VALLEY COMMUNITY BANK v. KAITONG INVESTMENT (GROUP) LTD

HCMP 2800/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2800 OF 2012

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BETWEEN

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J U D G M E N T

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1.  The plaintiff is a California chartered banking corporation, the defendant is a company incorporated in Hong Kong and its director is a Mr Xu Zhihua. The plaintiff claims that they were a victim subject to a fraud scam and was induced to make a remittance of US$800,000 (hereinafter called ‘the fund’) to the defendant’s account with The Hongkong and Shanghai Banking Corporation Limited (hereinafter called ‘the HSBC account’) in November 2012.

2.  On or about 25 to 26 November 2012, the plaintiff received various e‑mails purportedly sent by the plaintiff’s director Mrs Anelli Stamm through her usual e‑mail address, and pursuant to the directions in such e‑mails, the plaintiff wired the fund to the HSBC account.  Given that:

(a)  all the purported e‑mails in respect of such transfer were sent from Mrs Stamm’s usual e‑mail account;

(b)  the sender of the e‑mails appeared to be Mrs Stamm; and

(c)  the sender referred to the plaintiff’s earlier ‘fax’ of wire form to Mrs Stamm and to Mrs Stamm’s family trust.

nothing caused suspicion to the plaintiff, so they remitted the fund to the HSBC account.

3.  Subsequently, on 27 November 2012, after liaising with Mrs Stamm, the plaintiff realised that it was subject to a scam conspiracy in connection with the defendant.  Mrs Stamm confirmed that she did not direct the plaintiff to transfer the fund to the defendant’s HSBC account.

4.  The plaintiff liaised with his correspondent bank, Union Bank, and also The Hongkong and Shanghai Banking Corporation Limited to recall the wire transfer.  The plaintiff also reported the scam to the United States and Hong Kong Police Force on 27 November 2012 and 29 November 2012 respectively.

5.  On 30 November 2012, the plaintiff credited a sum of US$800,000 into Mrs Stamm’s bank account with them.  The plaintiff therefore claims they suffered loss and damage caused by the scam.

6.  When the plaintiff liaised with The Hongkong and Shanghai Banking Corporation Limited, the bank required the plaintiff to make necessary application to the Hong Kong court so that they can freeze the fund in the HSBC account.

7.  The Hong Kong Police advised that on 5 December 2012 they wrote to The Hongkong and Shanghai Banking Corporation Limited to freeze the fund in the HSBC account, and the bank subsequently informed the police that the fund was identified and frozen by them.  The bank further advised the police there was only a balance of about US$799,000 left in the HSBC account after deduction of some administrative fees.

8.  The plaintiff understood that the measure by the Hong Kong Police was a temporary one and The Hongkong and Shanghai Banking Corporation Limited could not freeze the sum for a long time, so on 12 December 2012 the plaintiff commenced the present proceedings against the defendant to seek declaratory relief and orders for the release and return of the fund held by The Hongkong and Shanghai Banking Corporation Limited.

9.  On 13 December 2012, the plaintiff applied for and Mr Justice Poon granted a Mareva Injunction to freeze the defendant’s assets in Hong Kong, particularly its HSBC account up to the value of US$800,000 or its equivalent in Hong Kong dollars.

10.  On 21 December 2012, the Mareva Injunction was extended until judgment in these proceedings or further order.

11.  The plaintiff served the amended originating summons and the injunction orders on the defendant.

12.  On 15 January 2013, the plaintiff’s solicitors liaised with the Hong Kong Police.  The police had no objection to the release and return of the fund from the defendant’s HSBC account to the plaintiff so long as the court makes the relevant orders.

13.  The police also advised that as on 15 January 2013 the plaintiff was the only complainant in respect of the scam in connection with the defendant.  On the same day, an officer of The Hongkong and Shanghai Banking Corporation Limited confirmed to the plaintiff’s solicitors that the fund less some administrative fees had been frozen.  The plaintiff therefore believes that the fund less some administrative fees is distinctively identifiable in the defendant’s HSBC account.

14.  The defendant has not filed any acknowledgment of service and has not appeared at the hearing today, which is the first hearing of the originating summons.

15.  I am satisfied that the defendant has been notified of today’s hearing and served with the amended originating summons and the supporting affirmations and affidavits.

16.  I now deal with some procedural issues.

17.  First, whilst the substantive hearing of an originating summons should normally be in open court, in appropriate cases the court can proceed in a summary manner in chambers (see Wing Hang Bank Ltd v Liu Kam Ying and Others, HCMP 2519/2001, Ma J (“as he then was”) (unreported, 6 March 2002), and see also Order 24 rule 4(1) of the Rules of the High Court).

18.  Secondly, although declarations cannot be obtained by default, Order 28 rule 1 of the Rules of the High Court provides, inter alia, that Order 32 rule 5 shall apply in relation to originating summons as they apply to other summonses, and Order 32 rule 5 of the Rules of the High Court 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, it thinks it is expedient to do so.

