HCA148/2020

HCA148/2020

A A B HCA 148/2020 B [2024] HKCFI 1075 C C IN THE HIGH COURT OF THE D HONG KONG SPECIAL ADMINISTRATIVE REGION D COURT OF FIRST INSTANCE E E ACTION NO. 148 OF 2020 F ____________________ F BETWEEN G G IDEMITSU CHEMICALS (HONG KONG) Plaintiff H H CO., LIMITED I I and J J YANQING LIMITED 1st Defendant K K L L ZHIGANG TRADING CO., LIMITED 2nd Defendant M M HEYISHUN TRADING CO. LTD 3rd Defendant N N O 4th Defendant O SLX INDUSTRIAL LIMITED P P EMPIRE GLORY CORPORATION 5th Defendant Q Q LIMITED R FULIXIN CREDIT LIMITED 6th Defendant R S S th XIANHUI TRADING CO., LIMITED 7 Defendant T T U U V V A - 2 - A B B HONG KONG IVPS INTERNATIONAL 8th Defendant C LIMITED C HONGKONG HX TEADE CO. LIMITED 9th Defendant D D E BRILLIANT ONE SHIPPING COMPANY 10th Defendant E LIMITED F F th HAI DA HUA LIMITED 11 Defendant G G H HKSGY. LIMITED 12th Defendant H I I APOGEE TRADING LIMITED 13th Defendant J J BONTEL TECHNOLOGY CO., LTD 14th Defendant K K L L DEGRUN INDUSTRIAL INTERNATIONAL 15th Defendant M CO., LIMITED M HUIXIANG CO., LIMITED 16th Defendant N N O TNP WORLDWIDE LIMITED 17th Defendant O P P th NEW STAR TRADING (INTERNATIONAL) 18 Defendant Q Q LIMITED R ROYAL FLY INVESTMENT LIMITED 19th Defendant R S S CREATON HOLDINGS LIMITED 20th Defendant T T U U V V A - 3 - A B B HAIQUAN TELECOMMUNICATIONS 21st Defendant C LIMITED C HONGKONG ELES TRADE LIMITED 22nd Defendant D D E LINK WORLD TECHNOLOGY LIMITED 23rd Defendant E F F th TOP LEAD HONG KONG GROUP 24 Defendant G G LIMITED H GU QINGYAN (谷慶艷) 25th Defendant H I I LEI LIYING (雷麗英) 26th Defendant J J YANG JIANHUA 27th Defendant K K L L ZHANG CHUNJU (張春菊) 28th Defendant M M CHEN WENHUI (陳文暉) 29th Defendant N N O LI YANYAN (李燕燕) 30th Defendant O P P st YU WANER 31 Defendant Q Q R SKY WEALTH FOOD COMPANY 32nd Defendant R LIMITED S S ____________________ T T U U V V A - 4 - A B B Before: Deputy High Court Judge Reyes SC in Court C C Date of Hearing: 9 - 12 April 2024 D D Date of Judgment: 12 April 2024 E E _________________ F F JUDGMENT _________________ G G H I. INTRODUCTION H I I 1. In January 2020 the Plaintiff (Idemitsu HK) fell prey to a J sophisticated phone and email scam. It was tricked into transferring J US$2,978,000 to the bank account (the Yanqing account) of the 1st Defendant K K (Yanqing) at CMB Wing Lung Bank Limited on 15 January 2020. It was also L duped into remitting a total of US$13,171,000 to the bank account (the Zhigang L account) of the 2nd Defendant (Zhigang) at Bank of China (Hong Kong) Limited M M between 15 and 20 January 2020. Shortly after discovering the fraud, Idemitsu N HK started these proceedings against Yanqing and Zhigang to recover the funds N paid to their accounts. As information came to light about how monies had been O O further transferred from the Zhigang account to other accounts, Idemitsu HK P joined additional parties as the 3rd to 32nd defendants in these proceedings. P Q Q 2. Idemitsu HK has since obtained judgments against (or reached R settlements with) 28 of the 32 defendants. Four defendants remain: Yanqing, R Zhigang, the 10th defendant (Brilliant One), and the 20th defendant (Creaton). S S Creaton has been wound up and Idemitsu HK’s claim against it has been stayed. T Idemitsu HK is not pursuing its claim against Creaton in this trial. T U U V V A - 5 - A B B 3. Yanqing and Zhigang have never participated in this action. They have not filed any defence despite having been served with the relevant C C documents at their registered addresses. D D 4. Brilliant One received about US$300,000 1 from the Zhigang E E account on 20 January 2020. Brilliant One was legally represented in F these proceedings up to the pre-trial review on 19 December 2023. But on F 30 January 2024 Brilliant One’s solicitors ceased to act for it. Brilliant One did G G not appear in the trial before me. H H 5. Brilliant One admits to receiving the US$300,000 from Zhigang. By I I way of defence, it claims to have changed its position following receipt of the J monies. Specifically, Brilliant One says that it used up the US$300,000, because J it believed that the monies were part payment for the sale by it of a vessel PL K K HAU LAAM (the Vessel) to King Chuen International Investments Limited. L Brilliant One suggests that it acted throughout in good faith and without L wrongdoing, all along thinking that the US$300,000 had been remitted to its M M account at King Chuen’s instruction by intermediary money changer and N remittance agents in Mainland