MERCY GRACE LTD v. PENGKANG CO., LTD

DCCJ 107/2021

[2021] HKDC 737

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 107 OF 2021

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BETWEEN

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REASONS FOR DECISION

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1.  The Plaintiff by a summons dated 23 February 2021 (the “Summons”) seeks judgment in default of defence, pursuant to Order 19 rule 7 of the Rules of High Court (Cap 4A).

2.  The Plaintiff’s pleaded case is, in gist:-

(1) The Plaintiff made investments with a firm named ZWC Partners (“ZWC”) in November to December 2020 and transferred funds to ZWC’s bank account for that purpose;

(2) The Defendant is a company incorporated in Hong Kong on 9 November 2020, with which the Plaintiff had no prior relationship (save for the matters set out below);

(3) On or around 17 and 21 December 2020, someone purporting to be a representative of ZWC using an email account with the domain name “@zwccpartners.com” sent emails to the Plaintiff requesting it to transfer funds to an account (the “Defendant’s Account”) held with the Standard Chartered Bank in the Defendant’s name.

(4) It is the Plaintiff’s case that this unknown person was acting on behalf of the Defendant to fraudulently induced the Plaintiff into believing that this was a request from ZWC for investment purposes.  Acting under such belief, the Plaintiff did transfer US$181,045 (the “Sum”) to the Defendant’s Account on 21 December 2020;

(5) The Plaintiff’s representatives became suspicious and discovered the fraud on the same day upon enquiry with and confirmation from ZWC that it did not make the request.

(6) The Plaintiff subsequently commenced this action, applied for and was granted a Mareva injunction (the “Mareva Injunction”) on 12 January 2021, which was continued on 22 January 2021.

3.  The Plaintiff claims against the Defendant for the Sum on the basis of unjust enrichment.  It also seeks a declaration that the Defendant holds the Sum and/or its traceable fruits as the Plaintiff’s constructive trustee.

Service of process

4.  The sealed copy of Writ of Summons dated 12 January 2021 was served by leaving at the Defendant’s registered office on 13 January 2021, while and a copy of Statement of Claim dated 25 January 2021 was served in the same way on 25 January 2021.

5.  No Acknowledgement of Service, Notice of Intention to Defend or Defence has been filed.  The Summons was served by leaving at the Defendant’s registered office on 23 February 2021.

6.  Having read the 1^st and 2^nd Affirmation of Choi Ping Yuk dated 15 January 2021 and 9 March 2021, I am satisfied that service of the Writ of Summons, the Statement of Claim and the Summons pursuant to section 827 of the Companies Ordinance (Cap 622) is effective.

Declaratory Relief

7.  The approach to be taken by the Court when dealing with applications which seek default judgment for declaratory relief is trite.  As succinctly summarised by DHCJ Stock, SC in Sultana Distribution Services Inc v Hongkong Fuheng Technology Co Limited [2018] HKCFI 1480:-

“7. The principles applicable to an application under Order 19, rule 7 have been discussed in several recent cases which concern alleged email frauds. The power to grant judgment under rule 7 is discretionary. The court is required to scrutinise whether the matters pleaded in the Statement of Claim entitle the plaintiff to the judgment sought. The court’s decision is made on the basis of the pleaded facts, rather than on evidence.

8. As to declaratory relief, it is not the normal practice of the court to grant a declaration without going to trial. This is, however, only a rule of practice, rather than a rule of law, and gives way to the paramount duty of the court to do the fullest justice to the plaintiff to which he is entitled. In a number of cases involving email fraud, declaratory relief has been granted on the basis that there is a genuine need for such relief to secure the plaintiff’s proprietary as opposed to merely personal claim, particularly given that the defendant may have other creditors.” (emphasis added)

8.  In Spruce Australia Pty Ltd v New Senjia Trade Limited [2019] HKCFI 101, DHCJ Yeung, SC (as he then was) held that:-

“16. I have considered the contents of the Statement of Claim. The pleaded facts clearly support the plaintiff’s case that it is the victim of an email fraud, and that it has suffered loss in the amount of the Sum. Constructive trust also attaches—Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669, per Lord Browne-Wilkinson at 716C–D, and 巨展皮具 at paragraph 27. The plaintiff appears entitled to relief based on its proprietary interest in the Sum. I bear in mind the fact that declaratory relief is being sought. I need to bear in mind the rules of practice set out above and decide how I should exercise my discretion. I take into account the fact that fraud is pleaded and deemed established. I take further into account the fact that nothing is known about the defendant, including whether it has any other creditors. The plaintiff has a genuine need for the Declarations sought, so as to avert any need for it to race against other creditors. The Declarations sought are also necessary for the plaintiff to hopefully get to the balance in [the bank account of the defendant] for full or partial satisfaction of the monetary judgment. In all the circumstances, I am satisfied that the facts of the present case are such that I should exercise my discretion in favour of granting the declaratory relief sought.” (emphasis added)

9.  I am satisfied that the Plaintiff’s pleaded case supports that it has suffered loss in the amount of the Sum and that constructive trust attaches by virtue of fraud perpetrated by/on behalf of the Defendant.  Applying the above principles, I accept that the Plaintiff has a genuine need for declaratory relief to earmark the Sum and keeping it out of reach of the Defendant’s general creditors, and to obtain the balance in the Defendant’s Account for full or partial satisfaction of the monetary judgment.  In these circumstances, it is appropriate to exercise my discretion in favour of granting the declaratory relief along with the monetary judgment sought.

Post-judgment Mareva

10.  At the hearing, counsel for the Plaintiff Mr Lam sought the continuation of the Mareva Injunction post judgment.

11.  As Deputy High Court Judge K Yeung (as he then was) held in China Citic Bank Corporation Limited (Quanzhou Branch) v Li Kwai Chun & others [2018] HKCFI 1800 at paragraph 32:-

“ … The mere fact that a judgment has been obtained does not by itself justify [a Mareva injunction]. But if a Mareva injunction is otherwise justified (applying the established considerations and with the fact that it is a post-judgment application factored in), a Mareva injunction may be granted (subject to the rider that it should normally be of limited and specific duration). It acts in personam on the defendant and works in tandem with the usual execution mechanism.”

12.  In the circumstances of the present case, in particular given the fraudulent nature of the conduct and the clear risk of dissipation in the absence of any Mareva relief, I am satisfied that the continuation of the Mareva Injunction post-judgment is justified.

13.  In a number of recent cases, the court’s practice is not to leave the post judgment Mareva open ended but to continue it for a limited and specific duration, which typically allows the plaintiff sufficient time to take out any necessary execution process and without prejudice to any application for further continuation should circumstances justify such application:-

(1) In Spruce Australia Pty Ltd v New Senjia Trade Limited [2019] HKCFI 101, the Court imposed a six months duration;

(2) In Terence John Stott v Larks Trading Limited & others [2019] HKCFI 1317, the Court imposed almost four months duration;

(3) In DCP Limited v Soteria Trades Limited [2019] HKCFI 1319, the Court imposed 3 three months duration.

14.  Mr Lam confirms that the Plaintiff intends to take out garnishee proceedings.  It would appear for this purpose it is sufficient to continue the Mareva Injunction for four months i.e. until 4 October 2021 and I so order.  This does not prevent the Plaintiff from applying for further extension should it turn out to be necessary.

15.  It remains for me to thank Mr Lam for his assistance.