ARROW ECS NORWAY AS v. M YANG TRADING LTD AND OTHERS

HCA 239/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.239 OF 2016

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DECISION

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1.  This is the hearing of the plaintiff’s application by Summons dated 8 September 2016 (“Summons”) against the 1^st defendant for summary judgment and/or judgment on admissions, supported by the 4^th Affirmation dated Chong Chooi Har dated 7 September 2016. 

2.  Despite the express notice to the 1^st defendant indorsed on the Summons that it should send to the plaintiff’s solicitors a copy of any affidavit intended to be used by the 1^st defendant not less than 3 days before the hearing, the 1^st defendant has so far not filed or served any affidavit in opposition to the Summons. 

3.  According to Mr Arthur Randall, solicitor for the plaintiff, he has had no response to the Summons from the 1^st defendant until 20 September 2016 (which was after the plaintiff’s solicitors have lodged and served Skeleton Submissions on 19 September 2016 and just 2 days before the hearing) when he received a letter from the 1^st defendant’s solicitors simply asking the plaintiff to agree to give the 1^st defendant time to file evidence in opposition.  By its solicitors’ letter dated 21 September 2016, the plaintiff has turned down such request.  

4.  At the hearing this morning, the 1^st defendant through Counsel Ms Katy Chung invited me to adjourn the Summons for substantive argument and to give directions for the filing and service of affidavit evidence by the parties.  I inquired with Ms Chung what the 1^st defendant would raise by way of grounds of defence or triable issues in the evidence to be filed.  Ms Chung was however unable to assist me save to say, in effect, that those instructing her would have to take instructions.  I have to say that I was surprised by this complete lack of preparation on the part of the 1^st defendant, especially in light of the procedural history of this matter.  Prior to the issuance of the Summons, the plaintiff has applied for and obtained a Marvea injunction against the 1^st defendant on 26 January 2016, supported by affidavit and documentary evidence setting out in detail the plaintiff’s case against the 1^st defendant.  And the 1^st defendant has had the opportunity to file and serve two affirmations by its sole shareholder and director Li Yuebi, one of which touched upon the funds that are the subject-matter of the Plaintiff’s claim against the 1^st defendant.  Indeed, in making the present application, the plaintiff relies partly on what is said in paragraph 8 of the 2^nd Affirmation of Li Yuebi dated 11 May 2016 which is to the effect that she has no knowledge of the funds claimed by the plaintiff and believed that there were some operation mistakes or other unknown reasons in relation to the receipt thereof by the 1^st defendant.

5.  Although this hearing is set down for just 30 minutes and it is not uncommon for the court to give directions for the filing and service of affidavit evidence by the parties and to adjourn the matter for substantive argument at the first hearing of this type of applications, litigants and their legal representatives should not assume that the court will in all cases mechanically so proceed.  The court is entitled, as matter of proper case management, to ask to be satisfied that a substantive hearing is sought in good faith and would not be a waste of time for both the applying party and the court.  And the court would not normally be so satisfied without sight of the defendant’s affidavit in opposition, or if there has not been sufficient time for the preparation of such evidence, without being given at least some indication as to the broad grounds of defence or triable issues that the defendant intends to raise.  And where further time is needed, the responding party should approach the applying party with a view to agreeing on a timetable.  Such approach should be made at an early, rather than late, stage.  A request for time made at the last minute may, depending on the circumstances, give rise to the suspicion that one is stalling.

6.  However, apart from dealing with the question whether the “fraud” exception provided for in Order 14, rule 1(2)(b) of the Rules of the High Court applies to the plaintiff’s claim against the 1^st defendant, despite my said reservation regarding the manner in which the 1^st defendant has approached this hearing, to err on the cautious side, I am going to give the 1^st defendant time to file and serve affidavit evidence on the merits. 

7.  In resolving to rule on the applicability of the “fraud” exception, I have not overlooked Ms Chung’s statement that she has not had a full opportunity to prepare her argument.  However, Counsel should have had sufficient time.  This is an exceedingly short point.  It does not depend on the 1^st defendant’s evidence on triable issues, but turns entirely on how the plaintiff frames its claim against the 1^st defendant.  It is eminently suitable for disposal at the first hearing of the Summons.  If the “fraud” exception applies, then that is the end of the plaintiff’s application and no further hearing thereof would be required.  If it does not apply, the parties can put this argument behind them and focus their attention on matters of merits at the adjourned hearing.

