GOLDEN BROTHERS, INC v. MEDICARE ASIA LTD

HCA 2590/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2590 OF 2016

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D E C I S I O N

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Introduction

1.  The plaintiff is a company incorporated in the United States of America which conducts business as Golden Technologies, Inc in manufacturing and trading of lift and recline chairs.  The plaintiff has fallen victim to an email scam where through fraudulent means funds were transferred by it to a bank account of the defendant in Hong Kong.  Cases of this type are becoming increasingly commonplace and notwithstanding the criminal element involved civil proceedings are instituted by aggrieved parties in an effort to trace and recover the lost proceeds.[1] By this ex parte application, I have granted the plaintiff a Mareva injunction and a banker’s books order pursuant to section 21 of the Evidence Ordinance, Cap 8. 

2.  Mr David Leiby, a Vice President of Finance of the plaintiff, has filed an affidavit dated 27 September 2016 in support of the present proceedings where he sets out a detailed account of the events that have taken place in relation to this matter.  In short, on or around 31 May 2016, an unknown person impersonated a staff of the plaintiff’s supplier and fraudulently induced the plaintiff to remit funds in the sum of US$181,019.10 into the defendant’s bank account at China Construction Bank (Asia) Corporation Limited (“CCB”) rather than the bank account of the legitimate supplier, Quality Lift Technologies Co. Ltd (QLT).[2]

3.  On 6 October 2016, the plaintiff issued a writ of summons against the defendant seeking, amongst other things, declaratory relief that the amount of US$181,019.10 and any and all interest accrued on the amounts transferred to and deposited into the defendant’s bank accounts with CCB were funds held on trust for the plaintiff.  The plaintiff also issued an ex parte summons seeking:

(1)   A banker’s books order pursuant to section 21 of the Evidence Ordinance to obtain banking records from CCB in respect of the defendant’s bank accounts, including but not limited to the defendant’s bank account with account number 13680576 for the period from 31 May 2016 onwards.

(2)   An order that the defendant must not remove from Hong Kong any of its assets which are within Hong Kong, whether in its own name or not and whether solely or jointly owned, up to the value of US$181,019.10, including but not limited to the funds maintained in the defendant’s bank accounts at CCB.

Background

4.  The following account of what has taken place has been provided by Mr Leiby in his affidavit.[3] It is supported by copy emails, banking records and correspondence.  He presents a compelling case that the plaintiff has been a victim of online fraud. 

5.  On 30 and 31 May 2016, the plaintiff’s employee, Ms Tracie Moss received emails from a person impersonating as Ms Sonia Wang of QLT (the “Impersonator”), requesting for a transfer of the remaining payment due to QLT into the defendant’s bank account at CCB with account number 13680576 (the “defendant’s bank account”).

6.  The emails sent to Ms Moss did not emanate from, but were made to look as if they were sent by Ms Sonia Wang of QLT.  It was not realised at the time that the email account from which the Impersonator despatched the email was deceptively similar to Ms Sonia Wang’s email address by using the name “sonie” instead of “sonia” in the full email address. 

7.  Ms Moss assumed that QLT was requesting settlement of the three invoices issued to the plaintiff in the sum of US$181,019.10.  Accordingly, Ms Moss complied with the Impersonator’s request and remitted funds in the sum of US$181,019.10 into the defendant’s bank account rather than QLT’s bank account. 

8.  The deception only came to light when Mr Leiby reviewed the wire transfers the following day and found the wire transfer to the defendant to be suspicious.  As the plaintiff never had any dealings with the defendant or any person representing or connected to the defendant, the plaintiff would have no reason to make any payment to the defendant.

9.  Upon discovering the fraud, the plaintiff contacted its bank to recall the wire transfer of US$181,019.10 made into the defendant’s bank account.  Unfortunately, by then the funds had already been credited to the defendant’s bank account.