China. It understood from King Chuen that the N monies had been so remitted to get around foreign exchange controls in Mainland O O China. Brilliant One claims to have used the US$300,000 to pay off its creditors P in the ordinary course of business. P Q Q 6. Idemitsu HK challenges Brilliant One’s entitlement to rely on R change of position. R S S T 1 For convenience, I will refer to the remittance of US$300,000 into Brilliant One’s account. Strictly, however, T only US$299,998,07 was credited into Brilliant One’s account. The difference of US$1.93 is presumably attributable to banking charges. The corresponding entry in Brilliant One’s bank statement identifies the U US$299,998,07 as having been remitted by “ZHIGANG TRAD”. U V V A - 6 - A B B 7. Accordingly, I must determine the following issues: C C (1) Whether Idemitsu HK was induced by fraud into transferring D US$2,978,000 to the Yanqing account and US$13,171,000 to the D Zhigang account and (If so) with what consequence? E E (2) Whether Idemitsu HK can claim in unjust enrichment against F F Brilliant One? G G (3) Whether Brilliant One can rely on change of position as a defence? H H II. BACKGROUND I I 8. Idemitsu HK is a wholly owned subsidiary of Idemitsu Kosan Co J J Ltd, a Japanese listed company. Mr Shunichi Kito is Idemitsu Kosan’s president K and representative director. Mr Ryozo Takagi was Idemitsu HK’s managing K director from July 2019 to March 2020. In the account below, I use the L L expression “fraudster” to denote the person or persons who perpetrated the scam M M on Idemitsu HK. N N 9. On 15 January 2020, the fraudster telephoned Mr Takagi, purporting O to be Mr Kito. Mr Takagi had previously worked under Mr Kito for a year. O According to Mr Takagi, the fraudster so closely mimicked Mr Kito’s voice that P P Mr Takagi was completely taken in. The fraudster instructed Mr Takagi to Q cooperate with a “Mr Martin Zelner” on the payment of an alleged merger and Q acquisition being transacted by Idemitsu Kosan. The fraudster identified R R “Mr Zelner” as the lawyer handling the merger and acquisition transaction. The S fraudster warned that the transaction was highly confidential, so that Mr Takagi S should not discuss the matter with anyone apart from Mr Kito and Mr Zelner. T T U U V V A - 7 - A B B The fraudster told Mr Takagi to email [email protected] for information on payment. Mr Takagi complied. C C D 10. On the same day, this time impersonating Mr Zelner, the fraudster D sent Mr Takagi a fake document entitled “Full Authority to Act/Ryozo Takagi” E E with what appeared to be Mr Kito’s signature. By the document, Mr Kito F ostensibly authorised Mr Takagi to act on Idemitsu Kosan’s behalf in all matters F relating to forthcoming payments. The cover email to the document stated that G G Mr Zelner worked out of Martin Zelner Law Office LLC. There is in fact a real H lawyer named Mr Martin Zelner. But he works as an attorney with Cox Padmore H Skolnik & Shakarchy LLP, has a wholly different email address, and has had no I I involvement at all in this matter. Nevertheless, acting on the false Mr Zelner’s J instructions, Mr Takagi transferred US$2,978,000 to the Yanqing account and an J initial tranche of US$2,990,000 to the Zhigang account. K K L 11. On 16 January 2020, as the pretend Mr Kito, the fraudster told L Mr Takagi to await further instructions from Mr Zelner. The phone number M M shown in the caller display of Mr Takagi’s telephone was that of Idemitsu Kosan. N At 4.29 pm, Mr Takagi received an email from the fake Mr Zelner to transfer N US$3,977,000 to the Zhigang account. Mr Takagi did so on the next day. O O 12. On 20 January 2020, the false Mr Kito told Mr Takagi (and the fake P P Mr Zelner confirmed by email) to pay further tranches of US$2,226,000 and Q US$3,978,000 into the Zhigang account. Mr Takagi did so on the same day. Q Thereafter, at 3:47 pm on 20 January 2020, Zhigang transferred US$300,000 to R R Brilliant One’s bank account. S S 13. The fraudster also instructed Mr Takagi to transfer further sums to T T bank accounts in the UAE. Mr Takagi obeyed. However, those transfers are not U the subject matter of these proceedings. U V V A - 8 - A B B 14. On 3 February 2020, the false Mr Kito telephoned Mr Takagi that Idemitsu Kosan would be sending US$100,000,000 to Idemitsu HK. Mr Takagi C C was instructed to negotiate overdraft facilities with Idemitsu HK’s bank on the D D strength of that supposedly incoming US$100,000,000, to enable Idemitsu