NATURES MARK HK LTD v. HONGKONG HONGXINTAI TRADING CO LTD

HCA 1820/2021

[2022] HKCFI 1382

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1820 OF 2021

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J U D G M E N T

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Introduction

1.  As a result of an email fraud, the plaintiff (“Natures Mark”) was defrauded into transferring money to D1. D2 was the 2^nd layer recipient of part of the money from D1. Natures Mark obtained an interim Mareva injunction to freeze D1 and D2’s accounts. With the assistance of the Mainland authorities and the Hong Kong Police, the bulk of the money was remitted back to D1’s account in Hong Kong. This is Natures Mark’s application for (1) default judgment, and (2) variation and continuation of the injunction order post-judgment to aid in enforcement.

Factual background

2.  Natures Mark is a limited company in Hong Kong. It was involved in communication with a solicitor’s firm in Hong Kong (“L&L”) concerning a conveyancing transaction.

3.  In or about May to June 2021, Natures Mark received a series of emails purportedly sent from L&L which contained a payment instruction directing Natures Mark to pay money into a bank account in the name of D1. It transpired that those emails were forged. As a result of those forged emails, Natures Mark was defrauded into paying HK$3.5 million (“the Sum”) into D1’s account on 16 June 2021, under the mistaken belief that the Sum would be used to settle the balance of the purchase price for a conveyancing transaction. In fact, L&L had no relationship or dealings with D1.

4.  Natures Mark reported the matter to the police.

5.  It transpired that after receipt of the Sum from Natures Mark, D1 transferred a sum of HK$800,000 to D2 on 17 June 2021.

6.  On 17 and 18 June 2021, D1 transferred a total sum of US$345,593 (equivalent to approximately HK$2.69 million) from its Hong Kong dollar account to an account maintained in the Mainland (“Mainland Account”).

7.  On 2 December 2021, DHCJ Leung granted an ex parte proprietary and Mareva injunction (“Injunction Order”) against the defendants. At the same time, DHCJ Leung also granted 2 disclosure orders directing ICBC and Hang Seng Bank to disclose documents and information in relation to the bank accounts of each defendant.

8.  The Injunction Order was continued by Lok J on 10 December 2021 and Au-Yeung J on 24 December 2021.

9.  As a result of actions taken by the authorities in the Mainland and the Hong Kong Police, the total sum of US$345,593 was remitted back to D1’s account in Hong Kong from the Mainland Account.

10.  It is Natures Mark’s case that the monies remitted back to D1 and the HK$800,000 transferred to D2 represented traceable proceeds of monies defrauded of Natures Mark.

11.  Natures Mark commenced this action on 3 December 2021 against D1 and D2 for conspiracy to defraud, constructive trust, dishonest assistance, knowing receipt and unjust enrichment. Natures Mark seeks repayment of the Sum and declaratory relief that D1 and D2 hold the Sum and/or its traceable proceeds on trust for Natures Mark.

Application for default judgment

12.  This application is taken out under Order 13, rule 6 and Order 19, rule 7 of the Rules of the High Court, Cap 4A.

13.  The writ of summons was served on the defendants by registered post on 3 December 2021. By virtue of Order 10, rule 1(3)(a), the writ was deemed served on 10 December 2021.

14.  The expiry time for acknowledgement of service was on 25 December 2021 and 28 December was the first business day after that general holiday when the Court office was open for filing the acknowledgement of service: Order 3, rule 4.

15.  D1 did not file any acknowledgement of service.

16.  D2 filed an acknowledgement of service on 16 December 2021, but not a defence. Further, a Ms Lee, purportedly being secretary to D2, called Natures Mark’s solicitors and claimed that D2 had received the writ.

17.  Natures Mark filed and served a statement of claim on 28 January 2022 after the time expired for filing an acknowledgement of service. The service was effected by ordinary post on each defendant on 28 January 2022.

18.  None of the defendants filed a defence within 28 days thereafter. The plaintiff properly took out the present summons on 12 April 2022.

19.  The summons and supporting affirmation were served on each defendant on 12 April 2022 by ordinary post.

20.  Being satisfied as to service of the writ, the statement of claim and the summons, I thus proceeded to hear Natures Mark’s application in the absence of the defendants.

21.  In considering whether to grant default judgment under Order 19, rule 7, the court only considers the statement of claim to see whether the plaintiff appears to be entitled to judgment: Order 19, rule 7(1), RHC.

22.  I am satisfied from reading the statement of claim that Natures Mark has properly pleaded a case on conspiracy to defraud, constructive trust, dishonest assistance, knowing receipt and unjust enrichment. The defendants had conspired to defraud Natures Mark into transferring the money to D1 under a mistake of fact that the money was to be used for the balance of the purchase price for a conveyancing transaction. D1, by impersonating the personnel of L&L, had made fraudulent misrepresentation through the forged emails and received the Sum from Natures Mark. D2 knowingly and dishonestly assisted D1 in breach of trust by offering its account to facilitate the receipt of the HK$800,000 from D1’s account. Natures Mark paid under a mistake of fact and neither defendant had provided consideration for the Sum. The defendants were unjustly enriched at the expense of Natures Mark.

