MESIROW FINANCIAL ADMINISTRATIVE CORPORATION v. BEST LINK INDUSTRIAL CO., LTD

HCMP 1846/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1846 OF 2015

------------------------

-----------------------------------

REASONS FOR DECISION

-----------------------------------

1. By the Originating Summons issued herein on 30 July 2015, the Plaintiff, Mesirow Financial Administrative Corporation, sought:

(1) a declaration that the amount of US$139,270 and any and all interest accrued on the amounts transferred to and deposited in account No.848-484697-838 held by the Defendant, Best Link Industrial Co., Limited, with The Hongkong and Shanghai Banking Corporation since 8 June 2015 (“Funds”) were funds held on trust for the Plaintiff; and

(2) an order for the immediate release and return of the Funds. 

2. On 10 September 2015, I gave judgment for the Plaintiff in terms of the Originating Summons with costs.  I reserved my reasons, which I now give.

Circumstances giving rise to the Plaintiff’s claim to the Funds

3. In short, the Plaintiff, a global financial services company with headquarters in Chicago, had fallen prey to fraud perpetrated upon it in a manner that has unfortunately become familiar to the courts in Hong Kong.

4. On 8 June 2015, Ms Regina McClellan, the Plaintiff’s Corporate Accounts Payable Manager, received what appeared to be 2 emails (one at 11:09 am and the other at 11:28 am) from the Plaintiff’s Chief Financial Officer, Ms Kristie Paskvan, requesting urgently for the transfer of US$139,270 to account No.848-484697-838 (“Account”) held by the Defendant, Best Link Industrial Co., Limited, with The Hongkong and Shanghai Banking Corporation within the day.

5. This request was complied with by a wire payment out of the Plaintiff’s account with the Fifth Third Bank, which was processed and completed by the Plaintiff’s Treasury Department at around 1:03 pm on the same day.

6. In fact, the said 2 emails to Ms McClellan did not emanate from, but were made to look as if they were sent by, Ms Paskvan.  It was not realised at the time that the email account from which they were despatched is kpaskvan@mesirowfinanciall.com. The domain name (@mesirowfinanciall.com with an extra “l”) looks confusingly similar to, but is not, the Plaintiff’s actual domain name which is @mesirowfinancial.com.

7. By his Affidavit made on 27 July 2015 in support of the Originating Summons (“Mr Royer’s Affidavit”), the Plaintiff’s Treasurer, Mr Randall Royer, deposed that the Plaintiff had never had any dealings with the Defendant or any person representing or connected to the Defendant and, impliedly, that the Plaintiff would have no reason to make any payment to the Defendant.

8. The deception only came to light when Ms McCellan informed Ms Paskvan by email sent to her correct email account, i.e. kpaskvan@mesirowfinancial.com, at 1:44 pm on the same day that the wire payment had been released and when Ms Paskvan responded shortly at 1:57 pm that she had not sent the earlier emails and that the wire payment should be cancelled. 

9. The Plaintiff immediately initiated a recall of the wire transfer but to no avail.  The monies were not returned to the Plaintiff.

10. Complaints were duly made by the Plaintiff to the City of Chicago Police Department as well as the Hong Kong Police.  The latter has, after investigation, imposed a hold on the Funds in the Account to prevent its dissipation by the fraudster.

11. The Originating Summons, supported by Mr Royer’s Affidavit, was issued on 30 July 2015 after the Plaintiff was advised by the Hong Kong Police that it should make a civil claim to the Funds, failing which the HKSAR Government would apply to have the same confiscated under Hong Kong laws.

Proceeding in the absence of the Defendant

12. The hearing before me on 10 September 2015 (“Hearing”) was the first hearing of the Originating Summons.  The Defendant was absent. 

13. The Court is empowered by Order 32 rule 5(1) (made applicable to the hearing of an originating summons by Order 28 rule 1) to proceed with a summons at its first or any resumed hearing in the absence of a party thereto if, having regard to the nature of the application, it thinks it expedient so to do.

14. Under rule 5(2), the Court may require to be satisfied that the summons or, as the case may be, notice of the time appointed for the adjourned hearing was duly served on a party before proceeding in his absence.  This means that rule 5(1) may only be invoked if a party fails to attend the hearing after having being validly served with the summons or notice of the hearing: see Westminster City Council v Government of the Islamic Republic of Iran [1986] 1 WLR 979, per Peter Gibson J at 983E-H.

