PRESCIENT CORPORATION v. DUNSE TRADING LTD

DCCJ 678/2019

[2019] HKDC 735

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 678 OF 2019

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REASONS FOR DECISION

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INTRODUCTION

1.  The plaintiff is the victim of a classic internet fraud case.

2.  By a summons dated 2 May 2019, the plaintiff applied for (i) default judgment under Order 13, rule 6 and Order 19, rule 7 of the Rules of the District Court (“RDC”); (ii) a vesting order pursuant to section 52(1)(e) and 52(5) of the Trustee Ordinance, Cap 29 (“the Ordinance”); (iii) leave to join Hang Seng Bank (“HSB”) as a respondent for the purpose of giving effect to the vesting order; and (iv) an order directing HSB to pay over the sum under the vesting order.

3.  At the end of the hearing on 20 May 2019, I gave judgment in favour of the plaintiff and said that I would provide my reasons for decision at a later date.  Here are the reasons.

BACKGROUND

The fraud

4.  The plaintiff is a Japanese company in the business of providing advisory and consultation work in the life science and healthcare field.  It has an on-going business relationship with one Mr Bob Coradini (“Coradini”) of Oak Tree Advisors, LLC (“Oak Tree”) in the United States.

5.  The defendant’s company was incorporated in Hong Kong in June 2018.  It has an issued capital of HK$10,000.  It has an address in what appears to be a residential building on Reclamation Street, Kowloon. The sole director and shareholder of the company is a Chinese national who has a reported address in a small village in Lishu County, Jilin Province in Mainland China. 

6.  The plaintiff has never had any business dealing with the defendant in whatever shape or form.

7.  In the course of their business dealing, the plaintiff owed Oak Tree a sum of US$24,000 for professional services rendered by Oak Tree in connection with the project they were working on together (“the Sum”).

8.  Between 25 August 2018 and 7 September 2018, the plaintiff received a number of emails from someone impersonating Coradini, directing the plaintiff to make payment for the project to the account of the defendant kept with HSB (“D’s Account”).  The emails received by the plaintiff bear an email address which highly resembles that of Coradini’s.  Unknown to the plaintiff at the time, the emails were from the fraudsters.  As a result, the plaintiff had unwittingly transferred the Sum into D’s Account on 12 September 2018.  Fortunately, the fraud was discovered by Coradini shortly after it occurred, who then informed the plaintiff about this.  Immediately, the plaintiff and Coradini reported the fraud to HSB, the Hong Kong Police, the Federal Bureau of Investigation (“FBI”) in the United States and the Tokyo Metropolitan Police in Japan.

9.  On 29 December 2018, the plaintiff was informed by the Hong Kong Police that D’s account has been frozen and the fraudulent transaction has been identified.  On 12 February 2019, the plaintiff issued a writ of summons together with the statement of claim.  It served the writ and the statement of claim on the defendant’s registered office on 15 February 2019.

10.  No acknowledgement of service or defence has been filed by the defendant.  As a result, on 2 May 2019, the plaintiff took out the present summons which was served on the defendant on 10 May 2019.

11.  This matter has been brought to the attention of HSB on 20 March 2019 by a letter from the plaintiff’s solicitors.  As the plaintiff applies to join HSB as the 1^st respondent in the case, a copy of the summons had been provided to HSB on 10 May 2019.  On 15 May 2019, HSB wrote to the plaintiff’s solicitors and indicated that they would take a neutral stance on the matter but requested the bank to be joined as a “third party” instead of 1^st respondent under any vesting order which may be granted by the court.  They asked to be excused from attending the hearing and agreed to be bound by any orders made by the court.

12.  As expected, the defendant did not appear at the hearing on 20 May 2019. 

Service of pleadings and documents

13.  According to the Incorporation Form, ie Form NNC1 of the defendant, which was signed by its director and filed with the Hong Kong Companies Registry on 11 June 2018, the defendant’s registered address is on Reclamation Street, Kowloon. 

14.  A total of 3 affirmations of service from the clerk of the solicitors have been filed regarding the service of the writ and statement of claim, the summons and the notice of hearing, together with copies of the hearing bundle and written submissions.  The clerk of the plaintiff’s solicitors confirmed under the affirmations that the above documents had been properly served at the registered office of the defendant by placing them inside a “see-through” plastic bag either affixing on the door or inserting them into the gap between the wooden door and the iron gate of the unit.

