HANG SENG BANK LTD v. LAU CHING CHE t/a NAM YAT HONG and as KWONG ON TRADING HONG AND OTHERS

      HCA 2480/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2480 OF 2007

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JUDGMENT

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1. The plaintiff is a bank and claims in this action for the return of moneys paid to the defendants from 13 November to 15 November 2007.   The defendants are remittance agents.

2. The application before me concerns the 1^st defendant (“D1”).  D1 presented three cheques (“the cheques”) purportedly drawn by a customer of the plaintiff.  Details of the cheques are as follows :

(1)       cheque no. 681823 dated 13 November 2007 in the sum of HK$200,000 made payable to Nam Yat Hong (“NYH”) which is a trading name of D1;

(2)       cheque no. 681821 dated 14 November 2007 in the sum of HK$2,000,000 made payable to NYH; and

(3)       cheque no. 681835 dated 15 November 2007 in the sum of HK$3,000,000 made payable to NYH.

The total sum of the cheques is HK$5,200,000.

3. The signatures on the cheques were, however, forged.  The plaintiff’s customer did not sign the cheques.  There was a forgery of his signature on the cheques. 

4. It was only on 16 November 2007 that the plaintiff discovered the fraud.  However, by that time, the plaintiff had cleared the cheques and the proceeds of the cheques were credited to D1’s bank account in the name of NYH with the plaintiff on 13 November, 14 November and 15 November 2007, respectively. 

5. On the evidence before me there were also four transfers from NYH’s bank account with the plaintiff to another bank account of D1 in the trading name of Kwong On Trading Hong (“KOH”) as follows :

(1)      On 13 November 2007 in the sum of HK$2,720,000;

(2)      On 14 November 2007 in the sum of HK$2,800,000;

(3)      On 15 November 2007 in the sum of HK$3,000,000; and

(4)      On 16 November 2007 in the sum of HK$3,500,000.

The total sum transferred to KOH’s account by the four transfers was HK$12,020,000.

6. On 24 November 2007 the plaintiff obtained an ex parte order against the defendants including D1 from Deputy Judge D. Pang. 

7. As regards D1, he was by paragraph 1.1 of the order restrained from disposing of, diminishing the value of, or otherwise dealing with the sums standing to the credit of D1 in D1’s bank accounts in the names of NYH and KOH as at 23 November 2007. 

8. By paragraph 1.2 of the order, D1 was restrained from disposing of, diminishing the value of, or otherwise dealing with any money or property which is held or controlled by D1 on behalf of the person or persons who delivered the cheques to D1 including money or property which came to be held or controlled by D1 on behalf of such person or persons on or after 13 November 2007.

9. By paragraph 1.3 of the order, D1 was restrained from disposing of, diminishing the value of, or otherwise dealing with any money or property which is held or controlled by D1 on behalf of the person or persons on whose behalf or at whose request the four transfers were made from the NYH account to the KOH account.

10. A discovery order was also made at the ex parte hearing in the terms of paragraph 2 of the order. 

11. At the return date on 30 November 2007, as against D1, the plaintiff sought to continue the whole order until further order.  D1 indicated that it had no objection to the continuation of the order save for paragraphs 2.6, 2.7 and 2.8 and that it would apply to discharge paragraphs 2.6, 2.7 and 2.8.  An order was then made against D1 that the ex parte order, except paragraphs 2.6, 2.7 and 2.8, be continued until further order.  The matter was adjourned to 6 December 2007 to deal with the plaintiff’s application to continue paragraphs 2.6, 2.7 and 2.8 of the order and the application by D1 to discharge those paragraphs.

12. The matter before me is whether paragraphs 2.6, 2.7 and 2.8 of the order should be continued or whether they should be discharged.

13. By paragraph 2 of the ex parte order, D1 was required to disclose the following :

“2.1       the name, address and contact details of each of the person or persons who delivered to the 1st Defendant the cheques identified in paragraph 1.2 above or on whose behalf payment of the sums pursuant to the aforesaid cheques was made to the 1st Defendant;

2.2       particulars of any transaction (or a request that a transaction be conducted) in which the 1st Defendant was requested to send, arrange to send, receive, or arrange to receive, money, where the request (whether executed or not):

2.2.1      was made in connection with, or the transaction related to, the cheques or their proceeds or part thereof, or

2.2.2      was made on behalf of any of the persons identified under paragraph 2.1 above and the sending or receiving took place (or was scheduled to take place) on or after 13th November 2007.

