Principles of illegality clarified by the District Court in email fraud case

In Taihei Dengyo Kaisha Ltd v Zhao Yizhe & Anor [2024] HKDC 222, the District Court dismissed the defendants’ applications to (1) expunge, inter alia, certain exhibit evidence and (2) for security for costs, and granted summary judgment in favour of the plaintiff.

This case is yet another instance of email fraud where substantial sums were transferred to fraudsters. The 1st and 2nd defendants were found to be two of the lower-level recipients of the plaintiff’s monies. The plaintiff sought, inter alia, equitable relief.

On 28 July 2022, the plaintiff obtained a default judgment against the 2nd defendant. However, the 1st defendant attended a meeting with the plaintiff’s solicitors on 11 April 2024, contending that she had no knowledge of any fraudulent scheme but was only involved in foreign currency exchange (i.e., typically known as an ‘underground exchange’) for paying an insurance policy (“Meeting“). The plaintiff applied for summary judgment against the 1st defendant.

The 1st defendant applied for the contents of the Meeting to be expunged and/or struck out on the basis of breach of (1) professional conduct; (2) without prejudice privilege; and (3) privilege against self-incrimination—all of which were rejected by the Court.

Regarding the plaintiff’s summary judgment application, the Court confirmed that the starting point is to distinguish between domestic illegality and foreign illegality (Ryder Industries Ltd v Chan Shui Woo (2015) 18 HKCFAR 544). The Court then closely analysed the different types of scenarios and confirmed that the present case is a ‘type 2 case’. Following Ryder, the Court is required to refuse enforcement of the contract, and it is unnecessary to consider the seriousness of the offense by reference to the PRC policies that underlie the relevant regulations. Moreover, the 1st defendant was required to pay the premium every year for a period of 5 years. She had to pay the premium in January 2022 regardless of whether she had received the plaintiff’s monies. Therefore, there is no causal ‘but-for’ relationship between the receipt and the payment of the premium to support the defence of change of position. Consequently, the Court granted summary judgment and dismissed the 1st defendant’s application for security for costs.

Edward K H Ng, instructed by Oldham, Li & Nie, represented the plaintiff.