HUNG WAI CHING v. LEE LAP YAN AND OTHERS

DCMP 1760/2022

[2023] HKDC 1834

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 1760 OF 2022

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BETWEEN

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JUDGMENT

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1.  The plaintiff’s case is that she has been the victim of an online dating fraud. She asks for summary disposal of her Originating Summons (“the OS”) pursuant to RDC O. 28 r. 4. In summary, the OS seeks declarations and various orders, including vesting orders, in relation to amounts that she says she was deceived into transferring into the 1^st defendant’s account with the 2^nd defendant, and into the 3^rd defendant’s account with the 4^th defendant.

BACKGROUND GIVING RISE TO THE OS

2.  The plaintiff is a widower and has one son. She met a man apparently named 董振華 (“Dong”) via an online dating platform in March 2021. Dong and the plaintiff quickly started dating, and would refer to each other as “husband” and “wife”.

3.  Eventually, Dong asked the plaintiff to join him in making online investments, which he claimed would be managed by a company named 九州國際投資. He alleged that he needed the funds from such investments to conduct and fund a project, which he hoped would make more money and hence provide a better life for the plaintiff’s son. He asked her to provide her personal information to him for the purposes of the online investments, and the plaintiff did so, including giving him her bank account details. He then provided her with a website address (nve233.com) through which she was to log into the company’s alleged investment account held in Dong’s name, and also into an alleged investment account held in her name.

4.  As requested by either Dong or an alleged customer service employee of the company, the plaintiff then made multiple payments for the purposes of investment into certain bank accounts from 31 March to 7 April 2021. Such payments totalled HK$1,980,000. Out of those payments, the one that is the subject of the relief sought in these proceedings is HK$600,000 that was transferred on 1 April 2021 into the account of one of Lee Lap Yan (the 1^st defendant) No. 177-675279-833 (“HSBC Bank Account”) with the Hongkong and Shanghai Banking Corporation Limited (“HSBC”), the 2^nd defendant.

5.  On 13 April 2021 the plaintiff contacted the alleged customer service employee as she wanted to withdraw the funds that she understood that she had invested. In response it was claimed that the plaintiff’s prior investments of HK$1,980,000 had been frozen and that they would be confiscated without payment of further funds. The plaintiff was hence convinced to make yet another payment of HK$350,000 into another bank account (which payment and account are not the subject of the relief sought in these proceedings) to prevent such confiscation, and as she was told that both her prior investment and the further deposit would be returned upon payment of the latter.

6.  Given the plaintiff’s understanding in the paragraph above, Dong was on the same day also able to convince the plaintiff to pay a further HK$660,000 as a deposit for him in order to prevent his own alleged investment being confiscated. She accordingly did so by transferring HK$660,000 on 13 April 2021 into the account of one Lu Junzhang (the 3^rd defendant) No. 012-590-2-018606-1 (“BOC Bank Account”) with Bank of China (“BOC”), the 4^th defendant.

7.  On 15 April 2021, as the plaintiff had not received money from her so-called investment account, she was induced by the alleged customer service employee and Dong to make a further payment of HK$424,500 into yet another bank account. That payment and account are not the subject of the relief sought in these proceedings.

8.  Although Dong would contact the plaintiff every morning, he did not do so on the morning of 16 April 2021. The plaintiff then found herself unable to contact both Dong and the alleged customer service employee, and that the website she had been given no longer displayed any information about either Dong’s or her alleged investment accounts. After carrying out some internet research into 九州國際投資, she realised that she might have been deceived, and made a report to the Hong Kong Police on 16 April 2021.

9.  The Hong Kong Police then froze the HSBC Bank Account and the BOC Bank Account since they were the only accounts, out of all of the bank accounts which the plaintiff had paid funds into, that still contained funds.

