HALLIBURTON BV MERKEZI HOLLANDA ANKARA MERKEZ TURKIYE SUBESI v. SHENG YI (HK) TRADE CO., LTD AND OTHERS

HCA 1627/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1627 OF 2016

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JUDGMENT

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PROCEDURAL BACKGROUND

1.  The plaintiff in this action, Halliburton Bv Merkezi Hollanda Ankara Merkez Turkiye Subesi, has been a victim of what is commonly referred to as an email fraud.  A succinct summary can be excerpted from the judgment of Recorder Anthony Houghton SC in the present case: Halliburton Bv Merkezi Hollanda Ankara Merkez Turkiye Subesi v Sheng Yi (HK) Trade Co Ltd & others (unreported, HCA 1627/2016, 8 February 2017) at paras 1 –­ 4:

(a) P in these proceedings is the victim of what is said to have been an international fraud, as a result of which P transferred asum of US$4,977,000 to the bank account of the 1^st defendant (“Dl”) in Hong Kong.  That transfer took place on 15 June 2016.

(b) Shortly after the initial transfer to D1 there were further transfers this time from the account of the D1 to the accounts of the 2^nd (“D2”), 3^rd (“D3”) and 4^th (“D4”) defendants.  In money terms the largest recipient was D3 which received about US$2,165,000 from D1.

(c) D2 received US$180,000 and D4 US$200,000 (“the Subject Sum”).

(d) Subsequently yet further transfers were made from the accounts of D2 and D3 to accounts held by the 5^th to 17^th defendants.  The recipients of the transfers from D1 (ie D2, D3 and D4) have been described in submissions as the “2^nd layer recipients”and the recipients of transfers from D2 and D3 as the “3^rd layer recipients”.

2.  On 8 July 2016, an ex parte injunction was granted by Chow J to restrain the disposition of, inter alia, the Subject Sum by, inter alios, D4 (“Mareva/Proprietary Injunction”).  This was continued on an inter partes basis by Mimmie Chan J on 15 July 2016.  No application has been made by D4 to discharge the injunction.

3.  Deputy High Court Judge Cooney SC had earlier entered default judgment against the 1^st, 3^rd, 8^th, 9^th, 11^th – 13^th and 15^th – 17^th defendants: see Reasons of Decision of Halliburton (unreported, HCA 1627/2016, 24 January 2017).

4.  Recorder Anthony Houghton SC however refused to enter default judgment against the 5^th – 7^th defendants on the basis, inter alia, that “a trial is likely to be held in which the relevant factual circumstances are closely aligned with, and may overlap, those relevant to the claim against” the 5^th – 7^th defendants (see para 22, supra).

THE ISSUE BEFORE THE COURT

5.  This is the hearing of the summons of D4, Lo Wah, trading as Wealth International Co, to strike out the whole of the plaintiff’s claims against them.  Mr Michael Lok appeared for the plaintiff and Mr Patrick Tsang and Mr Gavin Wan for D4.

6.  For completeness, I should add that D4 has also issued a summons seeking security for costs which is not before me today.

RELEVANT LEGAL PRINCIPLES

7.  Any pleading may be struck out on the ground(s) that:

(a) it discloses no reasonable cause of action or defence, as the case may be;

(b) it is scandalous, frivolous or vexatious;

(c) it may prejudice, embarrass or delay the fair trial of the action; and/or

(d) it is otherwise an abuse of the process of the court.

See Hong Kong Civil Procedure 2018 at §18/19.

8.  It is only in plain and obvious cases that the court should exercise its summary powers to strike out the indorsement on any writ or any pleading under this rule.  There should be no trial upon affidavit. Disputed facts are to be taken in favour of the party sought to be struck out. Nor should the court decide difficult points of law in striking out proceedings.  The claim must be obviously unsustainable, the pleadings unarguably bad and it must be impossible, not just improbable, for the claim to succeed before the court will strike it out.  If the court does not think the matter to be clear beyond doubt or if it fails to be satisfied that there is no reasonable cause of action or that the proceedings are frivolous or vexatious, then, there should be no striking out.  One must be careful not to drive a plaintiff from the judgment seat nor should the court decide difficult points of law.  Hong Kong Civil Procedure 2018 at §18/19/4

FACTUAL BACKGROUND

9.  The essential facts are not in dispute, namely that the D4 received US$200,000 from D1, transferred to her on 16 June, the same day that D1 received the sum the subject of the alleged fraudulent scheme.  The claim against, inter alios, D4 is set out at paragraph 31 et seq of the statement of claim as follows:

“ 31. It is to be inferred from the following facts and matters that the 1^st to 17^th Defendants (1) participated in or perpetrated the aforesaid fraudulent scheme against the Plaintiff; and/or (2) were used as vehicles or intermediaries for the dissipation of the Funds on behalf of the Imposter and/or the 1^st Defendant; and/or (3) received parts of traceable proceeds of the Funds on behalf of the Imposter and/or the 1^st Defendant:-

31.1 The Funds (or parts thereof) received by the 1^st to 4^thDefendants were rapidly dissipated out of their respective bank accounts on the same day of receipt via multiple tranches.

