CHU YUNG v. CHAN LOK HIM AND ANOTHER

DCMP 2981/2024

[2025] HKDC 992

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 2981 OF 2024

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BETWEEN

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JUDGMENT

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Introduction

1.  The Plaintiff (“P”) claims to be a victim of a fraud, as a result of which she transferred a total sum of HK$928,449 to the bank account of the 1^st Defendant (“D1” and “D1’s Account”). The 2^nd Defendant (“D2”) is alleged to be a second-tier recipient of part of the defrauded sum, and it received the monies from D1 through its bank account maintained with the Respondent (“Bank”).

2.  By her Amended Originating Summons, P seeks personal and proprietary reliefs against D1 and D2, and seeks an order for the Bank to release monies held in D2’s bank account (“D2’s Account”) to her.

3.  D1 and D2 were absent in the trial, whereas the Bank’s attendance has been excused. P has caused an affirmation of service to be filed and I was satisfied that the documents had been properly served on D1 and D2 and I proceeded with the trial in their absence.

Background

4.  P previously asked the Court to summarily grant the Originating Summons (before it was amended), and the hearing went before HHJ G. Chow. It is noteworthy that at that hearing, P sought a declaration that the sum of HK$551,500 held in D2’s Account was held on trust for P and P sought an order for the release of the said sum (which was probably a typo in the Originating Summons and P should mean HK$511,500). No personal reliefs were sought against D1 and D2.

5.  HHJ G. Chow dismissed P’s application for summary judgment on 14 August 2024: see [2024] HKDC 1344. In §2 of that judgment, the learned Judge summarized P’s case, which I would gratefully adopt and find to be the facts having considered P’s evidence:-

“2. P’s case is set out in P’s Affirmation. According to P:

(1) In March 2022, she received a mobile phone message from a man who identified himself as “林建冬” (“Lam”) and that he worked as Head of Information Technology Department at a casino in Macau. They became friends and continued to chat through mobile phone;

(2) In April 2022, Lam through WhatsApp messages told her that he worked at the casino in Macau and had the authority at the IT platform to adjust the dividend rate of return on the online lucky draw ball games for each bet. She could bet on “big” or “small” at the same time as they had the same official dividend rate of return. Through the adjustment of higher rates placed on her bet, she could earn some money by reaping the differences between the dividend rates. Besides she could get rebate on the amount of money deposited into her casino account;

(3) She followed Lam’s advice and deposited HK$3,000 into her casino account and placed a bet of HK$1,000 on the online ball game. She won and got back HK$1,220 which was remitted to her bank account. Then she deposited HK$60,976 (RMB50,000) into her casino account and placed bets on the ball game. In return, she got back HK$80,488 together with the dividend and rebate;

(4) Subsequently, between 20 to 22 April 2022, she made another 4 payments totaling HK$928,449 into her casino account with the details of the recipient accounts provided by the casino;

(5) On 25 April 2022, when she wanted to withdraw all the monies previously deposited, she was informed that they could not be withdrawn unless she deposited more money into the casino account;

(6) After discussion with her friend, she reckoned the casino account was a scam and she reported the matter to the police on 30 April 2022;

(7) P’s solicitors were informed by the police that part of the monies she transferred has been frozen in D2’s Account and the balance stood at HK$511,500 as at April 2024; and

(8) According to bank account statements disclosed to P’s solicitors pursuant to various court orders: (a) after P’s transfer of HK$243,902 on 20 April 2022 to the bank account to the 1^st Defendant held with the Bank of China (“D1’s Account”), after a series of transfer in and transfer out, two amounts of HK$121,500 and HK$100,000 were transferred to D2’s Account on the same day; and (b) after P’s transfer of HK$292,683 to D1’s Account on 21 April 2022, HK$290,000 was transferred immediately from D1’s Account to D2’s Account.”