23.  When property is obtained by fraud, equity imposes a constructive trust on the fraudulent recipient and the property is recoverable and traceable in equity: Creative Impact (Hong Kong) Ltd v Luckon travel Ltd [2021] HKCFI 1552, at §14, Au-Yeung J.

24.  Once it is shown that defendant provided assistance to another for breach of duty, he is liable for the losses arising from the trustee’ breach: Snell’s Equity, 34^th ed, §§30-080 to -081. D2 is thus liable to compensate Natures Mark for the loss suffered from D1’s breach of trust.

25.  I am satisfied that Natures Mark is entitled to judgment on the statement of claim.

Reliefs

26.  Natures Mark is entitled to repayment of the Sum from the defendants.

27.  Natures Mark seeks a declaration that D1 holds the sum of US$345,593 in its bank account and D2 holds the sum of HK$800,000 in his bank account both on trust for Natures Mark.

28.  It is not the normal practice of the court to grant a declaration without going through trial. However, it is a rule of practice and not of law, and will give way to the paramount duty of the court to do the fullest justice to the plaintiff to which he is entitled and put the money out of reach of competing creditors. In a number of cases, the court has granted declaratory relief on the basis that there was a genuine need for such relief to secure the plaintiff’s proprietary as opposed to mere personal claim: Creative Impact, §§19-20. I will grant the declaratory sought to Natures Mark.

29.  With regard to interest, Natures Mark is entitled to be compensated for loss of the use of money before judgment at prime rate +1%: Chow How Yeen Margaret v Wex Pharmaceuticals Inc [2018] 3 HKLRD 163, at §§45 and 56, CA.

30.  I will so order. The interest in respect of D1 shall run from 16 June 2021 (when the money was transferred by Natures Mark to D1) to the date of judgment; that in respect of D2 shall run from 17 June 2021 (when the transfer from D1 took place) to the date of judgment. Thereafter, interest shall be at judgment rate until the date of payment.

Application for variation and continuation of the Injunction Order

31.  Natures Mark intends to commence garnishee proceedings to recover the Sum. As it will take time and to prevent the defendants from dissipating the money, it is justified for the Court to continue the Injunction Order in aid of enforcement of the judgment. I therefore extend the validity of the Injunction Order for 6 months from today.

32.  However, I do not consider it appropriate to grant a blanket order for the assets that are subject to the Injunction Order to be used for satisfying any judgment debt or any garnishee order without requiring the judgment creditor to first go through the proper procedure of obtaining a garnishee order. This is because, from past experience, there can be competing claimants to the sum held by a judgment debtor in its bank account. The blanket order sought will have the effect of barring a rightful claimant from eg showing cause as to why a garnishee order nisi should not be made absolute. I therefore defer consideration of the application for variation of the Injunction Order until the time a garnishee order nisi or other enforcement procedure comes before the court for the judgment debtor to show cause.

Costs

33.  Natures Mark shall be entitled to costs of the action, including costs of the proceedings for injunction and disclosure order of this summons and all costs reserved. Such costs are summarily assessed and allowed in the amount of $800,000. Unless Li & Partners can show cause to the contrary, solicitor-own client costs beyond $5,200 per hour is not recoverable from the client related to this summons due to their late submission of the costs statement.

Order

34.  I order as follows:

(1)  Judgment be entered against the 1^st and 2^nd Defendants in favour of the Plaintiff for the following reliefs:

(a)  Repayment of the sum ofHK$3,500,000 (“Sum”) or its traceable proceeds by the 1st and 2nd Defendants to the Plaintiff;

(b)  A declaration that (i) the 1^st Defendant holds the sum of US$345,593 in the bank account maintained by the 1^st Defendant with Industrial and Commercial Bank of China (Asia) Limited (account no. identified in the summons) on trust for the Plaintiff; and (ii) the 2^nd Defendant holds the sum of HK$800,000 in the bank account maintained by the 2^nd Defendant with Hang Seng Bank Limited (account no. identified in the summons) on trust for the Plaintiff; and

(c)  Interest on the Sum from 16 June 2021 to be paid by the 1^st Defendant and from 17 June 2021 to be paid by the 2^nd Defendant at The Hongkong and Shanghai Banking Corporation Limited prime rate plus 1% to the date of judgment and thereafter at judgment rate until full payment.

(2)  The Injunction Order made by Deputy High Court Judge Leung on 2 December 2021 and subsequently continued by the Order of Lok J on 10 December 2021 and the Order of Au‑Yeung J on 24 December 2021 (“Injunction Order”) be continued post judgment until 11 November 2022 in aid of execution of the judgment in paragraph (1) above.

(3)  Paragraph 2 of the summons is adjourned to be dealt with at the time of showing cause on any garnishee order nisi or other enforcement procedure.

(4)  I make an order nisi on costs along the lines of paragraph 33 above.

35.  I thank Mr Jeff Chan for his assistance.