CHAN TING TING v. GUO GEORGE AND OTHERS

DCCJ 4406/2020

[2025] HKDC 1928

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4406 OF 2020

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JUDGMENT

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A.  Introduction

1.  This is a telephone fraud case where the Defendants in these proceedings are the second-level recipients of the sum defrauded.

2.  The Plaintiff is the holder of HSBC Account No 009-4-062197 (“Plaintiff’s HSBC Account”). From 16 to 17 April 2020, a total sum of HK$3,030,000 was transferred out of the Plaintiff’s HSBC Account (“Defrauded Sum”) to 4 individuals who are the first-level recipients.

3.  The Plaintiff was informed by HSBC that the Defrauded Sum was transferred to various first level recipients as follows:-

Date	Amount	Recipient Account
16 April 2020	HK$400,000	012-88720213909
16 April 2020	HK$600,000	012-88720213909
16 April 2020	HK$400,000	012-88720213909
17 April 2020	HK$460,000	012-55120064948
17 April 2020	HK$400,000	012-73120100574
17 April 2020	HK$770,000	012-67720138383
Total	HK$3,030,000

4.  On 25 April 2020, the Plaintiff filed a police report in respect of the fraud. The Plaintiff also applied for and obtained a Mareva Injunction and disclosure order against the first level recipients in the High Court in HCA 727/2020.

5.  Relevantly, the disclosure order reveals the following transfers of parts of the Defrauded Sum first to Mr. Zhang Qingrun (with his account no. 012-88720213909), who is one of the first-level recipients, and then to the 1^st Defendant on the following dates:-

Date	Amount	From	To
16/4/2020	HK$800,000 (exchanged to USD103,037.68)	012-887-2-021390-9 (held by Zhang Qingrun)	012-887-2-021391-2 (USD account held by Zhang Qingrun)
16/4/2020	HK$200,000 (exchanged to USD25,760.08)	012-887-2-021390-9 (held by Zhang Qingrun)	012-887-2-021391-2 (USD account held by Zhang Qingrun)
16/4/2020	HK$400,000 (exchanged to USD51,520.17)	012-887-2-021390-9 (held by Zhang Qingrun)	012-887-2-021391-2 (USD account held by Zhang Qingrun)
16/4/2020	USD103,052	012-887-2-021391-2 (USD account held by Zhang Qingrun)	012-875-9-232960-1 (D1’s Account)
16/4/2020	USD25,700	012-887-2-021391-2 (USD account held by Zhang Qingrun)	012-875-9-232960-1 (D1’s Account)
16/4/2020	USD5,577	012-887-2-021391-2 (USD account held by Zhang Qingrun)	012-875-9-232960-1 (D1’s Account)

6.  The Plaintiff commenced these proceedings against the Defendants in order to recover the Defrauded Sum. The Plaintiff also asserts a proprietary claim in the money so transferred.

7.  It is the Plaintiff’s case that the Defendants have no basis to receive the Plaintiff’s funds and are therefore liable to return their respective portions of the Defrauded Sum on the basis of unjust enrichment or money had and received. It is the Plaintiff’s case that the Defrauded Sums were transferred to the Defendants “without knowledge, consent or authorisation of the Plaintiff” (§§3 and 4 of the Statement of Claim).

8.  Alternatively, the present Defendants are recipients of funds belonging to the Plaintiff. They are liable to return the Defrauded Sum received as constructive trustees.

9.  It is common ground that the Plaintiffs and the Defendants are strangers and never had any dealings with each other.

10.  Only the 1^st Defendant has filed and served a Defence in these proceedings. As to the other Defendants, this Court was informed by Counsel for the Plaintiff that all proceedings against the other Defendants had either been settled or discontinued. The only outstanding litigation is now between the Plaintiff and the 1^st Defendant.

11.  In total, as shown by the table above, the 1^st Defendant has received 3 sums of money from Zhang Qingrun totaling USD134,329.

B.  The Plaintiff’s Case

12.  The Plaintiff’s factual case is not seriously challenged and can be summarised as follows.

13.  On 26 March 2020, a tele-scammer purporting to be an immigration officer contacted the Plaintiff. The Plaintiff was directed to a man representing himself as Zhao Hongqi (“Zhao”) and a public security official (公安) of Shanghai Public Security Bureau.

14.  Zhao (and his alleged superior claiming to be Zhang Deli (“Zhang”)) accused the Plaintiff of having been involved in an incident of identity theft and in various suspicious transactions, threatening that the Plaintiff would go to jail in the PRC.

15.  Fearing imprisonment, the Plaintiff disclosed personal information to Zhao, including her mobile phone number, her address and details related to her bank accounts.

16.  Upon further instructions from the tele-scammers, the Plaintiff signed up for internet banking for the Plaintiff’s HSBC Account on 27 March 2020. Access password for online banking was received by the Plaintiff on 7 April 2020.

17.  Between 7 April 2020 and 17 April 2020, the tele-scammers instructed the Plaintiff to transfer HK$2,969,651.56 into the Plaintiff’s HSBC Account from her another bank account held with Hang Seng Bank (Account No. 295-235436-888).

18.  The tele-scammers were somehow able to gain access to and control the Plaintiff’s HSBC Account. From 16 April 2020 to 17 April 2020, a total sum of HK$3,030,000 was withdrawn from the Plaintiff’s HSBC Account, being the Defrauded Sum, to the first-level recipients.

19.  The Plaintiff discovered the unauthorised withdrawals on 24 April 2020. She contacted HSBC and reported the matter to the Hong Kong Police on 25 April 2020.