10.  The plaintiff reported the matter to the Hong Kong police who from their inquiries discovered that the sum of US$181,019.10 had been transferred out of the defendant’s bank account which was left without funds.  Further inquiries by the police revealed that the defendant holds another bank account at CCB which maintains a sum of US$61,457.20.  The police have temporarily frozen this sum in the bank account on suspicion that it is the proceeds of online fraud.  As is the practice, the police have advised the plaintiff that it should institute civil recovery for the frozen sum, otherwise under the Organized and Serious Crimes Ordinance, Cap 455, application would be made for confiscation of the frozen sum by the Government. 

Application for a Mareva injunction

11.  The plaintiff’s claim in the sum of US$181,019.10 is a proprietary claim.  Given that it appears that part of such sum has been dissipated, the plaintiff makes application for a Mareva injunction.[4] 

12.  It is well established that in applying for a Mareva injunction, the plaintiff must show:

(1)   that it has a good arguable case on a substantive claim over which the court has jurisdiction;

(2)   that there are assets within the jurisdiction;

(3)   that the balance of convenience is in favour of grant; and

(4)   that there is a real risk of dissipation of assets, or removal of assets from the jurisdiction, which would render the plaintiff’s judgment of no effect.[5]

13.  In the present application, the plaintiff seeks a Mareva injunction order limited to the defendant’s assets located in Hong Kong, up to the value of US$181,019.10.

Whether the plaintiff has a good arguable case

14.  The matters affirmed by the plaintiff, and as supported by the documents, show that the plaintiff remitted the sum of US$181,019.10 into the defendant’s bank account and that such remittance was procured by fraud.  The plaintiff had no connection with the defendant and there was no reason why such transfer of funds would be made.

15.  There is a good arguable case against the defendant.

Whether the defendant has assets within the jurisdiction

16.  The police have uncovered that the defendant maintains a sum of US$61,457.20 in an integrated bank account at CCB.

17.  The police believe that the sum of US$61,457.20 was returned into the defendant’s integrated bank account when it attempted to dissipate the original funds and that the sum is part of the online fraud proceeds and belong to the plaintiff.

18.  There are assets in the jurisdiction, albeit the plaintiff claims that the sum is part of the proceeds of the online fraud perpetrated on it by the defendant. 

Balance of convenience

19.  The plaintiff submits that given the defendant’s fraudulent behaviour and that it is unaware of the defendant’s financial affairs, save for the funds maintained at CCB in the sum of US$61,457.20, the balance of convenience is in favour of granting the injunction.  I agree.

Risk of dissipation of assets

20.  The plaintiff also submits that given that the defendant had quickly withdrawn the funds from its bank account, there is a real risk of dissipation of assets if the police uplift the temporary restraint and if an injunction is not granted by the Court.  I agree.

21.  In light of the foregoing, I make an order in the terms sought by the summons for a Mareva injunction.  The return date is fixed for 9:30 am on 28 October 2016.

Application for a banker’s books order

22.  The plaintiff seeks the banker’s books order in order to obtain details from CCB to:

(1)   trace and ascertain details of the bank accounts into which the sum of US$181,019.10 was transferred to from the defendant’s bank account;

(2)   to ascertain and confirm whether the funds in the sum of US$61,457.20 maintained in the defendant’s integrated bank account at CCB forms part of the proceeds of the online fraud.

23.  An application for a banker’s books order can be made pursuant to Section 21 of the Evidence Ordinance, Cap 8.  Section 21 stipulates:

“on the application of any party to any proceedings, the court or a judge may order that such party be at liberty to inspect and take copies of any entries in a banker’s record for any of the purposes of such proceedings”

24.  The relevant principles guiding the exercise of the Court’s discretion in granting a banker’s books order is set out in CTO (HK) Ltd v Li Man Chiu & Ors [2002] 2 HKLRD 875 which was approved and cited by the Court of Appeal in Pacific King Shipping Holdings Pte Ltd v Huang Ziqiang [2015] 1 HKLRD 830 at [29].  Poon J (as he then was), giving the judgment of the Court, referred to his judgment in CTO (HK) Ltd where hesummarised the position as follows:

“10. To make a Mareva injunction effective, the court has a discretion to order the defendant to make a statement of his assets and to give discovery of documents for the purpose of ascertaining the existence, nature and location of assets and in the case of a proprietary claim, the whereabouts of the missing trust funds: see A v C (No 1) [1981] QB 956. The primary purpose of the discovery order is to preserve the assets or property which might otherwise be dissipated notwithstanding the injunction.

