MICHAEL SCHOFIELD & CO., LLC v. HK KING VIDEO ELECTRONICS CO., LTD

DCMP 2033/2017

[2018] HKDC 632

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 2033 OF 2017

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JUDGMENT

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A.   Introduction

1.  This is a claim of the plaintiff based on an alleged email fraud perpetrated on it.  The plaintiff proceeded by an Originating Summons.  The defendant, a direct recipient of the allegedly defrauded funds, appeared and contested the primary facts.  The matter was adjourned for substantive hearing of the Originating Summons whereby oral evidence was heard. 

2.  The plaintiff’s assertion of email fraud perpetrated in August 2016 causing its remittance of USD46,510 (the “Sum”) to an HSBC account in Hong Kong of the defendant has set the background of this case.  Upon report of crime made by the plaintiff in September 2016, the Hong Kong police froze the defendant’s bank account which had HKD30,002.53 and USD19,719.50 (the “Remaining Funds”). The plaintiff took out this Originating Summons on 17 July 2017.  The Summons sought a declaration that the defendant holds the Remaining Funds as constructive trustee for the plaintiff, and for HSBC to return the funds to it.

3.  The plaintiff, incorporated in the United States, is a jewelry importer and seller.  It alleged that on 5 August 2016, it was deceived, by fraudulent emails and a fraudulent fax purporting to be sent from its supplier in Bangkok, Mian Teck Jewelry Export Co. Ltd. (“Mian Teck”), directing that the money of USD46,510 for settling its invoices be made to the defendant’s bank account in HSBC (account number 817-853195-838) (the “Bank Account”).  The defendant is a company incorporated in Hong Kong on 16 September 2015.

4.  The defendant contested the claim putting forward a defence that the Sum was legitimately received by them as a foreign exchange exercise whereby the defendant had parted and transferred the amount out of its account for an alleged legitimate purpose.  The defendant alleged that it was the true victim of a scam which caused its account to be frozen.  The defendant produced evidence which showed that its director, Mr Liu Jun (劉君), visited the police station trying to seek help after the account was frozen.  Mr Liu Jun represented the defendant in these proceedings, having filed an affirmation on 1 August 2017 supporting his having been authorized. Mr Liu has filed two written representations relied on as the defendant’s defence and opposition, dated 8 August 2017, and 10 October 2017.  The defendant also relied on Ms Tang Sheung Lin (鄧上連)’s witness statement dated 17 October 2017 and later Ms Tsang Siao Ying (曾小瑩)’s statement dated 2 May 2018.  Mr Liu, Ms Tsang and Ms Tang gave oral evidence at the hearing. 

B.   Defendant’s defence of legitimate purpose of receipt – hearing of originating summons with oral evidence, cross examination of deponents and discovery 

5.  I first deal with the procedural issues relevant to the hearing of this Originating Summons.  On 17 October 2017, the learned Deputy District Judge SH Yip adjourned the matter for a hearing on 9 April 2018 with two days reserved and with directions that the witnesses of the defendant do attend for giving oral evidence and be cross examined.

6.  It is a case of a contested issue of fact, namely whether the remittance of the Sum into the account was one caused by fraud to the plaintiff, or one remitted in the course of a foreign exchange exercise involving the defendant. The defendant is asserting a wholly different purpose for which the Sum was remitted.  Only one version can be the truth.  The defendant is a direct recipient.  This is unlike a case where a defendant is asserting that it is an innocent secondary recipient dealing just with the direct recipient.

7.  In this case, the plaintiff’s account and the defendant’s account are mutually exclusive.  If the defendant’s case needs to be tested, it appears to me that the plaintiff’s case also needs to be examined.

8.  The plaintiff submitted in its opening and closing submissions that by the nature of originating summons procedures, under Order 28 Rule 4(1) of the Rules of District Court, the matter can be summarily disposed of.  It was argued that once the plaintiff has made out a prima facie case, the burden of proof shifted to the defendant to make out a defence.  It was argued that in this case the court should not embarked on a mini trial of the action on affidavit evidence.  The plaintiff relied on Bank of China (Hong Kong) Ltd v Twin Profit Ltd [2010] 2 HKLRD 1065 at paragraphs 6-8 and Ng Cho Chu Judy v Chan Wing Hung [2016] 1 HKLRD 1073 at paragraphs 121-122.