HK to E make further payments straightaway. As Mr Zelner, the fraudster then emailed a E document entitled “Fund Transfer/ Ryozo Takagi”. The document was seemingly F F signed by Mr Kito and dated 3 February 2020. It stated that Idemitsu Kosan G would be transferring US$100,000,000 to Idemitsu HK on 6 February 2020. G H 15. Mr Takagi submitted the document to Idemitsu HK’s bank. H Unknown to Mr Takagi, the bank forwarded the document to its office in Japan I I which in turn sought confirmation from Idemitsu Kosan. The fraud then J unravelled. Upon learning from the bank what was apparently going on, J Mr Yoshitaka Onuma, executive officer and general manager of the financing K K and accounting department of Idemitsu Kosan, informed Mr Takagi that Idemitsu L Kosan had never sent the document. Mr Kito in turn confirmed that he had not L signed the document, was not handling any merger and acquisition transaction, M M and never instructed Mr Takagi to transfer monies in January and February 2020. N N 16. Idemitsu HK started these proceedings on 6 February 2020. It O O obtained Mareva injunctions against Yanqing and Zhigang. It discovered that, as P at 6 February 2020, the Yanqing account held HK$465,355.17, US$91.96, P A$125.99, and €8.37. The Zhigang account held HK$15,608.49, €8.61, and Q Q US$56.68 as at the same date. By these proceedings, Idemitsu HK seeks recovery R of the US$2,978,000 transferred to the Yanqing account, the US$13,171,000 R transferred to the Zhigang account, and the US$300,000 transferred by Zhigang S S to Brilliant One. At the trial before me, Idemitsu HK stated that it was only T claiming against Yanqing, Zhigang, and Brilliant One in unjust enrichment. T U U V V A - 9 - A B B 17. Idemitsu HK has not yet obtained the full amounts due to it under the default judgments or settlement agreements reached with the 28 defendants C C mentioned in [2] above. Idemitsu HK may never receive all such monies. D D Nonetheless, Idemitsu HK is prepared to simplify matters and to claim against E Zhigang the sum of US$13,171,000 less the amounts claimed by idemitsu HK E against the 3rd, 4th, 5th, 6th, 7th, 8th, 9th, 11th, 12th, 13th, 14th, 15th, 16th, 17th, 18th, 19th, F F 21st, 22nd, 23rd, 24th, 25th, 26th, 27th, 28th, 29th, 30th, 31st and 32nd defendants in the G Re-Amended Writ of Summons. The amounts so pleaded are more than the total G monies recovered by Idemitsu HK from the latter 28 defendants. Consequently, H H in this trial, Idemitsu HK is reducing its claim against Zhigang to US$13,171,000 I less the amounts of (1) US$4,323,098.70, (2) HK$1,322,091.51, and I (3) €258,205. J J III. DISCUSSION K K L A. Issue (1): Whether Idemitsu HK was induced by a fraudulent scheme into L transferring US$2,978,000 to the Yanqing account and US$13,171,000 to the Zhigang account and (If so) with what consequence? M M N 18. At trial, I heard evidence from Mr Kito, Mr Takagi, Mr Onuma and N Mr Junichiro Takada (who took over from Mr Takagi as Idemitsu HK’s O O managing director on 1 April 2020). Based on their evidence, I have no doubt P that the phone and email scam took place and was later discovered as set out in P section II of this Judgment. It is apparent from their evidence that Idemitsu HK Q Q was deceived into transferring US$2,978,000 into the Yanqing account and a R total of US$13,171,000 into the Zhigang account. R S 19. What is the legal consequence of such fraudulent inducement? S T T 20. To establish unjust enrichment, a plaintiff must show that (1) a U defendant was enriched, (2) such enrichment was at the plaintiff’s expense, (3) U V V A - 10 - A B B the enrichment was unjust, and (4) none of the defences to unjust enrichment (such as change of position) apply. See Shanghai Tongji Science & Technology C C Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79, at [67] (Ribeiro PJ). D D 21. It follows from the fact that Idemitsu HK was duped into transferring E E monies that elements (1), (2) and (3) for an action in unjust enrichment are F established against Yanqing and Zhigang. Neither Yanqing nor Zhigang having F raised (much less adduced evidence in support of) any defence to a claim in unjust G G enrichment, element (4) is also established against them. It follows that, as H against Yanqing and Zhigang, Idemitsu HK’s claim in unjust enrichment H succeeds. There will be judgment against (a) Yanqing for US$2,978,000 and (b) I I Zhigang for US$13,171,000 minus the amounts of (i) US$4,323,098.70, (ii) J