15.  I am satisfied that the service of all the above documents on those 3 separate occasions are in order.  As the defendant has failed to serve a notice of intention to defend or to file a defence, I find that it has no intention to contest or participate in the present proceedings.  On the date of the hearing itself, the defendant’s name had been called outside the court room prior to the commencement of the hearing but with no response.  I therefore did not see any point in adjourning the hearing on that date.

DISCUSSION

The Law

16.  According to the statement of claim, the plaintiff’s claim is one based on unjust enrichment and money had and received, through a claim of proprietary constructive trust. 

17.  Money paid under 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: see Barclays Bank Limited v W J Simms Son & Cooke (Southern) Ltd & anor [1980] QB 677 and Guaranty Bank and Trust Company v Zzzik Inc Ltd, unrep HCA 1139/2016 (18 July 2016; Deputy High Judge Cooney SC) at §27.

18.  I accept that this was what happened in the present case because the Sum was paid by the plaintiff to the defendant in the mistaken belief that the payment instructions were given by Coradini.  It was a direct and one-off transfer to the defendant.  The defendant has not changed his position.  It thereby has unjustly enriched at the expense of the plaintiff.

19.  In the aforestated premises, I find the Sum is held on constructive trust by the defendant for the plaintiff.  In Mesirow Financial Administrative Corporation v Best Link Industrial Co Limited, unrep, HCMP 1846/2015 (25 January 2016; Recorder Lisa Wong SC (as she then was)), the learned judge applied Lord Browne-Wilkinson’s Obiter in Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 at 716C and held that when the property is obtained by fraud, equity imposes a constructive trust on the fraudulent recipient, so that money is recoverable and traceable in equity.

20.  I agree with Mr Sam Chow, counsel for the plaintiff, that even if the defendant was not a party to the email fraud, its state of knowledge is such as to make it unconscionable for him to retain the money.  Under such circumstances, the defrauded claimant has a tracing remedy: see Commerzbank A G v IMB Morgan plc [2005] 2 All ER (Comm) 564 at §36.  Further, it has been said that knowledge does not have to be acquired at the time of received, it can be acquired subsequently or the money is receiving in hand: see Lewin on Trusts 19^th edition §42-083.

21.  Based on the pleaded facts and the circumstances of this case, I find the defendant should have acquired knowledge of the email fraud

from the fact that the plaintiff, who had no apparent business dealing with it, had transferred the Sum to its bank account which it has no legitimate reason to receive. Further, the defendant would have acquired knowledge of the email fraud when the writ and the statement of claim were served on it at the registered address.  Despite of the above, the defendant has neither paid back nor made any attempt to pay back the Sum to the plaintiff.

22.  I therefore consider it unconscionable for the defendant to retain the Sum.  I find the defendant holds the sum on trust for the plaintiff and the Sum is recoverable and traceable in equity.

Declaration

23.  Under the statement of claim, the plaintiff also seeks a declaration that the sum is held by the defendant as constructive trustee in favour of the plaintiff.  It has been said on many occasions that 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.  The paramount duty of the court is to do the fullest justice to the plaintiff to which he is entitled.  The practice will give way where the plaintiff has genuine need for declaratory relief which the court can properly grant on the merit of the case: see Hong Kong Civil Procedures 2019 Vol 1 §15/16/2; Lai Wai Kuen v Wong Shau Kwong [2004] 4 HKC 528.

24.  In this case, I find there is a genuine need for the plaintiff to obtain a declaratory relief.  The reason being that little is known about the defendant except that he has received the Sum which had been obtained by fraud.  Besides a registered address in what appears to be a residential building in Kowloon and a director/shareholder who is a Mainland national with an address in a small village in a remoted part in the Mainland, there is almost nothing known about the defendant.  However, it has all the hallmarks of a company which does not carry on any legitimate business in Hong Kong. 

25.  I agree with Mr Chow that an order against the defendant for the return of the Sum would make the plaintiff an unsecured judgment creditor of the defendant.  Such order would not give the plaintiff any prior or specific right over the Sum: see Mesirow, supra at §38. On the other hand, a declaration by the court that the Sum is held on trust for the plaintiff would earmark the fund as the plaintiff’s property and put them out of reach any other creditor of the defendant: see the remarks of Deputy High Court Judge Cooney SC in Guaranty Bank and Trust Company, supra at §38.  

