FLIGHT TRAINING INTERNATIONAL, INC v. JIEYUN ENTERPRISES CO LTD

DCCJ 4068/2016

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4068 OF 2016

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REASONS FOR DECISION

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INTRODUCTION

1.  At the return dateof the summons taken out by the plaintiff applying for the continuation of an injunction order (“the Injunction Order”) which was given ex parte by Deputy Judge Eric Tam on 18 August 2016 (“Continuation Summons”), I had allowed the continuation of the injunction.

2.  The plaintiff also took out a summons dated 13 September 2016 under Section 21 of the Evidence Ordinance, Cap 2, applying for the inspection and copies of all entries in the banker’s records kept by Hang Seng Bank Limited (“HSB”) in relation to the defendant’s account kept with the bank (“Section 21 Summons”).  I had also allowed the plaintiff’s application for the inspection.

3.  The Continuation Summons and Section 21 Summons are supported by the 2^nd affirmation of Ma Ying Ying Connie (“MYYC”)filed on 13 September 2016.Ms Ma is a solicitor working for the plaintiff’s solicitors.

4.  At the end of the hearing, I said that I would give my reasons in due course for my decision.  Here are the reasons.

BACKGROUND

5.  The plaintiff is a company incorporated in the USA.  Mr Michael R Medley (“Medley”) is one of its directors in charge of the plaintiff’s daily business operation and management. The plaintiff has a bank account maintained with ZB, N A dba Amegy Bank (“the plaintiff’s bank account”).

6.  Ms Kelli Hare Murray (“Murray”) is Medley’s assistant. From time to time, she would receive instructions from Medley to manage the plaintiff’s bank account and to give transfer or payment instructions to Amegy Bank.

7.  The defendant is a limited company incorporated in Hong Kong since 12 December 2014.  One Jiang Shu Sheng is the sole director and shareholder of the defendant.  According to the company search, he is the holder of a PRC’s identity card and resides in the PRC.

DISCUSSION

The alleged fraud

8.  On 10 August 2016, Murray received various emails from an unknown fraudster posting as Medley giving her instructions to remit US$98,700 to the defendant’s account in Hong Kong with HSB.

9.  Mistakenly believing that those emails were sent by Medley giving her instructions, Murray remitted two sums in the respective amounts of US$48,700 and US$50,000 from the plaintiff’s bank account to the defendant’s bank account on 10 August 2016.

10.  It was later discovered that Medley had never given such instructions.  In short, the plaintiff was defrauded to remit the payments and never intended to make any payment to the defendant at all.

11.  The plaintiff subsequently reported the matter to HSB and the Hong Kong Police (‘the Police”).  The Police and Joint Financial Intelligence Unit (“JFIU”) have been investigating into the matter.

Service of court documents

12.  The plaintiff has effected service upon the defendant of the Writ of Summons, the Continuation Summons, the Injunction Order, affirmation of MYYC, affirmation of Medley and affirmation of Murray.

13.  The Section 21 Summons and MYYC’s 2^nd affirmation have also been served upon the defendant.  An Affirmation of Service in relation to the service of Section 21 Summons and MYYC’s 2^nd affirmation had been filed.

The defendant’s default in filing of acknowledgment of service

14.  Under the order the defendant was supposed to file an acknowledgment of service on or before 1 September 2016.  No such acknowledgement of Service has been filed.

15.  Since the defendant failed to give any notice of intention to defend, the plaintiff had on 5 September 2016 applied for a final judgment against the defendant for a sum of US$98,700 with interest from the 18 August 2016.

16.  As common in these kind of fraud, unsurprisingly perhaps, the defendant has not appeared in any of the hearings so far.

The Continuation Summons

17.  It is trite that for a domestic Mareva injunction, the plaintiff has to satisfy the court that:-

(1)  it has a good arguable case on the merits;

(2)  there are assets within the jurisdiction belonging to the defendant;

(3)  the balance of convenience is in favour of a grant; and

(4)  there is a real risk of dissipation of assets or removal of assets from the jurisdiction, which would render the plaintiff’s judgment of no effect.

See Hong Kong Civil Procedures §29/1/65 and American International Assurance Co (Bermuda) Ltd v Cheung Sin Man (2012) unreported, HCA 1556/2011 (4 January 2012; DHCJ Lok (as he then was) at §9.

18.  I accept that the test for a continuation of a Mareva injunction is the same as that for the grant of such an injunction in the first place.

19.  In Kanematuse-Gosho (HK) Ltd v Lee Boon Chean [1986] HKLR 59 (HC), Hunter J (as he then was) set out, at p 64, the purpose of a Mareva injunction in the following terms:-

“The purpose of the Mareva type injunction is to prevent fraud or its equivalent being perpetrated by some quick-witted or light-footed defendant who whilst keeping the proceedings alive and holding off an apparently good claim by a plaintiff, is busily getting his assets out of the jurisdiction. That is the main purpose of the Mareva. […] It is solely intended to prevent a plaintiff in effect being defrauded.”

