase of the Diamonds (as found above), the Diamonds were not delivered to P.  Therefore, on its pleaded case, D4’s position cannot be said to have changed as D4 simply did not deliver the Diamonds to P. 

37.  It is clear from its pleading that D4 seeks to rely on change of position as a complete defence to P’s unjust enrichment claim. No alternative case has been advanced to contend that D4 has only changed its position to the extent that its enrichments from P has been reduced. 

38.  It is right to point out that the defence of change of position was hardly developed in D4’s written or oral submissions during the trial beyond its pleaded case.    A possible reading of its D4’s pleading may give rise to the argument that D4 has changed its position where (1) it had paid some money to Aura and Amigo as a result of its receipt of HK$3,119,985 from P (thereby extinguishing the enrichment) in exchange for some diamonds, and (2) it gave those very diamonds to Mr Leo (even though Mr Leo had no authority to represent P).  My view is that this argument cannot assist D4 (insofar as it is being relied upon) for the following reasons.

(1)  Where a defendant becomes enriched with money at the plaintiff’s expense and uses the money to buy an asset which remains in his hands at the time of the action either in its original form or in the form of a substitute asset, the defence of change of position is disallowed to the extent that he is still enriched: Goff & Jones: The Law of Unjust Enrichment (9th ed, 2016) §27-16. 

(2)  According to the agreed chronology, on 3 February 2016, P paid HK$3,120,000 into D4’s Account and D4 received HK$3,119,985 (after HK$15 had been deducted as bank charge). 

(3)  D4 pleads that on 4 February 2016, it made (a) two transfers in the sums of HK$179,400 and HK$741,000 to Aura, and (b) a transfer in the sum of HK$663,000 to Amigo, to pay for part of the Diamonds.

(4)  According to the bank statement of D4’s Account, it can be seen that three sums of money (namely HK$179,400, HK$663,000 and HK$741,000) were debited from D4’s Account on 4 February 2016.  However, the bank statement does not show the identity of the recipient(s) of these 3 sums.

(5)  In his witness statement, Mr Jhaveri states that on 4 February 2016 (a) two bank transfers were made by D4, one in a sum of HK$179,400 and the other in a sum of HK$741,000, to settle the invoice of Aura, and (b) a bank transfer of HK$663,000 was made by D4 to settle the invoice of Amigo.

(6)  D4 has produced (a) one invoice from Aura dated 29 January 2016 issued to D4 in respect of 52.54 carats of “CUT & POLISHED DIAMONDS 20’ VVS H I” and 107.66 carats of “CUT & POLISHED DIAMONDS 15’ VVS J” for the total amount of HK$920,457.57 (“the Aura Invoice”), and (b) one invoice from Amigo dated 28 January 2016 issued to D4 in respect of 108.2 carats of “CUT & POLISHED DIAMONDS 20’ VVS G H” for HK$663,000 (“the Amigo Invoice”).  No receipt from Aura or Amigo has been produced by D4.

(7)  It is apparent that the total of the two sums of transfers made by D4 on 4 February 2016 (namely HK$179,400 and HK$741,000) do not exactly match the amount stated on the Aura Invoice.  This was not explained by Mr Jhaveri in his evidence.  Nor has any explanation been given as to why it was necessary for D4 to make two payments on the same day to settle the Aura Invoice. 

(8)  Even assuming (without finding) that 3 sums of money (namely HK$179,400, HK$741,000, HK$663,000) were paid from D4’s Account to settle the Aura and Amigo Invoices, it would mean that D4 had substituted a total of HK$1,583,400 for the diamonds as stated on the Aura and Amigo Invoices. However, as shown in D4’s Invoice dated 1 February 2016, the Diamonds given by D4 to Mr Leo consisted 115.05 carats of “G-H COLOUR 10’ VVS” diamonds, 271.71 carats of “H-I COLOUR 15’ VVS” diamonds and 160.74 carats of “D COLOUR 20’” diamonds.  It can be seen that the descriptions of the diamonds on the Aura and Amigo Invoices do not match those stated on D4’s Invoice signed by Mr Leo. 

