TANG SAU KUEN CONNIE v. CHAN ENG LONG AND OTHERS

DCCJ 2436/2022

[2023] HKDC 402

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2436 OF 2022

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BETWEEN

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DECISION

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Introduction

1.  This is the plaintiff’s application by way of Summons dated 19 January 2023 (“Present Summons”) for default judgment for the declaratory relief and monetary relief sought under the Amended Statement of Claim dated 30 August 2022.

2.  The plaintiff claims to be a victim of an email fraud resulting in her transfers of a total sum of HK$752,269 belonging to her out of her two accounts with the Bank of China (“Plaintiff’s Accounts”) to the following bank accounts : -

(a) a total sum of HK$248,269 (“First Sum”) to the 1^st defendant into whose bank account with the 3^rd defendant (“First Account”);

(b) a lump sum of HK$504,000 (“Second Sum”) to the 2^nd defendant into whose bank account with the 4^th defendant (“Second Account”);

(the two sums, collectively, the “Two Sums”)

(the two accounts, collectively, the “Two Accounts”)

3.  By Writ of Summons, the plaintiff claims against the 1^st defendant and the 2^nd defendant (collectively, the “Account-holder Defendants”) for, in gist, (a) declarations to the effect that the 1^st defendant is liable to account for the First Sum and the 2^nd defendant is liable to account for the Second Sum as constructive trustees for the plaintiff; (b) orders for the return of the said sums; (c) vesting orders for vesting and returning of the said sums under section 52(1)(e) and section 52(5) of the Trustee Ordinance, Cap 29; (d) execution orders to effect the return of the said sums under section 38A of the District Court Ordinance, Cap 336, and, further or alternatively, (e) damages.

4.  The 3^rd defendant and 4^th defendant (collectively, the “Bank Defendants”) were joined to the present proceedings for the purpose of the application for the vesting order.

Plaintiff’s Case

5.  It is the plaintiff’s pleaded case that on or about 1 May 2022, she was attracted by the post purportedly recruiting “online order dealers” in Facebook page. As she was interested in the job, she contacted the purported “Customer PT Service” with the WhatsApp designated number as provided under the said post. She then embarked on a series of exchanges of WhatsApp messages with the purported Customer PT Service.

6.  The purported Customer PT Service represented to the plaintiff on WhatsApp that : -

(1) the job was to assist the online traders to deal with online purchase orders;

(2) the plaintiff would be required to settle the payments of the products assigned to her by transferring funds to some designated bank accounts;

(3) after her payments, the plaintiff was to send the screenshot evidencing the details of her payments to the said Customer PT service;

(4) upon completion, the plaintiff would be reimbursed for the payments she made plus 10% commission;

(5) the plaintiff would receive an additional sum of HK$888 as bonus commission for completion of 5 assigned deals within one day.

7.  Solely induced by the aforesaid representations, the plaintiff followed the instructions given by the said Customer PT Service purportedly for purchasing various assigned products, and transferred the First Sum to the First Account between 2 to 3 May 2022 and the Second Sum to the Second Account on 3 May 2022.

8.  Despite repeated requests and demands made to the said Customer PT Service, the plaintiff received no payment or commission. Her demands for return of the Two Sums met with no success. Instead, she was asked to complete more deals as well as to transfer more funds to the designated bank accounts, which she refused to.

9.  The plaintiff, realizing the instructions were in fact given by unknown perpetrator of the fraud, sought legal assistance from solicitors and reported the matter to the Hong Kong Police Force on or about 17 May 2022.

Procedural History

10.  On 27 June 2022, the plaintiff commenced the present action and obtained ex parte injunction order (“Injunction Order”) granted by HH Judge D Yau against the 1^st defendant and the 2^nd defendant respectively for a sum up to the extent of the First Sum and the Second Sum.