6.  For the purpose of this judgment, I would elaborate on the fund flows between P, D1 and D2 as follows:-

(1) Immediately before P transferred anything into D1’s Account on 20 April 2022, the account balance of D1’s Account was HK$268. Then P transferred a sum of HK$243,902 to D1’s Account, and the following transfers took place on the same day:-

Deposit (HK$)	Withdrawal (HK$)	Balance (HK$)
		268
243,902 (from P)		244,170
110,000 (from a third party)		354,170
	190,500 (to a third party)	163,670
	100,000 (to a third party)	63,670
	63,500 (to a third party)	170
1,000		1,170
11,375		12,545
230,000 (from a third party)		242,545
	50,000 (to a third party)	192,545
	44,000 (to a third party)	148,545
	50,000 (to a third party)	98,545
2,100 (from a third party)		100,645
21,100 (from a third party)		121,745
	121,500 (to D2)	245
100,000 (from a third party)		100,245
	100,000 (to D2)	245

(2) On 21 April 2022, P transferred another sum of HK$292,683 into D1’s Account, prior to which the account balance of D1’s Account was HK$2. There were the following relevant transfers:-

Deposit (HK$)	Withdrawal (HK$)	Balance (HK$)
		2
292,683 (from P)		292,685
2,000		294,685
	290,000 (to D2)	4,685

7.  Before HHJ G. Chow, P alleged that she transferred a total of HK$536,585 to D1 and D1 transferred three sums of HK$121,500, HK$100,000 and HK$290,000 to D2 totalling HK$511,500, so P was entitled to a proprietary claim of HK$511,500 against the monies in D2’s Account.

8.  The learned Judge accepted that P was a victim of fraud, but she was not satisfied that P’s constructive trust claim against D2 in the sum of HK$511,500 was complete and good:-

(1) The learned Judge was not satisfied that the transfers of HK$121,500 and HK$100,000 to D2 represented P’s initial transfer of HK$243,920 to D1, because between these transfers, the credit balance of D1’s Account dropped to HK$170 at one point.

(2) As to the transfer of HK$290,000 to D2, the learned Judge noted that subsequently the D2’s Account balance dropped to HK$1,500. After that there were other incoming transfers in and out, and only then was the credit balance brought to HK$511,500 (which so happened to be the same amount of monies transferred from D1 to D2).

9.  After her summary judgment application was dismissed, P amended her Originating Summons, pleading the complete background of the fraud allegedly perpetuated against her and introducing claims for personal reliefs based on such causes of action as unlawful conspiracy, knowing receipt, dishonest assistance and unjust enrichment on top of the constructive trust claim.

Tracing and Proprietary Claim

10.  As I have stated above, in the previous summary judgment application (when P was not represented by Ms Kyra Kung, counsel who appeared before me for P in this trial), P asserted a proprietary claim over the sum of HK$511,500 in D2’s Account.

11.  In her submissions, Ms Kung only sought a proprietary remedy against D2, and she fairly accepted that as the balance of D2’s Account for once dropped to HK$1,500 after D1 effected the three transfers to D2’s Account, “HK$1,500 is the traceable proceeds of P’s Defrauded Sum”. On the other hand, she sought a declaratory relief to the effect that the total sum of HK$511,500 that D1 paid into D2’s Account belonged to P at the time of receipt.

12.  The principles regarding the imposition of a constructive trust have been comprehensively set out by DDJ Alexander Tang in Semgas Supply Pte Ltd v Hong Kong Xin Chuang Decorative Material Co Ltd [2023] HKDC 1823 at §§43-44. In gist:-

(1) When property is obtained by fraud, equity imposes a constructive trust on the fraudulent recipient and the property is recoverable and traceable in equity.

(2) For recipients who are not a party to the fraud, if his state of knowledge is such as to make it unconscionable for him to retain the money, the defrauded claimant has a tracing remedy. Knowledge does not have to be acquired at the time of receipt, it can be acquired subsequently while the money is in the recipient’s hands.

(3) A pre-requisite for the imposition of a constructive trust is that the Court is satisfied that the credit standing in recipient’s bank account represents the traceable proceeds of the claimant’s property:-

(i) A trust can only arise where there is defined trust property. Accordingly, for victims of fraud to assert a proprietary claim, they would only succeed to the extent that their funds can be traced and identified as representing recognizable assets of the recipient.