(9)  In his oral testimony, Mr Jhaveri sought to explain such discrepancies.  Effectively, he asserted that there is no objective standard to determine the quality of diamonds, and suggested that Aura and Amigo’s standards would necessarily be different from his.  I find it difficult to accept Mr Jhaveri’s assertions.  They simply do not explain why the descriptions of the diamonds on the Aura and Amigo Invoices were markedly different from his description of the diamonds in D4’s Invoice issued to Mr Leo.    

(10)  In these circumstances, I am far from being satisfied that D4 gave any of the diamonds mentioned in the Aura and Amigo Invoices to Mr Leo (even assuming, without finding, that D4 had paid a total of HK$1,583,400 on 4 February 2016 to Aura and Amigo).

39.  For the above reasons, I find that D4 has failed to establish a defence of change of position.

40.  On the first day of the trial, D4 made an oral application to include a letter dated 14 August 2020 from Ms Yogita V Gogar, D4’s lawyer in India, into the trial bundle.  The letter relates to some criminal proceedings involving Mr Jhaveri in India.  It was only disclosed by D4 on 27 August 2020, less than a month before the trial started.  The court dismissed the application with costs against D4, and indicated that its reasons for the dismissal would be included in this judgment.  I dismissed the application on the grounds that the contents of the document had only peripheral relevance to the issues in these proceedings, that the application was made far too late, and that it was made without any good reasons for the lateness.  I did not consider how the document would usefully assist D4 in its defence against P’s claim.

H.  ISSUE 4: P’S RELIEF

41.  On the basis of the above, I find that P has paid HK$3,120,000 to D4 by mistake, that D4 is unjustly enriched at P’s expense, and that D4 has no defences to P’s claim.  P’s claim in unjust enrichment therefore succeeds against D4.

H1.  Personal remedy

42.  P claims against D4 the sum of HK$3,120,000.  I have no difficulty giving judgment to P against D4 in respect of this sum.

H2.  Proprietary remedy

43.  In addition to a personal remedy against D4, P initially sought in its pleading a declaration that D4 holds HK$3,120,000 on a constructive trust for P.  In its written closing submissions, P stated that it is “agreeable to limiting its relief to a declaration that whatever is currently preserved in [D4’s Account] is to be held on constructive trust for [P]”.

44.  According to its bank statement, the balance in D4’s Account as at 29 February 2016 was HK$559,545.  D4’s Account was frozen by the Hong Kong Police since February 2016.  According to its letter dated 16 October 2017, Hong Kong Police stated that as at 14 June 2017, the balance of D4’s Account was (and remained at) HK$559,545.  It appears that the Hong Kong Police kept D4’s Account frozen until D4 and P agreed by consent in May 2018 that D4 would “preserve the traceable proceeds still in its possession and/or control (including but not limited to the balance in [D4’s Account]) until trial or further order”. In these circumstances, D4 is effectively seeking a declaration that D4 holds the sum of HK$559,545 in D4’s Account on constructive trust for P.

45.  In Westdeutsche Bank v Islington LBC [1996] AC 669, in the context of describing a thief stealing a bag of coins or moneys, Lord Browne-Wilkinson at 716C-D said obiter that stolen moneys are traceable in equity, and that equity imposes a constructive trust on the fraudulent recipient when property is obtained by fraud.  It appears that his Lordship considered that the thief’s unconscionable conduct in committing theft and his retention of the stolen property would be sufficient to give rise to a constructive trust.  In this case, P transferred HK$3,120,000 directly to D4 by reason of its mistake; the sum was not taken by a thief who then paid the same to D4.  D4 cannot be described, in Lord Browne-Wilkinson’s words, as a “thief” or “fraudulent recipient”, and has not been described by P as such.  I do not believe Lord Browne-Wilkinson’s dictum is applicable in the present case. 

46.  To seek a constructive trust against D4, P submitted that in February 2016, D4 ought to have known about the fraud and knew about (1) the police’s freezing of its account, (2) P’s claim and (3) the fact that its bank would not release the rest of the money to it, such that its state of knowledge would make it unconscionable to retain the money.  None of these matters regarding D4’s knowledge was pleaded by P to justify the imposition of a constructive trust.  P further cited Guaranty Bank and Trust Co v Zzzik Inc Ltd (unreported, HCA 1139/2016, 18 July 2016) at §§28-34 in its written submissions.  It is right to record that only brief submissions were made by P at the trial to support its claim for constructive trust.

