In a recent landmark decision, Wong, Chi Hung v. Lo, Wing Pun and Mai, Jieping trading as Fai Tat RMB Exchange [2026] HKCFA 14, the Hong Kong Court of Final Appeal (“CFA”) dismissed an appeal concerning the foreign illegality defence in an unjust enrichment claim. With this decision, the CFA has provided definitive guidance on the proper approach to claims arising from an unenforceable currency exchange agreement tainted by illegality under mainland China law.

BACKGROUND

The Plaintiff wished to convert RMB 1 million that he had in mainland China into Hong Kong Dollars (HKD) to be made available to him in Hong Kong.

On 5 June 2016, the Plaintiff (through his agent) entered into an exchange agreement (“Exchange Agreement”) with the 2ndDefendant, who operated a currency exchange business in Hong Kong (referred to as the “Defendant” since the 1stDefendant played no role). Under the Exchange Agreement, the Plaintiff was to deposit RMB 1 million into a designated mainland China bank account (the “Kwok account”). In return, the Defendant would deposit the HKD equivalent into the Plaintiff's Hong Kong account at an agreed rate of RMB 854.5 to HKD 1,000.

Unlicensed currency exchange transactions are unlawful under mainland China law and subject to regulatory measures that provide sanctions including confiscation of the funds and, in serious cases, criminal punishment.

On 7 June 2016, the Plaintiff deposited the RMB 1 million into the Kwok account. However, the Defendant never transferred the corresponding HKD to the Plaintiff. The funds in the Kwok account were frozen by mainland authorities in connection with a criminal investigation into a pyramid selling scheme unrelated to the parties’ currency exchange agreement.

A mainland court subsequently convicted individuals involved in the pyramid scheme and ordered the confiscation of the entire balance of the Kwok account, including the Plaintiff’s deposit. The Plaintiff, the Defendant and the account holder were not among the convicted individuals.

The Plaintiff brought proceedings in Hong Kong for breach of contract, or alternatively, for unjust enrichment.

PROCEDURAL HISTORY

In the first instance trial, the District Court rejected the Plaintiff’s claim as a contract claim because the contract was unenforceable due to its illegality under mainland China law. Instead, the District Court upheld the Plaintiff’s claim as an unjust enrichment claim based on total failure of consideration. The case was subsequently appealed to the Court of Appeal.

The Court of Appeal held that the obligation to restore unjust enrichment is an independent obligation imposed by law which is different from the contract between the parties. Further, the court found no comity or public policy reasons to deny restitution, particularly given the lower court’s finding that restitution would also be available under mainland China law. The appeal was accordingly dismissed.

Nevertheless, leave to appeal was granted by the Court of Appeal to the Defendant in respect of the following question:

“Where a contract between the plaintiff and the defendant governed by Hong Kong law is held by the Hong Kong court to be unenforceable because of the contract’s illegality under foreign law[1], but the defendant has received a benefit under the contract at the plaintiff’s expense, under what principles and in what circumstances will the plaintiff’s claim brought in Hong Kong for restitution in respect of that enrichment be defeated by the defence of foreign illegality?”

LEGAL PRINCIPLES AND PARTIES’POSITION

Although both the Court of Appeal and the CFA expressed reservations about the District Court’s finding that the Exchange Agreement was unenforceable due to its illegality under mainland China law, that issue was not appealed. This judgment was premised upon this finding. The core legal question before the CFA was whether, and under what principles, the Plaintiff’s restitution claim for unjust enrichment should be defeated by the foreign illegality defence.

The Defendant argued two main points:

1. Linked unenforceability: For logic and coherence, any claim based on unjust enrichment ought to fail because the underlying contract was tainted by foreign illegality and held to be unenforceable.
2. Backdoor enforcement: Mainland China law would be frustrated if the unjust enrichment claim were enforced because it would be tantamount to enforcing the illegal Exchange Agreement “by the backdoor”. Enforcement would also violate international comity.