C.  The 1^st Defendant’s Case

20.  The 1^st Defendant has no positive case in respect of the Plaintiff’s allegations that she was a victim of fraud. The 1^st Defendant claims to have no knowledge of such matters.

21.  The 1^st Defendant claims that he is a Canadian citizen. He is a businessman and maintains regular business activities internationally. More specifically, he owns and is the sole director of a BVI company known as GX Limited, which carries on businesses in high-tech research and development based mainly in Silicon Valley and New York. In his evidence in court, he supplemented that he works as a venture capitalist and invests in start-up companies in the U.S.

22.  Due to his business needs, he frequently needed to use USD to perform trades for his company. He opened a bank account with Bank of China with account number 012-875-9-232960-1 (“D1’s BOC Account”) for business use. In addition, he also holds a saving account in China Merchants Bank with account number 6214-8610-0756-6866 (“D1’s CMB Account”).

23.  In 2019, the 1^st Defendant through his course of trading met a person known as Mr Ma Xu Teng (“Mr Ma”), who is a PRC businessman. It was orally agreed in or about 2020 between Mr Ma and the 1^st Defendant that, due to business needs of the 1^st Defendant, the 1^st Defendant would purchase USD from Mr Ma at the exchange rate as quoted by Mr Ma and the 1^st Defendant would remit RMB to the accounts designated by Mr Ma for the purchase of the USD from Mr Ma.

24.  The alleged practice has been pleaded in paragraph 12 of the 1^st Defendant’s Amended Defence as follows (and I quote):-

(a)  On the morning of any business day when the 1^st Defendant needed USD for his business use, the 1^st Defendant would inform Mr Ma how much USD he wanted to purchase, and Mr Ma would give a quote regarding exchange rate of USD to the 1^st Defendant.

(b)  When the 1^st Defendant purchased a certain amount of USD from Mr Ma at the exchange rate as quoted, Mr Ma would give instructions to the 1^st Defendant as to which account(s) he would like the 1^st Defendant to remit RMB to. The 1^st Defendant would then remit RMB to the accounts through the 1^st Defendant’s CMB Account so designated by Mr Ma; and

(c)  Afterwards, Mr Ma would (either by himself or his agents) give the 1^st Defendant the equivalent amount of USD by remitting the same to the 1^st Defendant’s BOC Account. If for some days, the remittance of the USD was less than the amount of the USD the 1^st Defendant had purchased, Mr Ma would make up the same in subsequent days.

(“Alleged Oral Agreement”).

25.  It is the 1^st Defendant’s pleaded case that “it is an express and/or implied term of the Agreement” that (and I quote):-

(a)  All sums transferred to the 1^st Defendant’s BOC Account as a result of the purchase of USD by the 1^st Defendant must not be proceeds of crime or otherwise of an illegal nature and that the sums must be transferred from Mr Ma’s or his designated agents’ accounts; and

(b)  Mr Ma shall not cause or allow him or his agents to use the 1^st Defendant’s BOC Account or provide them with the 1^st Defendant’s Bank account number or details for the purpose of depositing money or remittance without the 1^st Defendant’s prior permission. Should Mr Ma be in breach, the 1^st Defendant is free from any liability and Mr Ma would be fully responsible for the consequences caused.

(“Alleged Assurance of Propriety and Legality”)

26.  On the 1^st day of the trial of these trial proceedings, Counsel for the 1^st Defendant confirmed that the 1^st Defendant is no longer relying on the pleaded case of “implied term”. The 1^st Defendant’s case is thus limited to the alleged “express terms” as between the 1^st Defendant and Mr Ma.

27.  It is the 1^st Defendant’s case that (1) all the USD remittance from Mr. Ma amounted to RMB5,105,268 and (2) that, in the 1^st Defendant’s understanding, such money was Mr Ma’s own funds and was obtained by legitimate means.

28.  The 1^st Defendant mainly relies upon two defences in order to defeat the Plaintiff’s claim:-

(a)  That he was a bona fide purchaser for value without notice of the fraud and of the Plaintiff’s interest in the money; and

(b)  That he has changed his position in good faith.

29.  In particular, the 1^st Defendant relies upon the alleged equivalent transfers of RMB out of his account to the designated accounts of Mr Ma prior to his receipt of the USD as the factual basis in support of both defences.

30.  The 1^st Defendant has also raised an alternative case that the deposits of the USD into his account were outside his knowledge and without authority. That is apparently contradictory to the 1^st Defendant’s primary case relying on the Alleged Oral Agreement. In any event, the 1^st Defendant has not further elaborated how that can amount to a defence to the Plaintiff’s claim.

31.  Thus, whether the 1^st Defendant can make good these defences depends on whether the 1^st Defendant can establish with evidence that the Alleged Oral Agreement between him and Mr Ma existed. It is not in dispute that the burden of proof rests squarely on the 1^st Defendant.

D.  The Witnesses

D1.  The Plaintiff’s Evidence

32.  The Plaintiff last worked as a merchandiser about 25 years ago. Since then, she has not been working but has become a housewife. She is a university graduate from a university in the Philippines. She confirmed that she could read and understand English.

33.  On 26 March 2020, she received a phone call from a man claiming to be from the Hong Kong Immigration Department. The call was then transferred to Zhao. Zhao claimed that in the PRC a case was discovered where many identity cards had been found and one of them bore the Plaintiff’s name. A person involved claimed that the said identity card had been purchased from the Plaintiff. Zhao then alleged that the Plaintiff had been involved in a suspicious transaction with the Industrial and Commercial Bank of China (ICBC).

