LIN XUEQIN v. META-LUCI-HERAWATI

DCCJ 1245/2024

[2024] HKDC 1100

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1245 OF 2024

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

BETWEEN

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

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

REASONS FOR DECISION

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

Introduction

1.  Before me is the summons filed by the Plaintiff (“P”) on 27 May 2024 for default judgment to be entered against the Defendant (“D”) for:

(a) A declaration that the funds as received in D’s Account, being HK$350,000 received on 12 September 2023 (“Funds”), is the property of P and is held by D on trust, by operation of law or otherwise, for the benefit of P;

(b) A declaration that D is liable to P as a trustee in a trust, constructive, resulting or otherwise, with regard to the Funds as received in D’s Account, is subject to fiduciary duties and is liable to account to P in respect of such receipt;

(c) An order that the Funds as received in D’s Account be returned to P;

(d) Further or alternative to (c), an order that D is personally liable to pay damages or equitable compensation (to be assessed) for the loss of the Funds as received in D’s Account, in Hong Kong Dollars or equivalent;

(e) Tracing and/or all necessary accounts and inquiries against D as a trustee of a trust, constructive, resulting or otherwise, and/or for the purposes of tracing;

(f) An injunction to restrain D by itself, its servants or agents or otherwise, from parting with the Funds as received in D’s Account or any part thereof other than to P;

(g) Interest pursuant to sections 49 and 50 of the District Court Ordinance (Cap 336); and

(h) Costs of the action.

2.  P also seeks the following orders:

(a) that D do, within 7 days from the date of service of an Order made herein, execute all necessary document(s) and/or such negotiable instrument(s) as may reasonably be required to instruct the Bank of China (Hong Kong) Limited (“BOC”) in which D’s Account is held to release and transfer to P the Funds as received in D’s Account, failing which, upon P’s filing of affidavit evidence to prove, that D:

(i) neglects or refuses to comply with the order to be made herein; or

(ii) cannot, after reasonable inquiry, be found,

pursuant to section 38A of the District Court Ordinance (Cap 336), a partner of P’s solicitors be authorised, 7 days thereafter, to execute such document(s) and/or endorse such negotiable instrument(s) as may reasonably be required to instruct the bank for the purpose and only purpose of releasing and transferring to P the Funds as received in D’s Account;

(b) Costs of this application be to P; and

(c) Liberty to apply.

3.  P’s summons was made under O 19 r 7 of the Rules of the District Court (“RDC”), section 38A of the District Court Ordinance, inherent jurisdiction and equitable jurisdiction of the Court (“Summons”).

4.  Mr Chris Liang made submissions on behalf of P.

5.  After P served his Writ of Summons with indorsed Statement of Claim dated 5 March 2024 (“SOC”), D has not filed or served any notice of intention to defend and defence.

6.  D was absent at the hearing. I have reviewed the affirmations of service of Fok Siu Leung and Choi Wai Kuen. I am satisfied that D has been given proper notice of the hearing and it is expedient to proceed to hear P’s application notwithstanding D’s absence, pursuant to O 32 r 5(1) of RDC.

7.  At the end of hearing the Summons, I gave judgment for P. These are my reasons.

Service of the Proceedings and the Summons

8.  P filed the Affirmations of Fok Siu Leung and Choi Wai Kuen confirming that it has duly served the Writ indorsed with the SOC, and the Summons on D.

9.  Neither a notice of intention to defend nor any defence was filed by D.

10.  As D has not filed any defence, P is entitled to apply for judgment pursuant to O 19 r 7 of the RDC.

11.  I note that P has filed an affirmation in support of an order in terms for default judgment to be entered against D and execution of documents by court order (Affirmation of Lin Xueqin filed on 27 May 2024). However, in an application for judgment on the default of service of a defence under O 19 r 7, the court cannot receive any evidence, but must give judgment according to the pleadings alone: Leung Pak Ki v The Estate of Pang Kau [2016] HKEC 515 at §5; 升力科技有限公司 v C & C International Technology Ltd [2017] HKEC 118 at §8). It is therefore unnecessary on the hearing of the summons for judgment to prove the case by evidence (Lam Shing Shou v Lam Hon Man [2001] HKEC 1988; 升力科技有限公司 v C & C International Technology Ltd [2017] HKEC 118). See §19/7/11 of the Hong Kong Civil Procedure 2024, Vol 1.