9.  As I indicated right at the outset of the hearing, such submission is not relevant as the case has moved beyond the stage of whether summary disposal is appropriate under Order 28 Rule 4(1).  The learned Deputy District Judge SH Yip has rightly directed that oral evidence be heard.  The matter is already proceeding on the basis of Order 28 Rule 4(3) and 4(4).  The making of the Order already means that there are factual disputes rendering summary disposal not appropriate.  The plaintiff should not track back again, relied on principles on summary disposal under 28 Rule 4(1) to ask the Court to proceed as if the burden of proof is shifted to the defendant, and not to embark on a mini-trial.

10.  I believe that the burden remains for the plaintiff to discharge on balance of probabilities all the elements of the claim.

11.  When the matter came to me on 9 April 2018, I approached this matter in a manner not unlike a full trial.  I have, on 10 April 2018, directed both parties to disclose documents on a range of matters.

12.  I believe that the difference between hearing originating summons with oral evidence and cross examination as opposed to deeming the proceedings as commenced by writ lies in the consideration to expeditiously and economically disposing the matter and to avoid delay.  I believe that paragraph 62 of the decision of the learned Deputy High Court Judge Marlene Ng in King Wong Development Limited v Yat Fat Limited, HCMP 658 of 2013, dated 9 January 2013 has made this point.

13.  The plaintiff’s case of its being victim of email fraud also needs to be examined and be tested.  This is also because the Affirmation of Mr Michael Schofield dated 14 July 2017 gave rise to some concerns.  Among other things, for example, when deposing to the pre-existing relationship with Mian Teck, the intended payee, Mr Schofield only stated that they had been trading ‘for many years’.  There was no evidence supporting the pre-existing relationship.  Only the few alleged fraudulent emails and an alleged fraudulent fax were exhibited.  Regarding the discovery of the fraud, it was supported by just one email of Mian Teck to the plaintiff calmly suggesting the same.  There was no narrative as to how Mian Teck found it out, and how the two parties handled the aftermath or how the loss is to be absorbed.  The 1^st Affirmation of Mr Schofield supporting the Summons and his 2^nd Affirmation in reply, are not sufficiently detailed to deal with a disputed case.

14.  Therefore, at the beginning of the hearing on 9 April 2018, I indicated that Mr Michael Schofield should also attend the adjourned hearing, and the plaintiff do also file further affirmations to depose to specific matters.  On 10 April 2018, I made the directions that Mr Schofield do attend the adjourned hearing to give oral evidence and that the plaintiff do give further affirmation evidence disclosing the previous emails with Mian Teck in the course of business over the years, and deposing to the communication with it after the incident. 

15.  Mr Michael Schofield has not attended the hearing on 21 May 2018 as directed.  He claimed that he has important business engagement and could not come to Hong Kong on 21 May 2018. 

16.  He has however made a 3^rd Affirmation dated 7 May 2018 disclosing the substantial documents of about 750 pages surrounding the areas I had directed.

17.  For the purpose of making a decision for this matter, I find that his 3^rd Affirmation has addressed the concerns that I previously had about the genuineness of the setting of the incident.  After considering the exhibits of the 3^rd Affirmation and the evidence of the defendant given at the hearing, I am able to conclude that the plaintiff is a victim of email fraud and the Sum was mistakenly transferred to the Bank Account, in the belief that Mian Teck really had so directed the plaintiff to do.  My observations regarding the plaintiff’s own case will be further detailed in Section J below.  

18.  The 3^rd Affirmation of Mr Schofield was served on the defendant’s address for service despite Mr Liu’s protestation to the contrary that he has not received it.  I am satisfied that the defendant has been properly given the opportunity to consider the Affirmation and to make submissions on that.  The defendant has notified by its notice dated 10 October 2017 that its address of service is an address in Mongkok.  Mr Liu confirmed that this was the correct address at the hearing.

19.  Mr Liu, the director acting for the defendant, gave oral evidence to the Court on 9, 10 April 2018 and 21 May 2018.  Ms Tsang Siao Ying and Ms Tang Sheung Lin also gave evidence for the defendant on 21 and 23 May 2018 respectively.

