FERRARI NORTH AMERICA, INC v. CHANGHON INTERNATIONAL ENERGY CO., LTD AND OTHERS

HCA 852/2017

[2019] HKCFI 2318

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 852 OF 2017

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J U D G M E N T

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Background

1.  The Plaintiff in these proceedings is the US subsidiary of the well-known Italian car manufacturer, Ferrari SpA.  As a result of a fraud perpetrated by individuals impersonating the CFO of the Plaintiff’s parent company, the Plaintiff was induced to make payment of a total sum of US $6.7 million (“Amount”), on 28 March 2017, 30 March 2017 and 31 March 2017, into the bank account of the 1^st Defendant maintained with the Standard Chartered Bank Limited (“Bank”) in Hong Kong, as part of a bogus transaction to purchase shares in a listed company on behalf of the Plaintiff’s parent.

2.  On 10 April 2017, the Plaintiff obtained a Mareva injunction against the 1^st Defendant, whereby it was restrained from disposing of the Amount.  On 30 October 2017, judgment in default was entered against the 1^st Defendant, which judgment included a declaration that the 1^st Defendant holds the Amount on constructive trust for the Plaintiff, as rightful owner.

3.  As a result of disclosure orders obtained against the Bank, documents relating to the 1^st Defendant’s account with the Bank (“SCB Account”) show that the entire Amount was transferred in several tranches to the bank accounts of the 2^nd to 10^th Defendants, on the same or the next business day of receipt.  Details of the transfers made to the 2^nd Defendant, 5^th Defendant, 7^th Defendant, 8^th Defendant, 9^th Defendant and 10^th Defendant are as follows:

Date	Transfer Amount	Recipient	Bank Account
29.03.17	US$236,885.00	D2	Chong Hing Bank Limited account No. 41256800868212
29.03.17	US$221.115.00	D7	Bank of China Limited account No. 6479392017212
31.03.17	US$164,165.00	D5	Hang Seng Bank Limited account No. 774539183883
31.03.17	US$240,000.00	D8	Hang Seng Bank Limited account No. 933084493883
31.03.17	US$386,539.00	D9	Hang Seng Bank Limited account No. 983314657500
31.03.17	US$160,613.00	D9	Hang Seng Bank Limited account No. 93314657500
31.03.17	US$190,000.00	D10	The Hong Kong and Shanghai Banking Corporation Limited account No. 561796301838

4.  Mareva injunctions were granted by the Court on 24 April 2017, restraining the 2^nd to 10^th Defendants from dissipating the sums transferred into their accounts from the SCB Account of the 1^st Defendant.  The injunctions against the 2^nd, 8^th and 10^th Defendants were discharged upon their payment of the respective amounts received into court.

5.  Default judgments were subsequently obtained against the 4^th, 6^th, and 11^th to 14^th Defendants.  Summary judgment was also obtained against the 3^rd Defendant, for the amounts transferred into these defendants’ accounts.

6.  The Plaintiff by summonses issued on 10 January 2018 seeks summary judgment against the 2^nd, 5^th, and 7^th to 10^th Defendants.  The claims made by the Plaintiff are for money had and received, and unjust enrichment.

7.  The grounds of defence relied upon by the Defendants are that they had altered their position on the faith of the payments received by them, and/or that they are bona fide purchasers for value without notice, such that it would be unjust to require their repayment to the Plaintiff of the sums received by them.  The 9^th Defendant also claims that the money it had received had been mixed with its own monies. 

8.  What is not disputed is that each of these Defendants is a trader in frozen meat.  The Plaintiff does not allege that these Defendants are parties to the underlying fraud perpetrated on the Plaintiff.  It maintains however that none of the Defendants have demonstrated that there are any triable issues of fact or law raised in their purported defences, and summary judgment should be entered against them.

Applicable legal principles

9.  As explained in Zimmer Sweden AB v KPN Hong Kong Ltd [2016] 1 HKLRD 1016, since the claims against the targeted Defendants do not constitute any allegation of fraud against them, the fraud exception to Order 14 does not apply.

10.  The principles applying to applications for summary judgement are trite, and will not be set out here.

11.  As for claims of restitution on the basis of unjust enrichment, the applicable principles are summarised in the case of Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548:

“Furthermore, it appears that in these cases the action for money had and received is not usually founded on any wrong by the third party, such as conversion; nor is it said to be a case of waiver or tort. It is founded simply on the fact that, as Lord Mansfield said, the third party cannot in conscience retain the money – or, as we say nowadays, for the third party to retain the money would result in his unjust enrichment at the expense of the owner of the money.”

12.  In Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd [2004] HKCFA 21, the Court of Final Appeal set out the appropriate test in unjust enrichment cases as follows:

“A useful framework for approaching such claims which was adopted by both parties involves asking four questions:

(a)Was the defendant enriched?

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

(c)Was the enrichment unjust?

(d)Are any of the defences applicable?”

The Plaintiff’s case

13.  The Plaintiff has shown that the Amount had been paid from its bank account to the 1^st Defendant, and had been paid out from the 1^st Defendant’s SCB Account to the accounts of the 2^nd, 5^th, 7^th, 8^th, 9^th and 10^th Defendants.  The 1^st Defendant has already been adjudged to hold the Amount as constructive trustee for the Plaintiff.  In opposition to the Plaintiff’s application for summary judgment, the onus is on each of the Defendants to show that it has reasonable grounds for an arguable defence, and not merely to assert such, but to condescend to particulars to show that its assertions are credible.

The case against the 2^nd Defendant

14.  On 29 March 2017, US $957,968 (after deduction of bank charges) was transferred from the Plaintiff’s bank account into the SCB Account of the 1^st Defendant as a result of the fraud.  On the next day, the sum of US $236,885 was transferred from the SCB Account into the 2^nd Defendant’s bank account (2^nd Sum).

15.  The 2^nd Defendant claims that it had been trading in frozen meat parts for over 10 years.  It acted as an agent of overseas frozen food suppliers, as the receiver/consignee of frozen meat shipped to Hong Kong for sale here.  The 2^nd defendant charges agency and incidental fees for these services.

16.  In the course of its business, the 2^nd Defendant would bill the purchaser of the frozen meat, acting on behalf of the supplier.  Upon receipt of the purchase price, the 2^nd Defendant would transfer the amount to the overseas supplier, adding agency and other fees to the transaction costs.

17.  According to the Defence of the 2^nd Defendant, it was instructed by its supplier in early March 2017 that frozen meats would be shipped to Hong Kong, for sale to a purchaser.  An invoice was issued by the 2^nd Defendant to the purchaser, and upon the purchaser’s settlement on 30 March 2017 of a sum of US $236,877.27, after deduction of bank charges, the 2^nd Defendant transferred the amount received to its supplier on 31 March 2017.

18.  The 2^nd Defendant claims that it had received the money as agent for its supplier in the course of its business, without notice of any fraud, and had transferred the money received in good faith, so as to have detrimentally changed its position.