12.  The task of the court is to see whether P appears to be entitled to a judgment on its SOC. The statement of claim must show a case for the order that P seeks to obtain: 升力科技有限公司 v C & C International Technology Ltd [2017] HKEC 118 at §7. See §19/7/14 of the Hong Kong Civil Procedure 2024, Vol 1.

13.  Notwithstanding the wording in O 19 r 7(1), the court’s power to grant default judgment is discretionary and not mandatory: see §19/7/14 of the Hong Kong Civil Procedure 2024, Vol 1; Seto Yim King v Soo Hooyet Dew [2019] HKCFI 2640 at §12; Times Square Ltd v Lee Kwun Kit [2020] HKCFI 438 at §14.

P’s SOC

14.  This is another case of email fraud. P is the holder of a bank saving account with BOC (“P’s Account”). D is an unknown person to P and the holder of a bank account with BOC (“D’s Account”) and the recipient of the traceable proceeds of the Funds from P’s Account as a result of the fraud perpetuated on P.

15.  P’s daughter, Chiu Kin Lam (“Miss Chiu”), is a customer of Hong Kong Telecommunications (HKT) Limited (“HKT”), and communications were by email. Unbeknown to P, someone hacked into the email correspondence between Miss Chiu and HKT and impersonated HKT to correspond with Miss Chiu (“the Hacker”). The Hacker created an email address in which the email name shown was strikingly similar to the HKT’s email address (“Counterfeit Email Address”).

16.  On or about 11 September 2023, Miss Chiu received an email from the Counterfeit Email Address with a payment link attached therein, stating that Miss Chiu owed HKT a sum of HK$298 and requesting this to be settled by selecting the “Make a Payment” option attached to the email (“Fraudulent Payment Instruction”).

17.  Due to concerns regarding the potential termination of the services, Miss Chiu forwarded the Counterfeit Email to P and requested P to settle the payment promptly. On or about 12 September 2023, P followed the Fraudulent Payment Instruction in the Counterfeit Email which directed her to transfer the sum to D’s Account. Both the Counterfeit Email and Fraudulent Payment Instruction were strikingly realistic and among other things, bore the logos of HKT and PCCW.

18.  P was instructed by the Counterfeit Email to, among other things (i) click on the payment link attached in the Counterfeit Email; (ii) follow the only option of online bank transfer by choosing the BOC as the paying bank; and (iii) enter her bank account information including the bank account number and bank account password. P then received a SMS message from BOC stating that an unknown person has been set as the 3^rd party recipient of P’s Account whereas the maximum daily transfer for this unknown person has been set as HK$350,000.

19.  It is P’s case that the Hacker sent the Fraudulent Payment Instruction to P knowing that the instruction was totally false and fictitious. The Fraudulent Payment Instruction was false and fictitious in that: (i) P does not and did not know D; (ii) P does not and did not have any affiliation and/or business relationship and/or dealings with D; (iii) P has and/or had no affiliation with D’s Account; and (iv) the sum of HK$298 was never intended for D.

20.  Believing it to be an email address of the HKT and, induced by and acting in reliance upon the Fraudulent Payment Instruction, P transferred the sum of HK$298 to D’s Account on 12 September 2023.

21.  At around 13:50 on the same day, P received a notification from BOC stating that the Funds had been deducted and transferred from P’s Account to D’s Account (“Mistaken Transaction”). The Email Fraud Scheme was discovered immediately by P when she received notification from BOC informing P that the Funds had been deducted and transferred from P’s Account.

22.  On the same day, P reported the Email Fraud Scheme to BOC and the Hong Kong Police Force (“HKPF”) and the case was handled by the Mong Kok Crime Division.

23.  On 25 September 2023, P was informed by the HKPF that D’s Account (with the Funds) had been frozen, and the Mistaken Transaction was identified. The particulars of D’s Account were provided in HKPF’s letter dated 30 December 2023, stating D’s Account name and number at BOC, as well as the account holder’s address.