34.  Zhang (representing to be Zhao’s superior) then made contact with the Plaintiff stating that they possessed evidence against her and threatened the Plaintiff that she might go to prison if she did not comply with their instructions. The Plaintiff was sacred and she provided with Zhao her personal information such as her mobile phone number, her residential address and subsequently details pertaining to the Plaintiff’s bank accounts.

35.  Later on, the Plaintiff further provided Zhao her date of birth, her identity card number, the assets in her bank accounts and some other information pertaining to her background. Under cross-examination, the Plaintiff was slightly confused and cannot now recall precisely whether she provided such information to Zhao or to Zhang. I do not find that surprising as the relevant events happened more than 5 years ago. It is not unreasonable for the Plaintiff not to remember every detail as to what happened. In any event, whether the said information was provided to Zhao or Zhang has little significance in the present case.

36.  Under cross-examination, the Plaintiff also mentioned that she had physically met a person sent by the tele-scammers downstairs to her apartment. She was asked to sign and she did sign some documents as requested. However, she could not recall what documents she was asked to sign. This episode has not been mentioned in her witness statement. Whilst I agree that this is a relevant event which should have been mentioned in her witness statement, I do not consider that this has negatively affected the Plaintiff’s credibility overall. There are many reasons as to why some relevant evidence is missing from one’s witness statement. I pause here to observe that even in the 1^st Defendant’s Written Closing Submissions, the 1^st Defendant is not submitting that the Plaintiff’s evidence is not to be believed, but simply that the Plaintiff’s evidence is not helpful.

37.  In any event, the Plaintiff’s version is borne out by the documentary evidence, i.e. the relevant bank statements of the Plaintiff’s HSBC Account. Further, the 1^st Defendant does not have any positive case suggesting that the Plaintiff was not a victim of fraud.

38.  I also accept the Plaintiff’s evidence that upon the instruction of the fraudsters (1) she set up online banking to the Plaintiff’s HSBC Account and (2) she transferred a total sum of HK$2,969,651.56 from her Hang Seng Bank account to the Plaintiff’s HSBC Account. I accept that the tele-scammers were somehow able to gain access to and control the Plaintiff’s HSBC Account. From 16 April 2020 to 17 April 2020, a total sum of HK$3,030,000 was withdrawn from the Plaintiff’s HSBC Account, being the Defrauded Sum, to the first-level recipients.

39.  As for the subsequent transfers of the money from the bank account of Zhang Qingrun to the 1^st Defendant, the Plaintiff frankly accepted that she had no knowledge of the same. She did not know any of the Defendants in these proceedings.

40.  Under cross-examination, the Plaintiff revealed that she had not previously read the Amended Defence of the 1^st Defendant or the witness statement of the 1^st Defendant. While I find that surprising, given that the Plaintiff does not have any positive case against the 1^st Defendant, I do not consider that that by itself undermines the credibility of the Plaintiff.

41.  Overall, I find that the Plaintiff is an honest and credible witness and that she is an unfortunate victim of fraud practised upon her by persons known to her as Zhao and Zhang.

D2.  The 1^st Defendant’s Evidence

42.  Having considered the 1^st Defendant’s testimony and the parties’ submissions, I find the 1^st Defendant’s evidence unbelievable. It is obvious that he has not been telling this Court the truth.

43.  The whole story told by the 1^st Defendant lacks the ring of truth and is riddled with inexplicable inconsistencies. In paragraph 12 of the Amended Defence of the 1^st Defendant, it is his pleaded case that: “In 2019, the 1^st Defendant through his course of trading, met one Mr. Ma Xu Teng (“Mr. Ma”) who is a PRC businessman”. However, the 1^st Defendant changed his evidence in court and stated that he first met Mr. Ma during the Chinese New Year in about February 2020.

44.  In the 1^st Defendant’s witness statement, he claimed that he had from time to time purchased USD from Mr Ma before (前後的那段時間有恆常地向馬先生購買美金). But, under cross-examination, he admitted that the transaction on 16 April 2020 was the only transaction he had with Mr Ma.

45.  According to the 1^st Defendant’s evidence in court, he had only known Mr Ma for about 2 months before he remitted RMB 5,105,268 to accounts designated by Mr Ma on 16 April 2020. When questioned as to what the occupation of Mr Ma was, the 1^st Defendant answered that Mr Ma worked in consultancy. But, upon further probing, the 1^st Defendant confirmed that he did not know the company Mr Ma worked for. He also did not carry out any verification as to Mr Ma’s alleged occupation. The 1^st Defendant did not even know the full real name of Mr Ma but only the name used by Mr Ma in his WeChat App.

46.  In these circumstances, it is just inherently implausible that a person in the 1^st Defendant’s shoes (knowing so little about a recent acquaintance) would have trusted Mr Ma enough to agree to transfer a substantial amount of RMB to accounts designated by Mr Ma pursuant to the Alleged Oral Agreement.

47.  As to why he trusted Mr Ma so much, the 1^st Defendant referred to the mutual friends the 1^st Defendant and Mr Ma shared. That said, the identities of such mutual friends remain a mystery. There is no attempt on the part of the 1^st Defendant to identify any of them or to adduce evidence from them. There is also no evidence from Mr Ma to speak to the Alleged Oral Agreement.

48.  What is also puzzling is the lack of any written documents evidencing the Alleged Oral Agreement. Given their brief acquaintance and the amount involved, the lack of any written record to evidence the Alleged Oral Agreement is unbelievable. This is particularly so if the 1^st Defendant had genuinely believed that the Alleged Oral Agreement was lawful and above-board.

