HU SUN IRENE AND ANOTHER v. ZISHANG TRADING LTD AND OTHERS

HCA 1182/2021

[2023] HKCFI 2369

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1182 OF 2021

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BETWEEN

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REASONS FOR DECISION

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1.  This is an application by summons dated 6 October 2022 (“the Summons”) by Hu Sun Irene (“P1”) and Hessle Inc (“P2”) (collectively “the Plaintiffs”) for summary judgment against Haitaxi Company Limited (“D7”) and Hong Kong Superior Cloud E-Commerce Co. Ltd (“D17”) pursuant to the Plaintiffs’ Statement of Claim dated 13 December 2021 (“SOC”). At the conclusion of the hearing, summary judgment was granted to the Plaintiffs for the reasons set out below.

Procedural history

2.  The Summons was taken out by the Plaintiffs not only against D7 and D17 but also HK Wukong Trading Limited (“D27”), Mu Feng International Limited (“D46”) and TJSS E-Commerce Co. Ltd (“D51”) all of whom had been represented by MM Wong & Co (“MMW”).

3.  On 11 February 2022, defences were filed by MMW on behalf of, inter alia, each of D7 and D17 (respectively “the D7 defence” and “the D17 defence”).

4.  However, D7 and D17 failed to file any evidence in opposition to the Summons on or before 3 January 2023, the deadline imposed by the order of Master Matthew Leung dated 24 October 2022 and under the terms of that order, they are now debarred from so doing.

5.  On 12 January 2023, MMW filed a notice to cease to act respect of D7 and D17 who now act in person.

6.  This application only concerns D7 and D17, the Plaintiffs having reached a settlement with D27, D46 and D51 in June 2023.

7.  Both D7 and D17 were absent at the hearing despite having been given notice by the Plaintiffs’ solicitors. They were absent at the hearing on 16 January 2023 when Master Kent Yee adjourned the Summons to a date to be fixed and not appear on 2 August 2023 when this hearing was fixed.

Background facts

8.  In outline, P1 is in her 90s and the director of P2. She was the victim of a telephone fraud when unknown fraudsters posing as mainland security officials caused the Plaintiffs to transfer large sums of money into accounts designated by the fraudsters on the pretence of investigating criminal activities in the Mainland relating to P1’s Hong Kong identity card number.

9.  Between August 2020 and March 2021, the Plaintiffs were deceived into transferring an aggregate amount of approximately US $39 million and HK $23.2 million equivalent to a little under US $42 million (“the Sum”) to two bank accounts of D1 and one bank account of D2 through 13 remittances (“D1 and D2’s Bank Accounts”).

10.  The pattern that emerged is that shortly after each of the remittances, the Sum or its traceable proceeds were immediately transferred by D1 and/or D2 to various other “2^nd layer” bank accounts, including the bank accounts of D7 and D 17.

11.  It is common ground that the Plaintiffs had no previous dealings with D7 or D17.

12.  D7 has admitted in its defence to receiving in its account, HK $2,074,200 from D1’s Bank Account on 21 August 2020 (“the D7 Transfer”).

13.  D17 has admitted in its defence to receiving in its account the sum of HK $2,122,550 from D1 on 16 September 2020 (“D17 1^st Transfer”) and the sum of US $139,978 from D2 on 4 November 2020 (“D17 2^nd Transfer”) (collectively “D17 Transfers”).

14.  The Plaintiffs’ claim against D7 and D17 is based on, inter alia, unjust enrichment and constructive trust[1].

15.  The Plaintiffs’ reasons for their belief that D7 and D17 have no credible defence nor have they raised any triable issues are set out in the 4^th affirmation of P1 dated 8 September 2022 (“P1 4^th”)[2]. Accordingly, they seek judgment (including declaratory relief) as pleaded in the SOC.

Legal principles

16.  The applicable principles in an Order 14 application are well-established. The judgment of Ng J in Guanghua SS Holdings Limited v Lim Yew Cheng and Anor [2022] HKCFI 1052 at §13 sets out the proper approach in such an application:

“(1) The Order 14 machinery works on the basis that if the plaintiff’s application is properly constituted, it is prima facie entitled to judgment unless the defendant shows cause to the contrary.

(2) The mere assertion in an affidavit of a given situation by the defendant responding to an application for summary judgment does not, ipso facto, ground leave to defend.

