SPRUCE AUSTRALIA PTY LTD v. NEW SENJIA TRADE LTD

HCA 2292/2018

[2019] HKCFI 101

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2292 OF 2018

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D E C I S I O N

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1.  This is the plaintiff’s application against the defendant for judgment in default of Notice of Intention to Defend and Defence in terms of the Summons issued on 26 November 2018 (“Summons”). The Summons was issued pursuant to Order 19, rule 7 of the Rules of the High Court and the inherent jurisdiction of the Court. In gist, the defendant seeks monetary judgment in the sum of AUD 2,003,332.84 (the “Sum”) and certain declaratory relief to hopefully enable the plaintiff to have access to the balance in the bank account of the defendant (“D’s A/C”[1]) held with Hang Seng Bank Limited for full or partial satisfaction of the monetary judgment. The plaintiff further seeks an order in effect that the Mareva injunction granted by G Lam J on 5 October 2018 (“the Mareva Injunction”) be continued post-judgment in aide of execution and enforcement of the judgment being sought.

Outline of the pleaded facts

2.  This is a case of email / impersonation fraud.

3.  The defendant is a Hong Kong company incorporated recently on 19 March 2018.

4.  The plaintiff is a company incorporated under the laws of Australia.  It has certain leasehold interests in a hotel in Sydney (the “Hotel”).  The plaintiff engaged an affiliate to operate the same.  The plaintiff has the following business practice.  Each month on the 4^th, a representative of the plaintiff (“P’s Rep”) will send an email to the Director of Finance and Accounts Payable of the Hotel (“Hotel’s Director of Finance”) and requests the Hotel to settle the lease payment for the month due under the Hotel’s lease with the landowner.  In line with that practice, P’s Rep on 4 May 2018 issued to the Hotel’s Director of Finance an email for settlement of the lease payment for May in the sum of AUD 2,003,332.84 (ie the Sum).  Later on the same day, the Hotel’s Director of Finance received another email purportedly from P’s Rep changing the payment instructions and asking the lease payment be paid instead into D’s A/C.  The Hotel did as instructed.  It was later discovered that that second email was in fact not sent by P’s Rep, but by a fraudster—hence this claim.

5.  The Writ herein was issued on 2 October 2018.  The Mareva Injunction was sought and obtained on 5 October 2018. The Statement of Claim was filed on 26 October 2018.  The claim is based inter alia upon fraud, money had and received, and unjust enrichment.  The plaintiff seeks inter alia return of the Sum, an injunction restraining removal or disposal of the same, a Declaration that the defendant has been unjustly enriched inthat Sum, and a Declaration that the Sum at all times remains the plaintiff’s property and was received and held by the defendant as its constructive trustee. 

6.  No Notice of Intention to Defend has been filed.  Nor has any Defence been filed.  The present Summons for judgment in default was issued on 26 November 2018.

Service of process

7.  I have read the various affirmations of service filed on behalf of the plaintiff.  I am satisfied that the Writ of Summons, the Statement of Claim and the present Summons have all been validly served upon the defendant at its registered address.

8.  Despite the service, the defendant was absent during the hearing of the Summons today. 

9.  Pursuant to Order 32, rule 5(1), the court may proceed in the defendant’s absence if “having regard to the nature of the application, it thinks it expedient to do so”. 

10.  This application is for judgment in default of Notice of Intention to Defend and Defence.  It belongs to the type of applications which, given their nature, are more often than not proceeded with in the absence of the defendant. In the present case, I also deem it expedient to do so.

Approach for granting default judgment

11.  As the Writ and the Statement of Claim contain claims not mentioned in Order 13, rules 1 to 4 and Order 19, rules 2 to 5, the present application is governed by Order 19, rule 7(1).  Under that rule:

“ …the plaintiff may, after the expiration of the period fixed by or under these rules for service of the defence, apply to the Court for judgment, and on the hearing of the application the Court shall give such judgment as the plaintiff appears entitled to on his statement of claim.”

12.  In the present case, when considering what judgment the plaintiff appears entitled to, the court has to take into account the fact that a declaration is being sought.  In Order 19, rule 7(1), although the words “the Court shall” are used, “the rule is not mandatory but discretionary, and the court retains its discretionary power whether to give judgment…” — see Hong Kong Civil Procedure 2019, Volume 1, paragraph 19/7/13.  It is further stated at paragraph 15/16/2 that:

“The power to make binding declaration of right is a discretionarypower….A declaration can only be made after proper argumentand cannot be made merely on admissions by the parties whether in pleadings or otherwise … nor in default of compliance with rules of court.”

13.  Similarly, it is stated at paragraph 19/7/20 that “It is not the normal practice of the court to make a declaration without a trial, particularly where the declaration is that the defendant in default of defence has acted fraudulently” (which is the case here).

14.  On the other hand, as has been explained at paragraph 15/16/2 of Hong Kong Civil Procedure 2019, Volume 1:

“… the rule of the court that a declaration will not be granted when giving judgment by consent or in default without a trial 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;” (See also to the same effect paragraph 19/7/20.)

15.  Declaratory relief was hence granted by Lam J (as he then was) in Lai Wai Kuen v Wong Shau Kwong [2004] 4 HKC 528 where his Lordship was satisfied that the plaintiff had a genuine need for the same, and that the court could properly grant it on the merits of the case (paragraph 6).  In 巨展皮具香港有限公司 v 上海兄弟海運有限公司 [2018] HKCFI 53 which case involved an email fraud, I did the same.

Disposal

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 D’s A/C 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.

17.  In so far as the continuation of the Mareva Injunction is concerned, I repeat what I have said in China Citic Bank Corporation Limited (Quanzhou Branch) v Li Kwai Chun & others [2018] HKCFI 1800 at paragraph 32, that:

“ … The mere fact that a judgment has been obtained does not byitself 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.”

18.  In the present case, having considered all the circumstances, the fraudulent nature of the conduct in particular, and the clear risk of dissipation in the absence of any Mareva relief, I am of the view that the continuation of the Mareva Injunction post-judgment is justified.  I am however not prepared to leave it open-ended in the manner as sought.  I impose a time limit of 30 June 2019, after which the Mareva Injunction willlapse.  That will give the plaintiff sufficient time to take out any execution process deemed necessary.  This is however without prejudice to any application in the future for further continuation should the circumstances justify it.

Conclusion

19.  For the above reasons, and subject to paragraph 18 above, I grant the Orders in terms of the Summons, together with costs of the action and this application against the defendant summarily assessed at HK$306,661.00.