C.   The plaintiff’s case of email fraud

20.  The plaintiff’s case was that it ordered jewelry from Mian Teck.  They ordinarily communicated by emails whereby Mian Teck used the email address contact@mianteck.com. The communications in question were on 4 and 5 August 2016.  There was a first email from the said email address asking the plaintiff to settle the 7 invoices from January 2016 to May 2016.  It requested the plaintiff to pay the money to the Hong Kong HSBC account in the personal name of one Mr Chavanaves.  There was then a second and a third email from the same email address in the name of “Tenth C” asking the plaintiff to remit the money to another HSBC account in the name of the defendant, that is the Bank Account.  Mr Schofield replied in two emails asking Tenth C to fax the bank information to them.  He wrote that he was afraid of emails being hijacked.  He stated:-

“Dear Sitthidej,

OK we will send the money BUT WOULD YOU PLEASE FAX THE BANK INFO TO US (FAX: 812-824-7556).

We are afraid of bank info being hijacked through emails. We need to be very careful because the banks take NO responsibility for this and emails are not secure.

Thank you.

Kind regards,

Michael”

21.  Then came a fax to Mr Schofield on which the Bank Account details was repeated.  Mr Schofield then transferred the Sum.  He then sent repeated emails to Tenth C asking him to confirm receipt of the payment.  Three weeks later, on 29 August 2016, Tenth C sent an email to Mr Schofield telling him that emails were hacked and the payment was sent to someone else.  This email was sent by Tenth C by another account chavanaves@gmail.com, and is as follows:-

“Dear Michael,

This is Tenth. OMG! You have always warned us, and it actually happened.
I believe the transfer you made went to someone else.
They even FAX you a fraudulent account.

We never received your mail and confirmation.
They deleted it from our system.

Please halt all transactions to us at the moment,
as we figure out how to sort this out.

Best regards,
Tenth C.”

22.  Mr Schofield then travelled to Bangkok to meet the representatives of Mian Teck, and then in September 2016, he visited Hong Kong to report the matter to the Hong Kong police.  By December 2016, the police froze the Bank Account.

D.   The defendant’s case of foreign exchange

23.  The defendant disputed that the remittance of the Sum was out of a mistake or out of a fraud.  It claimed that the receipt was for the legitimate purpose of money exchange from US dollars to Renminbi.  The defendant claimed that it operated the business in Hong Kong of trading DVD and GPS for cars.

24.  It was contended in the written representations that when the Sum (less bank charges at USD46,466.6) was received in Hong Kong on 6 August 2016. As a friend of Mr Liu, one Ms Tang Sheung Lin, wanted to exchange some US dollars for Renminbi, the defendant’s Bank Account was used.  After the receipt of the Sum, the Shenzhen partner, one Ms Tsang Siu Ying, made payment of an equivalent amount in Renminbi at RMB311,326 to Ms Tang, who then remitted the sum (less some commission at RMB300,000) onwards to one Ma Chi Fa (馬志花).  Ma was the ultimate recipient of the funds.  The RMB remittances as such all took place on 9 August 2016.

25.  The fund flow of an equivalent amount in Renminbi inside China from Ms Tsang to Ms Tang and finally to Ma is not really disputed.  Pausing here,  one will note that such fund flow cannot speak of its purpose.  Such fund flow can equally be a dissipation of proceeds of fraud.

26.  Pursuant to the Order made by me on 10 April 2018, the defendant adduced further documents to explain why it transferred out USD93,500 two days after the Sum arrived its Bank Account.  In short, the defendant produced documents to show that the USD93,500 arrived at a PRC account in three lots ie, 8 August 2016 at USD50000, 11 August 2016 at USD3,465 and 15 August 2016 at USD40,000. On the same day, from this PRC account, Ms Tsang received RMB300,000 and also cash of RMB11,326.  She then passed this RMB311,326 to Ms Tang.  Ms Tang transferred RMB300,000 to Ma Chi Fa. 

