NORTHEAST METAL TRADERS, INC. v. HUIGUAN ELECTRONIC INDUSTRY CO., LTD

DCMP 1837/2017

IN THE DSTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 1837 OF 2017

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REASONS FOR DECISION

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1.  This is the Plaintiff’s application by way of Originating Summons for a number of orders including a declaration that a sum of US$70,493 together with interest thereon (if any) now sitting in an account maintained by the Defendant with the Hang Seng Bank, Limited (“HSB”) are funds held on trust for the Plaintiff, and that the said funds be returned to the Plaintiff.

2.  At the end of the hearing, this Court was satisfied that the Plaintiff had made out a clear and unequivocal case against the Defendant. This Court accordingly made the following orders:

i) A declaration that the sum of US$70,493 together with any interest accrued thereon in the account no. 255-826927-883 maintained by the Defendant with the HSB (“Defendant’s said account”) are funds held on trust for the Plaintiff;

ii) The funds referred to in (i) be forthwith released and returned to the Plaintiff; and

iii) The Defendant do pay the Plaintiff costs of these proceedings, assessed summarily at HK$80,000, to be paid forthwith.

3.  I indicated that brief reasons for decision would be given. This I now do.

The Plaintiff’s Case

4.  The Plaintiff’s case is set out in the respective affidavits of Mr Neil Howard Baumgarten and Mr Mitchell Jay Goldberg (referred to as “Mr Baumgarten” and “Mr MJ Goldberg” respectively) both sworn on 20 June 2017. Since the Defendant files no affirmation, the Plaintiff’s evidence is basically unchallenged.

5.  The Plaintiff is a company doing commodities trading and is located in Philadelphia, Pennsylvania US. It is privately owned. It operates internationally buying and selling non-ferrous metals for recycling and deals with counter parties in many countries including China. Mr MJ Goldberg is one of its 3 founders. Mr Baumgarten worked as an Assistant Controller of the Plaintiff and one of his many duties is to make payment by wire transfer to parties with whom the Plaintiff has dealings. Mr MJ Goldberg is his boss.

6.  On 15 September 2016, Mr Baumgarten received a number of emails purporting to be sent by MJ Goldberg while the latter was travelling overseas. In those emails Mr Baumgarten was directed to make a payment of US$70,493 to one of the Plaintiff’s partners by wire transfer of the said money to the Defendant’s said account maintained with HSB in Hong Kong. Despite further communication between Mr Baumgarten and the sender of the emails, Mr Baumgarten was led to believed that the sender was his boss Mr MJ Goldberg. Although the Defendant was not an existing business partner, Mr Baumgarten thought it might be a new one brought in by the Plaintiff’s new consultant who had connections in China.

7.  Before making the money transfer, Mr Baumgarten had made attempts to speak to Mr MJ Goldberg. It was in vain because Mr MJ Goldberg was then flying. Given the urgency of the request as portrayed by the emails, Mr Baumgarten deviated from their normal practice and executed the wire transfer after seeking approval from Mr MJ Goldberg’s father, who is another founder of the Plaintiff.

8.  After the transfer, Mr Baumgarten sought clarification from the Plaintiff’s said consultant. He then realized that the Plaintiff might had been the subject of an email fraud, and the instructing emails did not in fact come from Mr MJ Goldberg.

9.  Mr Baumgarten immediately contacted the Plaintiff’s banker Well Fargo with a view to stopping the transfer, but it was too late. Mr Baumgarten eventually got hold of Mr MJ Goldberg after he had landed. It was confirmed no emails had ever been sent by him directing transfer of the said US$70,493 to the Defendant.

10.  After the incident, the Plaintiff started to investigate into the matter. It was revealed that despite the apparently correct email address used by the purported Mr MJ Goldberg, the fraud emails were in fact coming from an unrelated and invisible account of execowner@mail.com which they did not know.

11.  Both Mr Baumgarten and Mr MJ Goldberg have confirmed that the Plaintiff has no dealings with the Defendant and to whom it has no obligation to pay any money.

12.  The matter was reported to the Federal Bureau of Investigation (“FBI”) in Philadelphia. On 19 September 2016 the Plaintiff also made a report of the matter to the Hong Kong Police (“HKP”). On 6 January 2017, the Plaintiff was informed by the HKP that the Defendant’s said account with HSB had been frozen, and there were approximately US$70,000 sitting there. It was also confirmed that the HKP would not oppose to the release of the said money to the Plaintiff.

13.  Company searches of the Defendant reveal that it is a company incorporated in Hong Kong with a registered office at an office in the Richmond Commercial Building, Mongkok. It is in fact the office of a service company. The shareholder and various company directors of the Defendant appear to be PRC related with mainland addresses. The director appointed on 13 September 2016 resigned on 18 September 2016.

Discussion

14.  The Plaintiff’s case meets with no opposition. It is supported by documents. I accept what has been deposed to by Mr Baumgarten and Mr MJ Goldberg being the truth. The Plaintiff is a victim of cyber fraud perpetrated by way of emails. As a result, a sum of US$70,493 was lost and is now found remaining in the Defendant’s said account maintained with the HSB.

