BUILT PROCUREMENT PTY LTD v. SHENG JI TRADE LTD AND OTHERS

HCA 1817/2019

[2020] HKCFI 582

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1817 OF 2019

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D E C I S I O N

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1.  There are 2 Summonses before the court. First in time is a Summons by the Plaintiff filed on 3 December 2019 for judgment to be entered against the 1^st and 2^nd Defendant (“Chan”) by reason of default in filing defence. The matter against the 1^st Defendant has already been dealt with. On 4 December 2019, Chan filed a Summons for extension of time to file his Defence and Counterclaim (if any).

2.  At the invitation of the court, the parties have agreed that these applications be disposed of on paper.

Background

3.  This is a case of an email fraud by which the Plaintiff was tricked into making remittances of a total sum of RMB 9,531,158.06, equivalent to about HK$10.4 million, on 5 September 2019 from its bank account with National Australia Bank to the 1^st Defendant’s account with the Bank of China (Hong Kong) Ltd (“BOC”). 

4.  The funds were subsequent transferred to another BOC account of the 1^st Defendant (“D1”) in 3 tranches.  The first 2 tranches, representing the lion share of the funds, were transferred on 6 September 2019.  On the next day, a sum of HK$10.3 million was transferred from that second account of D1 to an account in Chan’s name held with the BOC (“Chan A/C(1)”).  Immediately prior to this transfer, there was a balance of little over HK$16,000 in that account.

5.  On 9 September 2019, 2 transfers each of HK$5 million were made from Chan A/C(1) to accounts held in the name of the 3^rd Defendant (“D3”).  

6.  On 24 September 2019, the Plaintiff obtained a Mareva Injunction against the Defendants in respect of the wrongfully taken funds.

7.  The Writ herein was taken out by the Plaintiff on 30 September 2019.  On 16 October 2019, Chan filed his Acknowledgement of Service. On 25 October 2019, the Plaintiff filed its Statement of Claim.

8.  There are multiple causes of action alleged by the Plaintiff against Chan, namely, a proprietary claim; unjust enrichment; knowing receipt; dishonest assistance or unconscionability; and unlawful means conspiracy. 

9.  It is common ground that the due date for Chan to file his Defence was 22 November 2019.  The extension of time application was taken out by Chan 12 days after the due day.

Chan’s evidence

10.  By way of his 2^nd Affirmation filed on 16 December 2019, Chan explained his lack of involvement in respect of the fraud, the delay and exhibited a draft Defence which he intends to file with the leave of the court. 

11.  Chan is an employee of First System (China) Trading Limited (“FSTL”), which is a licensed money service operator. According to his latest tax return exhibited to the Affirmation, Chan’s monthly wages were HK$15,000 (he enjoyed no other benefits), which suggests that he does not occupy a senior position in that company.

12.  Chan explained that it is not uncommon for money service operators to make use of bank accounts in other people’s name.  There is a record maintained by the Customs and Excise Department (“C&E”) for that purpose. 

13.  Upon request by his employer, Chan agreed to authorise FSTL to use 3 of his accounts with BOC (including Chan A/C(1)).  Accordingly, an application was made on 29 July 2019 by FSTL to the C&E for “Addition of Bank Account(s) used for operating Money Service” in respect of those 3 accounts of Chan, as well as another 3 accounts in the name of another person surnamed Man.  There is no evidence on the relationship between Man and FSTL. 

14.  According to the draft Defence, which Chan has verified, since 29 July 2019 FSTL has kept the password, login name and the electronic keys for access to Chan’s said accounts.  For the present purpose at least, it appears that those accounts have been under the exclusive use of FSTL since 29 July 2019[1].

15.  Chan said that after learning about these proceedings he made enquiry with FSTL and was informed that the relevant activities involving 2 of the accounts in his name were carried out in the course of FSTL’s business. 

16.  The explanation concerning the transfer of HK$10.3 million into Chan A/C(1) can be found in the draft Defence.  FSTL had a professional client, another money service operator, Ngai Kam Hop trading as Jin Cheng Company (“JCC”) since about 2017.  On about 7 September 2019, JCC asked FSTL for the use of the latter’s account in BOC to receive a payment of HK$10.3 million.  FSTL agreed and provided JCC with the details of Chan A/C(1). 

17.  Subsequently, the deposit of the HK$10.3 million was made.  On 9 September 2019, upon JCC’s instruction 2 transfers of HK$5 million each from Chan A/C(1) were made to 2 accounts in the name of D3. 

18.  Chan had no involvement with any of these transactions and no personal knowledge about them. 

19.  Upon receipt of the Statement of Claim, Chan discussed with his employer on the way forward.  On 1 November 2019, Chan’s solicitors wrote to the Plaintiff’s solicitors proposing a without prejudice meeting to be attended by all parties to settle these proceedings.  On 4 November 2019, the Plaintiff’s solicitors replied with proposed details for the meeting.