27.  In other words, the defendant’s own case is that the Sum left the Bank Account two days after it arrived the Bank Account, and was exchanged into Renminbi.  It then found its way to Ma Chi Fa on 9 August 2016 through the intermediaries of Ms Tsang’s account and Ms Tang’s account.

28.  Mr Liu and Ms Tsang tried to build up the legitimacy of such fund flow within China by giving evidence that the remittance to China was for the defendant’s payment of goods from China.  The defendant disclosed records of custom declaration in PRC for delivering parts and goods from China to Hong Kong in 2016 of a value of USD243,230 which , on the face of it, justified the defendant remitting a total of USD277,900 to China in 2016.  The defendant also produced documents to show that the USD93,500 less the RMB equivalent of the Sum was applied to pay various third party suppliers.

29.  I find that these alleged underlying payments of goods are quite irrelevant.  The defendant’s case is that the Sum was transferred to China and to be received by Ma Chi Fa at the end.  At the heart of the issue is whether the receipt of the Sum in Hong Kong in the first place was for legitimate purpose.  The fund flow after leaving the Bank Account and in PRC has not been able to suggest a legitimate purpose.  The alleged underlying payments of goods was in relation to other sums.

30.  It is the circumstances under which the Sum was received in the Bank Account that matters.  On this, there was barely any documentary evidence from the defendant.  As will be shown in Section J below, the defendant was at pains to offer a satisfactory account.  Mr Liu’s evidence was fraught with inconsistency itself. It also departed from the written defence.  The case became even more unbelievable, when Ms Tsang and Ms Tang each added further different accounts at the witness box.

E.   Summary of finding and reasoning

31.  The four days of hearing has allowed the Court to hear the oral evidence of the defendant’s witnesses in full.  The evidence does not leave me with any doubt that the defendant’s case of the Sum was received for foreign exchange is incredible.  The falsity of the evidence is pervasive, and obvious.  The witnesses had not even decided what story to tell the Court and the answers and explanations were ill thought out.  I observed clearly that even during the four days of hearing, the deponents for the defendant were still formulating what to tell the Court.  I have no difficulty after hearing the defendant’s witnesses that the defendant was a knowing party to the email fraud.  One can be appalled at the audacity of the defendant’s representative attending each and every hearing, looking for the police, and of the witnesses coming to the Court telling blatant lies for four days.

32.  The falsity of the defendant’s case of foreign exchange is obvious. 

33.  The severity of the deceit can be illustrated in a number of ways:-

(a)   the defendant’s case is too ill thought out to be believed; it is not even a matter of whether the case can be supported by evidence; the stories that the defendant put forward were different each time they were articulated and they were inconsistent with each other;

(b)   there is an inability of the witnesses to give any credible evidence on the business and operation of the defendant;

(c)   the defendant submitted documents specifically to respond to my order dated 10 April 2018 but the authenticity of them is suspicious to me; and

(d)   the plaintiff’s case of email fraud is to be believed, meaning that the defendant as the direct recipient of the Sum is necessarily involved in the fraud; given the blatant lies the defendant and its witnesses told the court, the defendant must be more than an innocent conduit of the fraud; the inference is necessarily that the defendant is a knowing party to the email fraud.

34.  I will go into these four aspects below.

F.   Defendant unable to give any valid and coherent account of event

35.  Mr Ng Man Kin, solicitor for the defendant, cross examined all the three defendant’s witnesses at length.  Mr Liu said that he needed US dollars to pay for IC chips.  The whole money exchange need was started by him.  The suppliers preferred to take US dollars.  He understood from his friend Ms Tang that she could help to look for US dollars.  He said that exchanging outside licensed bank gave a better exchange rate.  It appeared clearly to me that Mr Liu was undecided what to state about the communications about exchange rate, and all the sequence of the events.  So towards the end of his evidence, he said that everything was done through Ms Tsang.  Whilst he wrote in the defence that Ms Tsang was a partner, at the witness box, he said she was in fact the accountant, who had handled the entire transaction.  He said he did not know about the details like exchange rate.  Most remarkably, Mr Liu did not even know what amount was going to be exchanged for buying IC chips.  He said it was Ms Tang who decided what amount of US dollars to give him. 