HK$1,322,091.51, and (iii) €258,205. J K K 22. I note that, according to Mr Onuma’s evidence, in making the L payments induced by the fraudster, Idemitsu HK may have used pooled funds L managed by Idemitsu International (Asia) Pte Ltd (Idemitsu SG), Idemitsu M M Kosan’s Singapore subsidiary. By agreement between Idemitsu HK and Idemitsu N SG, the former can use such pooled funds. As between Idemitsu HK and Idemitsu N SG, the monies so used are accounted for as a loan to the former by the latter. O O This means that, even if Idemitsu SG provided funds to enable Idemitsu HK to P make payments to the Yanqing or Zhigang accounts, Idemitsu HK was the legal P owner of the monies paid out of such funds into the Yanqing or Zhigang accounts. Q Q R B. Issue (2): Whether Idemitsu HK can claim in unjust enrichment against R Brilliant One? S S 23. Idemitsu HK transferred US$13,171,000 to the Zhigang account in T four tranches (that is, (1) US$2,990,000, (2) US$3,977,000, (3) US$2,226,000 T and (4) US$3,978,000). It is unclear from the evidence whether the Zhigang U U V V A - 11 - A B B account was in credit when the initial tranche was remitted by Idemitsu HK. If there was some money in the Zhigang account then, it is not apparent on the C C evidence how much there was. Apart from the four tranches and the amount of D D US$150,005.38 (identified as “REM CORRECT”) credited to the Zhigang E account on 22 January 2020, no other monies appear to have been paid into the E Zhigang account between 15 January 2020 (the date of the first tranche) and 23 F F January 2020. G G 24. There are then two possible scenarios to consider. H H 25. If the Zhigang account had no monies or was in deficit when the first I I tranche came in, the US$13,171,000 would not have become mixed with any J monies belonging to Zhigang (or anyone else) between the remittance of the first J tranche on 15 January and 20 January when the US$300,000 was transferred from K K the Zhigang to Brilliant One’s account. On this scenario, one can follow the L US$300,000 at common law from Idemitsu HK’s hands into the Zhigang account L and thence to Brilliant One’s account. However, the evidence is that immediately M M before the receipt of the US$300,000, Brilliant One’s account was in credit to the N amount of US$458,286.59. The US$300,000 transferred from Idemitsu HK via N the Zhigang account into Brilliant One’s account consequently became mixed O O with the monies in Brilliant One’s account at the time of the transfer. At that time P of admixture, following at common law would no longer be available and P Idemitsu HK would then only be able to claim an equitable interest in the Q Q US$300,000 remitted into Brilliant One’s account. R R 26. On the other hand, if the Zhigang account was in credit when the S S first tranche was remitted, the monies transferred by Idemitsu HK would have T become mixed with the monies in the Zhigang account. It would not be possible T to follow Idemitsu HK’s interest in the US$300,000 from the Zhigang account to U U V V A - 12 - A B Brilliant One’s account as a matter of common law. It would only be possible to B trace Idemitsu HK’s interest in the US$300,000 in equity. That means that C C Idemitsu HK would only be able to claim an equitable proprietary interest in the D D US$300,000 in Brilliant One’s account. E E 27. Thus, whether one assumes the scenario in [25] or [26] above, F Idemitsu HK would only have an equitable interest in the US$300,000 F immediately after transfer to Brilliant One’s account. Does this have a G G consequence on Idemitsu HK’s claim in unjust enrichment? I do not think that it H matters that Idemitsu HK’s proprietary interest in the US$300,000 is equitable in H nature. I I J 28. Although unjust enrichment is a common law cause of action, I do J not understand elements (1), (2) and (3) in Shanghai Tongji as limited to a K K defendant’s being enriched by a benefit recognised at common law, as opposed L to a benefit recognised in equity. Enrichment should be understood pragmatically. L Regardless of whether Idemitsu HK can assert a legal or equitable proprietary M M interest in the US$300,000 wrongly transferred to Brilliant One’s account, then N subject only to a defence of change of position, it would be unjust for Brilliant N One (1) to retain any part of the US$300,000 transferred and (2) to be enriched O O thereby at Idemitsu HK’s expense. Absent a defence, Brilliant One should be P required to make restitution of the US$300,000. P Q