JENSONN POWER SYSTEMS PTE LTD v. LISHAN ZHI TRADING CO LTD

DCCJ 5986/2019

[2020] HKDC 629

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 5986 OF 2019

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D E C I S I O N

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1.  This is an application by the plaintiff for a vesting order pursuant to section 52(1)(e) and (5) of the Trustee Ordinance, Cap 29 (“TO”). For the following reasons, it was adjourned for further written submissions and disposal on paper.

Background

2.  The background of this case was set out in this court’s written judgment dated 3 April 2020.  Suffice to say that the plaintiff was supposed to receive a certain payment made by its contracting counterpart.  As a result of an email fraud, the payment was never received but instead ended up in the bank account of the defendant.  The plaintiff asserted a proprietary claim in respect of the sum against the defendant.  The sum in the defendant’s account was frozen by the police, and subsequently by an injunction granted in the present case.  Pursuant to the plaintiff’s application for default judgment, this court granted judgment against the defendant in the following terms (“the Judgment”):

(1)  There be a declaration that the money transferred to the defendant’s account with the Bank of China (Hong Kong) Limited (“BOC”) in the amount of US$306,420 (or its Hong Kong dollar equivalent), or such part of it as may be remaining in the account, be held by the defendant (“the Sum”) under constructive trust for the plaintiff;

(2)  The Sum be returned to the plaintiff forthwith as money had and received by the defendant to the use of the plaintiff and the injunction dated 8 November 2019 be lifted so as to comply with the aforesaid; and

(3)  The defendant do pay the plaintiff the costs of the action including the costs of the application, to be taxed, if not agreed.

3.  In circumstances like the present case, what has become rather common in practice is that the plaintiff would also seek a vesting order pursuant to section 52(1)(e) and (5) of the Trustee Ordinance, Cap 29 (“TO”).  The plaintiff in the present case did not do so when applying for the default judgment.

4.  The plaintiff has so far failed to secure the defendant’s compliance with the Judgment.  The correspondence with BOC recorded the position of BOC. On the ground that it is not a party to the action, and the Judgment does not enjoin it to do so, BOC is not in a position to release the money in the defendant’s account.  That was all not surprising to this court.

5.  Now by summons filed on 19 June 2020, the plaintiff applies for:

(1)  a vesting order in respect of the Sum;

(2)  an order that BOC do pay the Sum under the vesting order to the plaintiff forthwith;

(3)  leave to join BOC as a respondent for the above purpose;

(4)  costs.

The law

6.  Section 52 of the TO provides:

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

(a)  where the court appoints or has appointed a trustee, or where a trustee has been appointed out of court under any statutory or express power;

(b)  where a trustee entitled, whether by way of mortgage or otherwise, alone or jointly with another person to stock or to a thing in action—

(i)  is under disability; or

(ii)  is out of the jurisdiction of the court; or

(iii)  cannot be found, or, being a corporation, has been dissolved; or

(iv)  neglects or refuses to transfer stock or receive the dividends or income thereof, or to sue for or recover a thing in action, according to the direction of the person absolutely entitled thereto for 28 days next after a request in writing has been made to him by the person so entitled; or

(v)  neglects or refuses to transfer stock or receive the dividends or income thereof, or to sue for or recover a thing in action for 28 days next after an order of the court for that purpose has been served on him;

(c)  where it is uncertain whether a trustee entitled alone or jointly with another person to stock or to a thing in action is alive or dead;

(d)  where stock is standing in the name of a deceased person whose personal representative is under disability;

(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.

(2)  In all cases where a vesting order can be made under this section, the court may, if it is more convenient, appoint some proper person to make or join in making the transfer;

…

(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.

……”

7.  So far, there has been quite a number of decided cases in both the Court of First Instance of the High Court[1] and the District Court concerning the exercise of the power under the above section in not infrequently email fraud cases.  The jurisdiction of the court under the section to grant a vesting order in similar cases has been a subject of review just recently.  On 24 June 2020, Mr Recorder Eugene Fung SC handed down the decision in 800 Columbia Project Company LLC v Hong Kong Bosing Trade Limited & Anor, HCA 156/2020.  On 10 July 2020, DHCJ Paul Lam SC handed down the decision in Wismetic Asian Foods, Inc v United Top Properties Limited & Ors, HCA 252/2020 & 2315/2019.  Both cases, and relatively more extensively in the latter, analysed the conflicting lines of decided cases in this respect.

8.  In 800 Columbia Project Company LLC, the learned Recorder decided that section 52 of the TO does not empower the court to make a vesting order in respect of the property held by a constructive trustee arising out of circumstances that were commonly found in the previous decided cases.  He took the view that a constructive trustee so declared by the court is not a trustee for the purpose of the operation of section 52.