The particulars should be those as prescribed under Parts 1, 2 and 3 of Schedule 6 of the Organised and Serious Crimes Ordinance (Cap.455); and copies of any documents in the possession, control or power of the 1st Defendant which relate to such transaction or request should be provided;

2.3       particulars as to how, when and to whom the proceeds of the cheques identified under paragraph 1.2 above were disposed of, including (where the 1st Defendant was requested to send, arrange to send, receive, or arrange to receive any part of such proceeds) the particulars relating to each such disposal as prescribed under Parts 1, 2 and 3 of Schedule 6 of the Organised and Serious Crimes Ordinance (Cap. 455); and copies of any documents in the possession, control or power of the 1st Defendant which relate to such disposal;

2.4       in respect of each of the persons identified under paragraph 2.1 above, whether the 1st Defendant came to hold or control any money or property on behalf of the person in question on or after 13 November 2007, and if so, the amount of money and the description of the property held or controlled, and how and when the 1st Defendant came to hold or control the money or property in question;

2.5       whether any or any part of the following payments made from the NYH Account to the KOH Account were made by the 1st Defendant on behalf of, or at the request of, another person or persons and if so, the name, address and contact details of each of the person or persons;

2.5.1    $2,720,000 on 13th November 2007;

2.5.2    $2,800,000 on 14th November 2007;

2.5.3    $3,000,000 on 15th November 2007;

2.5.4    $3,500,000 on 16th November 2007;

2.6       particulars of any transaction (or a request that a transaction be conducted) in which the 1st Defendant was requested to send, arrange to send, receive, or arrange to receive, money, where the request (whether executed or not):

2.6.1    was made in connection with, or the transaction related to, the payments or part thereof, or

2.6.2    was made on behalf of any of the persons identified under paragraph 2.5 above and the sending or receiving took place (or was scheduled to take place) on or after 13th November 2007.

The particulars should be those as prescribed under Parts 1,  2 and 3 of Schedule 6 of the Organised and Serious Crimes Ordinance (Cap.455); and copies of any documents in the possession, control or power of the 1st Defendant which relate to such transaction or request should be provided;

2.7       particulars as to how, when and to whom the proceeds of the payments identified under paragraph 2.5 above were disposed of, including (where the 1st Defendant was requested to send, arrange to send, receive, or arrange to receive any part of such proceeds) the particulars relating to each such disposal as prescribed under Parts 1, 2 and 3 of Schedule 6 of the Organised and Serious Crimes Ordinance (Cap.455); and copies of any documents in the possession, control or power of the 1st Defendant which relate to such disposal;

2.8       in respect of each of the persons identified under paragraph 2.5 above, whether the 1st Defendant came to hold or control any money or property on behalf of the person in question on or after 13th November 2007, and if so, the amount of money and the description of the property held or controlled, and how and when the 1st Defendant came to hold or control the money or property in question.”

14. The position before me is different from the position before the judge at the ex parte hearing.  At that time the plaintiff had no information as to who had paid in the cheques and what had happened to the moneys paid in.  There is now before me the evidence filed on behalf of D1 namely, the affirmation of Tony Lau Kwok Bun (“Tony Lau”) filed on 4 December 2007 together with exhibits, as well as a corrective affirmation filed on 5 December 2007.

15. Tony Lau has, in his affirmation, disclosed that the cheques were deposited into NYH’s account with the plaintiff by a remittance agent in the PRC who has a long standing business relationship with D1.  He has disclosed that the cheques were deposited by or on behalf of someone nicknamed Ah For and has also given his full name and exhibited a copy of his PRC ID card which sets out his full name, birthday and address and has also supplied his telephone number.

16. Mr. Chan, for D1, informed me that a supplemental affirmation would be filed and served disclosing how D1 knows that the cheques were deposited by or on behalf of Ah For.  