15.  It is well established that monies obtained by fraud result in a constructive trust being imposed on the fraudulent recipient and the monies that are part of such constructive trust become recoverable and can be traced: see Michael Chen Kang Huang v Peter Lit Ma [1], at [56] applying Westdeutsche Landesbank Girozentrale v Islington London Borough Council [2].

16.  The orders sought, save with minor amendments, are therefore supported by well-established principles. The question is whether as a matter of procedure I can make the orders sought by the Plaintiff at the first appointment to hear the Originating Summons, when the hearing is in chambers, and the relief sought declarative.

17.  According to the affirmation of service of Ip Wai Shun affirmed on 25 August 2017, the Originating Summons was served on the Defendant on 27 June 2017 by leaving a copy of the same at the Defendant’s registered office at the Richmond Commercial Building. The 2 supporting affidavits filed on the Plaintiff’s behalf were also served on the Defendant at the same time. Neither notice of intention to defend, nor any affidavit in opposition were filed by the Defendant. According to the same affirmation of service, a Notice of Appointment to Hear the Originating Summons of the same date returnable on 19 September 2017 was served on the Defendant by leaving the same at the Defendant’s said registered address on 10 August 2017. This Court is satisfied that service of the originating process and the notice of appointment have been duly effected in compliance with the relevant rules: see s.827 of the Companies Ordinance, (Cap 622), para 10/1/18 Hong Kong Civil Procedure 2017 (Vol. 1) and O.28 r.3 of the RDC.

18.  No one shows up at the first appointed hearing. O.28 r.1 RDC provides, inter alia, that O.32 r.5 is applicable to the hearing of originating summons. O.32 r.5 RDC stipulates that where any party to a summons (extended to cover originating summons) fails to attend on the first or resumed hearing, the Court can proceed in his absence if, having regard to the nature of the application, it thinks expedient to do so, and provided that service of the summons (covering the situation of originating summons) has been duly effected on the absent party.

19.  As stated above, I am satisfied with the service. The Defendant is absent and had showed no response from day one. I have considered the evidence filed in this case. It is strong and supported by documents. The Plaintiff’s claim is with merits and liability for the Plaintiff is clearly established. It is fair and equitable in the circumstances to grant the reliefs sought by the Plaintiff who has suffered loss as a result of a scam involving the Defendant, and the sooner, the better. Having regards to the nature of the matter, I am satisfied this Court can proceed to hear the Originating Summons for the purpose of fully disposing of the substantive issues even though it is the first appointed hearing: see also Titan Limited v Deng Zhishun[3], Wong Kum Chi v Lee Tit Ying[4] and GTRPET SMF, LLC v Global Way Logistics Limited[5].

20.  The next question is whether O.28, r.3A RDC an obstacle. The said rule provides that an originating summons must be heard in open court unless the court directs otherwise. In Wing Hang Bank Limited v Liu Kam Ying[6] , Ma J (as the learned CJ then was) considered that, in appropriate cases, Originating Summons can be disposed of summarily in chambers, like an application for summary judgment under O.14. The learned judge has this to say at [7]of Wing Hang Bank (supra),

“While normally the substantive hearing of an originating summons should be in open court (see Hong Kong Civil Procedure 2002 at para.28/9/2), where, as in the present case, the plaintiff seeks a summary determination of the matter (akin to an application for summary judgment), the hearing can take place in chambers: see RHC, Order 28, rules 4(1), 9(1); International Bank of Asia Limited v. Kewpaisal Warranuch, unreported, 4 March 1999, HCMP1421/1998, Yuen J. The difference between an application for summary judgment under the originating summons procedure and an application for summary judgment under RHC, Order 14 is that the burden is not on the defendant in the case of the former: see International Bank of Asia Limited at pp.5S to 6A.”

21.  As this Court has concluded there is strong merits in the Plaintiff’s claims, this Court considers that the matter can be proceeded with at the first appointment hearing, and summarily in chambers.

22.  It is generally accepted that a declaration cannot be granted by consent. Neither can it be made by admission nor default. It can only be made after proper argument or on the merits of the case: see para 15/16/7 of Hong Kong Civil Procedure 2017 (Vol. 1) and [10] of Wong Kum Chi (supra). Although it means there is no automatic right to judgment for declarative relief, it does not mean it cannot be granted if the other party is absent. It cannot be right. In the absence of the defendant, its granting is not inconsistent with principles if it is justified in all the circumstances to do so after considering the relevant evidence. In the present case, after examining the merits of the Plaintiff’s case, this Court is of the view that the declaration should be granted even in the absence of the Defendant, and this Court so made the orders.

23.  As regards costs, there is no reason why costs should not follow the event. Approaching the matter on a broad brush basis, this Court considers an hourly rate of $2,600, with a total of 30 hours’ time spent appropriate for the case handler, rounding up to a total of $80,000 taking into account the disbursements incurred.

24.  It remains for me to thank Miss Teh for her helpful assistance and in particular, her skeleton submission, in this matter.