EDISON NORGE AS v. BZZ LIMITED AND OTHERS

HCA 74/2020

[2021] HKCFI 135

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 74 OF 2020

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D E C I S I O N

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1.  In this matter I am asked to give default judgment against the 1st, 2nd, 5th and 9th defendants on the basis that they have been properly served with the various court documents necessary and have failed to file a notice of intention to defend.

2.  The plaintiff is the victim of what appears to be an email fraud of a type which is all too common, unfortunately. 

3.  I am satisfied that the various requirements for the issue of a default judgment as against D1, D2, D5 and D9, are satisfied in that the third affirmation of Yeung Wai-chiu sets out the dates upon which the amended writ of summons was served as against each of those defendants as well as the summons seeking a default judgment. 

4.  No acknowledgment of service has been filed by any of the defendants and neither have any of these defendants filed a defence.

5.  In the circumstances, having regard to the various rules and the fourth affidavit of Mr Richard Hudson, I am satisfied that it is appropriate to grant monetary judgments against those four defendants, the details of which I will set out shortly.

6.  The statement of claim also seeks declaratory relief.

7.  I have considered the decision of Mr Recorder Eugene Fung, SC, in Milestone Electric, Inc v Meihoukang Trading Co Limited [2020] HKCFI 2542, in which the learned recorder addressed the principles relating to a claim for declartory relief in cases of this sort.  I am grateful for his analysis which is clear and which I agree with.

8.  In particular, at paragraph 10, the recorder stated:

“It is not the normal practice of the court to make a declaration without a trial, particularly where the declaration is that the defendant is in default of defence has acted fraudulently. This is, however, only a rule of practice and can be departed from when the plaintiff has a genuine need for the declaratory relief and justice would not be done if such relief were denied. Where declaratory relief is sought, the court will scrutinise the application for default carefully, and will not hastily grant the relief sought. The court should not be expected to simply rubber stamp the uncontested application.”

9.  From paragraph 11 through to paragraph 16, the learned recorder identified various relevant principles.  It is not necessary for me to set those out in full, but the following are relevant:

(a)  Where the plaintiff is a victim of fraud, he is generally entitled to a constructive trust over the fraudulent recipient.  See Guaranty Bank and Trust Company v Zzzik Inc Ltd, unreported, HCA 1139/2016, 18 July 2016, and others.

(b)  The doctrine of tracing involves rules by which to detrmine whether one form of property interest is properly to be regarded as substituted for another.  It is, therefore, necessary to begin with the original property interest and study what has become of it.  If it has ceased to exist it cannot metamorphose into a later property interest.  See Lord Toulson at paragraph 17 in Federal Republic of Brazil v Durant International Corporation [2016] AC 297. 

10.  The plaintiff  seeks various declarations in the light of those principles, including declarations that:

(a)  The plaintiff is the owner of and, accordingly, has a proprietary interest over the various sums that were paid into the individual defendants’ accounts.

(b)  The defendants each hold the minimum balance that was in their account on constructive trust for the plaintiff

(c)  The plaintiff is entitled to trace the sums that were paid into the various defendants’ accounts into all funds and assets acquired by or representing the amounts so paid.

Analysis

11.  I am satisfied that the plaintiff is entitled to a money judgment for the sums that were paid into the 1st and 2nd defendants’ accounts as the first-level recipients in the email fraud.  I am also satisfied that the plaintiff was, indeed, the owner of, and has a proprietary interest in, the sums that were paid into those first-level recipient accounts.  Therefore, I am prepared to grant the first declaration sought in the terms which will be set out in the order that I make. 

12.  I have been through with Mr Hudson, solicitor for the plaintiff, the existing bank statements that have been produced of the 1st and 2nd defendants’ accounts. As for the 1st defendant, the opening balance on the day that the first payment was made by the plaintiff, 26 September 2019, was US$2,996.10.

13.  I have seen bank statements from that date through to 1 November 2019 which demonstrate the payment in by the plaintiff and the payment out of various sums reducing the balance to the figure of US$1,222.17 as at 2 November 2019. According to a letter from Standard Chartered Bank dated 27 April 2020, the balance of that account as at 24 March 2020 was US$1,222.17. 

14.  On the balance of probability it is likely that there was no movement between the date of 2 November 2019 and 24 March 2020.  However, I have not seen the bank statements and I am not prepared to make that assumption for the purposes of declaratory relief.  It is possible that there has, in fact, been further movement within that account.  As a result, I am not prepared to make the declaration on a default basis that the 1st defendant holds the sum of US$1,222.17 on constructive trust for the plaintiff.  That is a matter that, if it is to be proved, will have to be proved with further evidence at a subsequent point in time.