31.2 The 1^st, 2^nd, and 3^rd Defendants hold themselves out as carrying out various unrelated businesses (i.e. trading in clothing, electronics, and furniture, respectively) and could not have had any genuine business dealings which could result in the 2^nd Layer Transfers.

31.3 The 2^nd to 4^th Defendants appear to be ‘designated beneficiaries’ named in the internet banking system for D1’s Account to facilitate the speedy dissipation of funds up to HSBC’s HK$20,000,000 (equivalent to approximately US$2,577,552) maximum daily transaction limit for transfers to third party beneficiaries.

31.4 The 1^st to 17^th Defendants (with the exception of the 4^th Defendant) are all companies set up with a similar modus operandi in that (1) they are each held and controlled by a sole shareholder/director purportedly resident in various (in some instances overlapping) regions in China and (2) only maintain a registered office with either a company secretarial services provider or consultant service company with no ascertainable physical offices or premises (with the exception of the 10^th Defendant).

31.5 The 1^st to 17^th Defendants do not appear to have any genuine business operations whether in or outside Hong Kong, and whether with each other or otherwise.

32. It is to be further inferred from the aforesaid matters that the 1^st to 17^th Defendants knew or ought to have known at all material times that the 1^st Transfer, the 2^nd Layer Transfers, and the D2/D3 3^rd Layer Transfers, respectively, wholly or partly consisted of proceeds of fraud, fraudulent misrepresentation, deceit and/or were made in breach of trust.

33. As a result of the fraudulent scheme particularised in section B above and the subsequent rapid dissipation of the Funds as particularised in section C above, the Plaintiff has suffered loss and damage.

34. It is and was at all material times unconscionable for the 1^st to 17^th Defendants to retain the benefit of any part of the Funds or its traceable proceeds as the 1^st to 17^th Defendants never had any valid or legitimate entitlement to receive or retain the same.

35. In the premises, the 1^st to 17^th Defendants at all material times held and still hold the Funds or the traceable proceeds of the Funds received by them as particularised in the Schedule annexed hereto (or in such amounts as the Court may determine) together with the fruits and/or proceeds thereof (including interest accrued thereon, if any) on constructive trust for the Plaintiff and are liable to account for the same as constructive trustees.

36. Further or in the alternative, the Plaintiff is entitled to trace into and claim equitable title to (1) the Funds paid to and retained in Dl’s Account from P’s Account and (2) the proceeds of the Funds paid into and retained in the 2^nd to 17^th Defendants’ respective bank accounts from Dl’s Account, D2’s Account and D3’s Account, respectively, as particularised in section C above and in the Schedule annexed hereto (or in such amounts as the Court may determine), which the 1^st to 17^th Defendants respectively hold on trust for the Plaintiff.

37. Further or in the alternative, the 1^st to 17^th Defendants are liable to the Plaintiff for sums equivalent the Funds or the traceable proceeds of the Funds received by them as particularised in the Schedule annexed hereto (or in such amounts as the Court may determine) together with the fruits and/or proceeds thereof (including interest accrued thereon, if any) as money had and received.

38. Further or in the alternative, the 1^st to 17^th Defendants are liable to the Plaintiff to account for the Funds or the traceable proceeds of the Funds received by them as particularised in the Schedule annexed hereto (or in such amounts as the Court may determine) together with the fruits and/or proceeds thereof (including interest accrued thereon, if any) and/or for equitable compensation on the basis of knowing receipt and/or dishonest assistance.

39. Further or in the alternative, it is to be inferred from the facts andmatters pleaded above that the 1^st to 17^th Defendants combined orconspired together to carry out or facilitate the fraudulent scheme particularised in section B above and to dissipate or facilitate the dissipation of the Funds as particularised in section C above, having the intent, or predominant intent, of causing pecuniary injury and damage to the Plaintiff.  In the premises, the 1^st to 17^th Defendants are jointly and severally liable to the Plaintiff for damages, to be assessed.

