CINATIC TECHNOLOGY LTD v. HEYKAS TECHNOLOGY CO. LTD AND ANOTHER

DCCJ 5874/2019

[2020] HKDC 519

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 5874 OF 2019

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REASONS FOR DECISION

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INTRODUCTION

1.   This is yet another too prevalent case of internet fraud these days where the plaintiff fell victim to an email scam.  The 1^st defendant was the original defendant in this case (and will be referred to as “the defendant” below). The plaintiff was tricked into transferring a sum of US$210,029.62 (“the Sum”) into the defendant’s account kept with the respondent, Hong Kong and Shanghai Banking Corporation Limited (“HSBC”). 

2.   The applicant (who as a result of my order made on 18 June 2020 became the 2^nd defendant in this case but will be referred to “the applicant” hereinbelow), Pt. Tpr Sales Indonesia, was the victim of a similar email scam which also involved with the defendant and the same bank account kept by the defendant with HSBC.

3.   At the hearing on 18 June 2020, I dismissed the summons taken out by the plaintiff for default judgment under Order 19 rule 7 of the Rules of the District Court, Cap 336H and a vesting order under section 52(1)(e) of the Trustee Ordinance, Cap 29 (“P’s Summons”). I also gave leave to HSBC to be joined as the respondent in the present proceedings under P’s Summons. I further gave leave to the applicant to be joined as the 2^nd defendant in this case under the applicant’s summons (“AP’s Summons”).  I adjourned the issue in relation to the variation to the injunction order granted by His Honour Judge Kent Yee on 8 November 2019 (“the Injunction Order”) to a date to be fixed after the determination of the setting aside of the garnishee order application before a High Court master.  I also made costs orders in relation to both summonses.

4.   I said I would provide the reasons for my decision in due course.  Here are the reasons. 

BACKGROUND

P’s Summons

5.   The plaintiff is a limited company incorporated in Hong Kong specializing in the manufacturing and sales of baby monitors.  It has a long term business relationship with a company by the name of Alford Industries Ltd (“Alford”), a supplier of baby monitors.

6.   The defendant is a limited company which has recently been registered in Hong Kong with a registered address in what appears to be a secretarial company. Its sole director and shareholder is a woman by the name of Gan Yan Ping (甘燕萍) with a reported address in Shenzhen in the Mainland. 

7.   The plaintiff had no business relationship or dealings with the defendant at all prior to or after the transfer of the Sum by the plaintiff.

8.   In January 2019, as part of its normal business dealings with Alford, the plaintiff ordered some baby monitors in the value of the Sum, which was due in August 2019.

9.   Between 1 and 4 August 2019, Ms Lily Tong of the plaintiff received several emails from the impersonator(s) of Ms Shirley Siu of Alford, directing it to transfer the Sum to a HSBC account in the name of the defendant (“D’s Account”).  As common with such internet fraud cases, the emails used by the impersonator(s) bear an email address highly similar to that of Ms Siu’s actual email address.

10.   Without suspecting anything out of the ordinary, the plaintiff transferred the Sum into D’s Account on 5 August 2019.

11.   Upon the plaintiff’s third party discovery application, HSBC has disclosed to the plaintiff the bank statements of D’s Account.  They revealed the Sum was deposited into a sub-account of D’s Account, namely, a foreign currency USD savings account.

12.   Fortunately, the plaintiff was able to discover the fraud shortly after it had been perpetuated.  As it had made a report to the police almost immediately, the police was able to freeze the Sum in D’s Account.  Prior to the transfer of the Sum, the USD sub-account of D’s Account stood at US$106.90 only.

13.   On 6 August 2019, the plaintiff was informed by its account manager at HSBC that D’s Account had been frozen.  As the defendant did not respond to HSBC’s request to release the frozen money, in mid-September 2019, HSBC urged the plaintiff to take legal advice on the matter.

