Ernest Ng and Nicole Chui, instructed by Tanner De Witt, represented The Yerrid Law Firm (“P”) before the Court of Appeal (“CA”) which ordered that the default judgment and garnishee order obtained by P be set aside upon the 2nd defendant’s (“D2”) payment into court. The question before the CA was whether illegality bars the restitutionary defences relied on by D2.


“Range of factors” is the correct approach to illegality

The CA affirmed its recent judgment in Monat Investment [2023] HKCA 479 which confirmed that the correct test for illegality is the “range of factors” approach in Patel v Mirza [2017] AC 467, not the “reliance” principle in Tinsley v Milligan [1994] 1 AC 340.


Application of illegality bar to restitutionary defences cannot be summarily decided

Consequently, the approach in Arrow ECS Norway AS v M Yang Trading Ltd [2018] HKCFI 975, which is (i) based on Tinsley and which (ii) held that a recipient cannot rely on the change of position defence if its change of position is illegal (subject to the de minimis principle), is now open to review.

Further, the CA also held that the proper application of the illegality bar to the defences of bona fide purchase and ministerial receipt cannot be summarily decided.

Going forward, it will be difficult to decide summarily whether illegality per se bars any restitutionary defence in email fraud cases.


Default judgment set aside on condition where the defendant’s evidence is questionable

Nevertheless, due to the shortcomings in D2’s evidence which left one with “some doubt and a host of questions concerning the facts” (§27), the CA considered it just and appropriate that the default judgment should only be set aside on the condition that D2 pays the principal amount of claim into Court.


The judgment can be found here.