24.  P claims that D is a vehicle of the Email Fraud Scheme and holds the Funds on trust for P. The Funds were transferred to D’s Account by mistake and were obtained in connection with the Email Fraud Scheme. D holds the Funds on constructive trust for P. D has not returned the Funds or any part of it to P ever since the Funds were transferred to D’s Account. D has been unjustly enriched by the receipt of the Funds as the transfer of the Funds was not made for any good consideration. The Funds that belong to P is still retained in D’s Account held under the name of D, and thus it would be unconscionable for him to retain such enrichment.

25.  P has suffered loss and damage and claims against D for the Funds which had been transferred to him on the ground of money had and received, unjust enrichment or otherwise by way of restitution or equitable compensation or damages.

26.  P was at all material times and still is entitled to trace the Funds or any part thereof which had come to the hands of D, and any profits and/or income and/or assets and/or interests derived by D from the Funds.

27.  P claims against the Defendant for (i) the restitution of the Funds on the ground of money had and received and/or unjust enrichment; (ii) a declaration that the Funds are held by D as constructive trustees in favour of P; (iii) a vesting order pursuant to sections 52(l)(e) and 52(5) of the Trustee Ordinance, Cap 29; (iv) interest; (v) costs; and (vi) further and/or other relief.

Discussion

28.  P based its case on fraud and restitution on the ground of money had and received and/or unjust enrichment, and through a claim of constructive trust.

29.  I accept P’s case regarding unjust enrichment and fraud. The SOC shows a case for the order that P seeks to obtain. P’s case is that the Hacker sent the Fraudulent Payment Instruction to P knowing that the instruction was totally false and fictitious. Induced by and acting in reliance upon the Fraudulent Payment Instruction, P transferred the sum of HK$298 to D’s Account. P does not and did not know D, P does not and did not have any affiliation and/or business relationship and/or dealings with D, P has and/or had no affiliation with D’s Account, the sum of HK$298 and the Funds were never intended for D. The Funds were transferred to D’s Account by mistake and was obtained in connection with the Email Fraud Scheme. This was uncontested due to the non-appearance of D. I see no reason not to accept P’s case on the facts.

30.  Regarding the claim based on unjust enrichment, money paid under a mistake of fact is prima facie recoverable provided that the payer did not intend the payee to have the money in any event, the money was not paid for good consideration and the payee has not in good faith changed his position: Barclays Bank Ltd v W J Simms Son & Cooke (Southern) Ltd & anor [1980] QB 677. In this case, P paid HK$298 to D in D’s Account in the mistaken belief that the instructions were given by HKT. The sum of HK$298 and the Funds were never intended for D. D has not changed its position and was unjustly enriched at the expense of P.

31.  The Court in Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79 per Ribeiro PJ set out the test for unjust enrichment at §67: (i) was the defendant enriched, (ii) was the enrichment at the plaintiff’s expense, (iii) was the enrichment unjust, and (iv) are any of the defences available.

32.  In this case, P relies on the unjust factor of mistake, as it paid HK$298 under the mistaken belief that the Counterfeit Email and Fraudulent Payment Instruction were genuine. P had no intention of paying D, with whom it had no business relationship. Certainly P had no intention of paying the Funds to D.

33.  When property is obtained by fraud, equity imposes a constructive trust on the fraudulent recipient so that the property is recoverable and traceable in equity: Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669, per Lord Browne-Wilkinson at 716C-D, applied by Recorder Lisa Wong SC in Mesirow Financial Administrative Corporation v Best Link Industrial Co Limited, unreported judgment HCMP 1846 of 2015 (25 January 2016) at §33; Sakhrani J in Michael Chen Kang Huang v Peter Lit Ma [2009] 6 HKC 191 at §§199I-200C.

34.  In Guaranty Bank and Trust Company v ZZZIK Inc Ltd, unreported judgment of DHCJ Cooney SC HCA 1139 of 2016 (18 July 2016), DHCJ Cooney SC at §28 referred to Lord Browne-Wilkinson’s proposition in Westdeutsche Landesbank Girozentrale which was applied in Papamichael v National Westminister Bank plc [2003] 1 Lloyd’s Rep 341:

“Equity imposes a constructive trust because (in the absence of a supervening barrier such as a contract) that is what justice requires where an asset has been obtained by fraud. The fraudster knows he has no right to the asset. He is in conscience bound to hold the asset for the transferor.”