19.  As the Plaintiff highlighted, the Defence of the 2^nd Defendant contains bare denials and assertions, and it has produced no documentary evidence at all in support of the claims made in the Defence.  The 2^nd Defendant has not identified its principal/supplier, nor the purchaser of the products for which payment was allegedly made.  The 2^nd Sum received by the 2^nd Defendant, and the amount the 2^nd Defendant claims it had transferred to its supplier on 31 March 2017 (US $351,129), a day after receipt of the 2^nd Sum, do not tally.  The 2^nd Defendant admits that it had no previous connection or dealings with the 1^st Defendant, from which the 2^nd Sum was remitted into its account.  No purchase orders, invoices, or remittance instructions have been produced to evidence the 2^nd Defendant’s bare assertions of payment, and dealings.

20.  The 2^nd Defendant has not claimed and has not produced evidence to show what happened to the frozen meat which was to be sold and for which the payment was alleged to have been made.  On its pleaded case, the 2^nd Defendant was contractually bound to pay to its supplier the US $351,129 in the usual and ordinary course of its business as agent for the supplier.  It also has the contractual right to seek or recover payment from the buyer, and alternatively, to sell the frozen meat to an alternative customer for payment to the supplier, if the meat had not been delivered.

21.  As the court held in Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 at p 580F-G, for a claim of change of position:

“… 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 how whether 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 called upon to pay, because the expenditure might in any event had 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 added)

22.  To establish a change of position defence, a defendant must show that as a result of the receipt of money, it has incurred “extraordinary expenditure”.  As the editors of Goff & Jones: The Law of Unjust Enrichment (9^th Ed) observed at para 27-08:

“This might appear to be a rule about the type of detriment that a defendant must have suffered, but in fact it is a rule about causation. The defendant need not show that he spent money on something that other people might think unusual, nor that he spent in a way that he had never spent money before. The test is whether he entered the transaction that he would not have entered but for his enrichment.” (Emphasis added”)

23.  On the 2^nd Defendant’s case, there is nothing to show that it would not have made the payment to its supplier in the usual course of its business, but for its receipt of the 2^nd Sum from the 1^st Defendant.

24.  I also accept the Plaintiff’s submissions, that in circumstances where the 2^nd Defendant knew that the 2^nd Sum was not paid by its buyer, but by a party with which it had no previous connection, it had not changed its position in good faith. 

25.  In all the circumstances as described above, the 2^nd Defendant cannot rely on any defence that it would be inequitable to require it to make repayment of the 2^nd Sum to the Plaintiff, when it has legal remedies against the purchaser of the meat products (Laerdal Medical Limited v Hong Kong Haocheng International Trade Limited HCA 2193/2016, 21 June 2017).

26.  There is no arguable defence of ministerial receipt.  The 1^st Defendant is not the 2^nd Defendant’s buyer (as the 2^nd Defendant admits), nor is the 1^st Defendant the buyer of meat supplied by the Defendant’s principal/supplier.  The money received by the 2^nd Defendant from the 1^st Defendant falls outside any principal and agent arrangement that may exist between the 2^nd Defendant and its unidentified supplier.

27.  The 2^nd Defendant has failed to show that there is any triable issue or reason for trial, and the Plaintiff is entitled to summary judgment against the 2^nd Defendant.

The case against the 5^th, 8^th, and 10^th Defendants

28.  The pleaded cases of these Defendants are substantially identical.  They claim that they had purchased frozen meat products in bulk from overseas suppliers, at times which range from February to March 2019, and sold them to unidentified buyers in Hong Kong.  For the 10^th Defendant, it claims that it had first been approached by an unidentified buyer which expressed interest in the purchase of frozen meat, whereupon the 10^th Defendant ordered the products from an unidentified supplier for shipment to Hong Kong.  The Defendants all claim that their respective buyers then paid for the products, and upon receipt of the purchase price from their buyers, the products were released to the buyers, and without notice of any fraud or knowledge of the Plaintiff’s claim, the Defendants had changed their position by contracting to purchase further frozen meat products, for sale in the usual and ordinary course of their business. 

29.  As such, the Defendants claim that they had bona fide supplied valuable consideration for the monies received from the 1^st Defendant, and had detrimentally changed their position in reliance on the receipt.

30.  As in the case of the 2^nd Defendant, the 5^th, 8^th, and 10^th Defendants have not condescended to any particulars in relation to their alleged purchases and sales of the products, for which they claim they had received the monies as purchase price.  Apart from the 5^th Defendant’s assertion that it had ordered the frozen products from a company named Ess Food, there are no particulars of the alleged suppliers from which the Defendants bought, or of the buyers to which the Defendants sold, the products in question.  No documents have been produced in support of the transactions relied upon, to establish the causal link between the Defendants’ receipt of the money from the 1^st Defendant, and its payment to suppliers by way of alleged change of position.  As the Plaintiff argued, the payments alleged to have been made by the 5^th, 8^th and 10^th Defendants were payments in the usual course of their business of buying and selling frozen meat products.  They have not established by any evidence that but for the receipt of the sums paid into their accounts, they would not have placed the further orders for the frozen products. 

31.  In any event, each of the 5^th, 8^th and 10^th defendants has a legitimate cause of action and right to pursue its respective purchaser for the price properly due in respect of the products sold and delivered to them on the strength of the monies received - not from the buyers but from the 1^st Defendant. 

32.  On the pleaded case of the 5^th, 8^th and 10^th Defendants, I do not accept that it has been shown that there is any triable issue for an arguable defence of detrimental change of position, such that it would be inequitable to require these Defendants to make restitution to the Plaintiff.

33.  As for the defence of the 5^th, 8^th and 10^th Defendants being bona fide purchasers for value, the Court explained in Shanghai Tongji Science & Technology Industrial Co Ltd (2004) 7 HKCFAR that it is critical to identify and correctly characterize the transaction providing the basis for the enrichment, for the purposes of identifying the relevant consideration or anticipated performance, and ascertaining whether it had totally failed.  The 5^th, 8^th and 10^th Defendants have not been able to show by credible evidence that there was a transaction, or any business dealings or connection whatsoever, between them and the 1^st Defendant - from which the money had been received, and for which the Defendants had provided consideration. 

The case against the 7^th Defendant

34.  The case of the 7^th Defendant is more substantial in terms of the evidence adduced.

35.  The 7^th Defendant is one of the largest importers of frozen meat products in Hong Kong, its customer base consisting of wholesalers, retailers, hotels, airlines, supermarkets, department store chains, fast food chains, sports clubs, food factories, restaurants and cafés.  One of its customers is Mr Mu Wenshu (“MW”), the sole proprietor of a frozen meat business on the Mainland, trading under the name of Uwealth Trading Limited (“UT”).

36.  The 7^th Defendant claims that the sum of US $221,115 paid into its account with Bank of China on 29 March 2017 (“7^th Sum”) was received by it as payment for the price of frozen products it had sold to UT.  In support, the 7^th Defendant claims that it had purchased frozen meat products from a supplier, JBS SA of Brazil (“JBS”), by a purchase order dated 13 December 2016, and from another supplier, Offal Esp SA of Argentina (“Offal”), by a purchase order dated 29 December 2016.  In December 2016, the 7^th Defendant’s salesperson contacted UT, which approach led to orders being placed by UT with the 7^th Defendant for the purchase of frozen meat products on 2 occasions, as evidenced by 2 invoices issued by the 7^th Defendant to UT.  The first was invoice No P 530967 for US $100,748.42 in respect of the products sourced from JBS.  The second was invoice No 531118 for US $120,150 in respect of the products sourced from Offal, the total amount being US $220,898.42.  Offal issued an invoice dated 26 February 2017 in respect of the products sold and shipped to the 7^th Defendant, in the sum of US $113,400, and JBS issued an invoice dated 28 February 2017 in respect of the products sold and shipped to the 7^th Defendant, in the sum of US $97,850.78.