20.  In order to show that the case is a “good arguable case”, the plaintiff need not go so far as to persuade the judge that he is likely to win.  The plaintiff must show that his case is one that is more than barely capable of serious argument and yet not necessarily one which the judge believes to have a better than 50% chance of success: see Hong Kong Civil Procedure §29/1/66.

21.  As to the notion of a real risk of dissipation of assets, the test is whether there is a real risk that the defendant “might” dispose of or conceal these assets prior to judgment.  See Bank of India v Bhagwandas Kewalram Murjani [1989] 2 HKLR 318 (CA) at 320, per Kempster JA.

22.  In relation to establishing a real risk of a dissipation of assets where fraud was concerned, Roger JA endorsed in CAC Brake Co Ltd Zhuhai v Bene Manufacturing Co Ltd (CACV 94/1998, 30 April 1998) at p 4 that:-

“If there is a good arguable case in support of an allegation that the defendant has acted fraudulently or dishonestly (eg being implicated in an ingenious scheme for the misappropriation of funds belonging to the plaintiff), or has acted unconscionably, then it is unnecessary for there to be any further specific evidence on risk of dissipation for the court to be entitled to take the view that there is a sufficient risk to justify granting Mareva relief.”

23.  As there had been no material change in the circumstances since the Injunction Order was granted, I considered that the Order should be continued. Hence, I had allowed the plaintiff’s application under the Continuation Summons.

The Section 21 Summons

24.  The relief sought under the Section 21 Summons is made pursuant to s 21 of the Evidence Ordinance, Cap 8 (“the EO”) which provides as follows:-

“(1)  On the application of any party to any proceedings, the court or a judge may order that such party be at liberty to inspect and take copies of any entries in a banker’s record for any of the purposes of such proceedings.

(2)  An order under this section may be made either with or without summoning the bank or any other party, and shall be served on the bank 3 clear days before the same is to be obeyed, unless the court or judge otherwise directs. […]”

25.  A summary of the legal principles relating to an application under this provision was provided by Deputy High Court Judge Poon (as he then was) in CTO (HK) Ltd v Li Man Chiu [2002] 2 HKLRD 875 (CFI) at pp 878-879 as follows:-

“10.  To make a Mareva injunction effective, the court has a discretion to order the defendant to make a statement of his assets and to give discovery of documents for the purpose of ascertaining the existence, nature and location of assets and in the case of a proprietary claim, the whereabouts of the missing trust funds: see A v C [1981] 1 QB 956. The primary purpose of the discovery order is to preserve the assets or property which might otherwise be dissipated notwithstanding the injunction.

11.  It is not uncommon that a plaintiff […] seeks to invoke section 21 of the Evidence Ordinance […].

12.  Though the court would not lightly use its powers to order disclosure of full information touching the confidential relationship of banker and customer, such an order is justified even at the early interlocutory stages of an action where the plaintiff sought to trace funds which, in equity, belonged to it and of which there was strong evidence that it had been fraudulently deprived and delay might result in the dissipation of the funds before trial: Bankers Trust Co v Shapira [1980] 1 WLR 1274. The plaintiff would normally be required to give an undertaking that such information would be used only for the purposes of the action to trace the funds and not for any other purposes.

13.  In Arab Monetary Fund v Hashim and others (No 5) [1992] 2 All ER 911, Hoffmann J (as he then was) imposed three limits on the Bankers Trust jurisdiction at pp 918e to 920a. First, the plaintiff must demonstrate a real prospect that the information may lead to the location or preservation of assets to which he is making a proprietary claim.  For the jurisdiction rests upon the proposition that unless the assets in question can be located and secured, the ultimate determination of ownership of those assets may be frustrated by their removal or dissipation and there will be no point in calling on the third party at the trial to produce the required documents or give the requested information.  Second, the jurisdiction is more restricted than a request to a party for general discovery on an issue.  When documents are required to be disclosed, the third party should be entitled to the same specificity in the documents he is asked to produce as he would be served with a subpoena.  Likewise, if he is asked for information, the questions should be directed with specificity to ascertaining the whereabouts of the assets in question.  Third, even if the application is prima facie falling with the Bankers Trust principle, the court needs to balance the potential advantage against the detriment to the person against whom the order is sought, not merely in terms of costs (for which he is ordinarily compensated on an indemnity basis by the terms of the order) but by way of invasion of privacy and requiring breach of obligations of confidence to others.”