49.  The 1^st Defendant supplemented in his oral evidence that he is a venture capitalist and he make investments in start-up companies through this corporate vehicle i.e. GX Limited. Despite his claimed profession, he alleged that he did not know about any foreign currency exchange restrictions in the PRC. The claimed ignorance is surprising. If that had been his genuine understanding, it would not have been necessary for him to exchange RMB to USD via Mr Ma and, in doing so, paying a 2% commission to Mr Ma.

50.  In the 1^st Defendant’s witness statement, he explained that the reason why he needed to purchase USD from Mr Ma in about April 2020 was for his business purposes and to buy a property in Canada for his mother. However, he has produced no documentary evidence in support of any exchange of USD into Canadian dollars for the purpose of property purchase. The 1^st Defendant only produced an Official Notice of Completion issued on 1 December 2020 to a person alleged to be his mother. That document, however, does not assist the 1^st Defendant as it does not show (1) how much the purchase price was or (2) any money was remitted by the 1^st Defendant for the purpose of this purchase. On the face of this document, it is clear that the 1^st Defendant (through his mother) should have been able to access the Contract of Purchase and Sale and any other related documents. Yet, he has chosen not to obtain or to produce any of them as evidence before this Court.

51.  In support of his case that some of the exchanged USD was used for his business, the 1^st Defendant has produced a Subscription Agreement in which the subscriber’s commitment amount is said to be USD500,000. The 1^st Defendant has also produced and relied upon his BOC Account Statement dated 31 July 2020 showing that a total sum of USD470,000 was remitted out of this account from 2 July 2020 to 9 July 2020. There is, however, no document showing that these sums of USD470,000 were used to pay for the amount due under the Subscription Agreement (either by him personally or through his company GX Limited). Apparently, such fund-flow documents should have been in the possession or custody of the 1^st Defendant or his company. Yet, he has chosen not to disclose or adduce them as evidence. There remain no independent fund-flow documents supporting the 1^st Defendant’s evidence.

52.  I now turn to the WeChat record produced by the 1^st Defendant as between himself and Mr Ma, purportedly supporting the Alleged Oral Agreement. I have reservations as to the veracity and reliability of this piece of evidence and will not place any weight on it. It is evident that the said record is not a complete record as the conversations shown started shortly before 14 April 2020. Given that, according to the 1^st Defendant, he and Mr Ma had met in February 2020 and the Alleged Assurance of Propriety and Legality was given through calls before April 2020, it is incredible that such alleged reassurance would not have been mentioned in any of the WeChat communications exchanged between them. There is no satisfactory explanation to the selective disclosure. Further, the contents of the WeChat record is cryptic and obscure with references to the preparation of some trade data, custom declaration forms, Hong Kong trading companies and to remitting funds through other individuals. The 1^st Defendant has not given any satisfactory answers in respect of these cryptic messages.

53.  Based on the aforesaid, I reject the evidence of the 1^st Defendant.

E.  Discussion and Analysis

E1.  The Plaintiff’s Claim of Unjust Enrichment

54.  The Plaintiff has pleaded a case of unjust enrichment. It is well-established that the following elements have to be established: (1) Were the Defendants enriched? (2) Was the enrichment at the Plaintiff’s expense? (3) Was the enrichment unjust? (4) Are any of the defences applicable? (Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd [2004] 7 HKCFAR 79 at §67).

55.  I accept that by the receipt of the relevant sum of money from Zhang Qingrun, the 1^st Defendant was enriched.

56.  Given that 1^st Defendant is a second-level recipient and he did not receive the sum of money directly from the Plaintiff, an issue has arisen as to whether his enrichment was “at the expense of the Plaintiff”. This question was recently considered and addressed by the Hon Cheng J in JSP International SRO v Alacrity Limited and Ors[2022] HKCFI 977 in which her Ladyship held at §20:-

“there may be situations in which, whilst the parties have not dealt directly with one another, or with one another’s property, the defendant has nevertheless received a benefit from the claimant, and the claimant has incurred a loss through the provision of that benefit. These are generally situations in which the difference from the direct provision of a benefit by the claimant to the defendant is more apparent than real.”

57.  In Lipkin Gorman (A Firm) v Karpnale Ltd [1991] 2 AC 548, a solicitor wrongly used his firm’s fund to obtain gambling chips from a casino. The firm claimed against the casino in unjust enrichment, which was an indirect recipient. The firm was found to have a cause of action in unjust enrichment against the casino, subject only to the change of position defence. Clearly, the element “at the expense” is not confined to the situation when the enrichment was obtained by direct transfers. It also covers the situation where the benefit obtained by the defendant is an asset traceable to the plaintiff’s asset.

58.  By analysing the relevant bank statements, one can see that on 16 April 2020, 3 sums of money in HKD (ie HK$400,000, HK$600,000 and HK$400,000) were transferred from the Plaintiff to Zhang Qingrun. Immediately and on the same day, a total sum of HK$1,400,000 was exchanged into USD. Also on the same day, a substantial portion of the USD so exchanged was transferred to D1’s BOC Account in 3 sums (i.e. USD103,052, USD25,700 and USD5,577).

59.  Therefore, these bank documents clearly show, on the balance of probabilities, that the 1^st Defendant’s receipt of the money was at the expense of the Plaintiff.

60.  Turning to the question whether the enrichment was unjust. The 1^st Defendant has referred me to the decision of Recorder Eugene Fung SC in BCPE Diamond Holdco SRL v Sunwe Plastic HK Ltd & Ors [2025] 2 HKC 415 which held, inter alia, that given that the victim of fraud and the second-level recipients in that case did not know each other, the victim did not apply its mind to recipients’ respective enrichment. In light of the lack of any intention on the part of the victim, the victim could not be under a mistaken belief in relation to the respective enrichment.