15.  Equally, the plaintiff seeks a declaration that the plaintiff be entitled to trace the sums that were paid into the 1st defendant’s account into, “All such funds and assets acquired by or representing such funds.”  I am not prepared to make that declaration.  The reason is not because the plaintiff is not necessarily entitled to trace, but the reason is that I am not prepared to make a declaration which may be used subsequently by the Plaintiff  in any way to support propositions that have not been put before me or so as to bind other people or entities. 

16.  I am satisfied that the plaintiff is, in fact, the owner of the amounts that were paid into the account of the 1st defendant in the sums that will be identified in the order, but I am not prepared at this stage to go further and identify any entitlement to trace into anything else.  That is a matter which must be resolved at some future point in time if it becomes necessary.

17.  As to the 2nd defendant, the 2nd defendant is also a first-level recipient and I have analysed, together with Mr Hudson, the bank accounts of the 2nd defendant from the date on which the first payments were made by the plaintiff on 26 September 2019 to 10 October 2019.  The balance in that account prior to the first payment appears to have been US$50.89, and as at 10 October the balance was US$3,240.75.  Between those dates, the only payments that were made into the account came from the plaintiff. 

18.  However, in a letter from HSBC dated 3 April 2020, they have identified that the balance of the relevant account of the 2nd defendant as at 24 March 2020 was US$2,273.81.  I am unable to ascertain any movement of funds either into or out of the account between 10 October 2019 and 24 March 2020. 

19.  Therefore, I am not in a position to grant any declaration on a default judgment as to the plaintiff’s entitlement in respect of the current balance of US$2,273.81. Therefore, the position of the 2nd defendant, albeit with different figures, is the same as the 1st defendant.  Namely

i.  I am prepared to grant a monetary judgment in the sums that were paid by the plaintiff to the 2nd defendant. 

ii.  I am prepared to grant a declaration that the plaintiff is the owner of, and has a proprietary interest over, those sums that were transferred into the bank account

iii.  I am not prepared to grant any further declarations as sought by the plaintiff.

20.  The position of the 5th and 9th defendant is slightly different as they are what are often known as second-level recipients of funds rather than first-level recipients.  The principles relating to each are the same.

21.  Insofar as the 5th defendant is concerned, the amounts were transferred to the 5th defendant from the bank account of the 2nd defendant on 9 October 2019 and 10 October 2019.  I have seen the bank statements of the 2nd defendant demonstrating that money going out.  I have also seen the bank accounts of the 5th defendant demonstrating the samemoney going into the 5th defendant’s bank accounts on the same day.

22.  On the basis of the bank statements of the 2nd defendant that I have seen, I am satisfied that it was, indeed, the money of the plaintiff that was used by the 2nd defendant to pay the 5th defendant.  In that respect, I have taken into account the opening balance, the minimum balance and the rule in Re Hallett’s Estate [1880] 13 Ch 696, namely, that the first sum paid into a mixed fund will be held to have been first drawn out.

23.  Therefore, I am prepared to grant a declaration that the plaintiff is the owner of, and has a proprietary interest in, the sums that were paid into the 5th defendant’s bank accounts on or around 9 or 10 October 2019.

24.  Mr Hudson sought to persuade me to make a declaration that the 5th defendant holds what was its minimum balance on constructive trust.  However, for similar reasons that I have refused such a declaration in relation to the 1st and 2nd defendants, I also refuse that declaration in relation to the 5th defendants. 

25.  I also refuse a declaration that the plaintiff be entitled to trace the money that was paid in into all funds and assets acquried or representing that money for the same reasons as I have identified above.

26.  Insofar as the 9th defendant is concerned, very similar principles apply as in relation to the 5th defendant.  Again, I have seen bank statements of both the 2nd defendant and the 9th defendant which demonstrate the payment out of the 2nd defendant’s account on 4 October 2019 and into the 9th defendant’s account on the same day.

27.  For the same reasons that I have addressed in relation to the 5th defendants, I grant similar relief, mutatis mutandis, as against the 9th defendant.

28.  In relation to each defendant, the plaintiff claims interest at a rate of 8.084 per cent per annum from the date of the writ until 31 March 2020 and 8 per cent per annum from 1 April 2020 until today, and thereafter at the judgment rate.

29.  That does not seem to me to be the appropriate rate of interest.  Therefore, I grant interest at what I consider to be a more appropriate rate, which is HSBC prime rate plus 1 per cent from the date on which each defendant received the relevant sums until today and thereafter at judgment rate until full payment.

30.  The plaintiff is entitled to his costs as against each defendant and they are to be taxed if not agreed.  I leave it to the taxing master to assess the level of costs incurred as against each individual defendant.

31.  The plaintiff is to draw up a draft order reflecting this judgment and setting out the various sums as against each defendant.  Although, I have not mentioned the individual sums in these reasons, I am satisfied that the sums that have been identified in the draft order which was attached to the plaintiff’s skeleton submissions are the correct sums and it is those figures which will be used to identify the appropriate order.  If there is any debate or doubt as to that, I will resolve it when settling the final order.