37.  The Plaintiff has highlighted the fact that the invoices issued by JBS and Offal, for US $211,250 in total, do not tally with the invoices issued by the 7^th Defendant to UT, which were for US $220,898.42.

38.  The Plaintiff further pointed out that in respect of the invoices issued by the 7^th Defendant, apart from the name of UT, there were no other stated details of the purchaser, such as its address, telephone or fax number.  Even the name, address and contact details of the 7^th Defendant are conspicuously absent in the purported invoices.

39.  The 7^th Defendant claims that it had made payment to both JBS and Offal for the products purchased.  However, the evidence of the 7^th Defendant’s payment shows that the amounts paid do not tally with the amounts stated in the relevant invoices of JBS and Offal.  The 7^th Defendant sought to explain that the payments include deposits for other products purchased from JBS.  This may not be unusual, in the case of consistent dealings between trading companies. However, the explanation offered by the 7^th Defendant, that part of the difference represents bank charges of US $215.69 in respect of remittances, is not entirely credible, when other documents show that the fees charged by the bank were only US $1.9.

40.  The 7^th Defendant cannot dispute that the 7^th Sum was received from the 1^st Defendant, and not UT which it claims was the purchaser of the products.  The 7^th Defendant, and MW who gave evidence on the 7^th Defendant’s behalf, both admit that they did not know the 1^st Defendant, and had no direct dealings with the 7^th Defendant.  The 7^th Defendant had no knowledge why the 7^th Sum was remitted to its account by the 1^st Defendant. 

41.  However, the 7^th Defendant claims that in the course of its dealings, it had received payments from entities which were not its customers, on at least 9 other separate occasions. 

42.  The Plaintiff argued that the 7^th Defendant had no basis to claim that the windfall it had received from the 1^st Defendant, a complete stranger, was in fact received as allegedly rightful payment for the 7^th Defendant’s sale of frozen meat products to UT.  According to the Plaintiff, there is no evidence to show any link between the 7^th Sum paid into the 7^th Defendant’s account, and the purported payment claimed to have been made by UT, the alleged buyer of products from the 7^th Defendant.

43.  According to the evidence of MW, adduced for the 7^th Defendant, MW had made inquiries with regard to the arrangements for the deposit of the 7^th Sum into 7^th Defendant’s account.  In short, MW claims that due to exchange controls on the Mainland, UT had to pay RMB to remittance and currency exchange agents on the Mainland, and these agents would arrange for US dollars to be paid into the 7^th Defendant’s bank account in Hong Kong.  Foreign exchange agents would give MW confirmation of such remittance, MW would inform the 7^th Defendant of the remittance of the purchase price into its bank account, and after checking that the funds had been received in its bank account, the 7^th Defendant would release the relevant documents to UT, to enable UT to collect the products at the container terminal.

44.  There is no evidence of any direct payment by UT to the 7^th Defendant.  However, there is some evidence of arrangements having been made by MW through an intermediary, Mr Ma (“Ma”), and instructions by MW to Ma to remit US $221,115 to the 7^th Defendant, and instructions by Ma to MW to pay RMB into the account of one Mr Chen (“Chen”).  According to MW, the confirmation he received from Ma showed that the US dollar amount had been paid by the 1^st Defendant into the account of the 7^th Defendant on 30 March 2017, but he had no idea of the identity of the 1^st Defendant, nor had Ma ever mentioned the role and name of the 1^st Defendant to him.

45.  After the commencement of these proceedings, MW had made further inquiries and discovered that Ma was in fact another intermediary, that the remittance of the US dollar amount had been arranged through Ma’s contact, XJ, and that XJ had in turn received the US remittance confirmation from his contact, AC.  Ma did not know, and did not directly deal with, the 1^st Defendant.  The Plaintiff highlighted the fact that no affidavit evidence has been adduced by Ma, or the other intermediaries, to corroborate the 7^th Defendant’s case as pleaded.  Nevertheless, there is evidence that MW, as purchaser, gave instructions for the payment of a sum, largely representing the price, into the specified account of the 7^th Defendant, the vendor.

46.  I bear in mind indications made by the court, that the mere use of and resort to “underground banking systems” is not sufficient to find guilt, or lack of good faith (eg Arrow ECS Norway AS v Xin Cheng Holdings (International) Company Limited HCA 239/2016, 12 May 2016).  It has to be proved that the recipient knew or had reason to believe that the money received had an illicit source.

47.  On the evidence as available, I accept that there is no direct relationship between the 7^th Defendant’s receipt of the 7^th Sum and its payment to its suppliers.

48.  Yet, I accept that the defence of change of position in good faith to a claim in restitution is fact sensitive, as the Court of Appeal indicated in paragraph 20 of its judgment in Liu Ke Mian Lorraine v De Xin Da Trading Co Ltd HCMP 1481/2016, 30 September 2016.  In relation to the 7^th Defendant in this case, it cannot be said that there is a total absence of evidence to show that UT had arranged for payment to be made to the 7^th Defendant, in respect of the products purchased by UT from the 7^th Defendant.  The 7^th Defendant’s case is that as one of the largest importers of frozen meat in Hong Kong, it deals with voluminous transactions on a daily basis, and it is not possible, and not its usual practice, to verify the details of each and every transferor for each transaction.  This is not incredible.  On receipt of payment from its customers, it would utilize the proceeds of sale to pay its own suppliers.  The 7^th Defendant claims that in reliance on the receipt of funds from UT, it had made payment to other overseas suppliers, in the usual and ordinary course of its business, between 30 March 2017 and 5 April 2017, in a total sum exceeding US $2.6 million.

49.  Whilst the evidence produced by the 7^th Defendant may not be perfect or complete at this stage, I accept that what the 7^th Defendant has produced may show an arguable defence of change in position in good faith.  The facts as to the causal connection between the receipt of payment from UT and the payment to the overseas suppliers will have to be further tested after discovery and by cross-examination at trial, but I am prepared to give the 7^th Defendant leave to defend for this to be tried. 

50.  Whether or not the 7^th Defendant’s use of funds received from unknown sources constitutes turning a blind eye, and lack of good faith, also depends on further factual evidence to be adduced and determined at trial.

The case against the 9^th Defendant

51.  On 31 March 2017, US $1,941,968 was transferred from the Plaintiff’s bank account into the SCB Account of the 1^st Defendant as a result of the fraud.  On the next day, the sum of US $547,152 was transferred from the SCB Account of the 1^st Defendant into the 9^th Defendant’s two bank accounts (9^th Sum).

52.  The 9th Defendant claims that it was acting at the material time as agent for one Mr Yung on the Mainland (“Yung”), who would purchase frozen meat from various suppliers in Brazil, for shipment to Hong Kong and then to the Mainland.  The 9th Defendant pleads that it acted as Yung’s agent in making payment to the suppliers, completing the relevant paperwork for import of the products into Hong Kong, and transporting the products on Yung’s instructions. 