61.  That reference is, with respect, not apposite. The Plaintiff’s case is not based upon mistake but, as mentioned above, that the Defrauded Sum was transferred to the Defendants “without knowledge, consent or authorisation of the Plaintiff”. As recognised by the learned Recorder, the defendant’s enrichment may be unjust on the ground of want of authority. The transfer of money from a victim of fraud to second level recipients without proper authority can render the respective enrichment of defendants unjust (§§22-30).

62.  In the present case, I find that the Plaintiff has made out her case that the 1^st Defendant’s enrichment is unjust on the basis of want of authority. The Plaintiff did not know the 1^st Defendant or have any bona fide business dealings with him. The Plaintiff did not intend to make any payment or gift to him. The transfer of the money was made by the tele-scammers without the knowledge, consent or authorisation from the Plaintiff. There is also no proper basis for the 1^st Defendant to have received the said sums of money from the Plaintiff.

E2.  The Defences raised by the 1^st Defendant

63.  I now turn to the two defences raised by the 1^st Defendant.

64.  To raise the defence of bona fide purchaser for value without notice, the 1^st Defendant has to prove: (i) there was a purchase for value; (ii) of the legal estate in property; (iii) in good faith; (iv) without notice; and (v) at the time of transfer of the legal estate (TTI Global Resources Hong Kong Limited v. Hongkong Myphone Technology[2021] HKCFI 306 at §22)

65.  As for the defence of change of position, the following are required to be established:- (1) there is a link between the receipt of the benefit and the change of position so that, but for the receipt of the benefit, the defendant’s position would not have changed; (2) the defendant changed its position in good faith and (3) the defendant changed its position in circumstances which make it inequitable for the defendant to be required to make restitution (Idemitsu Chemicals (Hong Kong) Co., Limited v. Yanqing Limited[2024] HKCFI 1075 at §33)

66.  Having rejected the 1^st Defendant’s factual case and rejected the existence of the Alleged Oral Agreement with Mr Ma, it follows that there is no evidence to make good any of these two defences. I find that none of the defences raised by the 1^st Defendant is successful.

67.  I find that the Plaintiff has successfully established its claim in unjust enrichment against the 1^st Defendant. The 1^st Defendant is liable to make restitution and to return the said sums of money to the Plaintiff.

E3.  Whether the 1^st Defendant should hold the money on trust for the Plaintiff/ the Plaintiff’s Proprietary Remedy

68.  In addition, the Plaintiff is seeking a proprietary remedy and a declaration that the 1^st Defendant holds the money as a constructive trustee for the Plaintiff.

69.  As against a second-tier defendant, the mere receipt of property by a defendant, without retention by the defendant, is insufficient to found a claim for a declaration of constructive trust against the defendant in respect of such property (JSP International SRO v Alacrity Limited and Ors, supra, at §§42-44).

70.  I have doubts as to whether the remaining balance in D1’s BOC Account can be properly traced to have come from the Plaintiff such that the 1^st Defendant can be said to have retained the Plaintiff’s money. As shown by the relevant bank accounts, the 1^st Defendant transferred USD100,000 on 22 April 2020 and a total of another total sum of USD470,000 in July 2020 out of D1’s BOC Account. Before the Plaintiff’s money indirectly went into D1’s BOC Account, there had been less than USD570,000 in the said account. As such, the Plaintiff’s money could have been transferred out to some third-tier recipients. There are no evidence or further submissions from the Plaintiff on this issue.

71.  It is not the Plaintiff’s case that the 1^st Defendant was a party to the fraud practised upon her. It is also not suggested that the 1^st Defendant is guilty of any wrongdoings. There is nothing to suggest that any constructive trust should be imposed on the 1^st Defendant in these circumstances. At the closing address, Counsel for the Plaintiff did not suggest otherwise.

72.  Alternatively, the Plaintiff also submitted that for recipients who are not parties to the fraud, if his state of knowledge is such as to make it unconscionable for him to retain the money, the defrauded claimant has a tracing remedy. Knowledge does not have to be acquired at the time of receipt, but can be acquired subsequently while the money is in the recipient’s hand.

73.  The issue of the 1^st Defendant’s knowledge is, however, not pleaded by the Plaintiff in the Statement of Claim. It is unfair for the Plaintiff to raise this only by way of submissions at the trial of these proceedings. Counsel for the Plaintiff fairly accepted that this is an unpleaded matter and did not press any further.

74.  Based on the aforesaid, I decline to grant any proprietary relief in favour of the Plaintiff and will not find the 1^st Defendant liable as a constructive trustee.

F.  Disposition and Orders

75.  I find that the Plaintiff has succeeded in its claim against the 1^st Defendant in unjust enrichment.

76.  I hereby grant an order that:-

(a)  the 1^st Defendant do pay sum of USD134,329 (or the Hong Kong dollar equivalent) (“Judgment Sum”) to the Plaintiff; and

(b)  the 1^st Defendant do pay interest on the Judgment Sum to the Plaintiff at judgment rate until the date of payment.

77.  In respect of costs, the parties agreed that costs should follow the event in these proceedings and that certificate for Counsel should be granted. I hereby order that the 1^st Defendant do pay the Plaintiff’s costs of these proceedings and of this trial, to be taxed if not agreed, with certificate for Counsel.

Mr Sunny Chan, instructed by Lo, Wong & Tsui, for the Plaintiff

Miss Lilian Ip, instructed by Huen & Partners, for the 1^st Defendant

DCCJ 4406/2020

[2024] HKDC 1031

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4406 OF 2020

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JUDGMENT

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Introduction

1.  By summons filed on 19 February 2024 (“Summons”), the Plaintiff applies for final judgment in default of defence pursuant to Order 19 rule 7 of the Rules of the District Court (Cap 336H, sub leg) (“RDC”) against, inter alia, the 6^th Defendant.

