THE YERRID LAW FIRM v. QIANSBAIZI TRADING LTD AND ANOTHER

HCA 2271/2019

[2021] HKCFI 1578

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2271 OF 2019

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D E C I S I O N

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A.  INTRODUCTION

1.  In my decision dated 19 March 2021 ([2021] HKCFI 620) (“the Decision”), I dismissed D2’s appeal against the Master’s decision dated 14 October 2020 whereby she:

(a)  dismissed D2’s application to set aside the default judgment entered against D2 dated 20 January 2020 (“the Default Judgment”); and

(b)  ordered that the Garnishee Order to Show Cause dated 13 March 2020 be made absolute with costs of the garnishee proceedings to be retained by P out of the money recovered by P under the Garnishee Order Absolute and in priority to the judgment debt (“the Garnishee Order”).

I made an order accordingly (“the Order”).

2.  In respect of the Order concerning the Default Judgment, on 15 April 2021, D2 lodged a Notice of Appeal as of right pursuant to O.59, r.21(2)(h) in CACV170/2021.  On 16 April 2021, D2 filed a Notice of Setting Down on Appeal. On 29 April 2021, P filed a Respondent’s Notice.

3.  On the other hand, by a summons dated 15 April 2021 (“D2’s Summons”), D2 applies for, inter alia, the following orders:

(a)  a direction pursuant to O.59, r.21(3) that leave to appeal from the Order dismissing D2’s appeal against the Garnishee Order is not required by D2;

(b)  if leave is required for the Intended Appeal, leave be granted to D2 to appeal to the Court of Appeal on the grounds set out in the draft Notice of Appeal appended thereto;

(c)  D2’s time for applying for leave to appeal in relation to the Intended Appeal be extended to the date of this Summons; and

(d)  there by stay of execution of the Master’s decision dated 14 October 2020 including the Garnishee Order and the Default Judgment pending the determination of D2’s Notice of Appeal dated 15 April 2021 against the Order and the Decision, and the Intended Appeal (if any).

4.  The parties agreed that D2’s Summons shall be disposed on paper.  Pending the determination of D2’s Summons, I have granted an interim stay of execution of the Default Judgment (including the Garnishee Order).

B.  THE INTENDED APPEAL CONCERNING THE GARNISHEE ORDER

B1.    Whether leave to appeal is required

5.  Under O.59, r.21(3), “a direction as to whether a judgment or order is one that is referred to in paragraph 1(a) may be sought from the judge who made or will make the judgment or order”.  O.59, r.21(1)(a) provides an exception to the general requirement that leave to appeal is required for interlocutory appeals pursuant to s.14AA(1) of the High Court Ordinance; and the exception is “a judgment or order determining in a summary way the substantive rights of a party to an action”.  Hence, the issue is whether a garnishee order absolute is an order “determining in a summary way the substantive rights of a party to an action”.

6.  It is well established that, in Hong Kong, the applicable test for determining if a decision is interlocutory is the application approach (B + B Construction Ltd v Sun Alliance and London Insurance Plc (2000) 3 HKCFAR 503; Shell Hong Kong Ltd v Yeung Wai Man Kiu Yip Co Ltd (2003) 6 HKCFAR 222).

7.  D2 submits that the Garnishee Order is an order determining in a summary way the substantive rights of a party to an action because:

(a)  That order was founded on the same grounds as the order whereby the court dismissed D2’s application to set aside the Default Judgment, ie D2 had no arguable defence, which was a determination on the issue of merits;

(b)  The order affirmed the validity of the judgment debt and engaged the substantive rights of D2;

(c)  It also engaged the substantive rights of the garnishee in that by ordering the garnishee to discharge D2’s judgment debt on D2’s behalf, it reduced the credit in D2’s account with the garnishee, and consequently the debt owed by the garnishee to D2;

(d)  Where, as in this case, there is a composite application to set aside a default judgment and to resist a garnishee order absolute on the same substantive grounds, it makes little sense to subject the latter to a leave requirement where the former can be appealed as of right.

