SOUTH AMERICAN INTERNATIONAL BANK CURAÇAO N.V. v. YING XIN TRADING CO LTD AND ANOTHER

HCA 3012/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CIVIL ACTION NO. HCA 3012 OF 2016

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REASONS FOR DECISION

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A.  Introduction

1.  This is an application by the plaintiff for default judgment against the 2^nd defendant.

2.  At the hearing, I refused part of the relief sought by the plaintiff and ordered that judgment be entered against the 2^nd defendant for the sum of USD359,480, together with interest and costs.  I now give my reasons for my decision.

3.  The plaintiff is an international bank.  At the material time, a company known as Hunting International A.A.V. (“Hunting”) held two bank accounts with the plaintiff.

4.  The plaintiff’s case is that a fraudster of unknown identity fraudulently impersonated as the authorized signatory of Hunting, and thereby misled the plaintiff to transfer funds out of Hunting’s accounts into the account of a company called Zhan Runlong Trading Limited (“ZRT”) on 3 occasions.

5.  The first transfer in the sum of USD80,420 was made on 1 April 2015, the second transfer in the sum of USD230,150.43 was made on 9 April 2015 and the third transfer in the sum of USD489,152 was made on 14 April 2015.

6.  Around the same time, funds were transferred out from the account of ZRT to the bank accounts of the 1^st and 2^nd defendants in Hong Kong.

7.  As far as the 2^nd defendant is concerned, its bank account received a sum of USD129,380 from ZRT’s account on 8 April 2015 and another sum of USD230,100 from ZRT’s account on 13 April 2015.

8.  In the Statement of Claim, the plaintiff claims against the 2^nd defendant for the sum of USD359,480 (i.e. USD129,380 + USD230,100) (the “Sum”), a declaration that the 2^nd defendant holds the Sum and its traceable proceeds on constructive trust for the plaintiff, as well as some consequential relief in connection with such constructive trust.

9.  Four causes of action are relied upon by the plaintiff, namely: (a) unjust enrichment, (b) unconscionable receipt and dishonest assistance, (c) conspiracy to injure, and (d) conversion.

10.  Causes of action (a), (c) and (d) go to support the plaintiff’s claim for a monetary judgment in respect of the Sum, and cause of action (b) goes to support the plaintiff’s constructive trust claim.

B.  Approach for granting default judgment

11.  I am satisfied that on the evidence presently available before me, the plaintiff has duly served the Writ, the Statement of Claim and also the Summons for this application on the 2^nd defendant, which is a company incorporated in Hong Kong.

12.  Given that the Writ and the Statement of Claim contain claims not mentioned in Order 13, rules 1 to 4 and Order 19, rules 2 to 5, the present application was taken out pursuant to Order 19, rule 7.

13.  Under Order 19, rule 7, in default of defence, a plaintiff may apply to the court for judgment, and “on the hearing of the application the court shall give such judgment as the plaintiff entitled to on his statement of claim”.

14.  Accordingly, in the present application, this court is required to scrutinize whether the matters pleaded in the Statement of Claim entitle the plaintiff to the judgment sought.

15.  Further, where a declaration is sought, this court needs to bear in mind that it is not the normal practice of the court to make a declaration without a trial.  This is, however, only a rule of practice, but not a rule of law and it needs to give way to the paramount duty of the court to do the fullest justice to the plaintiff to which he is entitled: see Top One International (China) Property Group Co Ltd v Top One Property Group Ltd [2011] 1 HKLRD 606 per Fok J (as he then was) at §78.

16.  Particularly, where the basis of the declaration sought rests on some serious allegations of fraud or dishonesty, there is a further reason for the court to exercise caution in granting declaration by way of default judgment.  In the absence of a judgment reached after hearing evidence, a declaration could be based only on unproved allegations, which might have proved to be such had the facts been investigated: see Top One (supra) at §§81‑83.

17.  At the end of the day, in deciding whether the interest of justice would or would not be served by granting the declaration sought by way of default judgment, the court is required to consider all the circumstances of the particular case in light of the aforesaid guidance.

C.  The monetary claim

18.  Regarding the monetary claim for the Sum, I am not persuaded that I should grant default judgment on the basis of the claim of unjust enrichment.