40. The Plaintiff further claims and is entitled to claim interest, whether compounded or not, on all sums found to be due to it at such rates and for such period as the Court thinks fit pursuant to sections 48 and/or 49 of the High Court Ordinance (Cap. 4) or the Court’s equitable jurisdiction.”

THE PARTIES’ SUBMISSIONS AND THE COURT’S DECISION

The Statement of Claim discloses no cause of action.

10.  D4 submits that there is no reasonable cause of action and seeks to rebut the allegations in the statement claim by evidence of what actually transpired and specifically by reference to past dealings between the parties, but importantly as Mr Tsang conceded no evidence shall be adduced on an application under this head of Order 18.  Indeed Mr Tsang submitted on behalf of D4 that “A reasonable cause of action means a cause of action with some chance of success when only the allegations in the pleadings are considered”: Hong Kong Civil Procedure 2018 §18/19/5.

11.  Whilst there are undoubtedly differences in the claims as pleaded against D4 and a number of the other defendants as appears from paragraph 31.2 and 31.4 of the statement of claim, there is nonetheless at the very least a coincidence of timing in the transfer of US$200,000 from D1 to D4, D4 like D2 appears to be a designated beneficiary named in D1’s internet banking system at HSBC and there is both a tracing claim and a claim for account against D4 in relation to the funds it received.

12.  D4 says that this pleading is insufficiently particularized to justify it going forward whereas the plaintiff submits that whether sufficient facts are being pleaded and particularized needs to be looked at in context of each case ie in this case the plaintiff being a victim to an alleged email fraud, and here relies on the rejection of a similar argument by B Chu J in Ubiquiti Networks International Ltd v Chan Kim Chuen formerly t/a San Chun Technology Co Ltd & another (unreported, HCA 1606/2016, 26 May 2017).

13.  It is useful to cite the learned judge’s discussion at paras 76, 79 – 83 of her decision:

“ 76. Ds complained that P’s conspiracy claim lacks the particulars required and hence discloses no reasonable cause of action.

…

79. It was Mr Whitehead’s submission that P has not properlyparticularized its claims as to how Ds are alleged to have becomeparties to the alleged conspiracy, and that the one overt act alleged against Ds, namely the receipt of monies must be considered in the context that D1 attempted to give the money back but was prevented to do so because of the Mareva Injunction, and D2 was not a party to the 1^st Action but alleged to be a co-conspirator in the present case, returned the money shortly after it had been transferred into his bank account. Thus even though the overt act of ‘receipt of money’ has been pleaded, P has failed to say how that gives rise to the inference that Ds were parties to the said conspiracy, and thus the plea of conspiracy is fundamentally flawed.

80. Mr Maurellet had however referred this court to Yong Weng Chye v Ho Yu Kuen, HCA 1303 of 2009, 17 March 2010 where Master Marlene Ng (as she then was) had remarked that ²⁴:

‘ Conspiracies by their nature are often concealed, and hence the conspiratorial combination or agreement can beinferred from overt acts if it is proved that the conspirators knew what was going on. So in most cases where conspiracy is averred, it will be necessary to look at the overt acts as pleaded to see what inferences can be drawn as to the existence or otherwise of the alleged conspiratorial combination or agreement”

81. She then went on later to say that ²⁵:

---

²⁴ At para 83

²⁵ At para 88

‘ It is trite that fraud and/or conspiracy must be distinctly pleaded with utmost particularity and distinctly proved, and it is not allowable to leave such pleas to be inferred from the facts (see Davy v Garratt [1877] 7 Ch D 473, 489). But one must also consider the practical reality of modern commercial life. As submitted by Mr Lam, fraud and/or conspiracy by their very nature are clandestine and difficult to uncover, so quite often proofis not readily obtained. Hence, the averments of fraudand/or conspiracy cannot be too precise. In an application to strike out a fraud and/or conspiracy claim, the court will look upon such application with care to the above considerations, but at the same time will bear in mind that loose allegations that are not properly particularised will be oppressive as regards the defendants when the action goes to trial. The broad question for the court is whether from the facts as pleaded it can be argued that Ds sufficiently know P’s case on the conspiratorial combination(s) or agreement(s) that they have to meet.”

82. Here in the present case, paragraph 16 of the statement of claim has particularized the unlawful Fraudulent Scheme including the acts carried out by the purported Mr Pera, the purported Mr Evans and the various different recipients in various jurisdiction.  Ds were the direct recipients of the 5^th and 6^th Transfers.

83. I am of the view that from the facts as pleaded Ds would sufficiently know P’s case on the conspirational combinations(s) or agreement(s) that they have to meet.”