8.  I am not convinced by these arguments:

(a)  It is necessary to distinguish between a garnishee order and an order refusing to set aside a default judgment.  An order refusing to set aside a default judgment is deemed to be an order determining in a summary way the substantive rights of a party by O.59, r.21(2)(h).  There is no similar express deeming provision regarding a garnishee order.

(b)  It is wrong to say that the Garnishee Order affirmed the validity of the judgment and engaged the substantive rights of D2.  It is merely a precondition under O.49, r1(1) that, when applying for a garnishee order, the applicant “has obtained a judgment or order for the payment by some other person ... of a sum of money amounting in value to at least $1,000”.  In the garnishee proceedings, the court is only concerned with whether such a judgment or order has in fact been obtained.  The court is not concerned with the validity or correctness of such judgment or order; and the court will not consider the substantive rights of the parties in this regard.

(c)  The question is whether the order involves a determination of the substantive rights “of a party to the action”.  Under s.2 of the High Court Ordinance, “action” means “a civil proceeding commenced by a writ of summons or in such other manner as may be prescribed by any law”.  The garnishee is not a party to the action.  It is only a party to the garnishee proceedings, which is a procedural step to enforce the judgment obtained in the action.  Hence, the fact that the garnishee order may have an impact on the legal relationship between the judgment debtor and the garnishee is neither here or there.  Further, how a garnishee order may affect the legal relationship between the judgment debtor and the garnishee is prescribed by O.49, r.8, and does not require the court’s determination.

(d)  A judgment creditor may apply for a garnishee order based on a judgment obtained by him, and it does not matter how the judgment is obtained (eg after a full trial, a summary judgment or a default judgment). The fact that it so happened that the Garnishee Order in this case was made to enforce a default judgment is irrelevant to the issue of how a garnishee order should be characterised for the present purpose.

9.  P relies on the decision of DHCJ M K Liu in Transunion v Hong Kong Taijin Industry Limited and others[2021] HKCFI 484.  In §14 of the judgment, the learned Judge held that leave to appeal against the garnishee order absolute granted in that case was required:

“Counsel for Zall has accepted that the Decision is an interlocutory decision. I am of the view that the Decision does not have the effect of determining the substantive rights of P and Zall.

(1) On the jurisdiction ground, assuming that there is a ruling in favour of Zall, that would only mean that P may not enforce the judgment debts by way of garnishee proceedings against Zall in Hong Kong. However, that does not mean that P may not commence garnishee proceedings against Zall elsewhere, for example, in BVI.

(2) On the double jeopardy ground, assuming that the court is with Zall and refuses to make absolute the two Garnishee Orders Nisi, that does not mean that P may not commence garnishee proceedings against Zall again at a later time. Once the factor constituting the alleged double jeopardy disappears (ie, Cui’s alleged liability under the Personal Guarantees has been extinguished or has disappeared for some reason), P may re-apply for garnishee orders against Zall.

(3) Further, as to the double jeopardy ground put forward by Zall, I do not see how the substantive rights of Zall would be affected by the court’s ruling on this ground. Even if Zall’s argument is accepted, making the 2 garnishee orders nisi absolute would only affect Cui’s interest.  However, Cui is not a party in the garnishee proceedings.”

10.  D2 submits that that was a case where the garnishee itself opposed on procedural grounds without determination of any issue of merit; and is, therefore, distinguishable.  P points out that, in fact, the garnishee there raised substantive, rather than only procedural, grounds to oppose the garnishee order.  The learned Judge in Transunion apparently put on the focus on the arguments run by the garnishee in that case.  I am inclined to the view that whether a garnishee order absolute is an order “determining in a summary way the substantive rights of a party to an action” should be decided as a matter of principle based on the nature of the order irrespective of the facts or arguments in any particular case.