Q 29. Before considering whether Brilliant One is entitled to rely on R change of position as a defence, I add two footnotes to the analysis in [28] above. R S 30. First, from the vantage of the law of unjust enrichment, Idemitsu S HK’s position relative to Brilliant One can be characterised as a situation of T T indirect enrichment. Idemitsu HK directly enriched Zhigang which in turn U U V V A - 13 - A B B directly enriched Brilliant One. Idemitsu HK only indirectly enriched Brilliant One. It might be argued that, in allowing a direct cause of action in unjust C C enrichment by Idemitsu HK against Brilliant One, I am violating a cardinal rule D D of the law of unjust enrichment that there should be no leapfrogging. It might E be suggested that a plaintiff (such as Idemitsu HK) should not be allowed to E jump over its immediate enrichee (Zhigang) and sue an indirect or remote F F enrichee (Brilliant One) in unjust enrichment. Compare Greatworth Industrial G Limited v Sun Fook Kong Construction Limited & another HCCT No 45 of 2003, G 4 April 2006 (Reyes J), at [54] and [55]. See also Goff & Jones on Unjust H H Enrichment (10th ed, 2022), at §3-64, questioning whether there is any I “broadbrush rule” against leapfrogging. I J 31. But I do not believe that the present circumstance is one of J impermissible leapfrogging. This is not a situation of a party X acting under a K K contract with a counterparty Y (immediate enrichee) to confer a benefit on a L L third-party Z (indirect enrichee) and the contract between X and Y thereafter breaking down for some reason (for example, frustration or total failure of M M consideration). The position here is more analogous to that in Lipkin Gorman v N N Karpnale Ltd [1991] 2 AC 548 (HL). There, a solicitor wrongly used his firm’s O funds to obtain gambling chips from a casino. The firm did not claim against the O solicitor (immediate enrichee) who was not worth suing. The firm instead brought P P an action against the casino (indirect enrichee) in unjust enrichment. The firm Q was found to have a cause of action in unjust enrichment against the casino, Q subject only to the casino’s defence of change of position. The plaintiff firm’s R R proprietary interest in (1) the firm’s monies and (2) the gambling chips into which S the firm’s monies had been converted, entitled the firm to leapfrog the solicitor S and proceed directly against the casino. T T U U V V A - 14 - A B B 32. Second, in suggesting that it should not matter whether Idemitsu HK’s proprietary interest in the US$300,000 is legal or equitable in nature, I C C acknowledge my indebtedness to Professor Lusina Ho’s criticism of the D D distinction between common law and equitable tracing in her chapter on “Unjust E Enrichment and Equity” in Bant, Barker and Degeling eds, Research Handbook E on Unjust Enrichment and Restitution (Elgar, 2020). At 138-9 (omitting F F footnotes), Professor Ho writes: G G “Rules on tracing provide an example where applying a unified set of rules, in particular the more advanced equitable rules, to both common law and equitable H H claims, will bring about significant improvement in the law. Tracing rules at common law have traditionally required a clean substitution of assets and have I been understood not to allow a plaintiff to trace through mixed funds in bank I accounts. The equitable rules are not so limited, but have been thought to be available only if the plaintiff’s assets are subject to a trust or fiduciary J relationship. In the past, courts have stretched the fiduciary concept to allow J plaintiffs to take advantage of the equity. The most controversial example is K when a thief is held to be a fiduciary in order to invoke the constructive trust as K a mechanism for relief. L L The main argument advanced in favour of assimilation is that both sets of tracing rules are based on the principle of unjust enrichment. This argument was M adopted in Lipkin Gorman v Karpnale Ltd in relation to claims for money had M and received brought after tracing at common law, but rejected in relation to equitable tracing, where Lord Browne-Wilkinson in Foskett v McKeown held N that the proprietary claim upon equitable tracing was a matter of hard-nosed N property rights. The debate continues ... Nonetheless, its resolution does not O affect the assimilation of common law and equitable tracing. After all, Lord O Millett, who expressly rejected the principle of unjust enrichment as governing equitable tracing, was