47.  For the reasons given below, I am not satisfied that P is entitled to a constructive trust against D4.

48.  Constructive trusts provide proprietary relief.  To obtain proprietary relief in relation to the HK$559,545 in D4’s Account, P must establish that the money claimed can be identified by the tracing process as representing the original property.  In Federal Republic of Brazil v Durant International Corpn [2016] AC 297, Lord Toulson at §17 said:

“The doctrine of tracing involves rules by which to determine whether one form of property interest is properly to be regarded as substituted for another. It is therefore necessary to begin with the original property interest and study what has become of it. If it has ceased to exist, it cannot metamorphose into a later property interest. Ex nihilo nihil fit: nothing comes from nothing.”

49.  It is apparent from its bank statement that immediately after HK$3,119,985 was paid into D4’s Account on 3 February 2016, a further sum of HK$23,500 was paid into the account.  The original sum had therefore become mixed with money from unknown source(s).  Thereafter, various sums of money were paid out of the account.  This left a sum of HK$559,545 as the remaining credit balance in D4’s Account as at 29 February 2016.  P has not made any submissions to demonstrate that the credit balance of HK$559,545 can be established as the traceable proceeds of HK$3,120,000.  In these circumstances, I am not satisfied that the credit balance currently standing in D4’s Account is the traceable proceeds of money that P mistakenly paid to D4. 

50.  Further, I do not think that P has sufficiently demonstrated that there is a proper basis for court to impose a constructive trust on the facts of the case.

(1)  In Westdeutsche (above), Lord Browne-Wilkinson at pp 714C-715C discussed the case of Chase Manhattan Bank NA v Israel-British Bank (London) Ltd [1981] Ch 105.  In Chase Manhattan, Goulding J held that where money was paid under a mistake, the receipt of such money without more constituted the recipient of the trustee because the payer “retains an equitable property in it and the conscience of [the recipient] is subjected to a fiduciary duty to respect his proprietary right”.  Lord Browne-Wilkinson disagreed with the Goulding J’s reasoning and relevantly said at p 714E-F:

“It will be apparent from what I have already said that I cannot agree with [Goulding J’s] reasoning. First, it is based on a concept of retaining an equitable property in money where, prior to the payment to the recipient bank, there was no existing equitable interest. Further, I cannot understand how the recipient’s “conscience” can be affected at a time when he is not aware of any mistake….”

(2)  Nonetheless, Lord Browne-Wilkinson said that Chase Manhattan might well have been rightly decided on the following basis (at p 715B-C):

“The defendant bank knew of the mistake made by the paying bank within two days of the receipt of the moneys: see at p. 115A. The judge treated this fact as irrelevant (p. l14F) but in my judgment it may well provide a proper foundation for the decision. Although the mere receipt of the moneys, in ignorance of the mistake, gives rise to no trust, the retention of the moneys after the recipient bank learned of the mistake may well have given rise to a constructive trust…”

(3)  It appears that a defendant recipient’s conscience should only be considered to be affected when he was actually aware of the plaintiff’s mistake.  In Westdeutsche, Lord Browne-Wilkinson at p 705D-E stated that “[since] the equitable jurisdiction to enforce trusts depends upon the conscience of the holder of the legal interest being affected, he cannot be a trustee of the property if and so long as he is ignorant of the facts alleged to affect his conscience, i.e. until he is aware that he is intended to hold the property for the benefit of others in the case of an express or implied trust, or, in the case of a constructive trust, of the factors which are alleged to affect his conscience” [emphasis added].  See also pp 709C-D and 714F where Lord Browne-Wilkinson used the word “aware” to describe the level of knowledge sufficient to affect the conscience of the “trustee” or the recipient.