11.  In principle, I am of the opinion that a garnishee order does not determine in any way the “substantive rights of a party to an action”.  In Astro Nusantara International BV v PT Ayunda Prima Mitra [2016] 1 HKLRD 591 at 597, §9, Chow J drew a distinction between “procedural” and “substantive” rights.  Garnishee proceedings are a procedure to enforce a judgment whereby a judgment creditor may attach debts owed to the judgment debtors by others.  As mentioned, a judgment creditor may apply for a garnishee order only after he has obtained a judgment.  The substantive rights of the parties to an action (ie the judgment creditor and the judgment debtor) have already been determined by such a judgment. It must follow that no substantive rights of the parties to the action will be, or will need to be, determined in the garnishee proceedings.  In Fu Lok Man v Chief Bailiff of the High Court [2003] 3 HKLRD 275 at 278E-J, §5, Le Pichon JA cited the following judgment in Re Chinery (1883-84) LR 12 QBD 342 concerning the nature of a garnishee order absolute:

“… [“final judgment”] points to a liability of the debtor to the creditor being established in an action, and not to a proceeding of this kind, which is not an action, but a statutory proceeding, for the purpose, not of establishing any liability of the garnishee to the person who obtains the order, by of attaching a debt due by the garnishee to the debtor whose lability to the judgment creditor had been established by the judgment in the action.”

12.  For the above reasons, I conclude that, in respect of a garnishee order absolute, leave to appeal is required.

B2.    Whether leave to appeal should be granted out of time

13.  S.14AA(4) of the High Court Ordinance provides that leave to appeal shall not be granted unless the court is satisfied that either (a) “the appeal has a reasonable prospect of success”; or (b) “there is some other reason in the interests of justice why the appeal should be heard”.  D2 is seeking such leave out of time for 13 days. The applicable principles are set out in Competition Commission v W Hing Construction Co Ltd[2020] HKCT 6, §4.

14.  As to the meaning and scope of “there is some other reason in the interests of justice why the appeal should be heard”, Clarkes, HongKong Civil Court Practice (Desk Edition 2021), §59.2B.10 at p 957 provides that:

“Other examples of ‘some other reason’ to grant leave to appeal might include the following:

• Where the matter will be going to the Court of Appeal anyway, such as where there is an appeal (as of right) against a grant of Order 14 summary judgment in respect of part of a claim, and leave is sought to appeal the grant of leave to defend the balance of the claim.”

15.  This is a case where the matter will be going to the Court of Appeal anyway.  As mentioned, D2 has already lodged an appeal against the Order concerning the Default Judgment as of right in CACV170/2021. In fact, the grounds of appeal set out in the Notice of Appeal in CACV170/2021 are identical to the intended grounds of appeal in the draft Notice of Appeal attached to D2’s Summons.  If D2 succeeds in CACV170/2021, the Garnishee Order must be set aside.  In these peculiar circumstances, I take the view that “there is some other reason in the interests of justice why the appeal should be heard”.

16.  The parties have made detailed submissions on whether D2’s intended appeal has a reasonable prospect of success.  As I have already concluded that leave to appeal should be granted on the said ground, and the substantive merits of D2’s grounds of appeal will be considered by the Court of Appeal, I do not find it necessary or appropriate to express any view on the substantial merits of D2’s appeal.

17.  I will also extend the time for D2 to seek leave to appeal in these circumstances.  The length of delay is not substantial.  P has not suffered any prejudice because of such delay.  The delay was apparently caused by the uncertainty as to whether leave to appeal is required.  I note that D2 lodged the Notice of Appeal in CACV170/2021 within the time prescribed by the rules.  The most vital point is that it would make little sense to deprive D2 the chance of appealing against the Garnishee Order on the ground of delay when there is, to say the least, a possibility that D2 may succeed in its appeal against the Default Judgment, which should axiomatically lead to the setting aside of the Garnishee Order.