15. The Plaintiff had placed before me sufficient evidence of valid service on the Defendant. 

16. More particularly, on 30 July 2015, Messrs Proskauer Rose (“PR”), the Plaintiff’s solicitors, served the Defendant with the Originating Summons (accompanied by an Acknowledgment of Service in the prescribed form) and Mr Royer’s Affidavit (setting out and producing documents evidencing the matters summarised in paragraphs 4 to 11 above) by leaving copies of the same at Unit 5, 27/F, Richmond Commercial Building, 109 Argyle Street, Mongkok, Kowloon, Hong Kong (“Premises”) which was the registered office address last reported by the Defendant to the Registrar of Companies.

17. The Premises was in fact the office of the Defendant’s then company secretary, Sinosia Accounting and Secretarial Services Limited (“Sinosia”).  Prior to acknowledging receipt of the Originating Summons and Mr Royer’s Affidavit by appending Sinosia’s chop on PR’s covering letter of service, a female staff there surnamed Fung had gone into the office with the documents to check whether she could accept them.

18. On 7 August 2015, Ms Lee Xin Jie (“Ms Lee”), the solicitor in PR having the day to day conduct of this matter, received a telephone call from a woman who identified herself as calling from the Defendant from Shenzhen.  The caller informed Ms Lee that she had received a bundle of documents from PR but did not answer when Ms Lee asked if the Defendant had received such bundle of documents from its company secretary in Hong Kong.  The woman just repeatedly asked Ms Lee what the documents were about and what she should do with them.  Ms Lee explained to the caller that PR had been retained by the Plaintiff which had commenced proceedings against the Defendant in Hong Kong in relation to a wire/bank fraud that had been perpetrated upon the Plaintiff; that the relevant court documents had been served on the Defendant at its registered office; that the documents that she was asking about, if recently passed to her by the Defendant’s company secretary, were legal documents; that Ms Lee was not in a position to provide any further guidance beyond what she had already explained as she was acting for the Plaintiff; and that the caller should seek independent legal advice on what the Defendant’s next step should be as soon as possible.

19. On 13 August 2015, PR served a letter addressed by PR to the Defendant requiring the Defendant to arrange for its representative to attend at the office of the Deputy Clerk of Court on 18 August 2015 to fix a date for the hearing of the Originating Summons by delivering the letter to the Premises.  This time, PR’s server was attended to by a Ms So.  As on the occasion on 30 July 2015, prior to acknowledging receipt of PR’s letter by appending Sinosia’s chop on a copy of the same, the said Ms So had gone into the office with the document to check whether she could accept it.

20. Then, on 14 August 2014, Ms Lee received a telephone call from a woman who introduced herself as Ms Chen of Sinosia (“Ms Chen”).  Ms Chen referred to a letter that Sinosia had received from PR that was addressed to the Defendant (which would have to be the letter mentioned in the preceding paragraph) and said that Sinosia was no longer the Defendant’s company secretary and had stopped acting for the Defendant and that she was unable to contact the Defendant. 

21. On 18 August 2015, PR served a Notice of Appointment to Hear Originating Summons on the Defendant to give notice of the Hearing by delivering it to the Premises.  One Ms Fung was in attendance.  As on the occasions on 30 July and 13 August 2015, prior to acknowledging receipt of the notice by appending Sinosia’s chop on a copy of PR’s covering letter of service, the said Ms Fung had gone into the office with the document to check whether she could accept it.

22. Lastly, on 4 September 2015, PR’s clerk attended the Premises to effect service of copies of Ms Lee’s Affirmation dated 2 September 2015 (deposing to the said 2 telephone conversations on 7 and 14 August 2015) and of the Hearing Bundle, Skeleton Submissions and List and Bundle of Authorities prepared by PR for the Hearing.  He was attended to by a Ms Fung who initially refused to accept the documents.  Upon being informed that the papers were legal documents relating to the Hearing which must be served upon the Defendant, Ms Fung told the server to leave the documents on the floor next to the entrance inside the office, which was done.  Ms Fung however declined to acknowledge receipt on PR’s covering letter of service.

23. I agree with Mr David Chu for the Plaintiff that it appears from the contents of the telephone exchange on 7 August 2015 (as set out in paragraph 18 above) that the Defendant had duly received the Originating Summons and Mr Royer’s Affidavit from which it could and would gain notice of these proceedings and the claim made by the Plaintiff against it.

24. Further, notwithstanding what Ms Chen said to Ms Lee in their telephone conversation on 14 August 2015, Sinosia had

(1)   accepted and acknowledged receipt of PR’s letter dated 13 August 2015 and the notice of the Hearing dated 18 August 2015 at the Premises, both after its staff had checked that Sinosia could do so; and

(2)   allowed the documents prepared by PR for the Hearing to be left inside the Premises on 4 September 2015.

25. Regardless of what Ms Chen said to Ms Lee on 14 August 2015, the records kept by the Companies Registry in respect of the Defendant showed that its registered office had remained unchanged at the Premises right up to 4 September 2015.  This is to be contrasted with the fact that a Notice of Resignation of Company Secretary and Director was submitted on behalf of the Defendant on 17 August 2015.