PLAINTIFF’S CLAIMS FOR SUBSTANTIVE RELIEF

10.  The plaintiff’s evidence is that she does not know any of the account holders who had received monies from her, that she had not prior to transferring money into their accounts conducted any other transactions with them, that there was no consideration for the sums transferred into the HSBC Bank Account and the BOC Bank Account, and that such transfers were made on the basis of factual errors as to the true nature of such funds since she had wanted to transfer funds into the HSBC Bank Account for investment purposes, and funds into the BOC Bank Account as a deposit, but they were instead transferred as a result of a fraud perpetrated against her. Hence the 1^st and 3^rd defendants illicitly obtained such funds and have been unjustly enriched.

11.  In the OS, the plaintiff therefore sought and seeks various relief against the defendants as set out in paragraphs (A)(1) to (7) thereof which relate to the 1^st and 2^nd defendants, and in and paragraphs (B)(8) to (14) thereof which relate to the 3^rd and 4^th defendants.

12.  In summary, as against the 1^st and 2^nd defendants declarations are sought that (a) the 1^st defendant is liable to account to the plaintiff for the HK$600,000 deposited by the plaintiff into the HSBC Bank Account on 1 April 2021, as constructive trustee (b) the HK$600,000 or any part thereof that remains in the HSBC Bank Account along with interest thereon are funds held on constructive trust by the 1^st defendant as constructive trustee for the plaintiff.

13.  As against the 1^st and 2^nd defendants, orders are also sought (a) pursuant to section 52(1)(e) and 52(5) of the Trustee Ordinance (Cap. 29) vesting in the plaintiff the 1^st defendant’s right to recover from the 2^nd defendant the HK$600,000 or any part that remains in the HSBC Bank Account, along with interest thereon, and directing that the 2^nd defendant do pay such to the plaintiff and (b) that the 1^st defendant shall pay to the plaintiff the HK$600,000, with interest, less any sum paid to the plaintiff as directed above. Further and/or other relief is also sought as may be appropriate, as are costs which I will dealt with separately below.

14.  As against the 3^rd and 4^th defendants the OS seeks, in summary, similar declarations, orders, and further and/or other relief, and costs. However, the declaration sought as to the 3^rd defendant’s liability to account relates to the HK$660,000 deposited by the plaintiff into the BOC Bank Account, the order for payment by the 3^rd defendant is in the amount of HK$660,000 plus interest, and HK$240,270 is the amount specified in relation to both the declarations of constructive trust and the orders sought under the Trustee Ordinance.

SUMMARY DISPOSAL OF THE OS

15.  On the evidence before me, I accept that the defendants have all been served with the necessary documents to enable me to proceed with the hearing of the OS, including to decide whether it should be summarily determined.

16.  The defendants have all been served with the OS (the 3^rd defendant concurrently in mainland China in accordance with RDC O. 11 r. 5A). Only the 4^th defendant has acknowledged service and it hence has, as is required by the RDC, been served with the relevant documents. However as none of the other defendants has filed an acknowledgment of service, I agree that under RDC O. 28 r. 3(5)(a), the plaintiff was not required to serve a notice of hearing on them, following the approach in paragraphs 2 to 4 of Universal Corporation (Color & Chemical) Limited v The Personal Representatives of Leung Shu Ming aka Leung Shu Ming, Deceased, HCMP 733/2013, Au-Yeung J., 8 January 2014. Be that as it may, none of the 1^st to 3^rd defendants has taken any part in the proceedings, including by appearing before me at the hearing.

17.  While the 4^th defendant’s acknowledgment of service stated that it intended to contest the proceedings, its solicitors subsequently indicated in correspondence, including in a letter to the court in response to the plaintiff’s draft order, that it took a neutral stance save that the subject of the declaration and vesting order sought by the plaintiff should relate to HK$240,000 rather than HK$240,270 as claimed by the plaintiff. Accordingly, the 4^th defendant asked that its attendance be excused for the purpose of saving time and costs. Given this, and also that it had not filed any evidence in opposition, I therefore excused the attendance of the 4^th defendant.