36.  It is immediately clear that Mr Liu was blatantly lying.  The case of needing US dollar for paying goods was itself hardly convincing to start with. That he claimed that Ms Tang decided what amount to give him destroyed all his credibility.  Then he was undecided about what to say as to the actual transactions.  At the witness box, pressed by questions of Mr Ng, he then left everything to Ms Tsang.  It was only then he put forward Ms Tsang as witness.

37.  Ms Tsang turned up on 21 May 2018 to give evidence.  Her evidence created more problems.  It was basically a whole new explanation.  She told the court that Ms Tang, not Mr Liu, initiated the money exchange exercise.  Ms Tang had her own company and wanted Ms Tsang to help as she had some US dollars to exchange into Renminbi.  Both of them earned some RMB1,000 because of the foreign exchange difference.  She was only just meaning to help.  She told the court that Mr Liu was not involved in the exercise and did not know about the matter until the Bank Account was frozen.

38.  Then came the evidence of Ms Tang who told another story.  It is a reverse of Ms Tsang’s account.  It was one Tsang who initiated the money exchange request.  Ms Tsang did not specify an amount needed.  Ms Tang, as an insurance agent, wanted to help her out to build up the relationship.  She then asked in her wechat friends group who could send US dollars.   One Li Zong (李總) requested to join Ms Tang’s wechat group and proposed to her he could find US dollars for her.  She then gave the Bank Account number to Li Zong and some time later Li Zong told her that the money arrived.  Ms Tang tried to boost the credibility of her evidence by a lot of unnecessary details – like she felt very touched that Li really remitted money trusting her so much; that she felt touched that Li did not care what rate to be applied.  She embellished her evidence by putting in a lot of irrelevant details like after this action was commenced, she video called Li and tried to confront him to hold him liable for the crime.  She said she had tried to report the matter to the police in her neighborhood but they said they needed to wait for the Hong Kong court decision first.  She told the Court how Li looked over the video call, and how Li ended the call when he knew that she was trying to hold him accountable for the crime.  She urged that Li Zong, Ma Chi Fa and the plaintiff were colluding.  

39.  I think that the foreign exchange explanation does not make any sense to start with.  The defendant was undecided as to who needed to exchange money. Every single witness gave a different story.  Mr Liu as the first witness made up the evidence as he went along.  Ms Tang’s evidence at the last day of the hearing was very unnatural.  She started off reading from notes and the way she spoke was like reciting from memory. She stated a lot of things which are irrelevant.  Mr Liu only decided to put forward Ms Tsang when he could not answer many of the questions.  When questioned about the genuineness of the invoices apparently issued by the defendant, he introduced a trading clerk claiming that the clerk did and knew about the invoices.  Ms Tsang’s evidence is unreliable.  She did not have her own coherent story to tell, not to mention that she has not sought to be consistent with other witnesses.

40.  It is fatal to the defendant’s case that it has not even asserted a coherent account of events.

G.   Defendant’s witnesses not knowing basic details of defendant’s operation

41.  The defendant had similarly been undecided as to what to tell the Court about its business operation.  Mr Liu was unable to tell who are the employees though he claimed there were two.  He said they did everything and they have no title.  He was hard pressed to tell how the business operated when the defendant only has an address at the company secretarial company. 

42.  Ms Tsang’s evidence was more unbelievable.  She said she at first was a shareholder of the related company of the defendant in China, and when the business was not good, she later assumed the role of accountant.  When asked about her work, she said she worked part time.  She rarely visited the office of the defendant’s associate company in Shenzhen because she had to raise children at home.  When she visited, she only took the documents from the reception. She could not say at all how large the office was and how many people worked there.  She stressed that she could do everything by just using a USB.  When asked how she became a shareholder, she said that when the company did well in the past, shares were given to the good employees.  Hard pressed as to what to say about her role, she at one point said she was “not anything”.

43.  Also telling was that she could not even state what address the office was in Shenzhen, an office, she said, for which she worked, and got paid. 

44.  There is no way I can find that the defendant has a genuine business operation. 

45.  It is an element of the defendant’s case that the defendant has an existence for a lawful business operation such that its receipt of the Sum was only part of it.  That the defendant’s existence lacks a genuine purpose points strongly to its being a party to fraudulent activities.