C.  STAY OF EXECUTION

18.  The applicable principles have been summarised by Ma J (as he then was) in Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84, 87D-89I, which I need not repeat.

19.  China Citic Bank International Ltd is the garnishee.  By a letter dated 16 April 2021 to P’s solicitors, the bank informed P that it will hold off complying with the Garnishee Order pending P’s appeal against the Order and the Decision in CACV170/2021 until it is further advised by the court or by the parties’ solicitors.

20.  In the affirmation of Ye Xianghai filed in support of D2’s Summons, Mr Ye claimed that there is an appreciable risk that P would not be able to repay the monies from the Garnishee in the event of a successful appeal such that in the absence of a stay, the appeal may be rendered nugatory; this is because P is a law firm in the USA out of the jurisdiction of Hong Kong, and there is no suggestion that P has any assets within Hong Kong.  P has not filed any evidence in reply.

21.  In the circumstances, I have no difficulty in accepting D2’s submissions in this respect in the absence of any evidence to the contrary. On the evidence, if P is allowed to take the monies from the garnishee now, there will be a real risk that, if D2 succeeds in the appeal, it will have genuine difficulties in recovering them from P.  On the other hand, if the monies will remain in the hands of the garnishee in the meantime, in case D2’s appeal is unsuccessful, P should have little difficulty to enforce the Garnishee Order there and then.  I take the view that it is appropriate to grant a stay of execution.

D.  CONCLUSION

22.  For the above reasons, I order that:

(a)  The time to apply for leave to appeal against the Garnishee Order be extended to the date of D2’s Summons ie 15 April 2021;

(b)  Leave to appeal against the Garnishee Order be granted on the grounds set out in the draft Notice of Appeal appended to D2’s Summons;

(c)  There be a stay of execution of the Order pending the determination of CACV170/2021, and D2’s appeal against the Garnishee Order pursuant to the leave granted in paragraph (b) above;

(d)  Costs of D2’s Summons (including the costs of the interim stay) be costs in the cause of the appeal (with a certificate for two counsel).

HCA 2271/2019

[2021] HKCFI 620

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2271 OF 2019

________________________

________________________

________________________

D E C I S I O N

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Introduction

1.  This is the 2^nd Defendant (“D2”)’s appeal against the Master’s decision dated 14 October 2020 whereby she:

(a)  dismissed D2’s application to set aside the following default judgment entered against it on 20 January 2020:

“The 2^nd Defendant do pay the Plaintiff the sum of USD200,000 (or its Hong Kong dollars equivalent at the time of payment) together with interest thereon at the rate of 8.125% per annum from 13 December 2019 to 31 December 2019, at the rate of 8.084% per annum from 1 January 2020 to the date hereof and thereafter at judgment rate until payment; and HK$11545.00 fixed costs.”; and

(b)  ordered that the Garnishee Order to Show Cause dated 13 March 2020 be made absolute with costs of the garnishee proceedings to be retained by the Plaintiff (“P”) out of the money recovered by P under the Garnishee Order Absolute and in priority to the judgment debt.

In this appeal, D2 seeks to set aside the default judgment and the garnishee order unconditionally. Execution of the garnishee order has been stayed pending the determination of this appeal.  It is trite that an appeal to a judge from master in chambers is a hearing de novo.

2.  D2 accepts that the default judgment is regular.  The only issue is whether D2’s intended defence, namely, that it had no knowledge of any fraud and received the money of P merely as receiving agent in the course of normal money remittance service from Hong Kong to the Mainland, has a reasonable prospect of success.

P’s claim

3.  P, a law firm in USA, is the victim of an identity theft fraud, pursuant to which on 28 October 2019, P was deceived into making a payment in the sum of US$2,569,817.95 (“Stolen Monies”) from P’s trust account maintained with The Bank of Tampa in Tampa, Florida, USA.  The Stolen Monies were sent to an account of the 1^st Defendant (“D1”) at China CITIC Bank International Limited (“China Citic Bank”) in Hong Kong.

