WELLS FARGO SECURITIES, LLC AND ANOTHER v. TIAN RUIDA INDUSTRIAL CO., LTD

HCA 1943/2018

[2018] HKCFI 2495

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1943 OF 2018

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D E C I S I O N

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1.  This is an application under Order 19 rule 7(1) for a default judgment.  It is well-established that on the hearing of such an application the court shall give judgment as the plaintiffs appear entitled to in the Statement of Claim. In fact, it has been said that the court cannot even receive evidence (see Hong Kong Civil Procedure 2019, paragraph 19/7/11).

2.  The plaintiffs are subsidiaries of Wells Fargo.  The University of Wyoming Foundation (UOWF) is one of their customers.  It maintains an account with the two plaintiffs jointly.  The account is referred to in the papers as “the Wells Fargo Account”.

3.  The plaintiffs pleaded case is that they were joint bankers of UOWF.  There appears to be no reason why I should not accept this plea.  Mr Lam for the plaintiffs submits that any subsequent internal booking regarding to which entity the loss should be attributed does not change the fact that the account was a joint one and the loss was jointly suffered.  I also accept that submission.

4.  On 31 July 2018, two accounts representatives of the 1st plaintiff received an e-mail purportedly from UOWF containing an instruction for US$9 million to be wired from the Wells Fargo Account to an account under the defendant’s name with a different bank.  The e-mail also refers to a memo from an entity named Tian Ruida LP to UOWF requesting UOWF to make a capital contribution in the sum of $9 million, thereby giving an impression that the request for the US$9 million transfer was legitimate and was supported by a genuine commercial transaction.

5.  The staff of the plaintiffs followed this purported instruction and arranged for the transfer of US$9 million to the account of the defendant on the same day. The next day, that is, 1 August 2018, the plaintiffs discovered that the purported instructions did not come from UOWF but instead came from a fraudster.  It would appear from the pleaded facts that the purported instruction was indeed fraudulent.  It would follow that the plaintiffs have a claim against the defendant for the return of the money as money paid under a mistake of fact.

6.  The plaintiffs further claim that the defendant had sufficient notice and knowledge in respect of the mistake and/or fraud so as to make it unconscionable for the defendant to retain the benefit of the money.  This is primarily on the basis that since there was no genuine dealing between UOWF and the defendant, there was no legitimate reason for the defendant to receive the money from UOWF. Indeed, it was probable that the defendant was a participant in the fraud because it was the recipient named by the fraudster in the purported instructions.

7.  Mr Lam submits, and I agree, that equity imposes a constructive trust on the fraudulent recipient, citing 巨展皮具香港有限公司 v 上海兄弟海運有限公司 [2018] HKCFI 53, paragraph 27, Deputy High Court Judge Keith Yeung SC, which in turn cites a number of other authorities.  I am also satisfied that the pleaded facts would support a claim of knowing receipt against the defendant entitling the plaintiffs to seek an account against the defendant.

8.  The plaintiffs now apply for default judgment in terms of the draft judgment in the bundle and subject to some amendments that we discussed just now.  The application was made on the basis that no notice of intention to defend is given after effective service of the writ and the statement of claim.  The service effected was pursuant to an order in paragraph 14 of the injunction dated 17 August 2018.  Upon perusal of the evidence filed, I am satisfied that such service was in order.

9.  The judgment sought contains, among other things, a declaration.  Mr Lam has fairly drawn my attention to the usual practice that the court will not grant a declaration without trial, but he submits, and I accept, that such declaration is appropriate where there is a genuine need for relief such as to secure the plaintiffs’ proprietary as opposed to merely personal claims (see Sultana Distribution Services Inc v Hongkong Fuheng Technology Company Limited, [2018] HKCFI 1480, paragraph 8, Deputy High Court Judge Alexander Stock SC; Mesirow Financial Administrative Corporation v Best Link Industrial Company Limited, HCMP 1846/2015, 25 January 2016, paragraphs 35 and 38, Recorder Lisa Wong SC as she then was).

10.  As mentioned above, I accept that the pleaded facts support a proprietary claim. I further accept that in the present circumstances it is appropriate to grant a declaration, given that the defendant may have other creditors.

11.  For these reasons I will grant the default judgment essentially in terms of what has been sought in the bundle and I will come to the precise terms in a moment.  I am likewise persuaded that the injunction order which was obtained on 17 August 2018 and continued on 24 August 2018 should be continued in terms of paragraph 3 of the summons.

12.  So I now come to the detailed terms of the order.  I accede to the application for judgment in terms of pages 5 and 6 except that in paragraph 4, I would cross out the words in parenthesis because the costs of the summons is to be separately provided for in the other order that I am asked to and will make.

13.  In respect of the summons, I have been given a draft order at the beginning of the hearing.  After discussion with Mr Lam, I consider that the correct course is to make an order in response to the summons, and a judgment for the action, and that is what I will endeavour to do.

14.  On that basis, in respect of the summons, I will make an order in terms of the draft submitted to me subject to the following amendments.  First is that in paragraph 1 I will make an order in the following terms: no defence having been filed by the defendant, judgment be entered against the defendant as per the judgment dated today, and by that judgment I mean the judgment that I will make essentially in terms of pages 5 and 6 of the bundle; paragraph 2, I will say costs of the summons be to the plaintiffs, to be taxed if not agreed; and I will make an order in terms of paragraph 3 which deals with the injunction.