11.  Thereafter, the Injunction Order continued by two orders of the court with some slight amendments. In parallel, the plaintiff was provided with the bank statements relating to the Two Accounts and the addresses of the Account-holder Defendants by the Bank Defendants pursuant to the court order. The Writ of Summons endorsed with the Statement of Claim was accordingly amended on 30 August 2022.

12.  By Order of HH Judge Jonathan Wong dated 9 September 2022, the Injunction Order with some slight amendments was ordered to continue until the determination of the present proceedings.

13.  The plaintiff then issued the Notice of Intention to Enter Judgment under Order 19 rule 8A Rules of the District Court, Cap 336H dated 5 January 2023 against the defendants and proceeded with the present application for default judgment.

Proof of Service

14.  As appears from the four affirmations of service filed for the plaintiff, I am satisfied that the Amended Writ of Summons endorsed with the Amended Statement of Claim, the Notice under Order 19 rule 8A, the Present Summons and the relevant documents have been effectively served on the defendants.

15.  Despite the valid service of the relevant legal documents on all the defendants, there has been no filing of notice of intention to defend or defence by any of the defendants. None of the defendants attended the present hearing.

16.  At the present hearing, the plaintiff referred to some exchanges of emails respectively with the 3^rd defendant and the 4^th defendant to demonstrate that the Bank Defendants have raised no objection to the plaintiff’s claim in the present proceedings and that they have indicated that they would not attend the present hearing.

Cause of Action

17.   The plaintiff’s causes of action against the Account-holder Defendants are set out in the Amended Statement of Claim, in essence, as follows : -

(a) she was fraudulently induced to believe that she was engaged as an online dealer and that she would be rewarded with commissions and bonuses.

(b) her transfers of the First Sum and the Second Sum to the 1^st defendant and the 2^nd defendant respectively were induced by fraud. She had no knowledge about the Account-holder Defendants. She did not know them or had any previous dealings with them. They had no legitimate or commercial reason to receive the Two Sums from her.

(c) knowingly and dishonestly, the 1^st defendant and the 2^nd defendant respectively received and retained the First Sum and the Second Sum without valid reasons or considerations.

(d) they had knowledge and control of the purported Customer PT service with the WhatApps number as well as the Two Accounts and were part of the fraudulent scheme.

(e) the plaintiff has a proprietary claim over the Two Sums. She claims against the 1^st defendant for the First Sum and the 2^nd defendant for the Second Sum, or their traceable proceeds on constructive trust for the plaintiff.

(f) by reason of the fraud and/ or of total failure of consideration, the 1^st defendant is holding the First Sum and the 2^nd defendant is holding the Second Sum on constructive trust for the plaintiff, and are liable to return the said sums to the plaintiff.

Application for Default Judgment

18.  The default judgment procedure under Order 19 rule 7 Rules of the District Court is available in cases where the defendants are in default of notice of intention to defend, as well as in default of defence. I am satisfied that proper service of legal documents in these proceedings have been effected on the defendants. Neither acknowledgement of service nor defence has been filed.

19.  In considering whether default judgment should be given pursuant to Order 19 rule 7, the court should consider the pleadings only but not evidence. The court retains the discretion to decide whether to grant declaratory relief.

20.  It is well-settled law that where fraud has been perpetrated, equity imposes a constructive trust on the fraudulent recipient of the stolen property which is recoverable and traceable in equity. Such a constructive trust arises by operation of law and a declaration granted upon an application for default judgment merely confirms the existence of the trust and had arisen in the past : Mesirow Financial Administrative Corporation v Best Link Industrial Co Ltd HCMP1846/2015 (25 January 2016) §33.

21.  Even if the recipient was not a party to the fraud, if his state of knowledge is such as to make it unconscionable for him to retain the money, the defrauded claimant has a tracing remedy. In Guaranty Bank and Trust v Zzzik Inc HCA 1139/2016 (18 July 2016), it is stated that : -

“32. Even if the recipient was not a party to the fraud, if his state of knowledge is such as to make it unconscionable for him to retain the money, the defrauded claimant has a tracing remedy.

