TREVIICOS CORPORATION v. FILINTER LTD AND ANOTHER

DCCJ 5456/2020

[2021] HKDC 1001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 5456 OF 2020

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BETWEEN

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DECISION

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1.  This is the Plaintiff’s summons taken out on 8 July 2021 applying for final judgment made under Order 19 Rule 7 of the RDC on the ground that the 1^st Defendant (“D1”), 2^nd Defendant(“D2”) and 3^rd Defendant (“D3”) (to be referred to as “the Defendants” collectively) did not give their notice of intention to defend nor did they file any defence.

The Plaintiff’s Case

2.  The Plaintiff is a private limited company incorporated within the Commonwealth of Massachusetts in United State of America and is a subsidiary of Trevi Group.  It holds a Bank account with the Bank of America Merrill Lynch. The Defendants are private companies registered in Hong Kong and they are holders of their respective accounts with the Hang Sang Bank.

3.  The Plaintiff claims that it was deceived by fraudulent emails into remitting US$900,000.00 (the “Defrauded Sum”) to D1’s Hang Seng Bank (“HSB”) account (“D1’s Bank Account”) in Hong Kong on 16 July 2018 (the “Transfer”) and the Defrauded Sum was disbursed from D1’s Bank Account to the HSB accounts of other tiers of recipients, ie D2 and D3 (“D1’s Transfer to D2/D3”).

4.  According to the Statement of Claim (“SoC”), the Plaintiff’s CFO was deceived to believe that the Defrauded Sum was advance payment to be made on behalf of the Plaintiff’s Ultimate Shareholder for completion of the acquisition of shares of a listed company in China. Instruction was actually given by a Guido Giusti who impersonated the attorney of the Plaintiff’s CEO (“the Fraudster”) and directed that the Plaintiff’s CFO to remit the Defrauded Sum to D1’s bank account. That was why the Transfer took place. It was later discovered that the Plaintiff’s CEO had never instructed the Fraudster to act for him and had never given instructions for the Transfer. The matter was reported to the Federal Bureau of Investigation and the Hong Kong Police on 18 July 2018 and 20 July 2018 respectively. Demand letters had been issued to the Defendants also on 29 July 2020. Now the claim is for repayment and or restitution of the Defrauded Sum and damages in the amount of USD$900,000 as damages/equitable compensation.

Time and Service

5.  The Writ of Summons was served on the Defendants by registered post to their respective registered address on 12 October 2020, it would have come to their knowledge within 7 days after posting thereof. The Defendants then had 14 days to acknowledge service. They failed to do so.

6.  On 5 May 2021 the SoC was served on the Defendants in the same manner. The SoC would therefore have come to their knowledge within 7 days after posting.  Upon serving the SoC, the Plaintiff proceeded as if the Defendants have had given notice of intention to defend under Order 13 Rule 6 the Defendants then had 28 days to file a defence^[1], and the last day for them to file would be 9 June 2021.

7.  This Summons was taking out on 8 July 2021 when nothing was heard from the Defendants. It was served on the Defendants in same manner as before on 9 July 2021 and it should have come to the knowledge of the Defendants within 7 days from the date of posting.  There was no response.  It is the submissions of the Plaintiff that this shows that the Defendants have no intention to defend these proceedings.

Legal Principles

8.  Mr Lit submits that when property is obtained by fraud, equity imposes a constructive trust on the fraudulent recipient, so that money is recoverable and traceable in equity. The fact that the Defendants may not be the fraudster is immaterial; the state of their knowledge made them unconscionable to retain the Defrauded Sum and as a result the Plaintiff would have a tracing remedy. An alternative remedy is available to the Plaintiff as the retention of the money after the recipient learned of the mistake may give rise to a constructive trust[2] , and in the present case, it does.