53.  The pleaded case of the 9^th Defendant is that the 9^th Sum was received in its bank account on 31 March 2017.  The 9^th Defendant was informed by Yung’s staff that the 9th Sum had been deposited, and on 3 April 2017, it was instructed to make payment to Yung’s suppliers with the money deposited.  Payment was made by the 9 Defendant on 3 April 2017, in 5 tranches.  The 9^th Defendant claims that it was a bona fide recipient of the 9^th Sum, and that it had changed its position by paying out the 9^th Sum to the suppliers, which it would not have done but for the receipt of the money and the instructions from Yung.

54.  I accept the submissions made on behalf of the Plaintiff, that there are contradictions and inconsistencies in the pleaded case and the evidence produced by the 9^th Defendant.  Although the 9^th Defendant’s plea in its defence is that “Yung would purchase frozen meat products from suppliers” in Brazil, and that the 9^th Defendant was acting as its agent, the documents produced show that the orders with the suppliers were all placed by the 9^th Defendant.  On the face of the documents, the 9^th Defendant is itself the purchaser of the products and the party contractually bound to pay the suppliers, and there is no further evidence from the 9^th Defendant to explain the anomaly.

55.  There is in fact no evidence at all to coorborate the 9^th Defendant’s assertion of the existence of Yung as its principal.  The messages on deposits made into the 9^th Defendant’s bank account were all from one Fong, and not Yung.

56.  As highlighted by the Plaintiff, there is no correlation between the 9^th Sum received by the 9^th Defendant from the 1^st Defendant, and the total sum of US $578,554.16 said to have been transferred by the 9th Defendant to the suppliers in Brazil. This transfer was made in 5 tranches, and there is no apparent reason for the 9^th Defendant to make the last transfer of US $10,000, when the total of the first 4 tranches (US $568,554.16) already exceeds the 9^th Sum received by the 9^th Defendant, for the purported purpose of settling the price of the products sold to Yung.

57.  There is no credible evidence of any causal connection between the receipt of the windfall from the 1^st Defendant, and the 9^th Defendant’s subsequent payment to the Brazilian suppliers, or that the payment to the suppliers would not have been made by the 9^th Defendant in the ordinary and usual course of its business, either as agent of Yung as the 9^th Defendant alleges, or as purchaser of the products, as the documents show. 

58.  On the 9^th Defendant’s own evidence, the 9^th Sum was also used to pay the salary of its employee.  Such payment is expenditure in the ordinary and usual course of the 9^th Defendant’s business, and cannot credibly be said to have been made only because of the receipt of the 9^th Sum.

59.  There is no explanation or evidence as to whether the frozen meat products had been received, or delivered to Yung.  In any event, I accept the submissions of the Plaintiff that the 9^th Defendant clearly has recourse against Yung for payment.

60.  The 9^th Defendant has not in any way condescended to particulars or provided any evidence of its assertion that the 9^th Sum had been mixed with its own funds.

61.  In all the circumstances, the 9^th Defendant has not shown that there is any triable issue for any arguable defence, and summary judgment should be entered against it.

Disposition

62.  For all the foregoing reasons, summary judgment as sought is entered against the 2^nd, 5^th, 8^th, 9^th and 10^th Defendants, in terms of the Order 14 Summonses, with interest at judgment rate from date of Writ to date of payment.

63.  Leave is granted to the 7^th Defendant to defend the Plaintiff’s claims, with costs in the cause.  The Plaintiff and the 7^th Defendant should submit within 14 days agreed directions for the further conduct of the action.

Mr Sebastian Hughes, instructed by Munros, for the plaintiff

Mr Leon Tang, instructed by Patrick Mak & Tse, for the 2^nd, 5^th, 8^th & 10^th defendants

Mr Norman Nip and Ms Kelly Shum, instructed by Keith Lam Lau & Chan, for the 7^th defendant

The 9^th defendant did not appear

HCA 852/2017

[2019] HKCFI 1175

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 852 OF 2017

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________________________

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DECISION

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1.  There are two summonses before the court. They arise out of a fraud perpetrated against the North American subsidiary of the Italian carmaker Ferrari which is the plaintiff in these proceedings in which there are now 14 defendants. This particular application concerns D9, Success Trade Inc Limited.

2.  I should make it clear at the outset that there is no suggestion that D9 or Mr Chan Chun Kit (“Mr Chan”) were in any way implicated in the fraud. In short, the plaintiff’s case is that a person or persons impersonating the CFO of the plaintiff’s parent company induced the plaintiff’s CEO to authorise payments made between 28 March and 31 March 2017 totalling US$6.7 million into D1’s bank account with Standard Chartered Bank Limited as part of a bogus transaction to buy shares in a listed company.  The entire amount was transferred immediately to the bank accounts of D2 to D10 on the same day or the next business day.  Among the transfers was a sum of US$547,512 transferred from D1’s account with Standard Chartered into D9’s bank account held with China Construction Bank Limited (“CCB”) in two separate tranches　of US$386,539 and US$160,613 on 31 March 2017.  That account had been opened on 2 March 2017.

3.  Further US dollar payments were made into D9’s CCB account round about the same time from unidentified persons, and there was already about HK$589,000 in the account.  However, on the plaintiff’s case, six consecutive payments were made out of the account totalling about US$610,000 on 3 April 2017.  So by 24 April 2017, when Madam Justice Wong granted an ex parte Mareva injunction restraining D9 from dissipating the sum of US$547,512 attributable to the Ferrari payments, most of the money from the account was gone. 

4.  On the return date of 28 April 2017, the injunction was extended unopposed by the order of DHCJ Sakhrani.  By then, the position on D9’s CCB account was a credit balance of US$36,176.75 and about HK$540,000, which sums were of course caught by the injunction.  Aside from a few sums paid out which I shall deal with in a moment, that appears broadly to be the present position since the account has largely been inactive since then.

5.  The two matters arising for decision today are as follows.  By summons dated 14 January 2019, the plaintiff applies to vary the terms of the injunction by removing the two paragraphs which allow D9 to draw HK$20,000 per week towards its ordinary and business expenses.  This in fact has only been used to date on two occasions in November and December 2018 when two payments of HK$20,000 were withdrawn.

6.  Further, by summons dated 25 March 2019, D9 applies to vary the terms of the injunction, seeking leave to withdraw HK$410,000 from its CCB account to obtain legal advice and, more generally, to fund the defence of these proceedings.  So far and in accordance with the terms of the injunction, only HK$50,000 has been withdrawn in respect of legal advice,and that was on 15 January 2018.

7.  In that regard, the plaintiff’s applications for summary judgment by summons of 10 January 2018 against a number of defendants, including D9, are fixed for hearing before Madam Justice Mimmie Chan on 20 June 2019.  This is why D9 says it needs access to the money.  For completeness, I should add that a default judgment was obtained against D1 in 2017 which included a declaration that D1 held the US$6,700,000 on constructive trust for the plaintiff.  

8.  It is convenient to begin with the provision for payments of $20,000 per week towards the company’s ordinary business expenses.  The plaintiff’s summons was prompted by the November and December payments which I have mentioned.  D9 resists the application to amend the injunction.  Its evidence sets out the details of the company’s business expenses, including rent, directors’ remuneration, accountancy fees and insurance.  It is said to be oppressive that the company cannot use the funds in the CCB account to meet these expenses. On the other hand, until November/December last year, it is to be noted that that was in fact the position.  D9’s case is that there is no legal right to vary the injunction in the absence of a material change in circumstances.  There has been, it submits, no such change and the application should be dismissed.