a staunch supporter for merging the tracing rules. Lord P Steyn shared the same view on the fusion of tracing rules, and their observations P have since drawn a following in judicial dicta. The enthusiasm to break away from the unnecessary constraints of law and equity should be welcomed. In Q Q particular, it Is high time the tracing rules were fused, and the old terminology of money had and received replaced with a modernised label that reflects the R true nature of the claim.” R S In this vein, it would seem highly artificial if the ability to bring an action S in unjust enrichment hinged on whether the relevant “enrichment” involves T T property of a legal or equitable character. In practical terms, it should make U no difference. U V V A - 15 - A B B C. Issue (3): Whether Brilliant One can rely on change of position? C C 33. To establish a defence of change of position, Brilliant One must D show the following: D E E (1) There is a link between the receipt of the benefit and Brilliant One’s F change of position so that, but for the receipt of the benefit, Brilliant F One’s position would not have changed. G G (2) Brilliant One changed its position in good faith. H H I (3) Brilliant One changed its position in circumstances which make it I inequitable for Brilliant One to be required to make restitution to J J Idemitsu HK. K K See Zhang Kan v SPH (Hong Kong) International Trading Co Ltd [2023] 4 L HKLRD 544, at [28] (Godfrey Lam JA). L M M 34. I am not satisfied on the evidence that any of elements (1), (2) or (3) N have been shown. N O O C.1 Is there causation? P P 35. By a Bill of Sale dated 10 January 2020, Brilliant One apparently Q transferred “all shares and full title in the [V]essel and her boats and Q appurtenances to the buyer [King Chuen], free of all encumbrances, mortgages R R and maritime liens and other debts or claims whatsoever”. The Bill of Sale recites S that it was drawn up “in consideration of the sum of USD 900.000.00 [from King S Chuen], the Receipt whereof is hereby acknowledged”. Thus, on its face, the Bill T T of Sale evidences the Vessel’s sale to King Chuen and the latter’s full payment U U V V A - 16 - A B B of the purchase price long before the US$300,000 was transferred to Brilliant One’s account on 20 January 2020. C C D 36. By a Protocol of Delivery dated 19 January 2020, Brilliant One D delivered the full title and risk in the Vessel to King Chuen and the latter accepted E E delivery of the same, “free and clear from all encumbrances, mortgages and F maritime liens or any other debts or claims whatsoever”. The document indicates F that King Chuen had fully paid for and taken delivery of the Vessel, well before G G the US$300,000 was remitted to Brilliant One’s account on the following day. If H so, it is difficult to see how Brilliant One can have regarded the US$300,000 paid H into its account as somehow part of the purchase price for the Vessel. I I J 37. It might be argued that, whatever the Bill of Sale and Protocol of J Delivery acknowledge on their face, Brilliant One delivered the Vessel in K K anticipation that it would only be receiving full payment of the purchase price L from King Chuen in due course. There is no evidence of this. But, it any event, L the present circumstances cannot be a case of anticipatory change of position. M M N 38. Assume (contrary to the Bill of Sale and Protocol of Delivery) that N Brilliant One only expected King Chuen to pay outstanding monies due on the O O Vessel after 19 January 2020. In fact, King Chuen never paid such monies from P its own funds. King Chuen appears to have used monies diverted from Idemitsu P HK to pay off Brilliant One instead. On this hypothesis, King Chuen continues Q Q to be in debt to Brilliant One. It is open to Brilliant One to pursue King Chuen R for any outstanding part of the Vessel’s sale price. Brilliant One opted to give up R possession of the Vessel to King Chuen even though it had not been fully paid. S S Brilliant One thus took the commercial risk that it would not be paid. On those T premises, why should Brilliant One be allowed to treat Idemitsu HK’s T US$300,000 as fulfilling its expectation that King Chuen would eventually be U U V V A - 17 - A B B paying for the Vessel in full? In reality, there has been no change of position, anticipatory or otherwise, as far as Brilliant One is concerned. Brilliant One is C C still awaiting the fulfilment by King Chuen of its part of the sale agreement for D D the Vessel. That