20.  On 26 November 2019 (after the expiration of the due date for the filing of Defence on 22 November 2019), Chan’s solicitors wrote back proposing to meet on 29 November 2019.  

21.  Chan explained that although he was aware of the due date, he was hoping that FSTL could come up with a plan to settle these proceedings without him incurring any legal costs.

22.  On 2 December 2019, the legal representatives of the Plaintiff, Chan and D3 agreed to a without prejudice meeting to be held in the morning on 4 December 2019.

23.  On 3 December 2019, the Plaintiff took out an application for default judgment against both D1 and Chan to be heard on 8 January 2020.  In response, Chan instructed his solicitors to prepare a summons for extension of time to file his Defence to be taken out in the event that the meeting on 4 December 2019 was unsuccessful.

24.  The without prejudice meeting did not conclude with a resolution of these proceedings.  In the afternoon of the 4 December 2019, Chan took out his extension of time application.

25.  On 5 December 2019, the Plaintiff served on Chan a Notice of Intention to Enter Judgment.

Law

26.  The parties are in agreement that it is logical to consider the application for extension of time first because, if granted, the application for default judgment would fall away: see Hong Kong Civil Procedure 2020, vol 1, [19/7/4].

Extension of time

27.  Extension of time is governed by O 3, r 5 of the Rules of High Court :

“(1)  The Court may, on such terms as it thinks just, by order extend or abridge the period within which a person is required or authorized by these rules, or by any judgment, order or direction, to do any act in any proceedings.

(2)  The Court may extend any such period as is referred to in paragraph (1) although the application for extension is not made until after the expiration of that period.”

28.  These rules confer upon the court a wide discretion, “designed to enable justice to be done between the parties”: Astro Nusantara International BV v PT Ayunda Prima Mitra (2018) 21 HKCFAR 118, per Ribeiro PJ at §53.  In Astro (§55), the Court of Final Appeal approved the Court of Appeal’s approach in The Decurion [2012] 1 HKLRD 1063, §11 :  

“It is clear that the applicable principle in deciding whether time should be extended is to look at all relevant matters and consider the overall justice of the case. A rigid mechanistic approach is not appropriate …”

29.  In Fortune Asset Development Ltd v De Monsa Investments Ltd [2009] 4 HKLRD 439, Registrar Q Au-Yeung (as she then was) set out a non-exhaustive list of matters that should be considered in an application for extension of time (it was a decision pursuant to O 1B, r 1(2)(a) but I see it as equally applicable to O 3, r 5).  The matters relevant to the present case are :

(1)  “What was the original time allowed and when has it expired?  The more the original time allowed, the more difficult it is to justify an extension.”

(2)  “Why was the original time not adhered to?”

(3)  “When was the application for extension of time taken out?  The greater the delay, the more difficult it is to obtain an extension.”

(4)  “What realistically is the further time needed to complete and file [the document in question]?”

(5)  “Will the extension of time sought have any impact on any hearing date or milestone date?”

Analysis

30.  I have to say that given the largely contradicted evidence of Chan, the relatively short delay in taking out the extension application and the undisputed fact that Chan did endeavour to have these proceedings against him resolved amicably (not to mention the lack of any prejudice to the Plaintiff), this application should be fairly straightforward.

31.  Regrettably, the Plaintiff sees fit to take every conceivable point against this application regardless of merits. Altogether, 40 pages of dense skeleton arguments were submitted by the Plaintiff together with 16 authorities.  I shall have to revisit this concern when I deal with costs.

32.  First and foremost, it is an extreme measure to deprive someone of an opportunity to defend an action against him.  This is all the more so when dishonesty is alleged against him, as in this case.

33.  Pages of submissions have been advanced by the Plaintiff on how technically untenable Chan’s defence is.  But little is said on how Chan can be liable for the serious fraud practised on the Plaintiff without involvement or knowledge on his part or the receipt of any of the stolen funds on the first place. 

34.  Further, it is wrong to have this case tried on paper or to try to get a pre-emptive summary judgment[2] or strike out against Chan. 

35.  I disagree with the Plaintiff that Chan is required to show “a real prospect of success” in his defence, a threshold test used in setting aside a regularly obtained judgment.  The contention is not properly supported by any authority, and the suggestion that the Plaintiff is in the comparable position of having obtained a regular default judgment against Chan is fanciful. 

36.  I also disagree with the Plaintiff that Chan’s defence is unarguable (which I believe is the correct test: see Koo Ming Kown v Baptist Convention of Hong Kong operating as Pui Ching Primary School, unrep, HCA 731/2017, 30 October 2017, §§50-52).