The Plaintiff relied on the distinction between contract claims and restitution claims to argue that an unjust enrichment claim is an independent obligation that unwinds the ineffective contract rather than enforcing it.

THE CFA’S ANALYSIS AND DETERMINATION

Correction of the application of the Stare Decisis doctrine in Hong Kong

Before addressing the foreign illegality defence, the CFA corrected the Court of Appeal’s application of stare decisis. Chief Justice Cheung clarified that Hong Kong possesses its own distinct body of common law. While pre-1997 decisions of the Privy Council on appeal from Hong Kong remain binding authority, decisions of the UK Supreme Court and the House of Lords are not binding on Hong Kong courts. Their persuasive weight depends on their substance and merits, rather than upon their origin or source.

 “Range of factors” approach is adopted

The CFA formally adopted the flexible “range of factors” approach to the illegality defence, which was adopted by the majority in Patel v Mirza before the UK Supreme Court. In Patel, the majority rejected the rigid “reliance approach” established in Tinsley v Milligan.

Under the “reliance approach”, a plaintiff is barred from enforcing a claim if they must rely on their own unlawful conduct to succeed on that claim.

In contrast, under the “range of factors” approach, courts weigh whether allowing recovery for illegal conduct would produce inconsistency and disharmony in the law. The factors the courts consider include underlying policy considerations, the need for proportionality, and case-specific factors such as the seriousness of the conduct and its centrality to the claim.

Unjust enrichment is separable from contract enforcement

The CFA rejected the Defendant's argument that the unjust enrichment claim was inseparable from the unenforceable contract. The CFA emphasized that contractual remedies aim to put the plaintiff in a position as if the contract had been performed, whereas restitutionary remedies aim to reverse the enrichment. Thus, a claim in unjust enrichment for total failure of consideration unwinds the illegal transaction rather than enforces it.

No violation of international comity or frustration of mainland China law occurred

The CFA also determined that upholding the unjust enrichment claim did not violate international comity or frustrate mainland China law because:

• The Plaintiff’s claim under Hong Kong law was based on an independent obligation not grounded in the underlying contract.
• Mainland China law itself provides a similar restitutionary remedy under Article 157 of the PRC Civil Code, which requires the return of property acquired as a result of a null and void civil juristic act.
• The illegality involved on the part of the Plaintiff was of a peripheral nature, amounting only to a breach of administrative rules rather than a serious criminal act.
• The judgment awarded to the Plaintiff (RMB 1 million or its HKD equivalent at the time of payment) was plainly not identical to what the plaintiff would have been entitled to under the Exchange Agreement (which was the equivalent of RMB 1 million at the specified rate of RMB 854.5 to HKD 1,000).

Consequently, the CFA concluded that the balancing test favoured upholding the unjust enrichment claim.

COMMENTS

The CFA's judgment provides authoritative guidance on the doctrine of illegality in Hong Kong.

The CFA formally adopted the flexible “range of factors” approach established in Patel v Mirza and abandoned the strict “reliance approach” in Tingsley v Miligan, which often produced unfair results. As the CFA observed, notwithstanding initial scepticism and criticism that it would lead to unacceptable uncertainty, the “range of factors” approach as propounded by the majority in Patel v Mirza has since demonstrated itself to be workable in practicewithout producing such uncertainty in the law.

The CFA further confirmed that the “range of factors” approach extends to cases involving the defence of foreign illegality where the claim relates to a contract governed by Hong Kong law even though Patel v Mirza primarily addressed domestic illegality. Hong Kong courts and arbitral tribunals will continue to apply the same approach in cases involving the defence of domestic illegality.  

Furthermore, the clarification of the stare decisis doctrine restates the independent judicial power of Hong Kong and the CFA’s power of final adjudication.

For commercial parties and legal practitioners, this case highlights a critical distinction between contractual and restitutionary claims in the context of the illegality defence. Even if a cross-border contract is held unenforceable in Hong Kong due to violating foreign or mainland China law, the parties may still have a viable path to recover transferred funds through unjust enrichment claims.