33. Knowledge does not have to be acquired at the time of receipt, it can be acquired subsequently while the money is in the recipient’s hands: Lewin on Trusts 19th ed, para 42-083.

34. The defendant has knowledge of the fraud because of the injunction order, the statement of claim, the summons for judgment and affidavits, all of which have been served on it. Notwithstanding, the defendant has neither paid nor made any attempt to pay the funds to the plaintiff.

35. I consider it unconscionable for the defendant to retain the funds for the following reasons:

(1) There were no dealings between the customer and the defendant; and

(2) There was no legitimate reason for the defendant to receive the funds from the customer.

36. I find that the defendant holds the funds on trust for the plaintiff and the funds are recoverable and traceable in equity.”

22.  The defendant’s enrichment is unjust if it is caused by a mistake of fact or law made by the plaintiff. It is prima facie unjust for a recipient of money to retain the payment when, if the payer had known the true state of affairs, he would not have paid: Kleinwort Benson Ltd v Lincoln CC [1999] 2 AC 349 per Lord Hoffmann at p 399 C-D.

23.  Applying the legal principles aforesaid, I am satisfied that, on the facts as pleaded in the Amended Statement of claim, the plaintiff had been defrauded to transfer the Two Sums to the Two Accounts without any consideration provided by the Account-holder Defendants in return. She would not have made the transfers but for the mistake of facts arising out of the misrepresentations of the fraudsters.

24.  The Account-holder Defendants were part of the fraudulent scheme. They had knowledge of the fraud through the control of the relevant bank accounts, and subsequently, through the service of the injunction order and the legal documents of the present proceedings. Notwithstanding that, they have neither paid nor made any attempt to pay the funds to the plaintiff. It is unconscionable for them to receive and to retain the funds as a result of fraud and without providing any consideration to the plaintiff.

25.  The constructive trust comes into existence at the moment the fraudster or the subsequent recipients receive the victim’s money or its traceable proceeds in their bank accounts by operation of law. I find that the Account-holder Defendants hold the funds on trust for the plaintiff and the funds are recoverable and traceable in equity.

26.  No doubt it is not a normal practice to grant a declaration without a trial. However, it is only a rule of practice and not a rule of law, and it is now established that the practice would not be followed where the plaintiff has a genuine need for declaratory relief and where full justice would not be done if such relief is denied. In email fraud cases where a proprietary claim was asserted, the court has granted declaratory relief in the default judgment context in order to secure the plaintiff’s proprietary claim : §19/7/20 Hong Kong Civil Procedure 2023 vol 1.

27.  In the present case, the plaintiff is a victim to a fraudulent scheme perpetrated through the fraudulent emails. She has genuine need for monetary relief as well as declaratory relief in the default judgment to secure her proprietary claim and to enable her to pursue proprietary remedies. I am convinced that this is an email fraud case which warrants the exercise of my discretion in favour of granting the declaration along with the monetary relief for payment of the Two Sums against the Account-holder Defendants as sought in the default judgment application.

Application for Vesting Order & Other Remedies

28.  I now turn to consider if a vesting order should be made pursuant to section 52(1)(e) of the Trustee Ordinance, Cap 29. The statutory provision provides that a vesting order may be granted where stock or a thing in action is vested in a trustee whether by way of mortgage or otherwise and it appears to the court to be expedient. The plaintiff has filed an affirmation in support of such application.

29.  As to the first condition, the credit balance in a bank account is a chose in action as it represents a debt owed by the bank to the account holder. Such debt is vested “by way of mortgage or otherwise” because of the order made by the court as a result of the default judgment application that the defendants hold the victim’s money which he has received or its traceable proceeds on constructive trust : Wismettac Asian Foods, Inc v United Top Properties Limited & Ors [2020] 3 HKLRD 732 §40-48.

30.  In the premises, the current balances sitting in the Two Accounts insofar as they represent the plaintiff’s money or its traceable proceeds, are vested in the Account-holder Defendants as constructive trustee by operation of law. The first condition is satisfied.

