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Recent Hong Kong first instance decisions have consistently rejected the change of position defence raised by defendants who were mere recipients of defrauded sums. These otherwise innocent defendants who were not implicated in the fraud did not comply with local or foreign legislation or regulations in their change of position. This illegality made them “wrongdoers” in the words of Lord Goff of Chieveley in Lipkin Gorman v Karpnale Ltd,1 barring the change of position defence.
In Arrow ECS Norway AS v M Yang Trading Ltd,2 the court rejected the change of position defence raised by various currency exchange operators with respect to their non-compliance with the licensing and due diligence requirements under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) (“AMLO”) in Hong Kong. More recently in DBS Bank (Hong Kong) Ltd v Pan Jing,3 the court applied Arrow ECS but went further, holding that a breach of People’s Republic of China (“PRC”) regulatory provisions (ie, outside the jurisdiction of Hong Kong) through “underground banking” transactions precluded the change of position defence. This case also marked a departure from the English position, where it has been held obiter that mere breaches of regulatory offences are insufficiently grave to bar the defence.4 These decisions have entered unchartered territory by expansively interpreting the “wrongdoer” exception to the change of position defence.