2.  This Judgment is concerned with the Plaintiff’s application against the 6^th Defendant only.

3.  By the Summons, the Plaintiff seeks against the 6^th Defendant:-

(1)  damages to be assessed (paragraph 2.1 thereof);

(2)  a declaration that the Plaintiff is the owner of and proprietary interest over the sum of HK$96,878 received by the 6^th Defendant (paragraph 2.2 thereof);

(3)  a declaration that the 6^th Defendant holds the sum of HK$96,878 received and its traceable proceeds as constructive trustee for the Plaintiff (paragraph 2.3 thereof);

(4)  an order that the 6^th Defendant do deliver up or transfer the sum of HK$96,878 and any interest accrued thereon as money had and received (paragraph 2.4 thereof);

(5)  a declaration that the Plaintiff is entitled to trace and recover the Defrauded Sum[1] and/or any part thereof received by the 6^th Defendant (paragraph 2.5 thereof);

(6)  an order that the 6^th Defendant do account for HK$96,878 and/or any part thereof, together with any profit therefrom (paragraph 2.6 thereof);

(7)  payment of interest pursuant to section 49 of the District Court Ordinance (Cap 336) (“DCO”) at such rate and for such period as the Court finds fit (paragraph 2.7 thereof); and

(8)  the Plaintiff’s costs in this action, including all costs reserved and the costs of this application, be payable to the Plaintiff by the 6^th Defendant on summary assessment (paragraph 4 thereof).

The Pleaded Claim in respect of the 6^th Defendant

4.  The Plaintiff is the holder of an HSBC bank account (“P’s HSBC Account”), and the 6^th Defendant is the holder of another bank account (“D6’s Account”).

5.  On 26 March 2020, the Plaintiff received a telephone call from an unknown individual claiming to be a staff member of the Hong Kong Immigration Department, and the latter then transferred the telephone call to a person called 趙紅期 (“Zhao”). Zhao claimed to be a security official of the Shanghai Public Security Bureau, and alleged that the Plaintiff was suspected to have sold an identity card in her name to another person. Zhao also represented that the Plaintiff was involved in a suspicious transaction with the Industrial and Commercial Bank of China.

6.  Zhao and his alleged superior 張德利 repeatedly stated that they possessed evidence against the Plaintiff and that she might go to jail. The Plaintiff was worried and so she provided Zhao with her personal information including mobile phone number and residential address. During a telephone call that night, the Plaintiff disclosed to Zhao further personal information including her date of birth, identity card number, the assets in her bank accounts, job background, interests and family background.

7.  On 27 March 2020, the Plaintiff made an application for activating internet banking services for P’s HSBC Account.

8.  Between 7 April 2020 and 17 April 2020, the Plaintiff transferred a total of HK$2,969,651.56 by 5 transactions from her bank account held with Hang Seng Bank to P’s HSBC Account.

9.  Unknown to and unauthorised by the Plaintiff at the time, a total amount of HK$3,030,000 (“the Defrauded Sum”) was transferred out of P’s HSBC Account by 6 transactions. On 24 April 2020, the Plaintiff discovered the fraud when she updated the passbook of P’s HSBC Account.

10.  Upon the Plaintiff’s inquiry, Zhao told the Plaintiff that he would take some measures to obscure her account information, and the money would be returned to her eventually. However, the Plaintiff’s suspicion grew when she saw the P’s HSBC Account was almost empty and there were no deposits back into the account except for the ones made by the Plaintiff.

11.  On 25 April 2020, the Plaintiff informed the HSBC about her situation. The bank staff member then provided her with information about the sums which were made to the First Level Accounts and the holders of such accounts (“First Level Recipients”).

12.  On 5 May 2020, the Plaintiff applied for and obtained ex parte proprietary and Mareva injunctions against the First Level Recipients and a disclosure order against the Bank of China (“BOC”) in HCA 727/2020.

13.  As revealed by the information disclosed by BOC pursuant to the disclosure order, between 16 April 2020 and 23 April 2020, the Defrauded Sum was further transferred from the First Level Accounts to Second Level Accounts held by the 1^st to 9^th Defendants (collectively “the Second Level Recipients”), and in particular on 19 April 2020 a sum of HK$96,878 (“the Sum”) was transferred to D6’s Account (in the name of The Art Centre of Root & Stone of China being the trading name of the 6^th Defendant).

14.  The 6^th Defendant has not returned the Sum to the Plaintiff.

15.  The Plaintiff had no knowledge of, did not consent to and did not authorise the transfers to the Second Level Accounts. The Plaintiff had no previous dealing with any of the Second Level Recipients including the 6^th Defendant and had no reason to pay substantial sums to any of them.

16.  On 30 July 2020, the Plaintiff obtained ex parte proprietary and Mareva injunctions (“Injunction Order”) against the 1^st to 7^th Defendants up to the amounts received in the Second Level Accounts.

17.  The Plaintiff pleads that the 6^th Defendant was unjustly enriched in the Sum at her expense. Such enrichment was unjust because (a) the 6^th Defendant’s enrichment was caused by the fraud perpetuated against the Plaintiff, (b) the Plaintiff did not know or have any bona fide business dealings with the 6^th Defendant, (c) the Plaintiff did not intend to make payment or a gift to any of the First Level Recipients or the 6^th Defendant, and (d) the 6^th Defendant had no rights to the sums transferred to him. The Plaintiff claims for restitution of the Sum or equivalent to the Sum transferred to the 6^th Defendant.

