KUO BENJAMIN YUNG-HSIANG v. XU MEIYI

HCA 806/2022

[2022] HKCFI 3007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 806 OF 2022

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J U D G M E N T

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1.  This is the plaintiff’s application by summons filed on 9 August 2022 (“Summons”) for judgment in default of defence against the defendant under O.19, r 7 of the Rules of the High Court.

2.  The plaintiff commenced this action to recover two sums each of USD700,000 (collectively, “the Sums”) transferred to the defendant’s bank account maintained at HSBC (account no. 835475161833) (“Account”) on 2 and 3 March 2022 respectively.

3.  The plaintiff claimed that he was deceived into making the transfers by bogus ICAC instructions sent to him from someone disguising as a PRC police officer for investigation and auditing purpose.

4.  The plaintiff’s case is that the defendant, who was not known to the plaintiff and with whom he never had any dealings, held the Sums which were obtained by fraud on constructive trust for the plaintiff.  This must be correct in law – a thief or fraudulent recipient holds the stolen property on constructive trust for the true owner: Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669 at 716C-D, cited in Zief Incorporated v Tekchandani Ajai Mohan (trading as D’Ziner Collections (Hong Kong)) & Ors [2021] 3 HKC 69 at [45].

5.  I am satisfied that the plaintiff had duly served the writ (with the Statement of Claim indorsed) on the defendant by insertion through letter box at the defendant’s last known address obtained from the Hong Kong Police, and had duly served the Summons and the supporting affirmations at the same address by ordinary post and insertion through letter box.  The defendant has not acknowledged service of the writ nor filed any Defence.  On the face of the averments in the Statement of Claim, I am satisfied that the plaintiff is entitled to enter judgment against the defendant.

6.  The plaintiff seeks a declaration that the defendant held the Sums or their traceable proceeds on trust for the plaintiff.  Whilst it is not the normal practice of the Court to make a declaration without a trial, I am satisfied that the present case is one where justice requires the Court to grant the declaration sought by the plaintiff to enable him to pursue proprietary in addition to personal remedies against the defendant: see Hong Kong Civil Procedure 2022, Vol.1, para 19/7/20 at p.565; Wismettac Asian Foods Inc v United Top Properties Ltd [2020] 3 HKLRD 732 at [15].  There will also be the usual consequential orders for payment of the Sums to the plaintiff, and for an account to be taken and an inquiry to be made on the whereabouts of the Sums and their traceable proceeds.

7.  The plaintiff sought a further order that in the event that the defendant fails to pay the Sums to the plaintiff, the plaintiff’s solicitors be nominated to execute such documents as may reasonably be required by HSBC to effect the transfer of the Sums out of the Account pursuant to s.25A of the High Court Ordinance (Cap 4) (“HCO”).

8.  The plaintiff derived support from the case of Tokić, D.O.O. v Hongkong Shui Fat Trading Ltd & Ors [2020] 4 HKLRD 189 at [21]-[22], where DHCJ Douglas Lam SC described, by way of obiter, such form of order as a “more expedient remedy”^[1] to enable a defrauded victim to have transferred to him those assets and proceeds that are declared by the Court to be held by a defendant as constructive trustee, especially in cases where the defendant is unlikely to respond to or comply with a Court Order.

9.  Such an order was made in a number of subsequent District Court cases under s.38A of the District Court Ordinance (Cap 336) (the equivalent of HCO s.25A) following the above observations of DHCJ Douglas Lam SC: Quessglobal (Malaysia) Sdn Bhd v Sen Xin Ju Technology Trading Ltd [2020] HKDC 1091; Peter Shoikhet & Anor v Chen Guoqiang [2022] 3 HKLRD 238; Hu Yangzhao v Wong Wing Shan & Ors [2022] HKDC 646; Tung Kin Leung v Yan Chun Ching & Anor [2022] HKDC 872.

10.  HCO s.25A provides as follows:

“Execution of instruments by order of Court of First Instance

(1) Where the Court of First Instance has given or made a judgment or order directing a person to execute any conveyance, contract or other document, or to endorse any negotiable instrument, then, if that person –

(a) neglects or refuses to comply with the judgment or order; or

(b) cannot after reasonable inquiry be found,

the Court of First Instance may, on such terms and conditions, if any, as may be just, order that the conveyance, contract or other document shall be executed, or that the negotiable instrument shall be endorsed, by such person as the Court of First Instance may nominate for that purpose.

