KUMAR SANJAY t/a PRIYAM ENTERPRISES v. TOYSBASE CO LTD

DCMP 2848/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 2848 OF 2013

--------------------

-------------------

-------------------

DECISION

1.  This is an application by way of Originating Summons for a declaration that the sum of US$38,454.00 (“Sum”) along with any and all interest accrued thereon (“Funds”) since its transfer on 8 May 2013 to the bank account of Toysbase Company Limited held at the Hong Kong and Shanghai Banking Corporation Limited (“HSBC”) are funds held on trust for the Plaintiff and that the same should forthwith be returned by HSBC to the Plaintiff.

2.  The defendant has not filed an Acknowledgement of Service and is absent today.  In the light of the plaintiff’s affirmations of service, I am satisfied with the service of these proceedings and proceed to hear the Originating Summons in the defendant’s absence.

3.  The Plaintiff has filed an affirmation of himself and that of Mr. Goel Ajay (“Ajay”) both of 1 November 2013 setting out the background to the present application, the long and short of which is as follows.

4.  The Plaintiff and Ajay each runs a business in Delhi, India, the latter operating under the trade name of Brother Impex dealing in the trading of wooden items from China.  The plaintiff himself is a wholesaler of catering goods supplied to restaurants in Delhi and holds a bank account with Punjab National Bank (“plaintiff’s bank account”).  Both businesses are effectively run as a family business with routine set-off arrangements between them.  Since 1 March 2013, Brother Impex has been the plaintiff’s official buying agent for all wooden catering items from China.

5.  Since around August 2012, Brother Impex has been purchasing wooden items from one Evergrowing Industries Ltd (“Evergrowing”) in China and communication has all along been conducted by way of email correspondence between Ajay for Brother Impex and Mr. Frank Quan for Evergrowing (“Frank”).  Evergrowing holds a bank account with HSBC.

6.  On 26 March 2013, Brother Impex placed a purchase order with Evergrowing for wooden items for a total price of US$52,014.20.  The goods were specified for delivery to the plaintiff.  As usual, all communications in relation to this transaction between Brother Impex and Evergrowing were conducted by email.  The goods were shipped in April 2013 and a balance payment of US$38,454.00 (“Balance Payment”) became due in May 2013.  Since the goods were intended for the plaintiff, the plaintiff agreed to settle the Balance Payment directly from the plaintiff’s bank account to Evergrowing’s HSBC account via telegraphic transfer (“T/T”) to set off Brother Impex’s invoice for the goods.

7.  From 6 May 2013 and prior to the making of the Balance Payment, Ajay started to receive emails from someone claiming to be Frank Quan of Evergrowing using email addresses very similar to Evergrowing’s email addresses, namely, “frankquna@hotmail.com”, “f_quan@hotmail.com” and “frankqaun@hotmail.com” (“scam emails”) whereas the email addresses associated with Evergrowing were “frankquan@hotmail.com” and “f-quan@hotmail.com”.  The scam emails first asked Ajay to change the account number on the T/T document from Evergrowing’s HSBC account to a different account also held with HSBC (“defendant’s HSBC account”).  Believing that the defendant’s HSBC account was just another account of Evergrowing with HSBC, Ajay complied and asked the plaintiff to make the necessary change and the remittance was sent off.

8.  Then came another request by way of the scam emails asking Ajay to change also the beneficiary’s name on the T/T document to that of the defendant on a certain pretext.  This raised suspicion on the part of both Ajay and the plaintiff and no change of name was effected. The scam was discovered upon Frank confirming that the scam emails were not sent by him.  A report was made to the Hong Kong police soon afterwards and investigation revealed the defendant’s HSBC account to have maintained a balance slightly larger than the sum of the Balance Payment and the same account has since been frozen.

Legal Principles

9.  In GTRPET SMF, LLC v Global Way Logistics Limited (DCMP 482/2012), unreported, 2 April 2012, Deputy Judge Grace Chan aptly summarized the relevant principles in the following terms:

18. Generally speaking, a declaration cannot be obtained by default (See Order 15 rule 16, Rules of District Court). But Mr Fung for the Plaintiff has rightly referred me to the case of Wong Kum Chi v Lee Tit Ying [2003] 1 HKLRD 594 in which Deputy Judge A Cheung (as he then was) held that a court can proceed to deal with the originating summons in the first hearing in the absence of a defendant. The learned Judge says the following in his Judgment:

“Moreover, as I said, the proceedings were commenced by way of originating summons; therefore, O.28 apply to this case. Order 28 r.1 provides, amongst other things, that O.32 r.5 shall apply in relation to originating summons as they apply in relation to other summonses. Order 32 r.5 provides that where any party to a summons fails to attend on the first or any resumed hearing thereof, the court may proceed in his absence if having regard to the nature of the application, and it thinks it expedient so to do.” (emphasis added)

19. Under Order 28 rule 3 of the Rules of the District Court, matters of a originating summons can be dealt with at the first hearing if the facts are sufficiently clear and liability is established: See Titan Limited v Deng Zhishun, unrep., HCMP 4804/1999.

20. Mr Fung also refers me to the case of Wing Hang Bank Limited v Liu Kam Ying & Others, HCMP 2519/2001 in which Ma J (as he then was) commented that the substantive hearing of an originating summons could also be heard in chambers. The learned Judge…stated at para 7 this:

“While normally the substantive hearing of an originating summons should be in open court (see Hong Kong Civil Procedure 2002 at para.28/9/2), where, as in the present case, the plaintiff seeks a summary determination of the matter (akin to an application for summary judgment), the hearing can take place in chambers : see RHC, Order 28, rules 4(1), 9(1); International Bank of Asia Limited v. Kewpaisal Warranuch, unreported, 4 March 1999, HCMP1421/1998, Yuen J. The difference between an application for summary judgment under the originating summons procedure and an application for summary judgment under RHC, Order 14 is that the burden is not on the defendant in the case of the former: see International Bank of Asia Limited at pp.5S to 6A.” (emphasis added)

21. Due to the matters aforesaid, there is no doubt that this court can proceed to consider the Plaintiff’s application in the absence of the Defendant in the first hearing of this Originating Summons.

…

23. It is sufficiently clear that the Plaintiff was made a subject to a scam or fraud administered by the Defendant. When property is obtained by fraud, equity imposes a constructive trust on the fraudulent recipient and the property is recoverable and traceable in equity: Westdeutsche Landesbank Girozentrade v Islington LBC [1996] AC 667 followed by Michael Chen Kang Huang v Peter Lit Ma, HCA 218/2005.

10.  On the evidence of the plaintiff which is not subject to any challenge, I am satisfied, as the learned deputy judge did in GTRPET, that a constructive trust exists in these circumstances and it is suitable for this court to grant the relief sought by the plaintiff.  Mr. Babani has put forward alternative arguments in his written submission in support of the application.  In the light of my finding, I need not deal with the same other than noting that they appear to be respective arguments.

Order

11.  I make an order in the following terms:

(1)  There be a declaration that the sum of US$38,454.00 along with any and all interest accrued thereon since its transfer on 8 May 2013 to the bank account of Toysbase Company Limited held at the Hong Kong and Shanghai Banking Corporation Limited (“Funds”) are funds held on trust for the Plaintiff.

(2)  The Funds be forthwith released and returned by HSBC to the Plaintiff.

(3)  The costs of and incidental to this application be to the Plaintiff, summarily assessed at HK$38,000.