(3) The burden is on the defendant to show a real or bona fide defence or some other reason for a trial. The defendant must satisfy the Court that his evidence is capable of being believed and that on the basis of such evidence, there is a fair or reasonable probability of the defendant having a real or bona fide defence.

(4) In deciding whether there is a fair or reasonable probability of the defendant having a real or bona fide defence, the Court does not isolate each factual issue and consider whether it is possible that the defendant’s story on that issue is credible. Rather, the Court must look at the whole situation.

(5) In assessing the credibility of the defendant’s factual case, while the Court will not embark upon a mini-trial on affidavit evidence, the Court is not obliged to suspend its critical faculties and assume that the defendant’s evidence is accurate.

(6) If having regard to inherent plausibility, inconsistency with contemporaneous documents and other compelling evidence, the defence is not credible, the Court must say so.

(7) If the defendant’s evidence is incredible in any material respect, it cannot be said that there is a fair or reasonable probability that the defendant has a real or bona fide defence.”

17.  The relief sought includes declaratory relief. It is well-established that while it is not the normal practice of the court to make a declaration without a trial especially where the declaration is that the defendant in default of defence has acted fraudulently as “a rule of practice and not of law and will give way to the paramount duty of the court to do the fullest justice to the plaintiff to which he is entitled”: see 2023 HKCP 15/16/2.

18.  In each case, the question is whether a genuine need for such relief, for example, to secure the plaintiff’s proprietary as opposed to mere personal claims is made out to warrant the exercise of the court’s discretion in granting the declaration sought: see for example WRE Investments LLC v SMW Limited [2023] HKCFI 1893 at §31 and Donald Sidney Dobkin v Huaanda (HK) Limited & Others [2022] HKCFI 3032 §14.

The defences

19.  Where, as here, the Plaintiffs’ case is properly constituted, it is incumbent on the Defendant to establish a credible defence if it is to avoid judgment being entered against it.

20.  A defendant would normally file an affidavit in opposition, exhibiting relevant documentation (if any) in support of its defence because in considering whether there are triable issues, the court will not take the defence at face value but test it against the evidence disclosed in the affidavit: see per Cheung JA in Time Rich 08 Limited v DBE (HK) Ltd & Others [2018] HKCA 404 at §5.2.

21.  While it is trite that the burden is on the defendant in a summary judgment application to show that it has a credible defence, discharging its burden, the defendant “must condescend to give particulars” of its defence: see China Construction Bank (Asia) Corporation Limited v Wong Sai Chung [2022] HKCFI 2579 at §17 citing Cheung JA’s observations in Ju Yan Di Emperory Genesisy v Yau Wai Han [2015] 1 HKLRD 822 at 827.

22.  Further, as Reyes J stated in Sumikin Bussan International (HK) Ltd v. The Precast Piling & Engineering Co Ltd & Another HCA 3814/2001, unrep., 10 April 2002 at §39:

“… Faced with an Order 14 application, a defendant cannot be sparing of the particulars of his defence, and then claim, as a result of his own parsimony in detail, that there is an obscurity which must await trial for illumination.”

23.  Thus, where a defendant claims to be running a legitimate business, sufficient contemporaneous documents should be produced in support. In John Joseph Mc Gee v Nold (HK) Ltd & Others [2022] HKCFI 3598, the defence rested on a factual case that the defendant was running legitimate watch trading businesses. Madam Recorder Rachel Lam SC was not satisfied that the defendants were running a legitimate business as, inter alia, the contemporaneous documents produced in support were “incredibly sparse[3]”.

24.  In the present case, D7 and D17 have each filed a defence. Whether their defences contain sufficient particulars to raise a credible defence or a triable issue are considered below.

(a) D7’s defence

25.  In outline, D7’s case is that

(i) its main business is trading formula milk powder and cosmetic products;

(ii) it entered into a sales contract with “Kin Wah” who was said to be a regular customer of D7 since 2015, for the sale of 12,000 cans of milk powder to be delivered in 4 stages (“the Goods”);

(iii) Kin Wah was representing D51 in that transaction;

(iv) upon notification by Kin Wah that payment had been settled and upon checking its bank account to confirm receipt of such payment, D7 believed such payment to have been made by D51;

(v) D7 issued a commercial invoice to D51; and

(vi) D7 subsequently arranged for the Goods to be collected by D51.