(2) A conveyance, contract, document or instrument executed or endorsed in accordance with subsection (1) shall have the same effect as if it had been executed or endorsed by the person originally directed to execute or endorse it.

(3) Nothing herein shall be held to abridge the powers of the Court of First Instance to proceed by attachment against any person neglecting or refusing to execute or endorse any such instrument.”

11.  To trigger HCO s.25A, there must first be a judgment or Court order directing a person to execute a specific conveyance, contract or document.  It is only upon the defendant neglecting or refusing to comply with the judgment or Court order (or that the defendant cannot after reasonable inquiry be found) would the Court be empowered to order that specific document or instrument be endorsed by such person as the Court shall nominate.

12.  In the present context, whilst the defendant is holding the Sums and their traceable proceeds that may still remain in the defendant’s hands on trust for the plaintiff and is liable to repay the same to the plaintiff, this could not be translated into (and the plaintiff has not pleaded that there is) an obligation of the defendant to specifically execute bank documents to effect any transfer out of the Account.  It is insufficient for the plaintiff to assert that an order that the defendant do pay the Sums to the plaintiff “would necessitate” the defendant’s execution of payment transfer documents or to endorse a negotiable instrument to effect the transfer.

13.  Without such specific obligation on the part of the defendant in the first place, it logically follows that the Court has no legal basis to order, as part of the judgment, the defendant to execute any specific document for the purposes of transfer out of any sums to the plaintiff.  Absent a judgment or Court order directing the defendant to “execute any conveyance, contract or other document”, HCO s.25A would not be operative.

14.  In Tokić D.O.O. at [21]-[22], DHCJ Douglas Lam SC appeared to assume that the defendant recipient was under an obligation to execute necessary documents to effect the transfer out of the balance in its bank account.  There is however no logical or legal connection between (a) the defendant’s obligation to transfer assets it holds on trust to the plaintiff; and (b) the defendant’s obligation to execute specific documents to effect the transfer out of any sums to the plaintiff.

15.  To illustrate the point, in the present case, the plaintiff has not conducted any tracing or analysis of the transactions and balance in the Account.  The Sums may be mixed with pre-existing monies in the Account or may have already been transferred out of the Account.  The funds sitting in the Accounts may also be subject to proprietary claims of other victims defrauded in a similar manner.

16.  In a default judgment application (where only the pleadings will be considered), the Court is unable to decide whether any part of the monies remaining in the Account represent the Sums or their traceable proceeds.

17.  If the Sums or their traceable proceeds no longer remain in the Account, there is plainly no basis let alone utility to order the defendant to execute bank documents to effect any transfer out of the Account.  Nor should the Court make such an order on a contingent basis, i.e. in the event that the Sums or their traceable proceeds still remain in the Account.

18.  All of the above point to the unworkability and lack of basis of the “more expedient remedy” suggested (by obiter) in Tokić D.O.O. based on HCO s.25A.  Even though the plaintiff is the victim of a fraud, the Court must adopt a principled and disciplined approach and act within permissible legal boundaries in deciding the appropriate orders to be made, especially in the absence of the defendant.

19.  For the above reasons, I decline to grant the further order sought by the plaintiff based on HCO s.25A.

20.  Accordingly, I enter judgment in default of defence against the defendant on the following terms:

(1)  There be a declaration that the defendant held and still holds the Sums transferred to the Account on 2 and 3 March 2022 or their traceable proceeds on trust for the plaintiff;

(2)  The defendant do pay the Sums (or their Hong Kong dollar equivalent at the time of payment) to the plaintiff;

(3)  The defendant do account to the plaintiff for all assets and/or monies (and their traceable proceeds) derived from the Sums, and all necessary inquiry be made to enable the plaintiff to trace and recover such assets and/or monies as the Court deems fit;

(4)  The defendant do deliver up or transfer to the plaintiff such assets and/or monies (and their traceable proceeds) found due upon the taking of such account and inquiry;

(5)  The defendant do pay the plaintiff interest on the Sums at the rate of HSBC prime rate +1% from the date of receipt of each of the Sums until the date of Judgment (27 September 2022), and thereafter at judgment rate until full payment; and

(6)  The defendant do pay the plaintiff’s costs of this action (including costs of the Summons and costs of today’s hearing), summarily assessed at HK$50,775.