(ii) Therefore, the claimant must show that, by the usual rules of tracing, that the credit standing in favour of the recipient in his bank account represents the traceable proceeds of the defrauded sum.

(iii) A particular relevant tracing rule is the lowest intermediate balance rule (also known as the Hallet rule), which does not operate to preserve the value representing the trust money paid into the account to an extent greater than the balance in the account when withdrawals are made by the trustee after the payment in of the trust money.

(iv) A beneficiary’s claim is limited to such an amount as does not exceed the lowest balance in the account during the intervening period between the payment in of the trust money and the time when the disentanglement of the account falls to be made, that is to the lowest intermediate balance.

(v) The lowest intermediate balance rule will not be applied if it can clearly be shown that the trustee by making the subsequent payment into the account intended to reinstate the trust money previously taken out, but the trustee will not be taken as having made the subsequent payment in for that purpose merely from the fact that previously trust money has been taken out.

13.  In the present case, HHJ G. Chow already accepted that P was a victim of fraud, which I also agreed on the evidence before me, so equity should impose a trust on the fraudulent recipient, ie D1. As to D2, it has chosen not to file any evidence in opposition to justify its retention of the monies transferred to it by D1, and I accept that it would be unconscionable for D2 to retain the monies such that P’s tracing claim should in principle be allowed.

14.  However, the difficulty with P’s claim lies with the identification of the traceable proceeds of the defrauded sum. After P deposited the first tranche of HK$243,902 into D1’s Account, there were various transfers in and out before D1 effected any transfer to D2’s Account. Most pertinently, in that intervening period, the balance of D1’s Account once dropped to HK$170. There were then other deposits raising the credit balance of D1’s Account, before D1 transferred the sums of HK$121,500 and HK100,000 to D2’s Account. Ms Kung rightly did not submit that those subsequent deposits were intended by D1 to reinstate the trust money previously taken out. In the premises, I do not see how the two sums of HK$121,500 and HK100,000 transferred from D1’s Account to D2’s Account can be traced to P’s earlier deposit of HK$243,902 (save and except for a minimal sum of HK$170).

15.  As for P’s second tranche of deposit into D1’s Account in the sum of HK$292,683, the credit balance did not drop below that amount before the sum of HK$290,000 was transferred to D2’s Account, such that this HK$290,000 could be traced to P’s defrauded sum. In other words, at the time of receipt, the sum of HK$290,000 was traceable to P’s money. Nevertheless, as D2’s Account dropped to HK$1,500 on 23 April 2022, applying the lowest intermediate balance rule, HK$1,500 is the limit of P’s tracing claim.

16.  Another matter is whether the credit balance of D2’s Account has dropped below HK$1,500 after 23 April 2022. From the statements produced by P, it appears that there were other deposits after 23 April 2022, and the credit balance in D2’s Account coincidentally dropped to HK$511,500 on 8 November 2022, and this has remained the lowest balance up till 24 April 2023 when the Police informed P’s solicitors that D2’s Account had been frozen. As such, P’s tracing claim should succeed to the extent of HK$1,500.

17.  Regarding the declaratory relief sought by P (ie the total sum of HK$511,500 belonged to P at the time of D2’s receipt), Ms Kung sensibly accepted at the trial that a declaration to that effect served no real purpose, when a large part of the money had been transferred out of D2’s Account. In case P is going to trace further into other third-tier accounts, she would have to establish her tracing claims as against those other recipients. I am only prepared to declare that a sum of HK$1,500 in D2’s Account is held on trust for P.

Unjust Enrichment Claim

18.  P also seeks personal remedies on the strength of, among others, an unjust enrichment claim. The issues for me to consider are four-fold, namely whether (a) D1 and D2 were enriched; (b) the enrichment was at P’s expense; (c) the enrichment was unjust; and (d) any of the defences are applicable.