14.  Subsequently in refusing leave to appeal against her decision, the learned judge said this at paras 17 – 18:

“ 17. I have said in paragraphs 82 and 83 of the Decision that paragraph 16 of the statement of claim has particularized the unlawful Fraudulent Scheme including the acts carried out by the fraudsters and the various different recipients in various jurisdictions and Ds were the direct recipients of the 5 and the 6^th Transfers. I have already come to the view in paragraph 83 that from the facts pleaded Ds would sufficiently know P’s case on the conspirational combinations(s) or agreement(s) that they have to meet.

15.  The plaintiff also referred me to the following comments of Deputy High Court Judge Saunders in Ferrari North American, Inc v Changhon International Energy Co Ltd & others (unreported, HCA 852/2017, 29 June 2017) (a case similarly arising out of an ‘email fraud’) at para 25:

“ Circumstances where, following an Internet email fraud, a substantial sum is deposited in the account of one company, and then distributed, immediately, in apparently random sums, to a number of other companies, each with no apparent relationship to the distributor, have become commonplace in the courts. Equally commonplace is the suggestion by the ultimate recipients of the funds that the amount received precisely matches a transaction undertaken at the time the deposit was made. These are ‘coincidences’ which cannot be ignored by the courts.”

16.  It is the plaintiff’s submission that the mere fact of receipt of theSubject Sum by D4 on the very same day that the original misappropriated sum had been received is in fact of paramount significance.

17.  I am satisfied that it would be wrong to deprive the plaintiff of the opportunity to prove its case; it is clear to me that in the case of an email fraud such as is pleaded here, there needs to be this opportunity and the opportunity to test the evidence on both sides.  I make no findings as to which party is ultimately the most likely to succeed but I do not see my function on an application under Order 18, rule 19 to weigh submissions based on untested evidence.  The pleading is less particularized than is ideal, but that is the nature of these sorts of cases and the pleading is manifestly in my view not unarguably bad, nor is it impossible that the claim would succeed, which is the test I am required to apply.

The claim should be struck out in the inherent jurisdiction of the court.

18.  D4 adds a claim that in the exercise of its inherent jurisdiction“and filed affirmation evidence” the claim should be struck out.  D4 relies here on its submissions in relation to evidence filed not only on this application but also on its application for security for costs which has yet to be heard in order to maintain an argument that it is a bona fide purchaser for value without notice.

19.  The plaintiff by way of response points out that D4 does not identify any specific ground on which the court could exercise its inherent jurisdiction and in any event says that it faces a hurdle which it cannot hope to clear since it needs to show that the plaintiff clearly cannot prove its claim and that it is without any solid basis.  Mr Lok cited the words of Deputy High Court Judge To in Koo Ming Kown v Pacific Online Ltd(unreported, HCA 2333/2016, 16 May 2017) at paragraph 42 where he said this ground is only invoked where the claim “has absolutely no chance of success … absolutely groundless, time-barred … where the pleading is entirely without substance”.

20.  The plaintiff also relies on the observation of Deputy High Court Judge Douglas Lam SC in Pacific Rainbow International Inc v Shenzhen Wolverine Tech Ltd & others (unreported, HCA 3023/2016, 2 May 2017 at para 42): “the existence of a good arguable defence does notnecessarily negate a good arguable case … as it is entirely possible to have, at the interlocutory stage, both the claim and the defence being more than barely capable of serious argument and not necessarily having a better than 50% chance of success.”

21.  The plaintiff submits further that it is clear that its claim is founded on a sound legal basis even though there may be limited facts available at the moment and whilst it is prepared to concede that D4 might have grounds for establishing that it received the funds as a result of a genuine transaction, that must be a highly factual matter which needs to be determined at trial after proper discovery and cross examination.  Both counsel referred me to voluminous evidence filed on not only this application but also for the purpose of D4’s summons for security for costs, which the plaintiff says reinforces the need for the facts to be investigated fully.

22.  Finally, it is the plaintiff’s submission that it must be implicit that it has at the very least a good arguable case since D4 has not applied to discharge the Mareva/Proprietary Injunction and thus it would lie ill in D4’s mouth to say that the plaintiff’s claim should be struck out for enjoying no reasonable prospects whatsoever.

23.  I cannot see any basis for me to conclude that in the inherent jurisdiction of the court the plaintiff’s claim is obviously frivolous or vexatious.

RULING

24.  I therefore find in favour of the plaintiff and the defendant’s summons to strike out the plaintiff’s claim against her is dismissed.  Against this background I make a cost order nisi that D4 should pay the plaintiff’s costs of this summons.