14.   On 29 October 2019, the plaintiff issued the writ of summons in the present proceedings.  On 29 November 2019, the plaintiff filed the statement of claim.

15.   On 8 November 2019, the plaintiff obtained the Injunction Order before His Honour Judge Kent Yee against the defendant to restrain it to, inter alia, remove its assets within the jurisdiction equivalent to the Sum and/or to dispose the Sum in D’s Account.

16.   On 8 May 2020, the plaintiff amended the statement of claim pursuant to the order of Registrar Lui dated 27 March 2020. 

17.   As expected, no acknowledgment of service or defence has been filed by the defendant.

18.   On 26 May 2020, the plaintiff took out P’s summons which was served on the defendant on the next day.  As the plaintiff has applied to join HSBC as the respondent in the case, the bundles were served on HSBC on 27 May 2020.

19.   On 3 June 2020, HSBC confirmed by a letter via its appointed solicitors Messrs Deacons that they would take a neutral stance on the matter.

20.   The plaintiff’s claim against the defendant is one based on unjust enrichment and money had and received, through a claim of proprietary constructive trust.  It seeks a declaratory relief against the defendant.  It also seeks a vesting order against the defendant pursuant to sections 52(1)(e) and 52(5) of the Trustee Ordinance, Cap 29.

21.   In order to give effect to the vesting order, the plaintiff further seeks leave to join HSBC as a respondent in the present case.

AP’s Summons

22.   The applicant applied to join the present proceedings by way of AP’s Summons filed on 15 June 2020 where it also sought to vary the Injunction Order.

23.   The applicant contends it is inappropriate for the court to grant the declaratory relief and vesting order sought by the plaintiff at the hearing, given there are outstanding issues to be resolved regarding parties’ competing interests in the monies in D’s Account:-

(1)   A garnishee order absolute had already been granted by Master Ho in the High Court in HCA 1425/2019 (proceedings between the applicant and the defendant) after final judgment was obtained (“Garnishee Order”). There is no stay against such judgment. The applicant is, in principle, entitled to enforce the judgment, and be paid as a garnishor and judgment creditor; and

(2)   The relief sought by the plaintiff ought only be granted in default where it is “just” or necessary. Given the application for joinder, the court ought to take into account fuller evidence and argument about the priority and nature of parties’ interests before acceding to the plaintiff’s claims, so as to be fully scrutinize the merits.[1]

24.   It is apparent that both the plaintiff and the applicant fell victims to the same fraudsters, namely, the defendant and its associates.

25.   On 29 May 2019, an employee of the applicant transferred the sum of USD 712,730.15 to D’s Account, pursuant to various fraudulent emails purportedly sent by the plaintiff’s genuine supplier.

26.   On 7 August 2019, the applicant commenced HCA 1425/2019 against, inter alias, the defendant.

27.   On 16 October 2019, the applicant obtained a final judgment against the defendant for payment of the sum of USD 712,730.15 (with interest) and costs under the High Court action.

28.   As said, on 8 November 2019, the plaintiff obtained the Injunction Order against the defendant.

29.   On 29 November 2019, the applicant obtained the Garnishee Order against the defendant in its capacity as judgment debtor and HSBC as garnishee. It was made against D’s Account for the judgment debt in HCA 1425/2019. At the hearing for the Garnishee Order, as common in such cases, HSBC did not attend.  Neither the applicant nor the High Court master who heard the application was informed that there were pending proceedings taken out by the plaintiff against the defendant, including the Injunction Order obtained before His Honour Judge Kent Yee on 8 November 2019.

30.   After obtaining the Garnishee Order, the applicant sought to arrange payment from HSBC pursuant to the terms of the order. However, on 10 January 2020, the applicant’s solicitors were informed by letter from the plaintiff’s solicitors that an Injunction Order had been obtained against D’s Account on 8 November 2020.