18.  Moreover, the Plaintiff pleads that the 6^th Defendant is liable for the Sum received as money had and received.

19.  Further, the Plaintiff pleads that she is entitled to trace into and claim equitable title to the proceeds of the Defrauded Sum or any part thereof paid into and retained in D6’s Account, and that the 6^th Defendant held and holds the Sum or any part thereof on constructive trust for the Plaintiff, and is liable to account for the same as constructive trustee.

20.  The Plaintiff claims, against the 6^th Defendant:-

(1)  damages and/or equitable compensation arising from the transfer of the Sum to the 6^th Defendant;

(2)  a declaration that the Plaintiff is the owner of and has proprietary interest over the Sum received by the 6^th Defendant;

(3)  a declaration that the 6^th Defendant holds the Sum received and its traceable proceeds as constructive trustee for the Plaintiff;

(4)  delivery up or transfer of the Sum and any interest accrued thereon as money had and received, alternatively in restitution on the basis that the 6^th Defendant has been unjustly enriched at the Plaintiff’s expense;

(5)  all necessary accounts and inquiries to enable the Plaintiff to trace and recover the Defrauded Sum and/or any part thereof received by the 6^th Defendant;

(6)  an order that the 6^th Defendant to pay to the Plaintiff all sums found to be due to her on the taking of such accounts;

(7)  interest in equity or pursuant to section 49 of DCO;

(8)  costs; and

(9)  further and/or other relief as the Court sees fit.

Procedure

21.  On 24 August 2020, the Writ of Summons was issued. On 25 August 2020, the Plaintiff served, inter alia, the Writ of Summons on the 6^th Defendant by:-

(1)  leaving the same at an address in Wong Chuk Hang (“Wong Chuk Hang Address”) being the usual and last known address of The Art Centre of Root & Stone of China of the 6^th Defendant, and inserting the same into the letter box of the Wong Chuk Hang Address; and

(2)  leaving the same at an address in Tin Wan, Aberdeen (“Tin Wan Address”), being the usual and last known address of the 6^th Defendant, and inserting the same into the letter box of the Tin Wan Address.

22.  On 10 September 2020, the 6^th Defendant, acting in person, filed his Acknowledgment of Service of the Writ of Summons, indicating his intention to defend the claim against him and providing the Tin Wan Address for service.

23.  On 12 December 2020, the Statement of Claim was filed. On 16 December 2020, the Statement of Claim was served on the 6^th Defendant by ordinary post at both the Tin Wan Address and the Wong Chuk Hang Address.

24.  On 4 August 2021, the Plaintiff filed a Notice of Intention to Enter Judgment pursuant to Order 19 rule 8A RDC, in that the Plaintiff gave notice to the 6^th Defendant that unless the latter filed his Defence on or before 11 August 2021, judgment shall be entered without further notice.

25.  The 6^th Defendant never filed any Defence.

26.  On 19 February 2024, the Plaintiff took out the Summons.

27.  On 20 February 2024, the Plaintiff served the Summons on the 6^th Defendant by sending the same by ordinary post in a sealed envelope duly pre-paid and properly addressed to the 6^th Defendant to the Wong Chuk Hang Address.

The Hearing

28.  At the hearing on 24 May 2024, the 6^th Defendant was absent. I asked Mr Max So, Counsel for the Plaintiff, whether the Summons had been served on the 6^th Defendant at the Tin Wan Address, which appeared to be the only address provided by the 6^th Defendant for service. The Plaintiff’s solicitors handed up a cover letter dated 20 February 2024 to show that the Summons was also served at the Tin Wan Address. I therefore directed the Plaintiff to file an affidavit of service to confirm service of the Summons at the Tin Wan Address.

29.  On 27 May 2024, the Plaintiff filed an affidavit of service, deposing that a copy of the Summons was served on the 6^th Defendant by sending the same by ordinary post in a sealed envelope duly pre-paid and properly addressed to the 6^th Defendant at an address at “Tim Wan Estate”. I accept that the Summons was properly served on the 6^th Defendant at the Tin Wan Address and the reference to “Tim Wan Estate” was a typographical error on the part of the Plaintiff’s solicitors.

Legal Principle on Application for Final Judgment in Default of Defence

30.  On an application for final judgment in default of defence pursuant to Order 19 rule 7 RDC, the court cannot receive any evidence but must give judgment according to the pleadings alone. The basis upon which final judgment can be obtained in default of defence is that of implied admission, ie the court will assume that the Statement of Claim has been impliedly admitted. See Hong Kong Civil Procedure 2024, Volume 1, rubric 19/2/1 and 19/7/11.

31.  Notwithstanding such a well-established principle, the Plaintiff’s supporting affirmation and exhibits for the Injunction Order were included in the hearing bundle of this application. The exhibits alone ran to over 500 pages and took up one lever-arch file. Mr So also made extensive references to the said affirmation and exhibits in his written submissions. At the hearing, I indicated that the affirmation and exhibits would not be considered. The Plaintiff’s departure from the said principle is reflected in the costs order below.

Proprietary Constructive Trust

32.  Mr So submitted that for a proprietary constructive trust claim, equity imposes a constructive trust on the fraudulent recipient when the property is obtained by fraud so that the money is recoverable and traceable in equity. The defrauded claimant would still have a tracing remedy even if the recipient was not a party to the fraud, as long as his state of knowledge is such as to make it unconscionable for him to retain the money, citing Guaranty Bank and Trust Co v Zzzik Inc Ltd HCA 1139/2016, unreported, 18 July 2016, paragraphs 28 to 33, and 800 Columbia Project Company LLC v Hong Kong Shenshilong Trade Ltd and Others HCA 153/2020, unreported, 24 June 2020, paragraph 12. Mr So further submitted that the 6^th Defendant holds the Sum on trust for the Plaintiff and the monies are recoverable and traceable in equity.