18.  On the evidence and documents filed before me, I saw and see no reason to require the plaintiff to prove her case at trial and I have hence dealt with the OS summarily, as requested in the notice of appointment to hear the OS.

DISCUSSION

19.  I find, from the evidence contained in the plaintiff’s two affirmations, that the plaintiff was the victim of a fraud. I also find that this gives rise to a constructive trust, by operation of law, on the stolen property, which is recoverable and traceable in equity, with a declaration merely confirming the existence of the trust that so arose: see Star Therapeutics, Inc v Leabon Technology (HK) Limited and Bank of China (Hong Kong) Limited [2021] HKCFI 1715 at paragraph 16 citing Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669 at 714G and 716C-D.

20.  Dealing firstly with the 1^st and 2^nd defendants, I find that the 1^st defendant has no connection with the plaintiff, and that even after being notified of the claim, he has not provided any bona fide reason for receiving the sums of money that was paid into the HSBC Bank Account. It is clear from the documents and evidence before me that HK$600,000 of the current balance in the HSBC Bank Account is traceable to the sum that the plaintiff transferred into the account on 1 April 2021.

21.  Accordingly, I find that a constructive trust was imposed on the 1^st defendant as a fraudulent recipient of the HK$600,000 transferred into the HSBC Bank Account on 1 April 2021, that it was and is unconscionable for the 1^st defendant to retain the money, and that the 1^st defendant held that sum in that account as a constructive trustee for the plaintiff: Essilor Manufacturing (Thailand) Co Ltd v G Doulatram & Sons (HK) Ltd and ors [2020] HKCFI 2489 at paragraph 65, as cited in Luk Wing Sze (陸穎詩) v Hong Kong Xin Yu International Industrial Limited & anor. [2022] HKDC 303 at paragraph 13. I also find that the 1^st defendant is liable to pay HK$600,000 and interest thereon to the plaintiff and shall order accordingly.

22.  In my view, the declarations sought against the 1^st defendant should be granted in this case to do the fullest justice to the plaintiff to which she is entitled, notwithstanding the rule of practice in Hong Kong Civil Procedure 2023 and 2024 paragraph 15/16/2: see Star Therapeutics at paragraph 22.

23.  Moreover, as the 1^st defendant has not appeared and cannot be located, it seems to me that the making of a vesting order is clearly expedient in the present case under s 52(1)(e) Trustee Ordinance, so as to ensure that the relevant sums in the HSBC Bank Account will be transferred to the plaintiff: see Wismettac at paragraph 45 as cited in Star Therapeutics at paragraph 23 and Luk Wing Sze at paragraphs 18 to 21. I hence should and also do grant the direction sought that the 2^nd defendant pay the sums in the HSBC Bank Account to the plaintiff pursuant to s 52(5) Trustee Ordinance.

24.  In respect of the claims relating to the 1^st and 2^nd defendants I therefore grant the declarations and orders sought in paragraphs (A)(1) to (4) of the OS, which are reflected in paragraphs (1), (3) and (5) of the plaintiff’s draft order submitted before the hearing.

25.  As for the 3^rd and 4^th defendants, I also find that the 3^rd defendant has no connection with the plaintiff, and that even after being notified of the claim, he has not provided any bona fide reason for receiving the HK$660,000 that was paid into the BOC Bank Account. However, unlike with the HSBC Bank Account, withdrawals have been made from the BOC Bank Account since the plaintiff made her payment into it, leaving only HK$240,270 therein.

26.  The 4^th defendant has hence raised the issue of whether it is that full amount which may be traced and which should be the subject of the declaration of constructive trust, and of the orders sought under the Trustee Ordinance. Its written submissions were to the effect that the plaintiff was only entitled to declarations and vesting orders in relation to HK$240,000, rather than the full and remaining HK$240,270 in the BOC Bank Account, as:

(a) Generally a vesting order can only be made if it can be proved that the balance in the bank account in question represents the victim’s money or its traceable proceeds. If there are already pre-existing deposits mixed with the money belonging to the plaintiff, the plaintiff needs to establish that the current balance is attributable to the plaintiff as the source of money over which it asserts a proprietary claim (citing Wismettac, supra, at paragraph 50); and

(b) In this case there was a pre-existing balance of HK$270 in the account before the plaintiff deposited HK$660,000 into it.