26.  It will not have escaped attention that D7 has not condescended to particulars:

(i) there are no details of D7’s usual business practice;

(ii) it remains unclear whether D7 contracted with Kin Wah or D51 and/or how D51 came into the picture at all as no particulars of the contract[4] were provided; and

(iii) there are no details of any prior business relationship D7 had with D51;

(iv) there are no particulars of who is to effect payment for the Goods and/or how such payment is to be effected.

27.  Quite apart from these seemingly insuperable hurdles, there is documentary evidence to support its case. The type of documentary evidence one would expect would be dictated by the particular facts and the type of business in question.

28.  Given the total absence of documentary evidence, there is simply no basis for the court to conclude that D7 has raised a credible defence or that there is a triable issue.

(b) D17’s defence

29.  D17’s defence is that

(i) its main business is trading formula milk powder products;

(ii) D17 believed that D1 and D2 to be Hong Kong limited companies owned by its customer Yang Jialing (“Yang”) who purchased milk powder products from D17;

(iii) the D17 Transfers were made to pay for formula milk powder purchased by Yang pursuant to a sales contract dated 5 August 2020 (“the 1^st contract”) for 12,570 cans of milk powder (“the 1^st goods”) for HK $2,122,720 to be paid within 45 days;

(iv) shortly prior to the payment deadline, Yang informed D17 that she could pay via D1, her Hong Kong company;

(v) D17 issued a commercial invoice to D1 and gave the invoice to Yang on the same day as the 1^st contract;

(vi) the 1^st goods were shipped to the purchaser at the shipping address designated in the 1^st contract;

(vii) D17 entered into another sales contract with Yang on 12 August 2020 (“the 2^nd contract”) for 8280 cans of milk powder (“the 2^nd goods”) for US $140,000 for payment within 90 days …

30.  The pleas regarding the 2^nd contract follows the same pattern as the 1^st contract.

31.  D17’s pleaded defence does not withstand scrutiny. This is demonstrable from the following extract from its defence filed on 11 February 2022:

“9. … While approaching payment deadline, Ms Yang informed [D17] that she could pay via her Hong Kong company, i.e., [D1]. [D17] believed Ms Yang therefore agreed and received the Purchase Sum as payment accordingly.

10. [D17] averred that it had fully performed its duties under the [1^st contract]. It issued a commercial invoice to [D1] and gave such invoice to Ms Yang on the same day as the [1^st contract] …

11. The second set of sales contracts is dated 12 August 2020 … That payment term is within 90 days from the date of the 2^nd [c]ontract. While approaching to the payment deadline, Ms Yang informed [D17] again that she could pay via another Hong Kong company that belongs to her i.e. [D2]. D17 believed Ms Yang therefore agreed and received [D17 2^nd Transfer] as payment accordingly.

12. [D17] … issued a commercial invoice to [D2] and gave such invoice to Ms Yang on the same day of the 2^nd [c]ontract …”

32.  As pleaded, D17 was not informed about payment via D1 and D2 until “approaching the payment deadline” i.e. several weeks after the respective dates of the 1^st and 2^nd contracts. Yet, the invoice addressed to D1 was given to Yang on the date of the 1^st contract and, likewise, that addressed to D2 was given to Yang on the date of the 2^nd contract[5].

33.  D17’s defence based on the 2 contracts is simply incredible and defies belief. It is total moonshine.

Conclusion

34.  In the circumstances, the Plaintiffs are entitled to summary judgment. I am satisfied that in the present case, there is a genuine need to grant the declarations sought. By earmarking funds received by D7 and D17 as the Plaintiffs’ property, they would be able to assert their proprietary interest over further transfers from the bank accounts of D7 and D17.

35.  At the conclusion of the hearing, Mr Sebastian Leung, counsel for the Plaintiffs applied for a post-judgment Mareva injunction because of the clear risk of dissipation. The court was referred to 2023 HKCP at 29/1/60 and Spruce Australia Pty Ltd v New Senjia Trade Limited [2019] HKCFI 101 at §§17-18 where the Mareva injunction granted was continued post-judgment in aid of execution and enforcement of the judgment sought.

36.  Orders in terms of draft orders submitted to the court that included post-judgment Mareva injunctions were made.

37.  As the Plaintiffs’ Statement of Costs was lodged after the hearing on the same day, it is further directed that (a) the Plaintiffs’ statement of costs be served within 7 days of this decision; and (b) the 7^th and 17^th Defendants' statement of objections (limited to 3 pages) be served and lodged within 14 days thereafter.