19.  Indisputably D1 and D2 were enriched by virtue of respectively P’s transfers into the D1’s Account and D1’s transfers into the D2’s Account, and that D1’s enrichment was at P’s expense. There was, on the other hand, no direct dealing between P and D2, so whether D2’s enrichment was at P’s expense has to be separately analysed.

20.  DDJ Alexander Tang has set out the principles relating to the “at the expense of” requirement in Semgas Supply (supra) at §§54-55. In sum:-

(1) The “at the expense of” requirement can be satisfied even when the claimant and the defendant have not dealt directly with each other

(2) An example is where an intervening transaction is found to be a sham. Since the sham is created precisely in order to conceal the connection between the claimant and the defendant, it is disregarded when deciding whether the latter was enriched at the former’s expense. A sham arrangement can be considered as equivalent to a direct payment.

(3) Another example involves a set of co-ordinated transactions, which can be treated as forming a single scheme or transaction for the purpose of the “at the expense of” inquiry, on the basis that to consider each individual transaction separately would be unrealistic.

(4) There are also situations where the defendant receives property from a third party into which the claimant can trace an interest. Since the property is, in law, the equivalent of the claimant’s property, the defendant is treated as if he had received the claimant’s property.

21.  As I have ruled above, the sum of HK$290,000 transferred by D1 into D2’s Account could be traced to P’s defrauded sum. Even though the credit balance of D2’s Account subsequently dropped, this does not affect D2’s liability for the personal remedy under the unjust enrichment claim in respect of HK$290,000. D2 was enriched at least by HK$290,000 at P’s expense.

22.  Further, I am satisfied that the transactions between D1 and D2 were so co-ordinated that they can be treated as forming a single scheme or transaction:-

(1) After P transferred HK$243,902 into D1’s Account, while there were some intervening transfers in and out, a similar total sum of HK$221,500 was transferred into D2’s Account on the same day. Considering the similar quantum of the transfers and their proximity in time, on balance I consider the transfers to be co-ordinated transactions.

(2) As to P’s second transfer of HK$292,683 into D1’s Account, on the same day D1 caused a sum of HK$290,000 to be transferred to D2’s Account, with only one intervening transaction which was insignificant in size. On balance I find these transfers to be co-ordinated transactions, which also reinforces my view above that the transfers between D1 and D2 relating to the first tranche transfer from P were co-ordinated transactions.

23.  As such, I find that D1 has been enriched at P’s expense in the sum of HK$536,585, whereas D2 has been enriched at P’s expense in the sum of HK$511,500. Given my ruling on the personal claims based on unjust enrichment, it is not necessary for me to consider the other causes of action advanced by P (namely knowing receipt, dishonest assistance and unlawful conspiracy), as the reliefs to be granted would be the same regardless of the outcome of those claims.

Disposition

24.  P has asserted no proprietary claim against D1, and her tracing claim against D2 succeeds to the extent of HK$1,500. I find in P’s favour for her personal claims against D1 and D2. I make the following orders:-

(1) A declaration that a sum of HK1,500 held with the Bank in the account no 714-502-01150-8 (“Fund”) is held on trust for P;

(2) An order that the Fund be forthwith released and returned to P;

(3) Upon the failure of D2 to effect the release of the Fund in accordance with (2) above within 7 days upon the service of the order, and upon the notification by P’s solicitors to the Bank of P’s failure to receive the Fund, the Bank do effect the release of the Fund to P’s solicitors, Messrs Kwok Ng & Chan Solicitors & Notaries, within 56 days upon the service of the order or such other time as may be agreed between P’s solicitors and the Bank;

(4) D1 and D2 do jointly and severally pay the sum of HK$511,500 to P;

(5) D1 do pay the sum of HK$25,085 (ie HK$536,585 – HK$511,500) to P;

(6) There be pre-judgment interest at the rate of prime +1% per annum from 20 April 2022 until the date of judgment, and thereafter there be interest at judgment rate until full payment; and

(7) Liberty to apply.

25.  Considering that P is successful on her personal claims and considering the reasonableness of P’s claim for legal costs, I make an order nisi that D1 and D2 do pay the costs of the action to P with certificate for counsel, which are summarily assessed at HK$85,780.