4.  Part of the Stolen Monies in the sum of US$200,000 were onward transferred to the bank account of D2 at China Citic Bank (a/c no. 744130552701) on 31 October 2019 (“D2’s Account”).  As at 17 December 2019, there were HK$285,627.03 and US$108,409.79 in D2’s Hong Kong dollar and US dollar accounts at China Citic Bank respectively.

5.  P claims that it is entitled to recover the sum of US$200,000 from D2 on the grounds of money had and received, unjust enrichment and constructive trust.

D2’s case

6.  D2’s case is that it had no knowledge about the fraud.  It was operating as a receiving agent for its principal, Fuyau Investment Management (Hong Kong) Co Ltd (“Fuyau”).  Fuyau holds a licence for operating money service under the Anti-Money Laundering and Counter-Terrorist Finance Ordinance (Cap. 615) (“the Ordinance”).  Fuyau used a trade name “Hui’s Brothers Exchange and Remittance Company” (“Hui’s Brothers”). As the receiving agent of Fuyau, D2’s Account was registered as an account used for operating Fuyau’s money service with effect from 12 February 2019.

7.  In the normal course of business of Fuyau, a money exchange and remittance transaction from Hong Kong to the Mainland would be conducted as follows:

(a)  Fuyau would first inform its client the relevant exchange rate for the transaction. Once the client agreed, Fuyau would complete a formed called “Application for Remittance” (滙款申請書);

(b)  Fuyau’s client would pay the amount to be remitted either by cash to Fuyau or bank transfer to the receiving agent of Fuyau;

(c)  After the receipt of funds, Fuyau would arrange for the equivalent amounts in RMB to be transferred from its agents in the Mainland to its client’s designated bank account(s) in the Mainland.

8.  In this case, the sum of US$200,000 was received by D2 in a money exchange and remittance transaction processed by Fuyau as follows:

(a)  On 31 October 2019, D1 submitted 3 Applications for Remittance to Hui’s Brothers to remit a total sum of US$200,000 in 3 tranches (RMB¥300,000, RMB¥200,000 and RMB¥916,000) to the designated accounts of 3 individuals, namely, 張千里 (Zhang Qianli (“Zhang”)), 曾絲慧，岐治國in the Mainland.  The applications were submitted by Zhang at around between 12:15 and 12:20. Zhang was the sole shareholder and director of D1.

(b)  In the Applications, Hui’s Brothers directed D1 to transfer the sum of US$200,000 to D2’s Account.

(c)  On the same day, D1 transferred US$200,000 into D2’s Account.

(d)  After that, D1 arranged, through its agents in the Mainland, namely, 張希霖 (Zhang Xilin), 李宗堅 (Li Zhongjian), payment of the respective sums to the designated accounts of the 3 individuals in the Mainland in accordance with the Applications for Remittance.

Analysis

9.  Under Order 12, rule 9, Rules of the High Court, the Court may, on such terms as it thinks just, set aside or vary any judgment entered in pursuance to this Order.  The relevant principles are well established (see Hong Kong Civil Procedure 2021, vol 1, §§13/9/12-13/9/14 at pp 302-303).  The power to set aside a default judgment which has been entered regularly is discretionary and such power is unconditional.  While the Court should consider various relevant circumstances, the most important consideration is that, generally speaking, the defendant must show a defence which has a reasonable prospect of success.  As held by Godfrey JA in his often-cited judgment in Premier Fashion Wears Ltd v Li Hing Chung [1994] 1 HKC 213 at 219I-220A:

“A defendant who seeks to set aside a regular judgment must at least show that his case has a real prospect of success. To do so, he must satisfy the court that his case and the evidence he has adduced in support of it carries some degree of conviction. It seems to me that unless potentially credible affidavit evidence from the defendant has demonstrated a real likelihood that he will succeed on fact, he cannot have shown that he has a real prospect of success.”