37.  For the present purpose, it is plain that Chan is an employee of FSTL and that those accounts of his which were involved in the fraud against the Plaintiff were used by FSTL.  Apart from letting his employer use his accounts, which started well before the fraud[3], it is not easy to see how Chan can be blamed or responsible for the fraud against the Plaintiff. 

38.  Factor into the equation that the use of Chan’s accounts by FSTL had been formally registered with the C&E, and there is no suggestion that Chan had in any way benefited from the fraud, it becomes more difficult to see why Chan should be answerable for the Plaintiff’s claims.

39.  It is accepted by the Plaintiff that much of its causes of action against Chan are not properly particularised.  It is said that such deficiency is due to the fact that the Plaintiff is in the dark.  However, the Plaintiff has failed to address why Chan should be deprived of the opportunity to defend a case of dishonesty when it is not clear why it is alleged, eg, that he was in a conspiracy with the fraudsters.

40.  As regards Chan’s explanation for the delay, the Plaintiff relies on Billington v Davies & Anr [2016] EWHC 1919 (Ch), per Deputy Master Pickering at §§25-30, for the proposition that lack of funding and the existence of without prejudice negotiations are not good reasons for delay in filing the defence :

“25.  As indicated above, the First Defendant relies on two matters: (1) lack of funding, and (2) the existence of without prejudice negotiations.

26.  As for lack of funding, I was referred by Counsel for the Claimant to (once again) the decision in Hysaj. At paragraph [43] of that case Moore-Bick J stated:

‘43.  … In my view shortage of funds does not provide a good reason for delay. I can well understand that litigants would prefer to be legally represented and that some may be deterred by the prospect of having to act on their own behalf. Nonetheless, in the modern world the inability to pay for legal representation cannot be regarded as providing a good reason for delay…’

27.  This being the case, I find that any concerns that the First Defendant may have had over funding cannot amount to a good reason for the delay in filing and serving a Defence.

28.  As for the existence of without prejudice negotiations, I was told that there is no authority on this point. It seems to me, however, that such negotiations also cannot amount to a good reason for delay. If it were otherwise it would mean that a litigant could effectively seek to dis-apply or override the Civil Procedure Rules – and put deadlines or other procedural requirements on hold – merely by entering into without prejudice negotiations. That cannot be right. Similarly, from the non-defaulting party’s point of view, if I were to hold that without prejudice negotiations could amount to a good reason for failing to comply with a deadline, it might discourage that non-defaulting party from entering into such negotiations – which clearly would not be an attractive proposition.

29.  Moreover, there is a practical solution. If a party does wish to save money by putting off a procedural requirement pending the outcome of without prejudice negotiations, the parties can (so far as the Rules permit) agree such extensions between themselves or apply to the Court for an appropriate order. It cannot be the case, however, that simply by entering into without prejudice negotiations a party can unilaterally impose what would effectively amount to a stay on the proceedings.

30.  I therefore reject the First Defendant’s argument on this point too and find that there has been no good reason for the failure to file and serve a Defence.”

41.  I have no disagreement with those dicta which are supported by sound common sense.  However, as held in The Decurion, a rigid mechanistic approach is not appropriate. The relevant circumstances may indicate, as here, that the without prejudice negotiation was proposed in good faith to try to extricate a litigant from an action which had little to do with him.

42.  Whilst I do not approve of the lack of action to meet his obligation to file a defence on time, and the unfortunate delay in responding to the Plaintiff’s reply of the 4 November 2019, I accept Chan’s explanation.  It was not unreasonable for him to hope that his employer would help to resolve the matter without him incurring unnecessary costs.

43.  I have already mentioned that the delay is relative short.  It is not even suggested that granting an extension of time to file the defence would cause prejudice to the Plaintiff which cannot be compensated with costs.  On the other hand, not granting the relief would have enormous adverse consequence to Chan. 

44.  For completeness, none of the matters identified in para 29 above is against granting this application.

Disposition

45.  For the reasons stated above, I order that the time for Chan to file and serve his Defence and Counterclaim (if any) be extended to 2 days from the date of this Decision.  I dismiss the Plaintiff’s Summons for default judgment against Chan.

46.  As for costs, I have stated above my concern about the way in which these applications are contested by the Plaintiff.  With respect, it is disproportionate and reflects a failure to make a realistic appraisal of the applications.  Such attitude is contrary to the CJR and should be disapproved. 

47.  It must also be said that the court has to deal with many extension of time applications every day.  Disproportionate resistance is not only costs inflationary, it uses up a disproportionate amount of the court’s precious resources.  The court’s disapproval of such attitude must be reflected in costs.

48.  For these reasons, notwithstanding that Chan is seeking an indulgence from the court it would not be right to award the Plaintiff the entirety of its costs.  I make an order nisi that the costs of both applications, up to and including the consideration of Chan’s 2^nd Affirmation, be to the Plaintiff to be taxed if not agreed.