17. Tony Lau has also explained in his affirmation that from 13 November to 16 November 2007, Ah For had various remittance and money changing transactions with D1 and that D1 has maintained a running account with Ah For.  Also exhibited are copies of the state of the running account with Ah For.

18. Tony Lau has given details together with supporting documents of the daily transactions between D1 and Ah For. 

19. It appears from the evidence that D1 is the registered sole proprietor of, inter alia, Fulton Company, NYH, KOH and Wing Lee Trading Co.  D1 is also said to be the beneficial owner of Wanly Trading Co. (“WLTC”) and the sole beneficial owner of another remittance agent.  This is operated by Tony Lau and a Mr. Ho.  All these businesses are registered remittance agents and money changers pursuant to the Organized and Serious Crimes Ordinance Cap. 455. 

20. As explained by Tony Lau, his father, namely D1 operated all the businesses as one integral business.  This means that he has mixed up the various bank accounts and funds in those account for the running of the various businesses which is run as one integral business.  These include the moneys paid in by Ah For into the bank accounts of NYH and KOH with the plaintiff and also into accounts of D1 with other banks.  These also include remittances made by D1 on behalf of Ah For from different bank accounts of D1 in the names of NYH, KOH and also in other businesses.

21. Mr. Chan, for D1, has relied on the evidence of Tony Lau to show that as at the close of the business on 16 November 2007 all the money paid in by Ah For including the amounts of the cheques had been paid out and remitted as per his instructions and that in fact there was a shortfall of about HK$5,304,382.89 owing to D1. 

22. With respect to Mr. Chan, however, that is not the state of what is shown in the bank accounts.  It is only in relation to a running account between D1 and Ah For.

23. Tony Lau has also disclosed that on the same dates of the four transfers from the account of NYH to the account of KOH there were four transfers from the account of KOH to WLTC’s bank account with Wing Hang Bank, totaling to HK$30,900,040.

24. Coming back to the ex parte order, paragraph 2.5 of the order requires disclosure as to whether any or any part of the four transfers from the NYH account to the KOH account were made by D1 on behalf of or at the request of another person or persons and if so, the name, address and contact details of such person or persons.  That information has already been provided.

25. By paragraph 38 of Tony Lau’s affirmation, it is clearly stated that the four transfers were internal transfers made as part of the usual operations of the business of D1.  They were not made by the business on behalf of or at any specific request of any person.  That being so, it seems to me that paragraphs 2.6.2 and 2.8 of the ex parte order are no longer applicable.  I do not propose to continue paragraphs 2.6.2 and 2.8 of the ex parte order and those paragraphs are discharged.

26. I would observe that by paragraph 1.2 of the ex parte order, D1 was restrained from disposing of or dealing with money or property held or controlled by D1 on behalf of Ah For which came to be held or controlled by D1 on or after 13 November 2007.  Paragraph 2.4 of the order follows on this.  By paragraph 2.4, D1 had to disclose the money or property held on behalf of Ah For on or after 13 November 2007.  Those paragraphs had already been continued until further order.

27. Mr. Chan relied on A Co and B Co [2002] 3 HKLRD 111 and submitted that the disclosure sought under paragraphs 2.6, 2.7 and 2.8 are too wide and unnecessary and would not be likely to reap substantial benefit to the plaintiff.  He also submitted that when balancing the competing interests of the plaintiff as the victim of the fraud and the defendant as an innocent party, the Court should discharge those paragraphs. 

28. I have already dealt with paragraphs 2.8 and 2.6.2.

29. I accept that the applicable principles are as set out by Ma J (as he then was) in A Co v. B Co at paragraphs 10 to 13 of his judgment.  Although D1 is a defendant in the proceedings, at this stage D1 is an innocent party who has been caught up in the wrongdoing of another. 

30. In this case, however, I am satisfied that the plaintiff has an equitable tracing claim into the bank accounts to trace the proceeds of the cheques. 