was the position before Idemitsu HK’s US$300,000 was E transferred and that remains the position today. E F 39. Brilliant One pleads, in the alternative, that it used the US$300,000 F “in its usual and ordinary course of business so as to meet its usual and/or G G anticipated operational expenses and financial obligations”. But that is likewise H flawed as a basis for invoking change of position. The fact that a defendant has H spent money is insufficient to ground change of position where the expenditure I I was incurred by the defendant in the ordinary course of business. It is not a J detriment to pay off a debt which one will have to pay off at some time or J other. See Lipkin Gorman v Karpnale Ltd, at 580 F–G. See also Goff & Jones K K th (10 ed, 2022), §§27-10, 27-12, and 27-13 stating that, to qualify as a change of L L position, an expenditure must be extraordinary, and referring to Australian and Canadian authority that defendants cannot invoke change of position where (as M M stated by Brilliant One to have been the case) monies received were spent on N N ordinary or usual expenses. O O 40. More specifically, Brilliant One claims to have changed its position P by paying the following expenses: P Q Q 17/01/2020 US$109,054.89 as salary to the Vessel’s crew members for the month of December 2019 R R 20/01/2020 US$13,707.09 for the Vessel’s fuel oil bunkering S S 20/01/2020 US$60,008.62 as management fees for a vessel T T U U V V A - 18 - A B 21/01/2020 US$56,496.30 as salary to crew members of a vessel for the B month of December 2019 C C 21/01/2020 HK$582,892 as shipping agency fees incurred in October, D November, and December 2019 for loading cargo in Hong Kong D E 22/01/2020 Bonus to staff for the year 2019. E F 22/01/2020 US$85,195.66 as shipping agency fees for discharging and F loading cargo in Vietnam G G 22/01/2020 US$25,007.09 for the repair and maintenance of the Vessel H H 22/01/2020 US$46,647.42 as seamen’s wages in respect of a vessel for the I month of October 2019 and as management fees for the Vessel I J 22/01/2020 US$433,352.58 for outstanding sums due to Po Lun Shipping J (HK) Co Ltd in connection with the purchase of the Vessel by K Brilliant One in 2019. K L 23/01/2020 Payment of wages and salary to a He Hongde L M M N There is no evidence that any of the foregoing items were other than ordinary N expenditures incurred in the normal course of Brilliant One’s business. O O There is nothing to suggest that, but for the receipt of the US$300,000, P Brilliant One would not have incurred any such expenses. To the contrary, P it will be seen that most of the expenses pleaded concern debts which came Q Q into existence before 20 January 2020. R R C.2 Has there been good faith? S S 41. I am unable to find that there has been good faith on Brilliant One’s T T part. U U V V A - 19 - A B 42. Idemitsu HK and Brilliant One (prior to its solicitors’ ceasing to act) B filed expert evidence on the law in Mainland China relating to foreign C C exchange controls. Both parties’ experts agreed that it was contrary to the law in D D Mainland China for a person to employ unofficial money changers and E remittance agents to circumvent foreign exchange controls in Mainland China. E The experts disagreed on the extent to which a recipient in Hong Kong of foreign F F exchange remitted through unauthorised intermediaries would be liable under G Mainland China law. Brilliant One not having appeared at the trial, its expert did G not give evidence before me. However, Idemitsu HK’s expert (Mr Ma Chen) H H attended the trial to speak to his report. I I 43. Where (as here) the amount involved is less than RMB 5,000,0000, J Mr Ma clarified that the recipient of funds in Hong Kong would technically be J administratively liable to a fine or penalty in Mainland China for obtaining K K foreign exchange through unauthorised intermediaries. The fine or penalty would L L roughly be between 30% and 100% of the funds received. Mr Ma conceded, however, that it was unlikely that the Mainland Chinese authorities would enforce M M the fine or penalty against (say) a director of Brilliant One if the latter should N N travel to Mainland China. Mr Ma stressed that, as the amount involved was below O the threshold of RMB 5,000,000, there could only be what he called O “administrative” (as opposed to criminal) liability. P P 44. I accept that, by its own admission in the evidence filed during the Q Q interlocutory stages of this litigation, Brilliant