19.  My difficulty with this cause of action is that on the pleaded facts, the 2^nd defendant was a “second‑layer” recipient (as opposed to a direct recipient) and the matters pleaded in the Statement of Claim are not sufficient to establish that the 2^nd defendant was enriched at the expense of the plaintiff.

20.  As pointed out above, the first sum of USD80,420 transferred from the plaintiff to the bank account of ZRT took place on 1 April 2015.  Before the second sum was transferred to ZRT, ZRT already transferred a larger sum of USD129,380 to the 2^nd defendant on 8 April 2015.  In other words, out of the said sum of USD129,380 transferred to the 2^nd defendant, a sum of at least USD48,069 (i.e. USD129,380‑USD80,420) was apparently not attributable to the money transferred from the plaintiff to ZRT on 1 April 2015.

21.  Mr Ernest CY Ng, Counsel for the plaintiff, submitted that this court should apply the doctrine of backward tracing and hold that the money received by the 2^nd defendant was so received at the expense of the plaintiff.

22.  With respect, I am unable to accept Mr Ng’s submission.  In my view, if the plaintiff seeks to invoke the doctrine of backward tracing, the matter ought to be properly pleaded and supported by proper particulars.  In the absence of that, I am unable to satisfy myself that the plaintiff is entitled to a monetary judgment for the Sum based on the cause of action of unjust enrichment.

23.  As to the cause of action of conversion, I doubt whether it is applicable because the authorities cited by Mr Ng show that this cause of action only applies to unauthorized dealing with “chattels”, and is inapplicable to “choses in action”: see Clerk & Lindsell on Torts (21^st ed) §§17‑06 & 17‑38.  The subject matter in this action are the credits standing in bank accounts.  They are clearly “choses in action” which cannot be converted.

24.  That said, on the basis of the matters pleaded in the Statement of Claim, I am satisfied that the plaintiff is entitled to judgment on the basis of the cause of action of conspiracy to injure.  The problem of backward tracing, which I have identified above, does not impugn upon the validity of a claim for conspiracy to injure.  Where there is such conspiracy, each of the co-conspirators would be jointly and severally liable irrespective of whether he or she has obtained any money or benefit, whether directly or indirectly.

D.  The constructive trust claim

25.  It is trite law that a claim for unconscionable receipt or dishonest assistance only arises when there has been a breach of trust or fiduciary duty.  My difficulty in granting default judgment in respect of the plaintiff’s constructive trust claim is that there is no express plea regarding the existence of a trust or fiduciary duty in the Statement of Claim.

26.  Further, I also note that in relation to the particulars of unconscionable receipt or dishonest assistance given by the plaintiff, they are effectively a bunch of negative assertions of which the plaintiff, in normal course of event, would have no knowledge (e.g. there had been no substantive business dealings between ZRT and the 2^nd defendant, the 2^nd defendant do not have any substantial or legitimate business in Hong Kong, etc).  There is, at least, a doubt as to whether the plaintiff will be able to prove these allegations if the matter is to go to trial.

27.  In the circumstances, I am not persuaded that it is appropriate to grant the declaratory relief sought in relation to the plaintiff’s constructive trust claim.  Having heard my aforesaid concerns regarding the plaintiff’s constructive trust claim, Mr Ng also sensibly indicated at the hearing that the plaintiff would not pursue the same.

E.  isposal

28.  For the above reasons, at the hearing, I ordered that judgment be entered against the 2^nd defendant in respect of the Sum, but refused granting the declaratory relief (as well as the consequential relief of account) in favour of the plaintiff in respect of its constructive trust claim.

29.  In its application, the plaintiff also asks me to vary the Mareva injunction so as to permit that the plaintiff to withdraw the Sum from the 2^nd defendant’s account.  Such application is not an application under Order 19, rule 7.  I have no jurisdiction to grant such application at the hearing and was not prepared to do so without any proper application supported by proper evidence.  In any event, I doubt very much whether such variation if necessary.  Even if it turns out to be necessary, the plaintiff can still make an application for variation with proper evidence in support there and then.

30.  Last but not the least, I wish to thank Mr Ng for his assistance and also for his sensible way in handling this application.