9.  The plaintiff’s case relies primarily on the company’s financial statements dated 25 October 2018 for the period from 1 April 2016 to 31 December 2016.  These state clearly that the latter date is “date of cessation of business”.  D9 cannot therefore, the plaintiff argues, contend that there are any ongoing business expenses.  

10.  D9 has responded by way of evidence from its accountant who prepared the statements.  He says that there was a misunderstanding on his part.  He says that he was informed that the company’s sole bank account, which was with Bank of China, had closed in December 2016.  Because of miscommunication, he did not know about the CCB account.  He says he now understands that the company has not ceased business, and he has instructions to prepare up-to-date accounts subject to payment of his fees.

11.  I do not find this evidence persuasive.  The financial statements are very clear in a number of places, including the front page, that the company ceased business at the end of 2016.  They are signed by its principal and sole director, Mr Chan, on 25 October 2018.  The plaintiff was not aware of this until recently.  They say that the November/December 2018 payments would not have been permitted had they been aware of it.  This is clearly a material change of circumstances, and I am satisfied that P is entitled to a variation of the injunction in this respect.

12.  The position as regards D9’s application for legal expenses to be paid out of the CCB account is more complicated.  P’s objection is that the money in the account is its money to which it has a proprietary claim, and applying well-settled principles, no access should be given to D9 in respect of these funds.

13.  D9’s primary response is that it has a good defence to the plaintiff’s claim based upon the doctrine of change of position.  It says that it had a business relationship with a mainland meat importer called Mr Yung for whom it acted as an agent.  This was one of a number of such relationships.  In short, Mr Yung would notify D9 when payments of meat from Brazil through Hong Kong were due, and money would be remitted to D9’s bank account from which Mr Chan would then make appropriate remittances to the suppliers. That is, D9 says, precisely what happened on this occasion and there was nothing to put D9 on inquiry.  Having received funds and remitted those funds in good faith, it has a complete defence.

14.  I will begin by setting out the legal test as formulated by Mr Terrence Tai of D9 which I am content to adopt.  Where a defendant seeks the release of funds subject to a proprietary claim to pay for his legal expenses, the court will ask three questions:

（１）  whether the defendant has demonstrated that he has no other assets to use to pay for his legal expenses;

（２）  whether the defendant can show that he has an arguable case for denying that the funds in question belong to the plaintiff;

（３）  if there are no assets other than those assets subject to a proprietary claim, whether the balance of justice militates in favour of permitting or refusing payment. 

See Wharf Ltd v Lau Yuen How [2010] 1 HKLRD 783 at paragraph 13 per Au J (as Au JA then was), and the judgment of Deputy High Court Judge B Chu (as she then was) in Hong Kong Life Insurance Ltd v Fung Siu CheungMichael HCA 1164/2012, 21 February 2014, paragraphs 33 and 34.

15.  I shall address each of these questions in turn.  Mr Chan has made an affirmation dated 23 March 2019, setting out in considerable detail his personal position and those of his close associates.  He has no access to any further funds for this litigation, he says, and should not be denied the opportunity to put in a proper defence at the upcoming summary judgment hearing.  

16.  It is always difficult for a plaintiff to challenge effectively a statement of means of this kind.  There is at least a question raised on the evidence as to associated companies with D9 and whether proper disclosure has been made in that regard.  Broadly, however, I am satisfied that Mr Chan has demonstrated a lack of assets to pay D9’s expenses.  I am disposed to consider that, though not without qualification, the first question has been sufficiently answered by D9. 

17.  The second question is more difficult.  The plaintiff’s case is straightforward.  It says that its money went into the account and was used to pay the Brazilian meat suppliers.  It has, it contends, an unanswerable proprietary claim to the money which is not defeated by any valid change-of-position defence. 

18.  D9 has a subsidiary argument in that regard. There were other moneys paid into the account, and treating the payments-in pari passu, it is submitted that the plaintiff can only show proprietary claim to 75% of the funds.

19.  However, it is to be noted that these other payments were all made about the same time as the Ferrari money went into the account.  I would expect to see some concrete evidence as to the source of the other funds and the circumstances of the payment-in.  I was not taken to any such evidence, and I am not at present inclined to regard this point as arguable.

20.  D9’s strongest argument is as to change of position.  It is important to state that the plaintiff does not challenge D9’s basic factual case that it did in fact act in some capacity for mainland meat importers, and that the relevant transactions showing D9 acquiring either in its own name or otherwise shipments of meat from Brazil are genuine transactions, and that D9 transmitted funds for the payment of those shipments. 

21.  A substantial body of evidence has been put in by D9 in this regard with a view to the summary judgment proceedings.  WeChat exchanges have been produced which are said to show someone said to act for Mr Yung notifying D9 of the payments that would be received into D9’s account and giving instructions for their disbursement to the Brazilian parties.  There was nothing, it was submitted, given the previous course of dealing, to put D9 on inquiry, that being the applicable legal test.

22.  I am conscious that these defences will come to be considered by the judge hearing the summary judgment application, and it would be wrong for me to say anything to prejudice the defence on the present application.  I must, however, take proper account of the response made by Mr Sebastian Hughes for the plaintiff.  In short, he points out that there is nothing in the evidence to explain who Mr Yung actually is or even if there is a Mr Yung beyond Mr Chan’s assertion uncorroborated by any documentary material.  There is no evidence of any link between Mr Yung or any other meat importer and D1, ie Changhon International Energy Co Limited.

23.  It will be borne in mind that this application raises the question whether D9 has an arguable case for denying that the funds in question belong to the plaintiff, in the context of the specific application for access to the funds pending the summary judgment hearing. It may be that a different view will be taken at that hearing particularly when this case is heard with others all involving, I understand, much the same issues.

24.  However, in the present application, it is relevant, in my view, that D9’s sole bank account was closed in December 2016, the CCB account was opened at the beginning of March, and it is for consideration whether it was opened specifically for this transaction.  Mr Chan, so far as the evidence presently goes, knew nothing about D1, and the court has no evidence before it as to the status of Mr Yung or what the source of the funds was understood to be. The money came in and was paid out almost immediately.

25.  I do not rule out the possibility of D9 establishing an arguable change-of-position defence so as to entitle it to leave to defend in due course.  That will be a decision for the judge hearing the summary judgment application.  But for the purposes of today, D9 has not satisfied me that it has an arguable case for denying that the funds in question belong to the plaintiff.   

26.  That leaves the third question which goes to the balance of justice.  This is not an easy question to answer.  D9’s defence appears to have been conducted sensibly and in an economical manner.  There is nothing untoward in the sums which it is requesting from the account, namely, HK$410,000, including legal fees already owed of HK$300,000.

27.  On the other hand, this will severely deplete the money in the account, and as Mr Hughes pointed out, if granted, this application may not be the last.  In this case, Ferrari has been the victim of a massive fraud.  It is very unfortunate that D9 has been caught up in it.  However, my conclusion is that the money should stay where it is. Even if all of it is paid now to the plaintiff, it will still suffer a very large shortfall on this transaction alone.  Despite Mr Terrence Tai’s well-presented submissions, that is my conclusion.

28.  Mr Hughes, I think you are entitled to your costs in any event of the summons in relation to the business expenses.  I think in relation to the other application, that is so closely linked to the summary judgment application that it should be costs in the cause.