Accordingly, it is necessary for the Court to form some provisional view of the probable outcome of the action unless such a provisional view cannot be formed without a trial of the facts (L & M Specialist Construction Ltd v Wo Hing Construction Co Ltd [2000] 3 HKC 335 at 339F).  In the last situation, the appropriate test is whether the defence “could well be established”. However, it should be borne in mind that the Court is not supposed to undertake a mini-trial on the affirmation, and must be mindful of the interlocutory nature of the application (Maryo Development Ltd v Tsang Yau May and others, CACV101/2015 (11 January 2016, unreported), §13; Habour Hero Enterprises Ltd v Chau Nung Tai[2018] HKCA 253 at §8).

10.  P contended that D’s alleged defence does not have a real prospect of success.  On the facts, P made various criticisms against the evidence filed by the D2 in its first affirmation made to support its application.

11.  First, P stated that D2 had failed to adduce any documentary evidence to prove the agency relationship between it and Fuyau.  The undated and unsigned form produced by D2 showing the addition of D2’s Account for operating money service does not refer to Fuyau, and there is no evidence that it had been received by the Customs & Excise Department.  In response, D2 produced a complete Form 6 (Notification of Changes in Particulars) (“the Form 6”).  D2 attached a written document dated 12 February 2019 to the Form 6 stating that it allowed Fuyau to use its 4 accounts at China Citic Bank, including D2’s Account, from 12 February 2019 at nil consideration.  D2 also produced an acknowledgement of receipt of the Form 6 by the Customs & Excise Department dated 25 February 2019.

12.  Second, P stated that D2 had failed to adduce any documentary evidence that Hui’s Brother was the trade name of Fuyau.  D2 explained that Hui’s Brothers is, in fact, an alliance formed by about 123 shops which are separate companies one of which is Fuyau; and the most commonly used trade name of members of the alliance is “Huis’ Brothers Exchange and Remittance Company”.  The advantage of the alliance is access to the pool of bank accounts held by different receiving agents of the members ie an operator may “borrow” the account of another operator’s receiving agent to facilitate intra-bank transfer, which would be faster than inter-bank transfer, with the clients.  D2 has also produced another licence of Fuyau which describes the name of its branch office as Hui’s Brothers Money Exchange Company.

13.  Third, P stated that D2 had not explained why Fuyau needed to engage a receiving agent.  But the Form 6 confirms that, for whatever reasons, Fuyau had in fact engaged D2 as its receiving agent by using D2’s accounts for its money service business.

14.  Fourth, P stated that D2 had not explained the following discrepancies.  On Fuyau’s licence, the specified premises are situated at Shop D1, G/F, Chung Wui Apartments, 106-114 Wan Chai Road, Wan Chai, Hong Kong (branch name: Hing Yip Exchange and Remittance Company). On the Applications for Remittance in the name of Hui’s Brother, the address is Shop A, G/F, 82 Lung Sum Avenue, Sheung Shui, New Territories. D2 admitted that it had made a mistake in this respect. The Applications for Remittance were in fact submitted to Wanyuen Investment Development (Hong Kong) Ltd (“Wanyuen”).  Wanyuen is also a member of the alliance.  What happened was that, as D1 intended to transfer funds from its account at China Citic Bank, the back office of the alliance did a matching and “borrowed” D2’s Account (being an account of the receiving agent of a fellow member of the alliance ie Fuyau) in the same bank to facilitate an intra-bank transfer under the arrangement described above.  Wanyuen’s licence for operating money service states that its specified premises are situated at Shop A, G/F, 82 Lung Sum Avenue, Sheung Shui, New Territories with the branch name “Hui’s Brothers Exchange and Remittance Company”, which match the particulars set out in the Applications for Remittance.