9.  It is Mr Lit’s further submission that another alternative remedy is available to the Plaintiff under Unjust Enrichment/Money Had and Received as at the least the Defrauded Sum reached D1 under a mistake of fact as to the identity of the payee. It was paid without consideration.

10.  Mr Lit has pointed out in his written submissions that it is not the normal practice for the court to make a declaration without a trial.  It is however a rule of practice only and should not be followed if the plaintiff has a genuine need for the declaration relief and justice would not be done if the same is not given.  The court should exercise the scrutiny carefully. He further submits that a declaration is appropriate in the present case as it can earmark the Defrauded Sum such that it could be placed out of reach of the Defendants’ other creditors, and when there is a genuine need to secure the Plaintiff’s proprietary as opposed to mere personal claim.

The Pleadings

11.  The issue to be decided is whether the court should enter judgement when no Defence has been filed pursuant to Order 19 r. 7 of the Rules of the District Court.  The court has to be satisfied that the SoC has shown a case for the order the plaintiff seeks to obtain. The court could only read the pleadings without receiving evidence when deciding the application[3].

12.  After reading the pleadings, the court is satisfied from the particulars pleaded therein that the Transfer was effected on presentation made by fraudulent emails sent by the Fraudster. The bank statements as pleaded show the flow of cash in US dollars amongst the Defendants Accounts and the total sum amounted to USD$899,905[4] and that a large proportion of the Transfer and D1’s Transfer to D2/D3 no longer remained in the Defendant’s Accounts.

13.  The Court agrees that the SoC does show the right to relief. The court is satisfied that the Plaintiff appears to be entitled to judgment on the SoC.

Decision of the court

14.  After reading the Pleadings including the Write of Summons and the SoC and hearing submissions, application is granted to the Plaintiff in the following terms.

Orders of the court:

15.  Final judgment in this action against the 1^st Defendant, 2^nd Defendant and 3^rd Defendant in default of notice of intention to defend and defence pursuant to order 19 rule 7 of the Rules of the District Court (Cap 336H) with

(1) A declaration that D1 holds the remaining funds in the US Dollar account of D1’s bank account with the Hang Seng Bank Ltd (“HSB”) account number 369-392287-883 (or is equivalent in Hong Kong currency at the time of the Transfer as defined in paragraph 13 of the Statement of Claim filed on the 4 May 2021 as constructive trustee for the plaintiff;

(2) An order that the said sum in paragraph 1 above (together with any interest accrued thereon) be returned to the Plaintiff forthwith as money had and received by D1 to the use of the Plaintiff;

(3) A declaration that D2 holds the remaining funds in the US Dollar account of D2’s bank account with the Hang Seng Bank Ltd (“HSB”) account number 775-245277-883 (or is equivalent in Hong Kong currency at the time of D1’s Transfer to D2/D3 as defined in paragraph 17 of the Statement of Claim filed on the 4 May 2021 as constructive trustee for the Plaintiff;

(4) An order that the said sum in paragraph 3 above (together with any interest accrued thereon) be returned to the Plaintiff forthwith as money had and received by D2 to the use of the Plaintiff;

(5) A declaration that D3 holds the remaining funds in the US Dollar account of D3’s bank account with the Hang Seng Bank Ltd (“HSB”) account number 370-331126-883 (or is equivalent in Hong Kong currency at the time of D1’s Transfer to D2/D3) as constructive trustee for the Plaintiff;

(6) An order that the said sum in paragraph 5 above (together with any interest accrued thereon) be returned to the Plaintiff forthwith as money had and received by D3 to the use of the Plaintiff;

(7) An order that the Defendants do, jointly and severally, pay the Plaintiff damages/equitable compensation for the loss of USD 900,000.00 with interest, or its Hong Kong dollar equivalent but the total award, taking into account those awards made above shall not exceed the jurisdiction of the District Court in any event.

(8) The Defendants do pay the Plaintiff’s costs of these proceedings and this Summons on an indemnity basis, to be taxed if not agreed.