11. ...

12. Though the court would not lightly use its powers to order disclosure of full information touching the confidential relationship of banker and customer, such an order is justified even at the early interlocutory stages of an action where the plaintiff sought to trace funds which, in equity, belonged to it and of which there was strong evidence that it had been fraudulently deprived and delay might result in the dissipation of the funds before trial: Bankers Trust Co v Shapira [1980] l WLR 1274. The plaintiff would normally be required to give an undertaking that such information would be used only for the purposes of the action to trace the funds and not for any other purposes.

13. In Arab Monetary Fund v Hashim (No 5) [1992] 2 All ER 911, Hoffmann J (as he then was) imposed three limits on the Bankers Trust Co v Shapira [1980] 1 WLR 1274 jurisdiction at pp 918E-920A. First, the plaintiff must demonstrate a real prospect that the information may lead to the location or preservation of assets to which he is making a proprietary claim... Second, the jurisdiction is more restricted than a request to a party for general discovery on an issue. When documents are required to be disclosed, the third party should be entitled to the same specificity in the documents he is asked to produce as he would be served with a subpoena... Third, even if the application is prima facie falling with the Bankers Trust principle, the court needs to balance the potential advantage against the detriment to the person against whom the order is sought, not merely in terms of costs (for which he is ordinarily compensated on an indemnity basis by the terms of the order) but by way of invasion of privacy and requiring breach of obligations of confidence to others.” (Emphasis added)

25.  Poon J held that if a case falls within the well established principles, the court would not hesitate in ordering disclosure against a third party bank.[6]

26.  Poon J also held that there is a difference in a third party disclosure application depending on whether or not the case involves a proprietary claim.[7]  It was held that where a case involves a proprietary claim, the court has jurisdiction to order a third party bank to give disclosure of relevant bank records.  In particular, Poon J explained that:

“29. If the case involves a proprietary claim where the plaintiff seeks to trace property which in equity belongs to him, the court not only has jurisdiction to grant an injunction restraining the disposal of that property, it may in addition make orders designed to ascertain the whereabouts of that property. In particular, it may order a third party bank to give discovery of documents in relation to the bank account of a defendant who is alleged to have defrauded the plaintiff of his assets...”

27.  I am satisfied that given the circumstances of the present case, a banker’s books order should be granted for the following reasons:

(1)   This case involves a proprietary claim whereby the plaintiff seeks to trace the whereabouts of the sum of US$181,019.10 which in equity belongs to it.

(2)   The banker’s records sought will lead to the location of the transfer of the sum of US$181,019.10.  In addition, it will confirm whether the sum of US$61,457.20 maintained in the defendant’s integrated account is part of the online fraud proceeds belonging to the plaintiff.

(3)   Absent the banker’s records, the plaintiff has no further means to attempt to identify the whereabouts of these funds.

(4)   The scope of disclosure is restricted to bank accounts maintained by the defendant and for the period from 31 May 2016 onwards.  In light of the fact that the police took immediate action to freeze the defendant’s bank accounts maintained at CCB, the transactions conducted would be limited, thus eliminating any doubt of a fishing expedition.

28.  In light of the foregoing reasons, I make an order in terms of the summons for a banker’s books order. 

29.  It remains for me to thank Mr Timothy Kentish, solicitor for the plaintiff, for his comprehensive and erudite submissions.