H.   Suspicion of falsifying documents

46.  I have pinned down documents requiring the defendant to disclose, by my order dated 10 April 2018.  This includes documents to support the transactions of deposits and withdrawals from the Bank Account in 2016, and evidence of the communications between Ms Tsang and Ms Tang about the arrangement of money exchange.

47.  Mr Liu filed an affirmation thereafter disclosing, amongst other, that invoices of the defendant to support the deposits.  He also disclosed a very blurred wechat message screen capture image.  It was only enough for one to read that the sender told the recipient that the sender’s client has deposited “46510” to an HSBC account, and the sender asked the recipient to check.  The wechat screencap is very blurred.  The date cannot be seen.

48.  Given the blatant lies that the defendant had told the Court over the several days of hearing, and the way the invoices and the wechat image looked, I have reasons to believe that the invoices involved falsification and the wechat screencap copy was processed to become so blurred.  The defendant was all out to deceive the Court and it seems to have no bottom line as to how far it can go in its deceit.

I.   Pervasive lies of defendant points to the defendant’s knowledge and participation

49.  The defendant’s Bank Account received the Sum directly.  The defendant is necessarily a conduit in the fraud.  The only question is whether the defendant was a knowing party or not.  Given all the obvious and blatant lies of the defendant and its witnesses and the pervasiveness of their deceit, I believe that the defendant is a participant to the email fraud.

J.   Analysis of the plaintiff’s evidence

50.  The above suffices to form the reasons of my decision that I should grant the relief as sought in the originating summons.  I nevertheless go further to comment on the plaintiff’s case.

51.  I made the order requiring Mr Schofield to attend the hearing to give oral evidence and for further documents to be disclosed.  The reason is that the plaintiff’s 1^st and 2^nd Affirmations of Mr Schofield left me in doubt whether the business relationship between the plaintiff and Mian Teck was genuine.  Among others:-

(a)   Mr Schofield deposed that he ordered from Mian Teck ‘for many years’. He was not able to say how many years.  There was just the several emails fraudulent emails/fax and the emails immediately preceding and following it disclosed.  There was not sufficient narrative and evidence to support the background and the aftermath.

(b)   He deposed that he wired money to Mian Teck to the personal account of Mr Chavanaves, whereas I noticed that the invoices themselves bear direction of payment to the bank account of Mian Teck in Thailand. 

(c)   There was no narrative as to how Mian Teck discovered the fraud.

(d)   The email of Tenth C on 29 August 2016 was calm.  The risk of email fraud was in the forefront of the mind of both sides as recorded in that email and also Mr Schofield’s email requesting for fax confirmation. 

(e)   I was at first skeptical also about the fact that there was no more narrative as to the negotiation between the plaintiff and Mian Teck after the incident as in who was to absorb the losses.  The plaintiff even visited Mian Teck in Bangkok.

(f)   At the material times, Mr Schofield has also sent emails to a yahoo account of Mr Chavanaves; it was not a case as Mr Schofield stated in his affirmation that they communicated only by the hacked account. 

52.  I have ordered the plaintiff to file further affirmation to disclose emails for the preceding 7 years between the plaintiff and Mian Teck, and also to depose to communications after the alleged fraud was discovered.  The 3^rd Affirmation of Mr Schofield was filed.  I have reviewed the exhibits of about 750 pages.  I came to the conclusion that there was indeed frequent email communications between them; among others, there was indeed one instance at least at which Mian Teck gave special direction of fund wiring – on 29 October 2014, Mian Teck asked Mr Schofield to split the settlement funds of invoice from May to October 2014 in two portions – one to be sent to the company’s Thailand account, and the other to the personal account of HK HSBC in the name of Mr Chavanaves.  The yahoo email account was also used at least once on 25 August 2015 by Mr Schofield to Mian Teck.  There was also negotiation from January 2017 onwards as to which party to absorb the loss.

