i3 INTERNATIONAL INC. v. IMPERIAL GLOBAL TRADING LTD AND ANOTHER

HCA 660/2018

[2018] HKCFI 1478

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 660 OF 2018

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REASONS FOR DECISION

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1.  This is the plaintiff’s application for judgment in default of defence, pursuant to Order 19, rule 7 of the Rules of the High Court.

2.  The plaintiff is a company incorporated in Toronto, Canada, whilst the 1^st and 2^nd defendants are both companies incorporated in Hong Kong.

3.  The plaintiff’s pleaded case is that it has been the victim of email fraud leading to three wire transfers from its account with HSBC (Canada).  The fraud is said to have been perpetrated by unknown person(s) hacking an email account belonging to the plaintiff’s CEO, and using that account to send emails purportedly from the CEO to company personnel, giving instructions for the wire transfers.  The emails in question were not in fact sent by the CEO.

4.  According to the Statement of Claim, the first wire transfer was executed on 8 March 2018 in the amount of US$179,800, to the 1^st defendant’s account (“1^st Defendant’s Account”) held with DBS Bank (Hong Kong) Limited (“DBS”).  The second wire transfer was executed on13 March 2018 in the amount of US$215,000, to the 2^nd defendant’s account(“2^nd Defendant’s Account”) held with ICBC Bank (Asia) Limited (“ICBC”). The third wire transfer was executed on 14 March 2018 in the amount of US$285,000, to the 2^nd Defendant’s Account.

5.  On 23 March 2018, Deputy High Court Judge Marlene Ng granted a Mareva injunction up to the value of US$679,800 in respect of the 1^st and 2^nd defendants’ assets in Hong Kong, including the 1^st Defendant’s Account and the 2^nd Defendant’s Account.  On 6 April 2018, Anthony Chan J granted a proprietary injunction to restrain the 2^nd defendant from disposing of or dealing with the US$500,000 which was paid into the 2^nd Defendant’s Account by the second and third wire transfers.  Further, the learned judge varied the amount of the Mareva injunction to US$500,038.42 and continued it until trial or further order.

6.  According to the Statement of Claim, DBS informed HSBC (Canada) that the 1^st Defendant’s Account has been closed, and the amount of US$179,751.58 (which represents almost all of the first wire transfer) has been returned to the plaintiff.  Further, funds in the amount of US$215,000 (ie the second wire transfer) were subsequently transferred from the 2^nd Defendant’s Account to five different bank accounts in Hong Kong, Taiwan and China.  The US$285,000 which was subject of the third wire transfer, remains in the 2^nd Defendant’s Account.

7.  Neither of the defendants has entered an appearance in these proceedings.  The plaintiff now seeks: (i) judgment against both defendants for US$500,038.42; (ii) a declaration that the sum of US$500,000 transferred to the 2^nd Defendant’s Account by the first and second wire transfers remains the plaintiff’s property and is held on constructive trust; and (iii) continuation of the injunctive relief until payment or further order.

PRINCIPLES

8.  The principles applicable to an application under Order 19, rule 7 have been discussed in several recent cases which concern alleged email frauds [1]. The power to grant judgment under rule 7 is discretionary.  The court is required to scrutinise whether the matters pleaded in the Statement of Claim entitle the plaintiff to the judgment sought.  The court’s decision is made on the basis of the pleaded facts, rather than on evidence.

9.  As to declaratory relief, it is not the normal practice of the court to grant a declaration without going to trial.  This is, however, only a rule of practice, rather than a rule of law, and it gives way to the paramount duty of the court to do the fullest justice to the plaintiff to which he is entitled. In a number of cases involving email fraud, declaratory relief has been granted on the basis that there is a genuine need for such relief to secure the plaintiff’s proprietary as opposed to merely personal claim, particularly given the possibility that a defendant may have other creditors [2].  

SERVICE

10.  On the evidence before me, I am satisfied that the plaintiff has duly served on the 1^st and 2^nd defendants (amongst other things) the writ, the Statement of Claim, and the summons for this application.

ENTITLEMENT TO THE JUDGMENT AND ORDERS SOUGHT

11.  There is an issue as to whether, as the plaintiff asserts, the 1^st and 2^nd defendants can be held jointly and severally liable for the full amounts which the plaintiff has lost; or whether each defendant is liable only for the sums which were transferred to its respective account. This is significant because the funds transferred to the 1^st Defendant’s Account (ie the first wire transfer) have now been returned to the plaintiff, almost in their entirety. 

12.  The plaintiff argues that, in addition to claims for unjust enrichment and as the beneficiary of a constructive trust, the pleaded facts support a claim against each defendant for the tort of conspiracy.  If correct, that would entitle the plaintiff to claim the full amount of its loss against each defendant.  I bear in mind that for present purposes, the facts asserted in the Statement of Claim are deemed to be admitted.  Given the close proximity in time and similarity of means by which the three wire transfers were procured, I am prepared to accept this argument. 

13.  Next, the plaintiff seeks declaratory relief as to its proprietary entitlement to the funds which were subject of the second and third wire transfers.  For the reasons set out in the other recent authorities concerning email frauds (referred to above), I consider that there is a genuine need for the declaratory relief sought, which I grant.

14.  There is a slight complication, namely, that whilst the funds which were subject of the third wire transfer remain in the 2^nd Defendant’s Account, the plaintiff pleads that the funds subject of the second wire transferhave now been paid away from the 2^nd Defendant’s Account to other accounts.  However, this can be addressed by an adjustment to the wording of the declaratory relief sought.  

15.  Finally, I continue the injunctive relief as an aid to enforcement.

DISPOSAL

16.  For the above reasons, at the hearing I made orders including to the following effect (the details of which are contained in the order as drawn up):

(1)   Judgment be entered against the 1^st defendant and the 2^nd defendant in the sum of US$500,038.42, with costs.

(2)   It be declared that the sum of US$500,000 transferred by the plaintiff to the 2^nd Defendant’s Account on 13 and 14 March 2018 was received by the 2^nd defendant on constructive trust for the plaintiff, and that that sum and its proceeds remain the property of the plaintiff.

(3)   The injunctive relief be continued until payment or further order.