8.  To put the “fraud” exception issue in context, the subject matter of the plaintiff’s claim herein against the 1^st defendant is the sum of US$24,813,000 (“Funds”) in a multi-currency savings account numbered 016478788603665 that is held in the 1^st defendant’s name with DBS (Hong Kong) Limited (“Account”).

9.  The evidence adduced by the plaintiff shows that prior to the receipt of the Funds, the Account had a zero balance and the whole of the Funds are traceable to 5 bank transfers made by the plaintiff to the Account on 20 and 22 January 2016.

10.  It is unnecessary to go into the detailed background that led to these transfers save that it is the plaintiff’s case that they were the result of a course of telephone and email scam perpetuated against the plaintiff on 20 to 22 January 2016 by fraudsters who purported to be senior personnel of the Arrow group of companies and whose real identities the plaintiff has so far not been able to identify and that there was otherwise no reason for the plaintiff to transfer any money to the 1^st defendant. 

11.  Given the underlying fraud, Mr Randall has very properly raised, and addressed me on, the question whether this application may fall foul of Order 14, rule 1(2)(b) which provides that summary judgment may not be given in “an action which includes a claim by the plaintiff based on an allegation of fraud”, which has been construed widely and liberally to include allegations of deliberate dishonesty: Pacific Electric Wire & Cable Co Ltd v Harmutty Ltd [2009] 3 HKLRD 94 (CA).

12.  In Universal Capital Bank v Hongkong Heya Co Ltd [2016] 2 HKLRD 757, in rejecting the defendant’s opposition on the basis that the plaintiff’s application was caught by the “fraud” exception, Deputy High Court Judge Burrell said at [18(1)]:

“The underlying reason for the fraud exception is to prevent summary judgment in a case where serious allegations of dishonesty are made or implied against a party to the proceedings so that such a party may have an opportunity to answer the allegations, or put in a more familiar way, “have his day in court”.”

And then at [18(4)]:

“Whilst it is true that the Hong Kong courts have adopted a fairly wide and liberal interpretation of “fraud” when considering the application of Order 14, rule 1(2)(b), it should not be applied automatically merely because there are allegations of fraud or dishonesty in the bigger picture.  The question remains, does the underlying allegation of fraud (which does exist here) on which the claim is based (which it is not in this case) constitute an allegation of fraud against the defendant? … ” (emphasis added)

13.  The latter observation is equally apt in this case.  Although a fraud perpetrated by unknown fraudsters is the underlying reason why the plaintiff has suffered loss and commenced these proceedings, as against the 1^st defendant, the plaintiff has taken great care to stress that it does not have evidence that the 1^st defendant or those behind it were involved in such fraud.  Nor does the plaintiff make any allegation of fraud or dishonesty against the 1^st defendant.  The plaintiff has expressly confined the bases of its claim against the 1^st defendant to payment under mistakes of fact and unjust enrichment.  See paragraphs 44 to 48 of the Statement of Claim.  See also paragraph 13 of the 4^th Affirmation of Chong Chooi Har.   

14.  In making its case on such bases, the plaintiff does not, and does not need to, make or rely on any allegation of dishonesty or fraud against the 1^st defendant.  All that the plaintiff has to say and prove is that it transferred the Funds into the Account for no valid underlying reason; that it did not intend the 1^st defendant to have the Funds; no consideration has been paid for the Funds by the 1^st defendant to the plaintiff and there is no legitimate reason for the 1^st defendant to have received the Funds from the plaintiff so that the 1^st defendant has been unjustly enriched by receiving the Funds at the plaintiff’s expenses.

15.  For these reasons, I hold that the plaintiff’s claim against the 1^st defendant does not fall within the “fraud” exception under Order 14, rule 1(2)(b). 

16.  I hereby adjourn the Summons to a date to be fixed for argument before a Judge in Chambers with 3 hours reserved with liberty to the plaintiff to apply to fix the date for the adjourned hearing forthwith. 

17.  I further direct as follows:

(1)  leave to the 1^st defendant to file and serve affidavit evidence in opposition within 14 days from today;

(2)  leave to the plaintiff to file and serve affidavit evidence in reply (if so advised) within 14 days thereafter; and

(3)  no further affidavit evidence without leave of the court.

18.  The costs of today’s hearing shall be costs in the cause of the Summons.