53.  In light of the newly disclosed documents, I am ready to find that the plaintiff is a victim of email fraud and the Sum was caused to be sent to the Bank Account by deceit.  I arrive at the conclusion because there was nothing to doubt the genuineness of the documents disclosed.  I notice though that there was no email disclosed in the immediate aftermath from September to December 2016.  There was no concrete particulars as to how the Bangkok visit in September went.  There was still no account as to how the fraud was discovered.  Mian Teck also continued to use the same account after the incident since January 2017.  Mr Schofield did not avail himself to give oral evidence.  Whilst I understand that there is a long distance between the United States and Hong Kong, it was clear that it was not beyond him to attend Court. He travelled to Bangkok to visit Mian Teck and then visited to file complaint with the Hong Kong police.  It was just that it is inconvenient to him and he chose not to attend the hearing.

54.  However, viewing also the matter in the round and despite the unsatisfactory features in the plaintiff’s case as above stated, I am ready to believe the plaintiff’s version.

K.   Ground for declaration and for release of the funds – legal principles

55.  As to the cause of action, Mr Ng has not pinned down specifically which ground to rely on.  He submitted at his closing submission that the “causes of action may be unjust enrichment on mistake (or referred to as “money had and received”) or constructive trust.” (paragraph 115 of the closing submissions) 

56.  Given my finding that the defendant is a fraudulent direct recipient, the Remaining Funds should be held on proprietary constructive trust by the defendant for the plaintiff.  Where property is obtained by fraud, equity imposes a constructive trust on the fraudulent recipient, so that the money is recoverable in equity.  I adopt the principles referred to in paragraphs 28 to 31 of the decision of Deputy High Court Judge Cooney SC in Guaranty Bank and Trust Company v Zzzik Inc Limited, HCA 1139 of 2016, dated 18 July 2016, a case Mr Ng helpfully referred me to.

57.  There are emails showing that at the material times, the risk of email hijacking was at the forefront of Mr Schofield’s mind.  He asked Tenth C to send the bank information again by fax, suggesting that he was worried about emails being hijacked.  Tenth C’s email of 29 August 2016 also recorded Mr Schofield’s previous caution.  Reliance on mistake of the plaintiff may create complications given the demonstrated doubt.  I believe that it is a blatant fraud participated by the defendant.  There is no need to rely on mistake of the plaintiff.

58.  There is a complication in that when the Sum was received on 6 August 2016, it has not sit in the Bank Account.  Two days later, on 8 August 2016, a larger amount of USD83,500 was transferred out.  What remains in the Bank Account now is only USD19,719.5 and HKD30,002.53.  The defendant certainly intended to transfer away the whole of the Sum on 8 August 2016.  This is what the newly adduced documents of the defendant suggested.  The Sum almost squarely found its way to Ma Chi Fa, through the intermediary of Ms Tang and Ms Tsang.  However, the claim of the plaintiff should be able to follow into the Remaining Funds.  Reliance can be placed on the principle where a claimant’s asset is mixed with other assets in such a way that no one can tell who has contributed to the mixture, the claimant should identify any proportionate part of the mixture as his property.  I am mindful of paragraphs 7-20 to 7-23 of Goff & Jones on The Law of Unjust Enrichment, 9^th ed, which read as follows:-

“(a) Fungible Mixture

Suppose that a claimant’s assets are mixed with other assets in such a way that no one can tell who has contributed what to the mixture, but it remains possible to divide the mixture into identical parts: suppose, for example, that a claimant’s oil is mixed with other oil, or that a claimant’s shares are mixed with other shares. Where the whole mixture is still intact, the claimant’s contribution must still be somewhere in the mixture although it has lost its discrete identity, and so the rule in this case is that the claimant can identify any proportionate part of the mixture as his property.

If any of the mixture is consumed or transferred to a third party, then the evidential problem becomes more acute. In this case, no one can know whether the claimant’s contribution subsists in the remainder. Two rules are used to resolve this problem. First, where the mixture is done innocently, the remainder is apportioned rateably between contributors to the mixture: e.g. if the claimant’s 20,000 barrels of oil are innocently mixed with 100,000 barrels of oil belonging to others, and 30,000 barrels are consumed, then one-sixth of the 90,000 barrels remaining (i.e. 15,000 barrels) are deemed to belong to the claimant.