31.   After a copy of the Garnishee Order had been provided to the plaintiff’s solicitors, on 20 January 2020, the plaintiff took out a summons in HCA 1425/2019 applying to set aside the Garnishee Order. As confirmed by the plaintiff at the hearing, that summons remains pending and was scheduled to be heard before Master SP Yip of the High Court on 24 June 2020, about a week after the hearing of the applications before me.

32.   As of the date of the hearing before me, the applicant has not had received any payment from HSBC notwithstanding the Garnishee Order remained valid.  Nor the Garnishee Order had been set aside or impugned by the plaintiff or any party.

33.   During the hearing, Ms Kwong for the plaintiff has indicated to the court that the plaintiff was happy to proceed to deal with both summonses. The plaintiff also consented to HSBC to be joined as a respondent in this case and agreed to pay its costs.

DISCUSSION

34.   On P’s Summons, I have no problem in accepting Ms Kwong’s submissions that (i) the plaintiff had a genuine need for a declaratory relief; (ii) it had demonstrated that prima facie it was a victim of the fraud; (iii) it had properly served all the relevant documents and submissions on the defendant; and (iv) there was a lack of intention to defend the proceedings on the part of the defendant.

35.   In the ordinary course of events, I would have no problem in granting what the plaintiff was seeking for under P’s summons.

36.   However, this is by no means an ordinary situation here.

37.   First, both the applicant and the plaintiff fell victims to the same fraudsters of the email scams.  The applicant, who had already obtained the Garnishee Order well before the plaintiff issued P’s Summons against the defendant for default judgment, must, in my view, be considered as a party who would be “directly affected, either legally or financially, by any order which may be made in the action”[2]. As such, the applicant should be allowed to join as a party in this case.

38.   Second, there are clearly competing interests existed amongst the plaintiff and the applicant on the monies left in D’s Account.  As of the date of the hearing, what the applicant had was a final judgment against the defendant under the High Court action, together with the Garnishee Order obtained.   In the absence of a stay, the applicant was at liberty to enforce the judgment against the defendant in that case: See International Associated Attorneys Ltd v Eurostock Energy Ltd, unrep., HCA 180/2012 (5 October 2012; per Au-yeung J).  In contrast, what the plaintiff had was merely the Injunction Order which does not create any security interest, confer priority or any proprietary interest on it.  It does not have the effect of preventing a judgment creditor from exercising his right to seek a garnishee order: See Clearflow Commercial Finance Corp v ATL Power Systems Co Ltd, unrep., HCA 750/2017 (13 July 2017; DHCJ Joseph Kwan).  If the court were to disallow the applicant to join as a party to the present proceedings and to allow the plaintiff to enter default judgment against the defendant, it would deprive the applicant the opportunity to even argue whether the final judgment and Garnishee Order obtain should prevail the interest of that of the plaintiff obtained through the Injunction Order.         

39.   The plaintiff’s main thrust of the argument is that if one were to look at the bank statements of D’s Account discovered from HSBC, it is clear that the only money left was those transferred from the plaintiff’s accounts on 5 August 2019 in the sum of USD 210,029.62[3]. The plaintiff pointed out that, prior to the deposit of this sum of money, there was only a balance of HK$992.78 in D’s Account.  If there were any deposits of any significant amount(s) prior to the deposit of USD 210,029.62 on 5 August 2019, such sum(s) had already been transferred out by the date of the plaintiff’s deposit.

40.   The plaintiff therefore submits that the flow of the funds shows what was left in D’s Account must be the Sum belonged to the plaintiff and as such the applicant could only make application for further discovery in order to trace their own monies.  It says it is the route that they should have taken in order to recover their own monies.  The plaintiff says that at best the applicant was an unsecured monetary judgment creditor.