35.  Insofar as the proposition specifically relates to fraud, it has been accepted as representing the law: see §29 of Guaranty Bank and Trust Company.

36.  I consider that the Funds transferred to D’s Account was obtained by fraud. P, who has been defrauded, may trace property into the hands of the recipient D. P can follow the Funds in equity through D’s Account where it has been mixed with other monies as equity treats monies in D’s Account as charged with the repayment of P’s Funds: Commerzbank AG v IMB Morgan plc [2005] 2 All ER (Comm) 564 at 572 at §36.

37.  I find that D holds the Funds on trust for P and the Funds are recoverable and traceable in equity.

38.  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: Lewin on Trusts 20^th ed, §42-083.

39.  D has knowledge of the fraud because of the Writ of Summons and SOC, and the Summons, which all have been served, as confirmed by the Affirmations of Fok Siu Leung and Choi Wai Kuen. However, D has neither paid nor made any attempt to pay the Funds to P.

40.  Furthermore, I consider it unconscionable for D to retain the Funds. P has neither had any business nor personal dealings with D prior to the Counterfeit Email and Fraudulent Payment Instruction. There was no legitimate reason for D to receive the Funds from P.

41.  P also seeks an order that D be restrained by itself, its servants or agents or otherwise, from parting with the Funds as received in D’s Account or any part thereof other than to P.

42.  It is well-established that the court has jurisdiction to grant injunctions in default judgments on an O 19 r 7 application: see Hong Kong Civil Procedure 2024, Vol 1 at §19/7/17; Biostime International Investment Ltd at §§12-13 and 15; Times Square Ltd at §14; Tang Chok Lam v Che Wen Seen Yuen Co Ltd [2011] HKEC 1381 at §15.

43.  On the facts as pleaded, I am satisfied that P is entitled to an injunction to restrain D by itself, its servants or agents or otherwise, from parting with the Funds as received in D’s Account or any part thereof other than to P.

Declaratory relief

44.  P seeks a declaration to the effect that the Sum is held by D as constructive trustee in favour of P.

45.  Had D appeared and defended these proceedings and the Court found the facts asserted by P after trial, P would be entitled to have declared that the Funds were held by D on trust for P.

46.  It is not the normal practice of the court to make a declaration without a trial. However, this is a rule of practice and not a rule of law: Guaranty Bank and Trust Company at §37; Mesirow Financial Administrative Corporation at §35. The paramount duty of the court is to do the fullest justice to P to which she is entitled.

47.  The practice will give way where the plaintiff has a genuine need for declaratory relief which the court can properly grant on the merits of the case: Hong Kong Civil Procedure 2024, Vol 1, at §15/16/2; Lai Wai Kuen v Wong Shau Kwong [2004] 4 HKC 528.

48.  A similar email fraud case was found in Quessglobal (Malaysia) Sdn Bhd v Sen Xin Ju Technology Trading Ltd [2020] HKDC 1091 in which Philips Wong DDJ at §18 granted declaratory relief as there was a genuine need for the declarations sought to affirm that the plaintiff has a proprietary interest in the sum transferred to the defendant’s account. Such declaratory reliefs would enable the plaintiff to pursue proprietary remedies against the defendant.

49.  In this case, P has a genuine need for declaratory relief. Very little is known about D, except that it has received the Funds obtained by fraud. The right asserted by P was one of title to property which I have found in P’s favour.

50.  An order against D for the return of the Funds would put P in the position of an unsecured judgment creditor of D. Such an order would not give P any prior or specific rights over the Funds. P should not face any risk of having to pursue its claim in competition with other creditors.

51.  A declaration by the court that the Funds are held on trust for P will earmark the Funds as P’s property and put them out of the reach of any other creditors of D.

52.  I consider it necessary to make the declaration sought in order to protect P in the event that other creditors appear. In the fraud and proprietary constructive trust cases of Mesirow Financial Administrative Corporation (at §38) and Guaranty Bank and Trust Company (at §38), the court expressed similar concerns and also considered a declaration to be necessary and appropriate. See also Hong Kong Civil Procedure 2024, Vol 1, at §19/7/20.