One knew that King Chuen would R be engaging unauthorised intermediaries to transfer the US$ purchase price for R the Vessel from Mainland China to Brilliant One’s Hong Kong account. But, S S given Mr Ma’s evidence, I do not think that such knowledge means that there was T criminal wrongdoing on Brilliant One’s part as a matter of PRC law. Further, I T doubt that merely being “administratively” liable under PRC law as the recipient U U V V A - 20 - A B B of foreign exchange obtained via unauthorised intermediaries, is sufficient to constitute bad faith, disentitling Brilliant One from invoking change of position, C C as a matter of Hong Kong law. D D 45. What is of greater concern is the need for companies in Hong Kong E E to comply with standards of proper corporate governance. Brilliant One turned a F blind eye to the possibility that its bank account was being used for money F laundering. In this day and age, proper governance means that companies should G G ascertain that the sources of monies received into their account are bona fide. H H 46. The discipline of “know your client” is an important aspect of the I I fight against money laundering. It was therefore incumbent on Brilliant One to J inquire (1) who the “ZHIGANG TRAD” that paid US$300,000 into its account J was and (2) what the purpose of the money so remitted was supposed to be. The K K evidence is that Brilliant One did not ask questions. It merely treated the monies L received into its account as freely available for its use, despite not having an idea L of the precise provenance of the funds. Given the failure to make even basic M M inquiries as to the source of the remitted monies and to observe common sense N standards of corporate governance, I cannot conclude that Brilliant One acted in N good faith as a matter of Hong Kong law. O O P C.3 Would it be inequitable for Brilliant One to pay Idemitsu HK? P Q 47. It follows from the discussion in sections III.C.1 and C.2 above that Q it would not be inequitable for Brilliant One to make restitution to Idemitsu HK R R of US$299,998.07 (that is, the precise amount credited to Brilliant One’s account S on 20 January 2020). S T T 48. Idemitsu HK submits that the sale of the Vessel by Brilliant One to U King Chuen was bogus and should therefore be ignored. It is unnecessary for me U V V A - 21 - A B B to deal with this allegation in light of the conclusion that I have reached. In other words, even on the footing that the sale of the Vessel was genuine, Brilliant One C C would still not be able to rely on change of position. D D C.4 Summary E E F 49. Brilliant One’s defence of change of position fails. F G IV. CONCLUSION G H H 50. There will be Orders as follows: I I (1) Yanqing is to pay US$2,978,000 to Idemitsu HK. J J (2) Interest is to run on the US$2,978,000 at 1% per annum over the K K HSBC best lending rate from 15 January 2020 to the date of this L Judgment and thereafter at the judgment rate until full payment. L M (3) Zhigang is to pay US$8,402,570.13 2 to Idemitsu HK. M N N (4) Interest is to run on the US$8,402,570.13 at 1% per annum over the O HSBC best lending rate from 20 January 2020 to the date of this O Judgment and thereafter at the judgment rate until full payment. P P Q (5) Brilliant One is to pay US$299,998.07 to Idemitsu HK. Q R R S S T 2 This is on the basis that, as against Zhigang, Idemitsu HK is seeking US$13,171,000 less the amounts of (1) T US$4,323,098.70, (2) HK$1,322,091.51, and (3) €258,205. See [17] above. HK$1,322,091.51 equals US$168,703.24 (@ HK$1 = US$0.13). €258,205 equals US$276,627.93 (@ €1 = US$1.07). US$13,171,000 U less US$4,323,098.70 less US$168,703.24 less US$276,627.93 equals US$8,402,570.13. U V V A - 22 - A B B (6) Interest at 1% p.a. over the HSBC best lending rate is to run on the US$299,998.07 from 20 January 2020 to the date of this Judgment C C and thereafter at the judgment rate until full payment. D D (7) The Injunction granted by Mr Justice Coleman on 24 April 2020 is E E to continue against Yanqing, Zhigang, and Brilliant One for six F months from the date of this Judgment or until further order. F G G 51. I will now hear counsel on costs and consequential orders. H H I I J J (Anselmo Reyes SC) K K Deputy High Court Judge L L M Mr Leon Ho, instructed by K & L Gates, for the plaintiff M N 1st Defendant acting in person being absent N O 2nd Defendant acting in person being absent O P 10th Defendant acting in person being absent P Q Q R R S S T T U U V V