33.  At the hearing, I indicated to Mr So that the claim for proprietary constructive trust did not appear to be viable because there was no plea of the 6^th Defendant, a Second Level Recipient, being a fraudulent recipient or having the requisite fraudulent knowledge upon or after receipt of the Sum. I drew Mr So’s attention to the Court of First Instance’s decision of JSP International SRO v Alacrity Ltd & Others[2022] HKCFI 977, per Cheng J, paragraphs 25 to 33 in particular.

34.  Mr So then confirmed with the Court that the Plaintiff abandoned her claim of proprietary constructive trust against the 6^th Defendant, as well as those relief stated in paragraphs 2.2, 2.3, 2.5 and 2.6 of the Summons.

Unjust enrichment

35.  In the premises, the Plaintiff’s only claims against the 6^th Defendant are the personal claims of unjust enrichment and money had and received.

36.  In Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79, the Court of Final Appeal (at paragraph 66 thereof) set out a useful framework for approaching a claim for restitution based upon principles of unjust enrichment by posing four questions:

(1)  Was the defendant enriched?

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

(3)  Was the enrichment unjust?

(4)  Are any of the defences applicable?

37.  I accept that the Plaintiff has pleaded a case of unjust enrichment. The 6^th Defendant was enriched by the Sum at the expense of the Plaintiff. The 6^th Defendant received the Sum because of the fraud perpetuated on the Plaintiff. The Plaintiff did not know the 6^th Defendant or have any bona fide business dealings with the 6^th Defendant, and did not intend to make any payment or gift to the 6^th Defendant. The 6^th Defendant must have known the receipt of the Sum, at least through the Injunction Order made against him. There is no suggestion that the 6^th Defendant has changed his position in good faith. The enrichment was therefore unjust. The 6^th Defendant did not file any Defence and so no defence to unjust enrichment is raised, and in any event there does not appear to be any applicable defence.

38.  In the circumstances, it is unnecessary for me to rule on the claim of money had and received. At the hearing, Mr So confirmed that the plea of “money had and received” in paragraph 30 and Prayer (16) of the Statement of Claim was just a species of claim for unjust enrichment but had no independent existence. In this connection, I repeat my view in Hongkong Windmode Sports Equipment Co, Limited v HK Haolong Industrial Limited[2024] HKDC 875 at paragraph 27, which was based on the observations of Recorder Eugene Fung SC in Zief Incorporated v Tekchandani Ajai Mohan (trading as D’Ziner Collections (Hong Kong)) and Others[2021] HKCFI 38. I say, obiter, that since the Plaintiff never anticipated any performance from the 6^th Defendant for the Sum, it does not seem appropriate to describe the 6^th Defendant’s enrichment here as money had and received with a total failure of consideration in the sense understood in Shanghai Tongji (supra).

Relief

39.  By reason of the plea of unjust enrichment, I grant an order for the payment of HK$96,878.

40.  The Plaintiff seeks pre-judgment interest pursuant to section 49 of DCO. In my judgment, the Plaintiff has sufficiently pleaded that she had no previous dealing with the 6^th Defendant and had no reason to pay substantial sums to him, and that the 6^th Defendant must have known about the receipt of the Sum, at least through the Injunction Order. This is an appropriate case to award pre-judgment interest in order to compensate the Plaintiff for being kept out of the Sum. The Plaintiff seeks pre-judgment interest at the usual rate of HSBC prime rate plus 1% from the date of writ herein, ie 24 August 2020, and I so order.

41.  I grant also post-judgment interest at judgment rate.

42.  In relation to costs, having regard to all relevant circumstances including the factual matrix pleaded and accepted by this Court, that the Plaintiff succeeds on the personal claim of unjust enrichment but abandoned the proprietary claim of constructive trust, and that the Plaintiff failed to comply with the legal principle regarding Order 19 rule 7 RDC application as stated above, I order that 70% of the Plaintiff’s costs of the action including all costs reserved and costs of this application be paid by the 6^th Defendant, with Certificate for Counsel.

43.  The Plaintiff submitted her Statement of Costs at the hearing. Notably, the Plaintiff has apportioned her costs for the application for Injunction Order and the issue of Writ of Summons, and sought one-ninth of such total costs against the 6^th Defendant, together with costs of this application. I summarily assess the Plaintiff’s costs at HK$41,790. For the avoidance of doubt, the assessed sum has taken into account that only 70% of the Plaintiff’s costs be paid by the 6^th Defendant.

Disposition

44.  For reasons set out above, I order:-

(1)  the 6^th Defendant do pay the Plaintiff the sum of HK$96,878.00 (“Judgment Sum”).

(2)  the 6^th Defendant do pay the Plaintiff pre-judgment interest on the Judgment Sum at HSBC prime rate plus 1% from 24 August 2020 until the date of this Judgment.

(3)  the 6^th Defendant do pay the Plaintiff post-judgment interest on the Judgment Sum at judgment rate until the date of payment.

(4)  70% of the Plaintiff’s costs of this action including all costs reserved and costs of this application be paid by the 6^th Defendant, with Certificate for Counsel, summarily assessed at HK$41,790.

Mr So Ho Yee Max, instructed by Lo, Wong & Tsui, for the Plaintiff

The 6^th Defendant was not represented and did not appear