Execution of instruments by order of the Court

53.  P no longer seeks a vesting order under sections 52(1)(e) and 52(5) of the Trustee Ordinance but an order under section 38A of the District Court Ordinance regarding the execution of documents.

54.  In Quessglobal (Malaysia) Sdn Bhd the court had reservation on its jurisdiction to grant a vesting order under section 52(1)(e) of the Trustee Ordinance and referred to Tokić DOO v Hongkong Shui Fat Trading Ltd [2020] 4 HKLRD 189 in which Douglas Lam DHCJ held that the court had no jurisdiction to make a vesting order in this type of situation (at §§6-7).

55.  In Tokić DOO, Douglas Lam DHCJ referred to the decision in Wismettac Asian Foods Inc. v ZL Trade Limited & Ors [2020] HKCFI 1504, in which Paul Lam DHCJ conducted a review of a long line of first instance decisions in Hong Kong where the courts considered vesting orders under the section in respect of proceeds of fraud and proceeded on the assumption that they had jurisdiction to make an order under the section 52(1)(e) of the Trustee Ordinance.

56.  The one exception was 800 Columbia Project Company LLC v Chengfang Trade Ltd and others [2020] HKCFI 1293 in which Recorder Eugene Fung SC was not satisfied that the court’s jurisdiction under section 52(1)(e) of the Trustee Ordinance is engaged upon the making of a declaration that a defendant holds certain sums of money in a bank account on a constructive trust for a plaintiff.

57.  The extension of trustees to constructive trustees in section 2 of the Trustee Ordinance is confined to true constructive trustees or de facto trustees ie true trustees, and not wrongdoers in the position of knowing receipt or retention of proceeds of fraud. They are merely required by equity to account as if they were trustees or fiduciaries, although they are not. They have no trust powers or duties: §§15 and 16 of Tokić DOO, quoting Lord Sumption JSC in Williams v Central Bank of Nigeria [2014] AC 1189 at §26, a majority decision of the UK Supreme Court.

58.  The fact that the Court has declared the right to call for repayment from the bank as if he were a trustee does not vest the same in the wrongdoer as trustee or recast what is a remedial formula into an institutional trust to which the Trustee Ordinance can apply: §16 of Tokić DOO

59.  As Douglas Lam DHCJ observed in §21 of Tokić DOO:

“In my view, there is an additional route that may provide perhaps a more expedient remedy, especially in cases such as the present where the defendants are unlikely to respond or comply with any order of the Court. Section 25A of the High Court Ordinance (Cap 4) (the “HCO”) provides that inter alia where the Court has given or made a judgment or order directing a person to execute any conveyance, contract or other document, if that person neglects or refuses to comply with that judgment or order, the Court may, on such terms and conditions, if any, as may be just, order that the conveyance, contract or other document shall be executed by such person as the Court may nominate for that purpose. A conveyance, contract or document so executed shall have the same effect as if it had been executed by the person originally directed to execute it.”

60.  The District Court equivalent to section 25A of the High Court Ordinance is section 38A of the District Court Ordinance. In the circumstances, I make an order that D do, within 7 days from the date of service of the Order made herein, execute all necessary document(s) and/or such negotiable instrument(s) as may reasonably be required to instruct BOC to release and transfer to P the Funds as received in D’s Account, failing which, upon P’s filing of an affidavit that D neglects or refuses to comply with the Order made herein, or cannot, after reasonable inquiry, be found, a partner of P’s solicitors be authorised, 7 days thereafter, to execute such document(s) and/or endorse such negotiable instrument(s) as may reasonably be required to instruct the bank for the purpose of releasing and transferring to P the Funds as received in D’s Account.

Disposition

61.  For all these reasons, I formally make an order in terms of P’s Summons.

62.  Costs should follow the event. I order that costs of this action, including the costs of this application, be paid by D to P to be summarily assessed.

63.  For the purpose of the summary assessment of costs, I direct that:

(a) P do serve its statement of costs on D and file an affidavit of service confirming the same within 3 days hereof;

(b) D do, if so advised, lodge and serve its list of objections to P’s statement of costs within 5 days thereafter; and

(c) Assessment of costs shall be conducted on paper without a further hearing.

64.  I thank Mr Liang for his helpful submissions rendered to the court.