26. Therefore, all the said successive efforts made by the Plaintiff to effect service on the Defendant at the Premises duly complied with the requirements of service on a body corporate under Order 10 rule 1(2) and Order 65 rule 3(2).  If any of the documents so served by the Plaintiff after July 2015 had indeed not been brought to the Defendant’s attention because it had relocated its registered office, the default was of the Defendant’s own making by failing to notify the Companies Registry of such change. 

27. Most importantly, despite having been served with the Originating Summons and Mr Royer’s Affidavit, the Defendant had not filed any acknowledgment of service whether within the time limited for doing so under Order 12 rules 5 and 9 or at all.

28. I was persuaded that the Defendant (or those behind it) had been duly given notice of, but had no intention to contest or participate in, these proceedings. 

29. That being the case, I did not see any point in adjourning the hearing of the Originating Summons.

30. In the circumstance, I considered it expedient to proceed with the Hearing in the absence of the Defendant.

Making a declaration in the absence of the Defendant

31. Order 28 rule 4(1) allows the Court to make such order in favour of the plaintiff as the nature of the case may require if the liability of the defendant to the plaintiff in respect of any claim made by the plaintiff is established.  This rule allows the Court to dispose of proceedings by originating summons summarily if there is no triable issue: see Hong Kong Civil Procedure 2016, Volume 1, paragraph 28/4/1.  And it is clear from the second half of rule 4(1) that such power of summary disposal can be exercised against an absent defendant though the order may subsequently be revoked or varied.

32. The Plaintiff’s account of events leading to the remittance of US$139,270 to the Account and of its failed attempts to reverse the transaction (summarised in paragraphs 4 to 9 above) was not only uncontested due to the non-appearance of the Defendant, it was borne out by the contemporaneous documents produced by the Plaintiff.  I see no reason not to accept the Plaintiff’s case on the facts.

33. When property is obtained by fraud, equity imposes a constructive trust on the fraudulent recipient so that the property is recoverable and traceable in equity: Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669, per Lord Browne-Wilkinson at 716C-D, applied by Sakhrani J in Michael Chen Kang Huang v Peter Lit Ma [2009] 6 HKC 191 at 199I-200C.

34. Had the Defendant appeared and defended these proceedings and the Court found the facts asserted by the Plaintiff after trial, there could have been no doubt as to the Plaintiff’s entitlement to have declared that the Funds were held on trust for it.

35. As stated in Hong Kong Civil Procedure 2016, Volume 1, paragraph 15/16/2, the rule that the Court will not make a declaration by consent or in default without a trial is a rule of practice and not of law.  It is not inflexible.  The paramount duty of the Court is to do the fullest justice to the plaintiff to which he is entitled.  The practice will thus give way where the plaintiff has a genuine need for declaratory relief which the Court can properly grant on the merits of the case: see Lai Wai Kuen v Wong Shau Kwong [2004] 4 HKC 528, per Lam J (as he then was) at paragraph 6.

36. My attention was also drawn to instances in which the courts in Hong Kong declared, in the absence of defendant, the existence of a constructive trust in respect of funds the payment of which was procured by deceptive emails: Europium World (UK) Limited v D’G Biocare Group Hong Kong Limited, DCMP 1456/2014, unreported, Deputy District Judge Jason Wan (31 July 2014) and Chan Chi Tong trading as Tong Long Transportation Co v Metro Imp and Exp Co Limited, DCMP 2308/2014, unreported, HH Judge Levy (3 November 2013).

37. I have already explained in paragraphs 32 to 34 above that the facts and evidence placed before me by the Plaintiff justified the declaratory relief sought by it. 

38. So the only question left was whether the Plaintiff showed a genuine need for such relief.  I believe it did.  The right asserted by the Plaintiff was one of title to property.  The Funds were in equity the Plaintiff’s money.  A mere order against the Defendant for the return of the sum that it had deprived the Plaintiff of, without more, would have put the Plaintiff in the position of an unsecured judgment creditor of the Defendant.  Such an order would not per se have given the Plaintiff any prior or specific right over the Funds.  Very little was known about the Defendant. In particular, it was not known if the Defendant had any other creditors and, if so, whether it had sufficient assets (other than the Funds in the Account standing to its name) to satisfy its debts and liabilities to those other creditors. It would have been grossly unfair and potentially prejudicial to the Plaintiff if it had had to race against other creditors of the Defendant for the Funds in execution of a monetary judgment.  A declaration by the Court that the Funds were held on trust for the Plaintiff was necessary to earmark the Funds as the Plaintiff’s property and put the same out of the reach of other creditors of the Defendant.

39. For these reasons, I made the declaration sought.