31. I was referred to what Lord Millet said in Foskett v. McKeown and others [2001] 1 AC 102 at 128 as follows :

“Tracing is thus neither a claim nor a remedy. It is merely the process by which a claimant demonstrates what has happened to his property, identifies its proceeds and the persons who have handled or received them, and justifies his claim that the proceeds can properly be regarded as representing his property.  Tracing is also distinct from claiming.  It identifies the traceable proceeds of the claimant’s property.  It enables the claimant to substitute the traceable proceeds for the original asset as the subject matter of his claim.  But it does not affect or establish his claim.  That will depend on a number of factors including the nature of his interest in the original asset.  He will normally be able to maintain the same claim to the substituted asset as he could have maintained to the original asset.  If he held only a security interest in the original asset, he cannot claim more than a security interest in its proceeds.  But his claim may also be exposed to potential defences as a result of intervening transactions.  Even if the plaintiffs could demonstrate what the bank had done with their money, for example, and could thus identify its traceable proceeds in the hands of the bank, any claim by them to assert ownership of those proceeds would be defeated by the bona fide purchaser defence.  The successful completion of a tracing exercise may be preliminary to a personal claim (as in El Ajou v Dollar Land Holdings plc [1993] 3 All ER 717) or a proprietary one, to the enforcement of a legal right (as in Trustees of the Property of F C Jones & Sons v Jones [1997] Ch 159) or an equitable one.”

32. Ms Cheng, in my view, correctly submitted that the trail of the proceeds of the cheques stops at the Wing Hang Bank.  What has happened to the money after it reached the Wing Hang Bank has not been disclosed. 

33. I accept, as Ms Cheng submitted, that there are two stages.  The first stage is that the plaintiff needs to trace the stolen funds and find out where the stolen funds have gone.  It needs to identify it.  It is distinct from the claim.

34. The discovery jurisdiction is directed to uncovering the location of assets so that they can be preserved.  And as stated in Gee, Commercial Injunctions 5^th Edition at paragraph 22.055, an order should not be made unless there is a real prospect that as a result assets can be located and preserved.

35. In A Co v. B Co, Ma J (as he then was) said at paragraph 13(2) :

“It must also be clearly demonstrated that the order will or will very likely reap substantial and worthwhile benefits for the plaintiff.  Where, as in the present case, the plaintiff is likely to make a tracing claim, there must be a serious possibility that the discovery sought must either allow the plaintiff to preserve what may well be his assets or realistically lead to the discovery of such assets: see Arab Monetary Fund v Hashim (No 5) [I992] 2 All ER 911 at pp.916D-E, 918J-919A.”

36. Mr. Chan submitted that the order would not be likely to reap substantial and worthwhile benefits for the plaintiff. 

37. However, I accept Ms Cheng’s submissions that the discovery sought clearly would serve to assist in the discovery or the preservation of the stolen funds.    As pointed out, D1 has to keep records by law of the persons to whom the cheque proceeds were ultimately transferred including contact details, the amounts transferred and the details of the receiving accounts.  All these transfers would have been made recently and the bank would be in a position to trace what has become of the stolen funds. 

38. I am unable to accept the submission that the order for discovery would be onerous on D1 because the stolen money, it has been submitted, has gone out into a large pool of funds and has been mixed with other funds and paid out to what may be innocent recipients.  The question to consider is whether the discovery could assist the plaintiff to discover and preserve its stolen funds. 

39. In my view, the order sought is necessary.  There is no evidence placed before me to show that the order sought would be particularly onerous on D1.  The information to be provided is readily available as records have to be kept under the Organized and Serious Crimes Ordinance.  There is no suggestion before me that D1 has not kept any of these records. 

40. It seems to me that the plaintiff has made out its case that D1 should provide the full information required.  Obviously, the sooner steps are taken to try and trace where the stolen funds have gone the better.  These are transactions which took place recently and I see no prejudice to D1 in complying with the order.  D1 is protected by the plaintiff’s undertaking in damages and as an innocent party it will be compensated for the costs of making the discovery.  There is also an implied undertaking not to use the disclosed information, save for the purpose of this action. 

41. In the circumstances, I am satisfied that paragraph 2.6.1 and paragraph 2.7 of the ex parte order should be continued until further order.  The application to discharge those paragraphs is dismissed.