41.   While it is true to say that it appears the monies now left at D’s Account mainly consisted of those transferred by the plaintiff on 5 August 2019, it is in my view not correct to say somehow the plaintiff’s rights or interests should take priority to that of the applicant’s.  After all, as of the date of the hearing, vis-à-vis the defendant, the applicant was a judgement creditor armed with the Garnishee Order ready to be executed against D’s Account while the plaintiff only had at hand the Injunction Order which allowed it to freeze any amount up to the Sum only.  In my judgment, the applicant must be given a chance to present its evidence and arguments before default judgment was allowed to be entered against the defendant in the present proceedings.

42.   Third, in my judgment, it would not be appropriate to grant a declaratory relief to the plaintiff in the case as to do so would create unfairness and injustice to another innocent party who had other rights and interests in the same monies in the same bank account.  It has been repeatedly said that it is not the normal practice for the court to make a declaration without a trial: See HKCP 2020 at §19/7/20. However, this is not an inflexible rule.  The paramount duty of the court is to do the fullest justice to the plaintiff of which he is entitled.  The practice will give way where the plaintiff has genuine need for declaratory relief which the court can grant on the merit of the case: See HKCP 2020 §15/16/2; Lai Wai Kuen v Wong Shau Kwong [2004] 4 HKC 528; Prescient Corporation v Dunse Trading Limited [2019] HKDC 735 at §23.

43.   In my judgment, when considering what is “fullest justice” to the plaintiff the court should also take into account of any profound and serious implications which the declaratory relief may have on the rights and interests of a third party (like the applicant in this case).  In my view, doing justice to other party who may have a legitimate claim or interest on the same money or property of which a plaintiff is seeking declaratory relief on is equally important. The court must be slow in granting such declaratory relief under such circumstances.

44.   Fourth, there are a number of legal and factual issues which remained to be resolved by the court in this case.  They included:

(i)   As a matter of priority, as of the date of the hearing, the applicant has an absolute right for asking HSBC for making a payment out of D’s Account under the Garnishee Order;

(ii)   There is no evidence to suggest that the applicant had any knowledge of the present proceedings or the Injunction Order as of the date when it obtained the Garnishee Order, namely, on 29 November 2019, before Master Ho in the High Court.  In fact, to the contrary, the plaintiff had waited for 20 days before serving the Injunction Order on HSBC, namely on 28 November 2019, one day before the applicant obtained the Garnishee Order absolute;

(iii)  In any event, it is the garnishee’s duty (HSBC in this case) to acquaint the court with any claim or lien known to it: See HKCP 2020 §49/6/1. While I can appreciate why HSBC could not have been in the position to inform Master Ho of the Injunction Order at the hearing on 29 November 2019 (it being a large corporation and such documents may take at least a couple of days before reaching the officer responsible for the case), it is clear that the applicant did nothing irregular or improper when it obtained the Garnishee Order before the Master.

CONCLUSIONS AND ORDERS MADE

45.   Based on the aforesaid, I reached the conclusion that it would not be fair or just to grant the declaratory relief sought by the plaintiff against the defendant without first giving the opportunity to the applicant to canvass all the relevant evidence and arguments about the nature of the parties’ interests in the monies in D’s Account. Hence, I dismissed P’s Summons at the end of the hearing on 18 June 2020.

46.   As a result, I also adjourned the applicant’s request for the variation of the Injunction Order pending the outcome of the setting aside of the Garnishee Order application made by the plaintiff before Master SP Yip in the High Court.

47.   I also allowed HSBC to be joined as a respondent in the present proceedings and the applicant to be joined as the 2^nd defendant in the present proceedings.

48.   On the issue of costs, after hearing submissions from the parties, I made an order that the costs of P’s Summons to be borne by the plaintiff on a party and party basis, such costs to be taxed if not agreed, with certificate for counsel.  For the costs of HSBC under P’s Summons, as agreed by the plaintiff, the costs should be borne by the plaintiff and on an indemnity basis.  It was summarily assessed by me at the end of the hearing at HK$35,000.  In relation to the costs of AP’s Summons, I ruled that the costs should in the cause of the action.