26.  In fact, declaratory relief had been granted in the absence of the defendant(s) in a number of cases in Hong Kong involving fraud or email fraud in the past: see for example Domtonia International Co Ltd v Tianma Communication Limited, unrep, DCCJ 290/2019 (22 March 2019; Judge Winnie Tsui); Mesirow, supra; 巨展皮具香港有限公司 v 上海兄弟海運有限公司 [2018] HKCFI 53; PT Adhyawarna Bumi Pelangi v YB (HK) Trading Co Limited, unrep, HCA 774/2018 (31 July 2018; Deputy High Court Judge Keith Yeung SC); Guaranty Bank and Trust Company v Zzzik Inc Ltd, supra; Halliburton BV Merkezi Hollanda Ankara Merkez Turkiye Subesi v Sheng Yi (HK) Trade Co Ltd & Ors, unrep, HCA 1627/2016 (24 January 2017; Deputy High Court Judge Cooney, SC). 

27.  Based on the above, I am of the view that it is both appropriate and necessary to grant default judgment under Order 19 rule 7 and the declaratory relief sought by the plaintiff against the defendant in this case.

Vesting Order

28.  Another relief sought by the plaintiff is a vesting order under s 52(l )(e) and s 52(5) of the Trustee Ordinance, Cap 29.

29.  S 52(1)(e) and s 52(5) provide:-

“(1) In any of the following cases, namely—

(e) where stock or a thing in action is vested in a trustee whether by way of mortgage or otherwise and it appears to the court to be expedient,

the court may make an order vesting the right to transfer or call for a transfer of stock, or to receive the dividends or income thereof, or to sue for or recover the thing in action, in any such person as the court may appoint:

Provided that—

(i) where the order is consequential on the appointment of a trustee, the right shall be vested in the persons who, on the appointment, are the trustees; and

(ii) where the person whose right is dealt with by the order was entitled jointly with another person, the right shall be vested in that last-mentioned person either alone or jointly with any other person whom the court may appoint.

(5) The court may make declarations and give directions concerning the manner in which the right to transfer any stock or thing in action vested under the provisions of this Ordinance is to be exercised.”

30.  The Sum in the present case is a thing in action.  It is vested in the defendant by way of constructive trust, as submitted by the plaintiff above.

31.  The court may make a vesting order as to trust property where it is difficult, if not impossible, to deal with the sum without a vesting order (Halsbury's Laws of England (5^th ed, 2013) Vol 98, para 309).  Given the defendant has not responded to the claim and/or the summons and also has not taken action to repay the plaintiff the Sum, I consider that there is no realistic prospect that the defendant would be willing to transfer the Sum to the plaintiff.

32.  As such, it would be expedient for the court to make an order vesting the right to transfer in an appointee of the court, which in this case, would be HSB.

33.  There have been precedents where vesting order is sought and granted in a case of a fraud in Hong Kong:  See PT Adhyawarna Bumi Pelangi v YB (HK) Trading Co, Limited, supra; Guaranty Bank and Trust Company v Zzzik Inc Ltd, supra.

34.  Although in International Automotive Components Group s r o v Xuke Trading Limited & Anor, HCMP 546/2017, unrep, (19 April 2017; Deputy High Court Judge Paul Lam, SC) at §22, the court had reservation as to whether vesting order could compel a bank to return the trust property to a plaintiff because that only vests the right to recover the trust property, I consider that a bank is vested with such right.  What follows must be that the bank should return the trust property to the beneficiary.  I find this is a right to recover trust property for the beneficiary.  Thus, in addition to the vesting order, I made an order directing HSB to pay over the Sum under the vesting order to the plaintiff.

35.  In order to give effect to the vesting order sought, I also consider that it was necessary for the plaintiff to join HSB as 1^st respondent (rather than a third party) in this case.  Hence, I had made such an order.

CONCLUSION

36.  For the above reasons, in conclusion, I find the plaintiff has established the case of email fraud and the Sum is held by the defendant on constructive trust for the plaintiff.  Since there is no response from the defendant and the sum is held up in D’s Account, in my judgment, it would be appropriate and necessary to grant a declaratory relief to earmark the sum as the plaintiff property and in vesting order should also be granted so that HSB may be released the Sum to the plaintiff. 

37.  Based on the above, I entered default judgment against the defendant under the Order 19, rule 7 of the RDC and made an order in terms of the summons as amended in court on the date of hearing.  I also made a summary assessment on costs at HK$89,000 in favour of the plaintiff. I ordered the costs to be paid by the defendant to the plaintiff.

38.  Lastly, I would like to thank Mr Chow for his helpful assistance.