Secondly, where the mixture is done be a bad faith defendant who knows that he is not entitled to the claimant’s oil but who mixes it with his own oil anyway a different rule applies, namely that the evidential uncertainty created by the wrongdoing is resolved against the wrongdoer. This does not mean that the defendant is debarred from following his own contribution into the mixture, but it does mean that losses from the mixture are deemed to have come out of the defendant’s portion first, but the burden of proving otherwise is placed on the defendant. So, for example, if a defendant knowingly mixes 100 tons of the claimant’s gravel with 100 tons of his own gravel, and 80 tons of gravel and then stolen out of the mixture, the defendant can identify 20 tons of the remaining gravel as their own, but the 100 tons will be deemed to belong to the claimant because the claimant cannot prove that they belong to him.

These rules are designed to resolve evidential uncertainty, and they do not apply where the facts are not uncertain.” (own emphasis)

59.  Mr Ng helpfully referred me to the decision of the learned Deputy High Court Judge Douglas Lam SC in Pacific Rainbow International Inc. v Shenzhen Wolverine Tech Ltd & Ors, HCA 3023 of 2016, dated 16 March 2017.  I believe that paragraph 68 thereof stated the same principle in the context of tracing a claim into the second recipient’s account.

60.  Mr Ng also relied on the decision of Pacific Rainbow to argue that sub-accounts can be recognized as one account.  I believe that Mr Ng referred to paragraph 70, which is a statement that there is at least a serious issue to be tried that the sub-accounts together constituted one balance.  I am inclined to agree that sub-accounts should be treated as one balance.  In this case, there is no issue raised to distinguish between the Hong Kong dollars from the US dollars in the same Bank Account.  It has not occurred to me that money in a different currency should, without more, he considered as being put in sub-accounts, or otherwise it should preclude the application of the presumption above.

61.  The defendant has not raised any matters or issues relating to the fact that the Remaining Funds are in different currencies nor argued that the funds remaining were its own funds.

62.  Mr Ng made submissions that the defendant could not rely on the defence of bona fide purchaser for value without notice or change of position.  I think that the defendant has not relied on this defence or any defence in law.  The defendant’s defence is merely a factual one disputing that the remittance of the Sum to it was by mistake.  It asserts a different set of facts to demonstrate that there was no mistake and its receipt was for legitimate purpose.

63.  I also note that no other victim claims the Remaining Funds.

L.   Order

64.  I make the following orders:-

(a)   a declaration that the Remaining Funds of HKD30,002.53 and USD19,719.50 in the  account number 817-853195-838 in the name of the defendant are funds held on trust by the defendant as constructive trustee for the plaintiff;

(b)   the Hongkong and Shanghai Banking Corporation Limited forthwith release and return the Remaining Funds to the plaintiff and any temporary freezing arrangement made by the police be lifted; and

(c)   the plaintiff has costs of this Originating Summons proceedings, on a party and party basis, to be taxed if not agreed.

65.  The defendant stated in its written representation dated 8 August 2017 that it counterclaimed against the plaintiff for RMB1 million damages caused by the freezing of its account, and for the freezing order to be lifted.

66.  In so far as it is necessary to deal with them, the counterclaims of the defendant fail.

M.  Email fraud claims

67.  I think that whilst email frauds may be a commonplace, something that Mr Ng wanted to impress upon me, it is not right to approach this claim as if one is going through the motion. 

68.  There is no reason for one to expect in contested cases which required cross examination of deponents that it only needed to prove a prima facie case.

69.  A fuller affirmation, evidence and narrative to address all the anticipated issues is required even in non-contested cases.  

70.  I have read the contemporaneous emails between Mr Schofield and Mian Teck exhibited in the 3^rd Affirmation of Mr Schofield. There was a mention that they expected the claim in Hong Kong would be a straightforward one.  I believe that the lawyers can assist the Court better if the parties take Court proceedings in Hong Kong more seriously, particularly when the claim is contested.  The burden on a claimant/plaintiff is not lessened by the fact that the context of a claim is email fraud, however common it is, or by the fact that it chooses to proceed by way of originating summons.

71.  Having said all the above concerning email fraud claims, it remains for me to thank Mr Ng for his assistance.  I am impressed by his tireless and all round cross examination.

72.  I direct that Mr Liu be contacted to make an appointment for him to attend the District Court building for the court interpreter to interpret this decision in Putonghua to him.