27.  Evidence was placed before me of the movements of the BOC Bank Account from 9 November 2019 onward. The HK$270 was the result of an apparent initial deposit of HK$100 in the BOC Bank Account, a transfer into the account of HK$200 by one Wu Haijun on 11 March 2021, a counter deposit of HK$60, a deduction of HK$50 for banking fees apparently incurred by a lost bank card, and two subsequent deductions of HK$20 pursuant to counter transactions. Around an hour after the deposit of funds by the plaintiff – which took the balance of the BOC Bank Account to HK$660,270 – a total of HK$420,000 was transferred out of the BOC Bank Account within the space of five minutes by way of three transactions: a counter withdrawal of HK$10,000, followed by two FPS transfers to Wu Haijun in the amounts of HK$10,000 and HK$400,000. That left HK$240,270 in the BOC Bank Account.

28.  Mr Leung advanced two arguments in support of the plaintiff’s claim that she was entitled to the full HK$240,270 in the BOC Bank Account. The first, relying on the rule in Re Hallett’s Estate (1879) 13 Ch. D. 696 as cited and explained in Snell’s Equity 34^th edition paragraph 30-057, was that a reverse burden of proof operated, since the mixed money is presumed to belong to the plaintiff to the extent that the wrongdoer cannot prove that it is attributable to his own contributions to the account. As stated by the learned editors of Snell’s:

“The wrongdoing trustee cannot defeat the trust claimant’s proprietary claim by so fundamentally mixing the trust money with his own that he creates an evidential “black hole”. The onus is on the trustee to show the very part of the mixed fund which is his own property. It follows that when money is withdrawn from the account and dissipated, then it is presumed to have been drawn from the wrongdoer’s share of the mixed fund.”

29.  Reference was also made to paragraph 71 of Essilor, supra, in which Le Pichon DHCJ. held that:

“The issue that arises is whether, as is the plaintiff’s contention, where there are no competing equitable interests, the plaintiff is entitled to elect between the rule in Clayton’s Case or the rule in Re Hallett’s Estate. Under the Hallet rule, a trustee making withdrawals from a mixed account is deemed to have withdrawn its funds first (not the plaintiff’s) in tracing its funds into the accounts held by D3, or into substitute assets.”

In Essilor, the learned Deputy High Court Judge went on to find that the plaintiff there could choose to apply the rule from Re Hallett’s Estate, “there being no competing equitable interests”.

30.  Mr Leung hence submitted that the HK$270 originally in the account would have formed the 3^rd defendant’s funds and had hence already been withdrawn. Accordingly, the remaining HK$240,270 in the account was hence the plaintiff’s.

31.  The second argument advanced by Mr Leung was that the HK$240,270 in the account would still be the plaintiff’s even if the court applied, instead, the rule and presumptions in Clayton’s Case. This is the traditional approach applied where neither of two contributors to a mixed fund in the bank account is a wrongdoer towards the other, hence there is no reason to favour the interests of one over the other. Accordingly, as explained by the learned editors of Snell’s Equity, supra, at paragraph 30-059, the approach to allocate the mixture in the bank account between them is:

“Specific credits in the account are matched against specific debits. It is presumed that the money first withdrawn from the account is drawn against the contribution of the party whose money was first deposited. Once that contribution has been exhausted, later withdrawals are treated as made against the contribution of the party whose money was next deposited. In attributing withdrawals to one party or the other, the court does not take into account – as it would with a wrongdoer – whether the money withdrawn is dissipated or preserved.”