26.  The plaintiff’s solicitor Ms Connie Ma has also helpfully referred me to Bankers Trust Co v Shapira [1980] 1 WLR 1274 (EWCA).  There, two forged cheques, each for USD500,000, had been presented by two men and as a result USD1,000,000 had been transferred to accounts in their names.  An order for disclosure pursuant to the English equivalent of s 21 of the EO had been sought and was granted.  Lord Denning MR held, inter alia, at p 1282, as follows:-

“The plaintiff who has been defrauded has a right in equity to follow the money. He is entitled, in Lord Atkin’s words, to lift the latch of the banker’s door: see Banque Belge pour l’Etranger v Hambrouck [1921] 1 K B 321, 355. The customer, who has prima facie been guilty of fraud, cannot bolt the door against him. […] If the plaintiff’s equity is to be of any avail, he must be given access to the bank’s books and documents – for that is the only way of tracing the money or of knowing what has happened to it: see Mediterranea Raffineria Siciliana Petroli Spa v Mabanaft GmbH (unreported). So the court, in order to give effect to equity, will be prepared in a proper case to make an order on the bank for their discovery.”

27.  As per Waller LJ, at p 1283, the answer to the submission that it was undesirable for such an order to be lightly made was simply that “there is very strong evidence indeed of fraud” on the part of the defendant.  There had also been concern at the width of the order (“copies of all correspondence” including “all debit vouchers, transfer applications and orders, and internal memoranda” had been sought).  On this issue, Waller LJ held, at p 1283, that “an order of that breadth is completely justified in a case of this sort because, unless there is the fullest possible information, the difficulties of tracing the funds will be well-nigh impossible”.

28.  Ms Ma on behalf of the plaintiff submits and I agree with her that the test set out in CTO (HK) Ltd v Li Man Chiu (2002) can eminently be met in relation to the Section 21 Summons and that the dicta in Bankers Trust Co v Shapira & Supra all the more goes to support a granting of the relief sought in this case:-

(1)  There is strong evidence that the plaintiff has been fraudulently deprived of the sum of USD98,700.  The defendant used an email address purportedly pretending to be the email address of the chief executive officer of the plaintiff and requested a sum of USD98,700 to be transferred to the defendant’s bank account for settlement of an invoice.

(2)  The plaintiff is clearly seeking to trace funds which in equity belong to them:-

(a)  Prior to the incident of fraud, the plaintiff had never heard of, or dealt with, the defendant.

(b)  There is no logical reason for the plaintiff to have transferred any money, let alone a substantial sum, to a complete stranger.

(3)  It is very likely that delay may result in the dissipation of the said sum of USD98,700.  The transfer was effected on 10 August 2016 but the Injunction Order was only obtained on 18 August 2016.  The said sum of USD98,700 might have already been dissipated.

(4)  There is a real possibility that the information may lead to the location of the assets.  HSB has never replied to OLN’s letters.  If the sum has already been dissipated from the HSB account, records in relation to the HSB account will show to whom, when and how the sum has been dissipated.  Put alternately, without access to these records, no tracing exercise will be possible and the plaintiff will stand no chance of recovery.

(5)  The plaintiff has carefully delineated and limited the information sought.  For example, information prior to 10 August 2016 and after 18 August 2016 is not sought nor account opening forms, signature specimens, cheque copies and other such peripheral materials.

(6)  The defendant will not suffer any prejudice in particular ie beyond that which is ordinarily involved (such as a breach of privacy) in allowing an application under s 21 of the EO.  In any event, given its perpetuation of fraud, the defendant should not be allowed to rely on prejudice.  Further, in the analogous case of American International Assurance Co (Bermuda) Ltd v Cheung Sin Man (2012), Deputy High Court Judge Lok (as Lok J then was) was of the view, at §25, that no prejudice that would bar the application had been suffered.

29.  I have been told that the plaintiff has notified HSB of the Section 21 Summons on 13 September 2016.

30.  Lastly, the plaintiff is willing to provide an undertaking that the information obtained from HSB will only be used for the purpose of tracing and not for any other purposes.

31.  In the aforesaid premises, I considered it was only just and fair that an order under the Section 21 Summons should be granted in this case.

CONCLUSION

32.  In relation to the Continuation Summons, given the fact that the plaintiff has lodged the draft default judgment against the defendant on 5 September 2016, I made an Order in the following terms:-

(a)  the ex-parte injunction order made by Deputy District Judge Eric Tam in the District Court dated 18 August 2016 do continue until final judgment has been given in the action herein or until a further Order of the Court; and

(b)  costs be in the cause.

33.  In relation to the Section 21 Summons, I made an Order in the terms of the said Summons.

34.  Lastly, I would like to thank the plaintiff’s solicitor for her very helpful assistance in arguing these 2 summonses.