15.  Fifth, P stated that D2 had not conducted any due diligence exercise against Zhang to confirm his identity as representative of D1.  D2 replied that Wanyuen had conducted due diligence by obtaining Zhang’s Hong Kong Identity Card, Visa Permit, Exit-Entry for Travelling to and From Hong Kong and Macao; the business registration certificate of D1; the Certificate of Incorporation and the Incorporation Form of D1.

16.  Sixth, P stated that D2 had not explained why Fuyau had to engage two agents in the Mainland to transfer the sums to the designated accounts of the 3 individuals in the Mainland. P also stated the 3 Mainland bank transfer slips were not dated, and it is unclear whether they were contemporaneous documents.  In response, D2 produced the printed bank account transaction records of the Mainland agents. They show that, on 31 October 2019, Li Zhongjian transferred RMB¥200,000 to曾絲慧 leaving a balance of RMB¥46,812, which was insufficient to complete the two remaining transfers.  Hence, according to the bank records of Zhang Xilin ie the second agent, on the same day, he transferred RMB¥916,000 to岐治國 and RMB¥300,000 to Zhang.

17.  D2 also pointed out that its accounts at China Citic Bank including D2’s Account had been frozen since about 14 November 2019 but the bank refused to provide any reason. Hence, on 15 January 2020, it instructed solicitors to make enquiries with the bank in January 2020.  In reply, on 17 January 2020, China Citic Bank asked D2’s solicitors to contact the police.  D2 claimed that it only learnt about these proceedings when it received the Court’s letter dated 28 April 2020 about the garnishee application.  D2 took out the application to set aside the default judgment on 6 May 2020.

18.  In view of the supplemental evidence filed by D2 in response to P’s criticisms, I am satisfied that D2 has produced credible evidence to support its case on the primary facts.

19.  At this hearing, P argues that, first, D2 has not adduced any evidence that it had transferred out any part of the US$200,000 which it had received from D1; and hence, there was no change of position.  D2 replies by relying on the principles of ministerial receipt as set out in Goff & Jones, The Law of Unjust Enrichment (9^th edn), where the authors state in §28-02 at p 807:

“On another view, which we prefer, an agent who receives a benefit for which he must account to his principal should be able to resist a claim in unjust enrichment whether or not he pays the value of the benefit to his principal… because his obligation to account means that he never takes the value of the benefit for himself, and that the principal alone is enriched by the transaction.”

In this case, D2 merely received the sum of US$200,000 as the receiving agent for Fuyau or Wanyuen.  There is no suggestion that D2 was entitled to keep any part of this sum in its own right.  For the present purpose, I accept that this is an argument with a real prospect of success.  But this is not the end of the matter.

20.  More importantly, at this hearing, P raises an argument which was not run before the Master.  It contends that D2 cannot rely on the defence of change of position, bona fide purchaser for value without notice and ministerial receipt for the follow reasons:

(a)  It is illegal for D2 to receive the funds on behalf of Wanyuen. It was not Wanyuen’s agent. The mere fact that Fuyau and Wanyuen belonged to the same alliance does not give D2 any right to receive the funds.

(b)  There is no evidence that the Customs & Excise Department had accepted the Form 6.  Even if it had, D2 was at most Fuyau’s agent.

(c)  D2 did not retain control of D2’s Account and allowed it to be used by Fuyau.  It did not carry out any due diligence in relation to D1 and merely relied on Wanyuen.

(d)  The due diligence performed by Wanyuen was incomplete and unsatisfactory, in particular, it did not make any inquiries about the source of the funds.

(e)  D2’s receipt of the funds from D1 was carried out in an unlawful or illegal manner in the course of Wanyuen’s money service.

(f)  The breach of the customer due diligence requirements cannot be said to be so minor to be ignored on the de minimis principle, and resulted in the rapid and successive transfer of the funds by D1 from Hong Kong to the Mainland.

(g)  D2 has failed to produce sufficient evidence of a causal link between its receipt of the funds and its change of position of such quality as would entitle it to set aside the default judgment.  In particular, the documents produced by D2 do not establish a complete chain showing the flow of funds.