(4)  Insofar as P seeks to rely on the above to support its claim of constructive trust (on the basis that it cited Guaranty Bank which contains an oblique reference to the above analyses), and assuming (but without deciding) that Hong Kong courts should follow Lord Browne-Wilkinson’s “conscience” approach to impose a constructive trust,[2] I am not satisfied that there was any time before the making of this judgment that D4 can be said to be actually aware of P’s mistake in making the payment of HK$3,120,000 on 4 February 2016.  It is true that D4 knew that its bank account was frozen in February 2016 and that it subsequently knew about P’s assertions of fraud and mistaken payment.  But D4’s position at all the material times has remained consistent.  As seen from its pleaded case, D4’s case has always been that the payment from P was made pursuant to a contract, and not pursuant to any mistake or fraud.  Unlike the defendant bank in Chase Manhattan which became aware of the plaintiff’s mistake when it received the second payment two days after the first payment, D4 cannot be said to be aware of P’s mistake at the material times. 

(5)  In any event, as pointed out above, none of the matters now submitted by P regarding D4’s knowledge was pleaded.  Furthermore, I am not satisfied that Mr Jhaveri’s knowledge at the material times was in any way established in his cross-examination for the purpose of imposing a constructive trust. 

(6)  In these circumstances, even assuming (but without deciding) that the “conscience” approach is to be followed, I am not satisfied that D4’s conscience was at any time sufficiently affected for the court to impose a constructive trust on the remaining balance in D4’s Account.

51.  Recently, in 廈門新景地集團有限公司v Eton Properties Ltd et al[2020] HKCFA 32, Lord Sumption NPJ (with whom Ribeiro, Fok & Cheung PJJ and Bokhary NPJ agreed) at §174 said:

“A constructive trust can exist only if there is a relevant fiduciary relationship. It may arise on either of two juridical bases. It may be derived from the character of the relationship between the beneficiary or the trustee, where the court recognises that relationship as fiduciary. In such a case the trust gives rise to a true proprietary interest in equity. Or it may be imposed by the court on a purely remedial basis in a case where there is no subsisting proprietary interest (usually because it has been extinguished) but the relevant party is a fiduciary and is before the court. I sought to set out the conceptual framework in Akers v Samba Financial Group [2017] AC 424 at §82. The Plaintiff in this case claims to derive a fiduciary relationship from the executory contract for the sale of the shares. The principle, which was said in 1876 to have been settled law for at least two centuries, is that “the moment you have a valid contract for sale the vendor becomes in equity a trustee for the purchaser of the estate sold”: Lysaght v Edwards (1876) 2 Ch. D. 499, 506 (Jessel MR). This well-known statement of principle related to land. But the same rule has long been applied to contracts for the sale of unquoted shares, which are regarded as unique in the same way as land. It gives rise to a true proprietary interest in equity, arising from the fiduciary character of the relationship between vendor and purchaser under an executory contract of sale. The basis of the rule in both cases, and the essential condition for its operation, is that the contractual obligation to transfer the property should be specifically enforceable. This means that the purchaser’s beneficial interest arises as soon as the contract is made or (if later) as soon as a relevant promissory condition precedent to the transfer has been satisfied.”

The judgment from the Court of Final Appeal was handed down after the conclusion of the trial in these proceedings, and has no impact on my decision not to impose a constructive trust against D4.  Be that as it may, it seems difficult to me to say that there was a relevant fiduciary relationship” between P and D4 at any time for the purpose of imposing a constructive trust.

52.  For these reasons, I decline to give a declaration that the money remaining in D4’s Account is subject to a constructive trust for P.

H3.  Other reliefs

53.  P is entitled to interest on HK$3,120,000.  I direct the parties to submit an agreed order for the court’s approval within 14 days on the applicable re-judgment interest rate and the date on which pre-judgment interest is to run, and give liberty to apply in the event the parties are unable to agree.

54.  I also make the following orders:

(1)  An order nisi that the costs of P in these proceedings (including any reserved costs) be paid by D4, without a certificate for two counsel, to be taxed if not agreed.

(2)  The above costs order nisi shall be made absolute 14 days from the date of this judgment.

Ms Joyce Leung and Mr Justin Ismail, instructed by Haldanes, for the plaintiff

Ms Dorothy Cheung, instructed by Choy Yung & Co, for the 4th defendant