Unjust enrichment occurs when a person is enriched at the expense of another person in circumstances which are unjust. Subject to certain defences (such as the change of position defence, which will be discussed below), the law requires a recipient of unjust enrichment to repay such enrichment, which is known as restitution. The Court of First Instance in the case of Credit One Finance Limited v Yeung Kwok Chi & Others  HKCFI 2450 clarifies a longstanding unresolved issue in the law of unjust enrichment and decides that reliance on enrichment is not a necessary ingredient of the change of position defence.
This is a case where the son had stolen his mother’s identity to borrow money from a lender and defaulted on the loan.
The Plaintiff (lender) is a licensed money lender. The 1st Defendant (son) is the son of the 2nd Defendant (mother). The mother is the registered owner of a property (Property) in Hong Kong. The 3rdDefendant (solicitor) was a solicitor in Hong Kong and the sole proprietor of a law firm until 27 August 2016. The solicitor employed a conveyancing clerk (clerk).
On 15 April 2015, the son attended the solicitor’s office with a person purporting to be his mother (imposter) and provided the clerk with a letter of authority purportedly signed by his mother to authorise himself to deal with matters concerning the Property (1st Authority Letter). The clerk prepared a power of attorney (POA) which was executed by the imposter in the clerk’s presence. Subsequently, the lender received a referral that the son and mother wanted a loan of HK$1.2 million (Initial Loan) by mortgaging the Property.
On 30 April 2015, the son produced to the clerk another letter of authority purportedly signed by the mother, which purportedly appointed the solicitor as her legal representative to handle matters relating to the Property (2nd Authority Letter). On the same day, the son executed for himself and purportedly on behalf of his mother:
On 13 August 2015, the son executed for himself and purportedly on behalf of his mother another loan agreement (Loan Agreement) between the lender and the son and the mother (as borrowers) for another loan of HK$2.3million (Loan). The Initial Loan Agreement, Mortgage and Loan Agreement are collectively referred to as “Loan Documents”.
The lender then issued two cheques in the total sum of HK$1.01 million (being the balance of the Loan after settling the outstanding balance of the Initial Loan). Both cheques were deposited into the son and mother’s joint bank account (Joint Account). Money was subsequently transferred by the son from the Joint Account to the son’s own bank account. It was undisputed that at all material times, the mother had no knowledge of the Loan Documents and the deposits and withdrawals from the Joint Account pursuant to the Loan Documents.
The son defaulted on the loan. The lender commenced legal proceedings against the son and mother for the outstanding balance under the loan (Outstanding Balance) or alternatively for money under the law of unjust enrichment. The lender also claimed against the solicitor for negligence and breach of duty in the event that the Loan Documents executed by the son and mother were held to be invalid. The trial only involved the lender, mother and solicitor. This article focuses only on the lender’s claims against the mother.
The Court had to determine, among others, the following issues:
Issue 1 – Whether the mother executed the POA
The mother argued that she did not attend the solicitor’s office on 15 April 2015 and did not sign the POA on that day, or any other documents which the clerk received.
Having heard the parties’ evidence, the Court held that:
Issue 2 – Whether the POA conferred authority on the son to act for the mother and whether the Loan Documents were valid agreements
In light of the Court’s finding on Issue 1 above, the Court held that the POA did not confer any authority on the son to act on the mother’s behalf to enter into the Loan Documents and the Loan Documents were not valid and binding between the lender and mother.
Issue 3 – Whether the lender could claim the Outstanding Balance on the ground of unjust enrichment
In Hong Kong, the courts have adopted a 4-step analysis to determine the validity of an unjust enrichment claim (see Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79 at paragraph 67 and Yukio Takahashi v Cheng Zhen Shu (2011) 14 HKCFAR 558 at paragraph 26):
In the present case, the Court held that the first three steps were satisfied (i.e. the mother was unjustly enriched at the lender’s expense) for the following reasons:
Issue 4 – Whether the mother had any defence
This issue relates to the last step of the 4-step analysis mentioned above. A common defence to an unjust enrichment claim is the change of position defence. Such defence is available to a person whose position has so changed that it would be inequitable in all the circumstances to require the person to make restitution, or make restitution in full.
The mother contended that the change of position defence would operate as follows:
On the other hand, the lender contended that by reason of the mother’s lack of knowledge of payments into the Joint Account, she could not have relied on the payments to change her position and therefore the mother’s defence had not been made out.
It was common ground between the parties that a defendant has to establish a causative link between the receipt of the benefit and his change of position. The issue in dispute was whether it is necessary for a defendant to have relied on the enrichment before the change of position defence can operate.
Having considered all relevant circumstances, the Court held that the mother’s change of position defence should succeed for the following reasons:
Accordingly, the lender’s claim against the mother failed.
This case is of significance as it is the first Hong Kong case that discusses the issue of whether reliance on enrichment is a necessary ingredient of the change of position defence. The Court’s ruling that reliance is not a necessary ingredient inevitably provides greater room for recipients of enrichment to raise the change of position defence to an unjust enrichment claim. This case also serves as a reminder to money lenders that they should, by themselves or via their agents, carry out sufficient client due diligence to verify the identity of borrowers before executing loan documents and advancing loans to them so as to avoid the plight of the plaintiff in the present case.