HCA 852/2017

[2018] HKCFI [1603]

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.852 OF 2017

____________

____________

_____________________

DECISION

_____________________

Application

1.  Before the court is the plaintiff’s application by summons dated 10 January 2018 (“Summons”) against the 3^rd defendant, supported by the 2^nd affidavit of David Michael Wertheim sworn on 3 January 2018, for summary judgment for the sum of US$3,300,002 and for a declaration that the 3^rd defendant holds the 12 tranches of funds transferred from the 1^st defendant’s account numbered 41510591947 (“D1’s Account”) at Standard Chartered Bank (Hong Kong) Limited (“SCB”) to the 3^rd defendant’s account numbered 933060840883 (“D3’s Account”) with Hang Seng Bank Limited (“HSB”) between 30 March and 3 April 2017, as set out in paragraph 4 below, on trust for the plaintiff.

Plaintiff’s claim against 3^rd defendant

2.  It is the plaintiff’s claim that it has been a victim of fraud, whereby an unknown person (or persons) impersonating the chief executive officer of the plaintiff’s parent company, Ferrari S.p.A., induced the plaintiff’s chief executive officer to authorise payment of 3 sums totalling US$6,700,000 into D1’s Account as part of a bogus transaction to buy shares in a listed company on behalf of the plaintiff’s parent company as follows:

	Date of Transfer to D1’s Account	Amount Transferred (US$)
1	29.3.2017	958,000
2	31.3.2017	1,942,000
3	1.4.2017	3,800,000

3.  Prior to the issue of the Summons, Mr Justice Lok had, on 30 October 2017, entered judgment in default of notice of intention to defend against the 1^st defendant for (1) a declaration that the 1^st defendant holds the said sum of US$6,700,000 which belongs to the plaintiff on trust for the plaintiff and (2) the payment of US$6,700,000 by the 1^st defendant to the plaintiff with interest at 8% per annum from 1 April 2017 to 30 October 2017 and thereafter at judgment rate until payment.

4.  US$3,300,002 of the said sum of US$6,700,000 had been transferred from D1’s Account to D3’s Account without the plaintiff’s consent or knowledge as follows:

	Date of Transfer from D1’s Account to D3’s Account	Amount Transferred (US$)
1	30.3.2017	180,000
2	30.3.2017	200,000
3	30.3.2017	120,000
4	31.3.2017	300,000
5	31.3.2017	250,000
6	31.3.2017	250,001
7	3.4.2017	300,000
8	3.4.2017	350,000
9	3.4.2017	400,000
10	3.4.2017	350,001
11	3.4.2017	400,000
12	3.4.2017	200,000
		3,300,002

5.  The plaintiff had never had any dealing with the 3^rd defendant that would justify the payment of the plaintiff’s monies to the 3^rd defendant.

6.  For the sake of completeness, part of the said sum of US$3,300,002 had in turn been transferred from D3’s Account to the 11^th to 14^th defendants’ bank accounts without the plaintiff’s consent or knowledge.  The plaintiff had never had any dealing with any of the 11^th to 14^th defendants that would justify the payment of the plaintiff’s monies to them.

7.  I have, on 3 April 2018, entered judgments in default of notice of intention to defend against the 11^th to 14^th defendants for (1) declarations that they hold the following respective sums which belong to the plaintiff on trust for the plaintiff and (2) the payment of such sums by them to the plaintiff with interest at 8% per annum from the respective dates of receipt to 3 April 2018 and thereafter at judgment rate until payment:

Defendant	Total sum for which judgment is entered
11th defendant	US$500,000
12th defendant	US$774,142
13th defendant	HK7,381,681 + US$531,690
14th defendant	US$197,416.36

D3’s defence

8.  Prior to the issue of the Summons, the 3^rd defendant had, on 22 September 2017, filed and served a defence, which it subsequently amended on 13December 2017. 

9.  Save for the admissions that it is a company incorporated in Hong Kong and that it is the holder of D3’s Account, the 3^rd defendant’s defence contains only non-admissions and denials, without advancing any positive averment.

Plaintiff’s entitlement to summary judgment

10.  Despite the express notice to the 3^rd defendant indorsed on the Summons that it should send to the plaintiff’s solicitors a copy of any affidavit intended to be used by the 3^rd defendant not less than 3 days before the first hearing of the Summons on 5 February 2018, the 3^rd defendant has so far not filed or served any affidavit in opposition to the Summons. 

11.  The 3^rd defendant ceased to be represented in the end of February 2018.  Though notice of this adjourned substantive hearing of the Summons before me had previously been given by the court to the 3^rd defendant’s former solicitors, by a letter dated 10 April 2018 sent to the 3^rd defendant at its registered office, the plaintiff’s solicitors reminded the 3^rd defendant of this hearing and also enclosed a copy of the notice of hearing.  The 3^rd defendant, however, did not appear to make any submission on the Summons.

12.  I am satisfied that the averments upon which the claim against the 3^rd defendant is based are substantiated by the evidence adduced by the plaintiff.  The amended defence of the 3^rd defendant, consisting only of non-admissions and denials, has not raised any triable issue between the plaintiff and the 3^rd defendant.  The plaintiff should therefore have summary judgment against the 3^rd defendant.  A victim of fraud would prima facie have a claim in money had and received and may assert a proprietary claim against a recipient insofar as the fraudulently obtained funds are traceable into his hands, unless the recipient can establish that he is a bona fide purchaser for value without notice.  See, for example, Halliburton BV Merkezi Hollanda Ankara Merkez Turkiye Subesi v Sheng Yi (HK) Trade Co Ltd, HCA 1627/2016, unreported (24 January 2017), per Deputy High Court Judge Clooney SC at [80].  

13.  In concluding that the plaintiff is entitled to summary judgment against the 3^rd defendant, I have considered whether Order 14, rule 1(2)(b) of the Rules of the High Court (Cap 4A), which provides that summary judgment may not be given in “an action which includes a claim by the plaintiff based on an allegation of fraud”, applies to the plaintiff’s claim against the 3^rd defendant. 

14.  In Universal Capital Bank v Hongkong Heya Co Ltd [2016] 2 HKLRD 757, in rejecting the defendant’s opposition on the basis that the plaintiff’s application was caught by the “fraud” exception, Deputy High Court Judge Burrell said at [18(1)]:

“The underlying reason for the fraud exception is to prevent summary judgment in a case where serious allegations of dishonesty are made or implied against a party to the proceedings so that such a party may have an opportunity to answer the allegations, or put in a more familiar way, “have his day in court”.”