(h)  D2 did not act in good faith. In view of the illegality of D2’s receipt of the funds on behalf of Wanyuen, D2 failed to act in a commercially acceptable way and it would be inequitable, unconscionable or unjust to allow D2 to deny restitution to P.

21.  To support its argument, P cites the judgment of Chow J in Arrow ECS Norway AS v M Yang Trading Ltd and others[2018] HKCFI 975 in which he applied the principles propounded in Barros Mattos Junior v MacDaniles Ltd [2005] 1 WLR 247.  The learned judge held at §§24-29 that an innocent recipient of stolen money could not rely on the defence of change of position where that change was regarded by the court as wrongful, and that if the recipient’s actions of changing position were treated as illegal the court could not take them into account and had no discretion to do so unless the illegality was so minor as to be ignored on the de minimis principle.  In that case, some of the recipients dealt with the funds in question in the course of their operation of unlicensed, and therefore, illegal money service businesses; and some of the transfers occurred in the course of money change business which were being carried out in an unlawful or illegal manner (ie failure to comply with the raft of customer due diligence requirements imposed by paragraphs 2, 2, 8, 9 and 13 of Schedule 2 to the Ordinance).

22.  D2 submits that the facts of Arrow ECS Norway AS are distinguishable from the facts of this case. I agree that each case must depend on its own facts.  However, D2 has not challenged the correctness of the legal principles propounded in that case.

23.  Returning to the facts of this case, the short and simple, but crucial, point is that D2 was not a receiving agent of Wanyuen.  Under the Ordinance, it is clear and cannot be disputed that a money service operator may only use specific accounts reported to and approved by the Customs & Excise Department for its business.  This is why a licensee must report any addition of bank account for such use by submitting a Form 6.  There is no suggestion, let alone evidence, that Wanyuen had obtained any approval from the Customs & Excise Department to use D2’s Account for operating its money service.  There is no evidence that D2’s Account was included in Wanyuen’s application for a money service operator licence in the first place.  There is also no evidence that Wanyuen had notified the Customs & Excuse Department that D2’s Account had been added as an account used for operating Wanyuen’s money service by completing a Form 6.  Under section 40 of the Ordinance, a licensee must report any changes in particulars to the Commissioner of the Customs and Excise in writing within one month beginning on the date on which the change takes place.  Such changes include the addition of bank account used for operating money service.  Breach of this requirement constitutes a criminal offence.  In practice, if Wanyuen was entitled to use D2’s Account, it would not have needed to “borrow” the use of D2’s Account from Fuyau.

24.  D2 submits that s.40 of the Ordinance only imposes an obligation on the licensee ie Wanyuen but not D2. This is correct but has missed the point.  The legal principles propounded by Chow J apply to an innocent recipient of stolen money.  What is critical is that the innocent recipient received the money as a result of some illegal activity.  Here, it was unlawful for Wanyuen to use D2’s Account to operate its money service business; and D2 received the sum of US$200,000 as a result of such unlawful act.  D2 has no valid answer to this point. In the circumstances, I take the view that D2 has failed to show any defence with a reasonable prospect of success.

25.  P also complains that there was a breach of s.15 of Schedule 2 of the Ordinance in that insufficient due diligence measures had been taken out by Wanyuen, in particular, in relation to D1’s source of funds.  I am not sure whether this statutory provision applied to this case.  It is unnecessary for me to consider this point further in view of what I have already concluded.

Conclusion and order

26.  For the above reasons, D2’s appeal is dismissed with costs to be taxed if not agreed. The stay of execution of the garnishee order is also lifted.

Ms Fiona Leung of Tanner De Witt, for the plaintiff

The 1^st defendant was not represented and did not appear

Mr Kenneth Lee and Mr Edward Ng, instructed by Robertsons, for the 2^nd defendant

The garnishee was not represented and did not appear