19.  Today’s hearing is a hearing of the amended originating summons.  In the absence of the defendant, and given the provisions in Order 32 rule 5 of the Rules of the High Court and the circumstances and  nature of the case, I am satisfied that I can hear the plaintiff’s application for judgment.  If I am of the view that the matter can be dealt with summarily, the provisions in Order 28 of the Rules of the High Court will entitle me to do so.

20.  I now turn to the merits of the case.

21.  I am satisfied that the plaintiff has placed sufficient affirmation evidence before the court to support their application for judgment and the other orders sought in the amended originating summons.  Plainly, the plaintiff has transferred the fund to the defendant’s HSBC account under a mistake of fact that the payment instructions were given and/or the defendant was authorised to receive the payment which it is now known to be a scam.

22.  The defendant therefore is not entitled to the moneys and thus the defendant and/or The Hongkong and Shanghai Banking Corporation Limited are holding the moneys on trust for the plaintiff.  This will be sufficient to dispose of the matter.

23.  The plaintiff also relies on alternative causes of action, namely that:

(a)     the fund was transferred by the plaintiff and received by the defendant as a result of fraudulent misrepresentation and as such the amount is recoverable from the defendant who holds the fund in the defendant’s HSBC account on constructive trust in favour of the plaintiff who has been unjustly deprived; and/or

(b)     there was total failure of consideration for the remittance of the fund from the plaintiff to the defendant, and given that the fund is traced and identifiable in the HSBC account even though it has been converted into Hong Kong dollars, the plaintiff has proprietary interest in the fund or its Hong Kong dollar equivalent.

24.  I am also satisfied that these grounds are made out.  I therefore grant the following orders:

(a)  it is ordered and declared that the sum of US$800,000 and any interest accrued thereon (collectively ‘the funds’) held by or standing to the credit of the defendant, more particularly described in the schedule to the amended originating summons are funds held on trust by the defendant for the plaintiff, and that the funds are funds held on trust by The Hongkong and Shanghai Banking Corporation Limited for the plaintiff; and

(b)  it is ordered that (i) the funds, after deduction of their reasonable service charges on remittance transaction(s) be forthwith released and returned by The Hong Kong and Shanghai Banking Corporation Limited to the plaintiff, (ii) the defendant do pay to the plaintiff any balance of the sum of the US$800,000 less the actual sum released and returned by The Hongkong and Shanghai Banking Corporation Limited to the plaintiff pursuant to (i) above, and (iii) interest on the balance due to the plaintiff pursuant to (ii) above at judgment rate from 26 November 2012 to the date of judgment, and thereafter at judgment rate until full payment.

25.  The plaintiff asks for summary assessment of costs on an indemnity basis.

26.  Although I see no reason why I should not proceed with summary assessment of costs, I am not persuaded that it is appropriate to award costs on an indemnity basis.

27.  The plaintiff says that the defendant has been served and should know that The Hong Kong and Shanghai Banking Corporation Limited would only act in accordance with his instructions and the court’s order, so inevitably the plaintiff has to institute proceedings for the release and the return of the funds.  Given the element of fraud in this case, the plaintiff argues that the court should award costs on an indemnity basis in its unfettered jurisdiction to make costs orders.

28.  Whilst I accept that there is an element of fraud in this case, as evident from the plaintiff’s affirmation evidence, it does not follow that indemnity costs are justified.  There is no conduct on behalf of the defendant in this litigation that takes the matter outside the realm of being hostile in the normal litigation sense or that the pursuit of the defence constituted conduct which was part of an oppressive game plan. Here, the defendant did not put up any resistance at all.  In the circumstances, I consider that party and party costs is appropriate.

29.  I therefore award costs of and incidental to this application and of this action to the plaintiff to be assessed by way of summary assessment on party and party basis.

30.  Having considered the plaintiff’s statement of costs for summary assessment, I have the following observations:

(a)  The hourly rate of the fee earners in the statement of costs are on the high side.  This is not a complicated matter and Mr Fung, solicitor for the plaintiff, accepts that on a party and party basis the hourly rates of CC should be $4,000 and himself, MF, should be $2,500.  I consider those hourly rates appropriate.

(b)  However, the time spent on items D1 and D3 appear to be overstated.   As I said, this appears to be a straightforward matter with no resistance from the defendant and the facts fall within a small compass.

(c)  I am not persuaded that CC needs to spend 2 hours on the general care and conduct of this case when time has been claimed for him under items C1, D1 and D2, no doubt for his supervision over the actual case handler MF.

31.  However, I accept that there has to be liaison with an overseas client and also with other parties such as the police and The Hongkong and Shanghai Banking Corporation Limited, and the Mareva Injunction had to be obtained on an urgent basis.

32.  Dealing with the matter on a broad‑brush basis, I summarily assess costs of this action and including this application to be $100,000.