32.  Mr Leung did out of an abundance of caution and in the further alternative highlight the possibility of applying another rule, namely to treat all withdrawals from the account as being borne rateably by all the contributors, without making any adjustment for the sequence of deposits and withdrawals from the account: see Snell’s Equity, supra, paragraph 30-060. Applying this rule, and assuming both that the 3^rd defendant had deposited both the first HK$100 and the counter deposit of HK$60, and that all withdrawals were borne rateably between the plaintiff, the 3^rd defendant, and Wu Haijun, he calculated that the plaintiff would still be entitled to trace HK$240,171.78 out of the funds remaining in the account. However he did submit that this was a very unusual approach and (as set out in Snell’s) I should only consider applying it if I were of the view that applying Clayton’s Case was for some reason unjust or impractical, and hence found that this produced a fairer result.

33.  On the evidence before me, and in respect of the claims relating to the 3^rd and 4^th defendants, I find that the HK$240,270 left in the BOC Bank Account is traceable to the sum that the plaintiff transferred into the account on 13 April 2021. This is for the following reasons.

34.  Firstly, there is insufficient evidence in this case to establish (which notion was not advanced by any party to the proceedings) that Wu Haijun had a competing equitable interest in the funds within the BOC Bank Account. I do not think such an interest is established or supported by the fact that some funds were transferred into the said account apparently pursuant to the instruction of Wu Haijun, and/or that some funds were later transferred out of it to that same person. I do not think it would be proper to speculate as to the potential underlying reason(s) for such transfers, let alone to base a finding of a competing equitable interest thereon. Accordingly, I hold that the plaintiff is entitled to apply the rule in Hallett’s Estate, and that the position is hence that summarised at paragraph 30 above.

35.  Secondly, even if Wu Haijun had a competing equitable interest in the funds in the BOC Bank Account, the same result would be achieved by application of the rule in Clayton’s Case. I consider that such rule should be applied as this is not a case where it would be unjust or impractical for the said rule to be applied, or where a fairer result would be achieved by way of the unusual approach of treating withdrawals rateably. I do not see how such treatment would be fairer or more just to the parties given the limited number of transfers out, and given that a total of HK$410,000 was transferred to Wu Haijun from the account on 13 April 2021 shortly after the HK$660,000 was transferred into the BOC Bank Account by the plaintiff.

36.  Hence, and in respect of the claims relating to the 3^rd and 4^th defendants, I find that a constructive trust was imposed on the 3^rd defendant as a fraudulent recipient of the funds transferred into the BOC Bank Account on 13 April 2021, that it was and is unconscionable for the 3^rd defendant to retain the money, and that the 3^rd defendant held that sum in that account as a constructive trustee for the plaintiff. I also find that the 3^rd defendant is liable to pay HK$660,000 and interest thereon to the plaintiff and shall order accordingly.

37.  I hence grant the declarations and orders sought in paragraphs (B)(8) to (11) of the OS which are reflected in paragraphs (2), (4) and (6) of the plaintiff’s draft order. These include (a) a declaration that the sum of HK$240,270 in the BOC Bank Account, together with any interest accrued thereon, are funds held on constructive trust by the 3^rd defendant as constructive trustee for the plaintiff, and (b) the orders sought under the Trustee Ordinance which relate to the same HK$240,270. For the same reasons in paragraphs 22 and 23 above, which apply here mutatis mutandi, I hold that such declarations are necessary to do the fullest justice to the plaintiff to which she is entitled, that the vesting orders are expedient in the present case, and that there is every reason for me to grant the direction sought that the 4^th defendant pay the sums in the BOC Bank Account to the plaintiff pursuant to the Trustee Ordinance.

COSTS

38.  The plaintiff in the OS originally sought its costs of the action against all of the defendants on an indemnity basis. However, the plaintiff’s final orders sought in relation to costs were set out in paragraphs (7) to (12) of its draft order, which paragraphs the 4^th defendant chose not to comment on and which do not seek to impose any liability for costs on the 2^nd and 4^th defendants. In the circumstances, I make orders as to costs, and as to the assessment of those costs, in terms of those paragraphs of the draft order.

39.  I thank Mr Leung for his assistance.