Lesnina H DOO v Wave Shipping Trade Co Ltd  2 HKLRD 727,  HKCFI 1070
D8 and D10 received sums of money from D1 which were paid out by P pursuant to an alleged email fraud. D8 alleged that the amount corresponded with payment of the first instalment for goods sold and delivered to a PRC company under a contract; and D10 alleged that the amount corresponded with a currency investment transaction. There was evidence of a payment receipt for the alleged first instalment as well as remittance and bank deposit receipts for the alleged currency investment transaction. There was no evidence that either D8 or D10 had knowledge of the alleged email fraud. P made a proprietary claim and personal claims in unjust enrichment and knowing receipt against D8 and D10, and applied for summary judgment to recover the monies received, arguing that as the monies received involved “underground banking” in circumvention of foreign currency exchange controls under PRC laws, such illegality precluded the reliance by D8 and D10 on the defences of bona fide purchaser for value without notice or change of position.
Held, dismissing the application and granting an order for unconditional leave to defend, that there were triable legal issues as to whether D8 and D10 were bona fide purchasers for value without notice or there was a change in position on the basis they had given value for the monies received. In particular, the absolute approach that all kinds of illegality (save for de minimus ones) precluded reliance on the defences of change of position and bona fide purchaser for value without notice had been criticised for being overly rigid and involved conflicting legal authorities. The approach was also at variance with authorities that suggested a due sense of proportionality was needed on questions relating to illegality. A preferable approach would be one that measured the gravity of the defendant’s criminal conduct against the impact of allowing the two defences. The mere fact that a defendant was in receipt of funds remitted through “underground banking” without more was insufficient to defeat the raising of the two defences (Gray v Thames Trains Ltd  1 AC 1339, Ryder Industries Ltd v Chan Shui Woo(2015) 18 HKCFAR 544, Patel v Mirza  AC 467, GH Property Holdings Ltd v Able Profit Investment Ltd  HKCFI 2480, Solyda SRL v Wu Ge  HKCFI 1825 applied; Barros Mattos Junior v MacDaniels Ltd  1 WLR 247, DBS Bank (Hong Kong) Ltd v Pan Jing  4 HKC 395 considered). (See paras.51 – 66.)
[The above is excerpted from the headnote to the report in HKLRD.]