9.  The learned deputy judge in the subsequent case of Wismetic Asian Foods, Inc disagreed.  He construed section 52(1)(e) to be wide enough to accommodate the situation of a constructive trustee arising by operation of law, such as a proprietary claim by the victim of fraud to recover property that is traced into the hands of the trustee.  If it appears to the court to be expedient to do so, the court may make an order vesting in the victim of the fraud the right to recover the money that is traced into the account of the constructive trustee kept with the bank, which is a chose in action.  In enforcement, section 52(5) empowers the court to direct the bank to release the amount to the victim.

10.  In most, if not all, of these cases, including the above two recent cases, the question of the jurisdiction of the court to make a vesting order under section 52 of the TO in circumstances like the present case was not actually argued for the reason that almost invariably only the plaintiff appeared before the court.  These two recent cases were no exception.  Whilst neither of these recent decisions is binding on this court for the purpose of determination of the present application, they provide this court with the benefit of their comprehensive review of the case law on this issue.  I therefore adjourned this application to allow the plaintiff to make further written submissions, in view of these decisions, and to dispose of the present application on paper.

11.  Solicitors for the plaintiff lodged her further submission on 17 July 2020.  Essentially, I was asked to follow the line adopted in Wismettac Asian Foods Inc.  With the benefit of the helpful scrutiny of the relevant law carried out in the above two recent cases, I respectfully agree with the analysis in Wismettac Asian Foods Inc, particularly §§40-49 in respect of the power of the court under section 52(1)(e) of the TO, properly construed. In other words, I maintain[2] that the court does have the power to make a vesting order in respect of the balance of the bank account held by the defendant as constructive trustee in circumstances such as the present case.

The present application

12.  As explained in the written judgment dated 3 April 2020, the Sum paid by the plaintiff’s contracting counterpart was traced into the account of the defendant held with BOC.  The Hong Kong Police confirmed by letter that the Sum remained in the account[3] and was frozen.  The plaintiff applied for and was granted on 8 November 2019 an interlocutory injunction locking the sum in the account until now.  This court gave judgment, including declaration that the Sum (or such part of it) in the account is being held by the defendant as constructive trustee.  Unlike what happened in SBM Bank (Mauritius) Ltd v Warner Trading Ltd & Ors (above), there is no reasonable doubt as to whether the amount standing the account represents the Sum.

13.  In Wismettac Asian Foods Inc, the learned deputy judge also set out his views on the proper procedure to adopt for an application of this sort.  He takes the view that the application should be taken out by way of a standalone originating application instead of an interlocutory application in the action for the sum against the defendant.

14.  I would view the concern of the learned deputy judge in Wismettac Asian Foods Inc in this respect from the perspective of due process.  In a case where the materials before the court suffice to satisfy the court that the balance standing in the account in question to the credit of the defendant is indeed attributable to the plaintiff as the source of such fund, over which the plaintiff’s proprietary right is established, the only other due process concern would be the right of the bank innocently involved to be heard.

15.  It is not uncommon that the plaintiff would include in his application an order that the bank should be joined as a respondent for the purpose of the vesting order and order to release the money from the account in question.  The court expects no less than service of the court documents on the bank.  In the present case, this has been done.  BOC, through it solicitors, actually wrote to this court undertaking to file the notice to act and expressing its neutral stance to the plaintiff’s present application.  BOC further put on record its agreement with the plaintiff on the incidental costs on the basis that the vesting order may be granted.  In these circumstances, I am not prepared to allow the concern about the proper procedure to stall this application, where the due process was sufficiently manifested.  As I observe, the learned deputy judge in Wismettac Asian Foods Inc indeed adopted a similar pragmatic approach in that case (see §61-63).

16.  The circumstances of the present case are such that it is expedient for the court to make the order sought.

Order

17.  In the circumstances, I make the following order:

(1)  Leave to join BOC as a respondent for the purpose of this order;

(2)  Vesting order in respect of the Sum (or its Hong Kong dollars equivalent) pursuant to section 52(1)(e), (2) and (5) of the TO;

(3)  BOC do pay the Sum under the vesting order to the plaintiff forthwith;

(4)  Liberty to apply.

18.  Costs of this application against the defendant shall be paid by the defendant to the plaintiff to be taxed, if not agreed.  Between the plaintiff and BOC (as agreed), the former shall pay the latter’s costs in the sum of HK$11,580 and the standard banking charges for compliance with the above order, such costs shall be deducted from the Sum.