31.  As to the second condition of the test of expediency, I have no hesitation in finding that the present case involving email frauds has satisfied the condition. The Account-holder Defendants took no part in these proceedings and could not be located. The chance that they would return or transfer the funds to the plaintiff without an order of the court will be flimsy, if not none.

32.  The combined effect of s 52(1), s 52(5) and s 57(1) of the Trustee Ordinance empowers the court to make an order vesting the right to the money of the victim of a fraud or its traceable proceeds in the victim, and directing the relevant banks to release such trust funds to the victim directly. In effect, this court is empowered to vest the Two Sums in the Two Accounts in the plaintiff, being the person beneficially interested in such funds, and further, to direct the Bank Defendants to release the Two Sums to the plaintiff forthwith : Wismettac Asian Foods, Inc v United Top Properties Limited & Ors [2020] 3 HKLRD 732 §40-51.

33.  In the present case, the two relevant banks have been joined as parties, and served with the legal documents. They have raised no objection to the plaintiff’s application. They also disclosed the bank statements relating to the Two Sums pursuant to a court order. I have considered the affirmation evidence adduced by the plaintiff concerning the movement of the funds in the Two Accounts.

34.  From the bank statements produced by the 4^th defendant, it is clear that the funds kept in the Second Account in the sum of HK$504,000 upon and after the grant of the Injunction Order is traceable to the Second Sum which was transferred from one of the Plaintiff’s Accounts on 3 May 2022. The Second Sum sitting in the Second Account has not been mixed with any other sums of money of the 2^nd defendant since its transfer to the Second Account. I am satisfied that a vesting and transfer order relating to the Second Sum should be granted.

35.  On the other hand, according to the bank statements provided by the 3^rd defendant, the First Sum was wholly withdrawn from the First Account shortly after being deposited, leaving the balance of the First Account at a minimal sum on 3 May 2022. Only a minimal sum has been left in the First Account after the grant of the Injunction Order on 31 July 2022. The bank statements relating to the First Account plainly do not support a vesting order to be made relating to the First Sum.

36.  Upon enquiry of this court at this hearing, Mr Ma, Counsel for the plaintiff, fairly conceded that the application for vesting order relating to the First Sum should not be further proceeded with.

37.  Further, he also confirmed that given the grant of a vesting and transfer order relating to the Second Sum and the fact that the First Sum has already been withdrawn from the First Account, the application for an order for execution of instruments or documents in order to instruct the Bank Defendants to transfer the balances of the Two Accounts to the plaintiff by the Account-Holder Defendants or by other persons under s 38A of the District Court Ordinance is unnecessary and should not be further pursued with.

38.  In light of the default judgment was entered for the declaratory relief and monetary relief relating to the payment or return of the Two Sums, the application for other alternative reliefs for damages is also abandoned.

Continuation of the Injunction Order

39.  The court is empowered to grant a post-judgment injunction in aid of execution. The court is more ready to grant a post-judgment injunction for the plaintiff is entitled to enforce the judgment by executing the same on the defendant’s assets : Erwiana Sulistyaningsih v Law Wan Tung [2018] HKDC 1267 §§16-22.

40.  I am persuaded that the Injunction Order as amended and continued by HH Judge Jonathan Wong on 9 September 2022 should be varied not only to enable the 4^th defendant to release the Second Sum in the Second Account to the plaintiff pursuant to the order I have made, but also to safeguard the plaintiff’s position pending enforcement actions. I take the view that it is reasonable for the Injunction Order as amended to continue post-judgment for a period of 6 months for such purposes. Mr Ma also agreed that the period of 6 months is reasonable and I so order.

Conclusion

41.  Having considered the submissions of the plaintiff and all the relevant documents, I make an order in terms of paragraphs 1(1) (2)(5)(6)(10), 2, 3, 4, 5 of the draft order with some slight amendments as I indicated at the hearing as well as to give effect to paragraph 40 aforesaid.

42.  I thank Counsel for his assistance.