And then at [18(4)]:

“Whilst it is true that the Hong Kong courts have adopted a fairly wide and liberal interpretation of “fraud” when considering the application of Order 14, rule 1(2)(b), it should not be applied automatically merely because there are allegations of fraud or dishonesty in the bigger picture.  The question remains, does the underlying allegation of fraud (which does exist here) on which the claim is based (which it is not in this case) constitute an allegation of fraud against the defendant? … ” (emphasis added)

15.  I find the latter observation equally apt in this instance.  Although a fraud perpetrated by unknown fraudster(s) is the underlying reason why the plaintiff has suffered loss and commenced these proceedings, the plaintiff stresses that it does not have evidence, and is not suggesting, that the 3^rd defendant or those behind it were involved in such fraud.  The plaintiff has expressly confined its claim against the 3^rd defendant to restitution based on unjust enrichment, to be approached in accordance with the framework set out by the Court of Final Appeal in Shanghai Tongji Science & Technology Industrial Company Limited v Casil Clearing Limited (2004) 7 HKCFAR 79 at [67].  That is to say, all that the plaintiff has to say and prove is (1) that the 3^rd defendant was enriched by having funds belonging to the plaintiff transferred into its account without having provided any consideration therefor; (2) that such enrichment was at the expense of the plaintiff who did not intend the 3^rd defendant to have, and who had no reason to pay the 3^rd defendant, the funds; (3) that such enrichment was unjust as there was no legitimate reason for the 3^rd defendant to have received the funds; and (4) that the 3^rd defendant has not raised any defence that justifies it to keep the funds.  It is unnecessary for the plaintiff to, and it did not, assert that the 3^rd defendant received the funds in question fraudulently or dishonestly.  See paragraphs 33b, 35a, 37a, 40, 43, 44, 59c, 60c and 61c of the amended statement of claim.  See also paragraph 8 of the 2^nd affidavit of David Michael Wertheim.

Orders

16.  For these reasons, I make an order in terms of the draft judgment at pages 192-197 of the hearing bundle save that the words “when it is no longer necessary” in the second preamble should be replaced by “once the plaintiff has recovered the sum of US$3,300,002 (whether from from the 3^rd defendant or any of the 11^th to 14^th defendants)”.

HCA 852/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 852 OF 2017

________________________

________________________

________________________

DECISION

________________________

The parties

1.  The plaintiff (“Ferrari”) is a well-known Italian luxury car manufacturer.

2.  The 5^th defendant (“Hui Tong”) is in the business of trading frozen meat parts which it imports from overseas suppliers.  It is a private company, was one director, Li Xian Juan, and has been in business since 21 March 2014.  Li Xian Juan says that its business model is one in which frozen meat is bought in bulk from overseas suppliers or exporters and sold on to local buyers in Hong Kong with a small profit made from the difference in the transactions.  Li Xian Juan says that the turnover is high, and that is justified by the bank statements exhibited.

The circumstances leading to the writ

3.  The circumstances arise from an all too familiar scenario, that of an Internet email fraud.  As a result of a sequence of fraudulent emails sent to an officer of Ferrari’s North American subsidiary between 28 and 31 March 2017, by three instalments over those three days, a total of US$6,700,000 was paid by Ferrari to a bank account in Hong Kong held by the 1^st defendant (“Changhon”).  There is no doubt at all, and it is not disputed, that there is no business or personal relationship between Ferrari and Changhon.

4.  As is usual with an Internet email fraud, virtually immediately each of the three sums were deposited into Changhon’s bank account they were paid out, in apparently random amounts, to various parties.

The grant of injunctions and other orders

5.  On 10 April 2017, Ferrari obtained an ex parte Mareva injunction against Changhon together with disclosure orders.  The disclosure orders revealed that a sum of US$164,465 was received by Hui Tong.  Again, there is no doubt at all, and it is not disputed that there is no business or personal relationship between Ferrari and those defendants.

6.  On 24 April 2017, again by ex parte application a Mareva order was made against Hui Tong prohibiting it from removing, disposing or diminishing the value of any of its assets within or outside Hong Kong up to the sum of US$164,465. 

7.  That injunction came before me on the return date, 19 May 2017, when Hui Tong appeared by solicitors and counsel.  After hearing the parties, and giving Hui Tong time to produce bank statements, which when produced were quite unsatisfactory, I ordered that the injunction should be continued.  I then gave timetable directions for the filing of affidavits and adjourned the substantive hearing to 16 June 2017.  I heard argument on that day.

The case for Hui Tong

8.  The cause of action against Hui Tong is based upon money had and received or alternatively restitution re-damages for unjust enrichment.

9.  The case for Hui Tong is a familiar one.  By affidavit, Li Xian Juan says that shortly before the funds were received into Hui Tong’s bank account she entered into transactions with buyers to purchase frozen meat.  By a coincidence, quite unexplained by Li Xian Juan, the amount of the transaction was precisely that of the sum deposited in Hui Tong’s bank account, the original source of the funds being Ferrari.  Li Xian Juan does not suggest any business relationship between Hui Tong and Changhon or Ferrari.  She offers no explanation as to why Changhon would have made a payment to Hui Tong’s bank account.

10.  Li Xian Juan says that Hui Tong is legally entitled to the amount of US$164,465 “as part of its bona fide arm’s length dealings with its business partners”.  She exhibits copies of bills of lading, packing lists, official meat certificates and custom declarations for certain frozen meat goods.  She exhibits two “sales confirmations”, both dated 29 March 2017, and chopped by Hui Tong as seller, one for US$80,604 and one for US$83,861 (a total of US$164,465), both with unnamed buyers.

11.  On the basis of this evidence, Mr Yiu argues that Ferrari has no good arguable case against Hui Tong for money had and received, a constructive trust, unjust entrenchment, or tracing orders.

The relevant law

12.  Mr Hughes correctly reminded me that at this stage of the proceedings it is sufficient for Ferrari to be entitled to relief if it has a good arguable case on the substantive claim over which the court has jurisdiction, that there are assets in the jurisdiction, that the balance of convenience is in favour of a grant, and that there is a real risk of dissipation of assets or removal of assets from the jurisdiction which would render a judgment of no effect.

13.  In establishing a good arguable case Ferrari need not show that it is likely to win, but must demonstrate that its case is one that is:

“ … more than barely capable of serious argument, and yet not necessarily one which the judge believes to have a better than 50% chance of success”:

see Ninemia Maritime Corp v Trave (The Niedersachsen) [1983] 2 Lloyd’s Rep 600 at 605.

14.  As regards risk of dissipation, the test is an objective assessment of the risk that a judgment may not be satisfied.  The appropriate law is set out in the decision of M Chan J in Great Wall Pan Asia International Investment Co Ltd v Cervera Holdings Ltd& Anor, (unreported, HCCT 13/2016, 1 June 2016, §§18 – 21).  I gratefully adopt that statement.

15.  Evidence of an unacceptably low standard of commercial morality or questionable integrity, particularly in connection with the transactions in question, may be sufficient to entitle a court to conclude that there is a sufficient risk to justify a Mareva injunction: Akai Holdings Ltd (In Compulsory Liquidation) & Ors v Ho Wing On & Ors [2009] HKCU 172 §52.  Where a good arguable case is established on a claim for fraud or dishonesty, the court will be more willing to infer a real risk of dissipation: see Akai Holdings at §53, and Gee, Commercial Injunctions (6^th ed) §12-033.

16.  Irrespective of what is pleaded, dishonesty or suspicion of dishonesty will strongly suggest there is a real risk of dissipation: see Guinness plc v Saunders (The Independent, 15 April 1987), cited in Goldrein & Wilkinson Commercial Litigation 2^nd ed, 185 – 186, per Browne-Wilkinson VC:

“ In my judgment dishonest behaviour is relevant to Mareva relief not by reference to what is pleaded but by reference to the possibility or likelihood of its existing. Whether or not pleaded, if there is dishonesty or suspicious of dishonesty, that will be an important ground on which Mareva relief can be obtained.”

This decision was applied in Hong Kong in Standard Chartered Securities v Lai Arthur & Ors [1993] 1 HKC 375 at 393G.

17.  Mr Yiu sought to rely upon the dicta of Au-Yeung J in Arrow ECS Norway AS v Xin Cheng Holdings (International) Co Ltd (unreported, HCA 239/2016, 12 May 2016) at §30, where the judge said:

“ Being a mere recipient of funds (like D18) remitted through an underground banking system is not sufficient in itself to find guilt. It has to be proved that the recipient knew or had reason to believe that the money had an illicit source.”

18.  Mr Yiu argued that the evidence fell far short of establishing “guilt” on the part of either Li Xian Juan or Hui Tong in respect of the receipt of the funds.

19.  With respect to the judge, the decision in Guinness plc makes it clear that, at least at the Mareva stage, the expression “guilt” is inappropriate.  I accept that by itself the mere fact that a payment to a bank account came from an unrelated source may not necessarily be sufficient to raise a suspicion of dishonesty.  But if viewed in its whole context, that fact raises a suspicion of dishonesty, it is not necessary for the court, at the Mareva stage, to require a plaintiff to show “guilt” on the part of the recipient of the fund.

The challenge to Hui Tong’s “transaction”

20.  Mr Hughes took me carefully through the evidence available at this time to demonstrate, not only that the transaction between Changhon and Hui Tong was itself suspicious, but that the foundation transaction upon which Hui Tong relied was also suspicious.

21.  First, the account opening documents in respect of Changhon’s bank account show that its business activity is the trading of timber for flooring and construction.  There is no suggestion at all that it is engaged in the frozen meat trading business.  There is no suggestion at all by Li Xian Juan that she has any business or personal connection with Changhon, or that there is any reason why she should receive a payment from Changhon.

22.  Next, Changhon’s bank account shows no normal commercial banking or business related activities at the time of the transfers.  The account was set up in September 2016, and on 13 October 2016, a user by the name of “Yuan Bo” was authorised to make online transactions using the bank’s online service.  On the date of the receipt of the first payment (US$957,968), the account held just US$54.03.  The closing balance of the account, on 3 April 2017, after the entire sum had been distributed, was US$39.74.

23.  There is a very strong case to argue that Changhon is a key and instrumental participant in the email fraud, being in a position to receive the funds fraudulently obtained from Ferrari, and to immediately distribute them to other participants in the fraud.  In the absence of any attempt whatsoever by Li Xian Juan to explain why Changhon might make a payment to Hui Tong, of a precise sum, immediately upon Changhon receiving fraudulently obtained funds, the inference necessarily arises that Li Xian Juan and Hui Tong are also parties to the fraud.

24.  It is right that other inferences may be argued.  It might be suggested, for example, with evidence, that there was a mistake or error in the banking system.  It might be suggested, with evidence, that there is another company with a similar name.  It might be suggested, with evidence, that the payment was made through an underground banking system.  But none of these suggestions were made.  Li Xian Juan was tellingly silent in respect of the source of the funds.

25.  Circumstances where, following an Internet email fraud, a substantial sum is deposited in the account of one company, and then distributed, immediately, in apparently random sums, to a number of other companies, each with no apparent relationship to the distributor, have become commonplace in the courts.  Equally commonplace is the suggestion by the ultimate recipients of the funds that the amount received precisely matches a transaction undertaken at the time the deposit was made.  These are “coincidences” which cannot be ignored by the courts.

26.  Next, Mr Hughes took me to the transactions relied upon by Li Xian Juan.

27.  As I have said, no explanation at all was suggested as to why payment for two separate transactions between Hui Tong and its buyers should be made in one payment by a complete stranger. 

28.  In her first affirmation, Li Xian Juan claimed that “orders were made by individuals by telephone and monies would be deposited into (Hui Tong’s) bank account upon completion of the transaction”. It is to be noted that the plural expression was used.  In the skeleton submission by counsel on 19 May 2017, it was now asserted that both orders were not made by separate individuals, but by the same “individual surnamed Wong”. In her second affirmation, Li Xian Juan changed her story, now asserting the name of the customer, apparently in respect of both transactions, was not Wong but Ma.

29.  The documentary evidence shows that Hui Tong’s business model involves sourcing a buyer, and only then making the purchase from its supplier.  Only then Hui Tong enters into a sales confirmation requiring a deposit, usually of 30%, with an invoice being issued when the shipment is on the high seas.  Upon payment in full, the buyer then collects the shipment directly upon arrival in Hong Kong.

30.  Unlike every other sales confirmation in evidence, the sales confirmations relied upon do not state the buyer’s name at all.  Unlike every other transaction in evidence, the transactions relied upon, contrary to Hui Tong’s established business model, Hui Tong took the substantial risk of paying for the perishable goods without having first obtained a buyer.  Unlike every other sales confirmation in evidence, the payment terms are 100% of the contract price upon delivery.

31.  Instead of stating a customer name in the sales confirmation a container number and bill of lading number is listed under the expression “Buyer”, and in a markedly different font to the text of the rest of the documents.  Unlike every other sales confirmation in evidence, there are no corresponding invoices.

32.  There is nothing in the “payment slip” bank document relied upon by Hui Tong for its receipt of US$164,465 from Changhon to link the payment to a customer named either “Wong” or “Ma”.

33.  From the whole of this evidence I am satisfied that there is clear and justifiable suspicion of dishonesty on the part of Li Xian Juan and Hui Tong.

34.  That suspicion of dishonesty is more than adequate to find that there is a good arguable case for the remedies sought by Ferrari against Hui Tong, and that there is a real risk of dissipation of funds.

35.  In reaching this conclusion I have weighed in the balance that apparently genuine documents in relation to the importation of meat products and sales of those products have been produced.  I have no doubt at all that Hui Tong is in the business of importing and selling meat products.  But the circumstances of the particular sales upon which Hui Tong and Ms Li relies, and the documents in support of those sales, by themselves give rise to the suspicion of dishonesty.

Balance of convenience

36.  The sum sought to be restrained is US$164,465. The bank statements produced by Hui Tong show that that is an insignificant sum compared with amounts in Hui Tong’s bank account from time to time.  The assets in the bank account range between HK$3.5 million in October 2016 and HK$8.6 million in February 2017.

37.  Li Xian Juan says that she has raised a loan by asking “fellow importers” to pay the sum of US$164,465 to suppliers on his behalf.  To support this assertion she exhibits two incomplete undated printouts, apparently from a teller machine, which are described, erroneously, as “deposit slips”.  These are from two unidentified bank accounts.  No explanation is offered as to when these payments were made, by whom they were paid, the identity of the fellow importers, or the terms of the purported loans.  In the whole of the circumstances the documents do not assist Hui Tong.

38.  Having regard to the foregoing I am satisfied that the balance of convenience lies firmly in favour of continuing the Mareva injunction.

The undertaking as to damages

39.  Ferrari is a well-known and substantial international company.  I have no doubt at all that it is good for its undertaking as to damages.  Mr Hughes has confirmed to me that Ferrari has been clearly advised as to its obligations under the undertaking.

Disposal

40.  I am accordingly satisfied that this is a proper case to order that the injunction, as granted on 24 April 2017, should continue.  Leave is reserved to apply.

Costs

41.  There will be an order nisi that the costs of the injunction proceedings are to be the plaintiff’s costs in the cause.