SONNEX PACKAGING NIGERIA LTD v. HK JUYIDA LTD

DCCJ 5849/2020

[2021] HKDC 297

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 5849 OF 2020

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BETWEEN

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JUDGMENT

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Introduction

1.  This is an application by the plaintiff for default judgment under Order 19, rule 7(1) of the Rules of District Court (“RDC”) by summons dated 6 January 2021 (“Summons”). 

2.  The application is made under Order 19, rule 7(1) RDC because the plaintiff is seeking for, inter alia, declaratory reliefs.

3.  On 30 October 2020, the plaintiff issued the Writ of Summons (“Writ”). The plaintiff’s underlying claim involves an alleged email fraud, which is prevalent nowadays.  However, while money was paid as a result of the alleged fraud, no allegation of fraud is made against the defendant, who was a recipient of the funds concerned.

4.  On 2 November 2020, the plaintiff issued an inter partes summons seeking a Mareva injunction and ancillary disclosure orders against the defendant.

5.  On 6 November 2020, HH Judge Kent Yee granted an injunction restraining the defendant from removing from Hong Kong or in any way disposing of or dealing with or diminishing the value of any of its assets which are within Hong Kong, whether in its own name or not and whether solely or jointly owned, up to the value of US$115,000.  The ancillary disclosure orders were also granted (the “Injunction Order”).

6.  On 4 December 2020, the plaintiff filed the Statement of Claim (“SoC”). According to the plaintiff:-

(1) The plaintiff is a company incorporated in the Federal Republic of Nigeria and carries on a plastic packaging business based in Nigeria.  The plaintiff holds a bank account no: 0000052931 with Standard Chartered Bank Nigeria Limited (the “plaintiff’s Bank Account”).

(2) The plaintiff’s Chief Executive Officer (the “CEO”) and Chief Financial Officer (the “CFO”) are Anil Mohinani and Umashankar PM respectively.

(3) On 8 May 2020, the email account of the CEO was hacked by unknown persons, and a fake email was sent to the CFO’s email address.  Under the pretext that the plaintiff shall initiate a short term COVID-19 investment in Hong Kong, the CFO was instructed to make a payment to the defendant in the sum of US$ 115,000. 

(4) Pursuant to that, on the same day, the plaintiff remitted US$115,000 (the “Fund”) into the defendant’s bank account no: 012-878-2-009090-9 (the “defendant’s Bank Account”) with the Bank of China (Hong Kong) Limited (the “BoC”).

(5) The scam was discovered on 11 May 2020, when a second fake email was sent from the CEO’s email account to the CFO requesting for another remittance to the defendant, whereupon the CFO inquired with the CEO about the purported transaction with the defendant.

(6) On the same day, the plaintiff sent a letter to the BoC reporting the alleged fraud.  On 12 May 2020, the plaintiff made a report to the Hong Kong Police.

7.  In the SoC, the plaintiff claims for, inter alia, payment of the sum of US$115,000 or the Hong Kong currency equivalent at the time of payment, and a declaration that the defendant holds the Fund and/or any assets representing all or part of the same on constructive trust for the plaintiff.

8.  At the hearing of the Summons, the plaintiff’s counsel informed the court that the plaintiff would not proceed with Reliefs (4) and (5) as pleaded in the SoC, viz “Equitable compensation or, alternatively, damages to be assessed” and “Tracing and/or all necessary accounts and inquiries”.

9.  The defendant has not filed a defence, nor has the defendant filed a notice of intention to defend.  The defendant did not appear in today’s hearing.  As shall be explained in para 17 below, the evidence shows that, inter alia, the Writ, the SoC and the Summons have been served on the defendant by leaving the same at its registered office.

10.  In the circumstances, I consider it appropriate to proceed to hear the Summons in the defendant’s absence under Order 32, rule 5 RDC.

Default judgment

11.  Under Order 19, rule 7(1) RDC, on the hearing of an application for default judgment on the ground that a defendant has failed to serve a defence in relation to a claim not falling within Order 19, rules 2 to 5, the court “shall give such judgment as the plaintiff appears entitled to on his statement of claim”. 

12.  Although Order 19, rule 7(1) is expressed in mandatory terms, the rule is not mandatory but discretionary, and the court retains its discretionary power as to what order to make.  See Hong Kong Civil Procedure 2021 Note 19/7/13, citing Wallersteiner v Moir [1974] 1 WLR 991 CA.

13.  It is not the normal practice of the court to make a declaration without a trial.  This is, however, only a rule of practice and can be departed from when the plaintiff has a genuine need for the declaratory relief and justice would not be done if such relief were denied.  See 800 Columbia Project Company LLC v Chengfang Trade Limited and Anor [2020] 3 HKLRD 674; [2020] HKCFI 1293 at para 8 per Recorder Eugene Fung SC and Hong Kong Civil Procedure 2021 Note 19/7/20. 

14.  Further, “The principle that a declaration will not be granted when giving judgment by consent or without trial, e.g. where judgment is obtained in default of defence or notice of intention to defend, 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 Hong Kong Civil Procedure 2021 Note 19/7/14. 

15.  Where declaratory relief is sought, the court will scrutinise the application for default judgment carefully, and will not hastily grant the relief sought.  The court should not be expected to simply rubber-stamp the uncontested application.  See Hong Kong Civil Procedure 2021 Note 19/7/20.  This is so because third party rights might be affected by the grant of a declaration.  In the context of the present case, a declaration that the defendant holds the Fund (and its traceable proceeds) on constructive trust for the plaintiff will give the plaintiff a priority over other creditors the defendant might have.

16.  As DHCJ Nicholas Cooney SC noted in Guaranty Bank and Trust Company v ZZZIK Inc Limited HCA 1139/2016, unreported, 18 July 2016 at para 38:-

“an order against the defendant for the return of the funds, without more, would put the plaintiff in the position of an unsecured judgment creditor of the defendant. Such an order would not give the plaintiff any prior or specific rights over the funds. A declaration by the court that the funds are held on trust for the plaintiff will earmark the funds as the plaintiff’s property and put them out of the reach of any other creditors of the defendant and, so, I consider it necessary to make the declarations ought in order to protect the plaintiff in the event that other creditors appeal. I note in Mesirow an Administrative Corporation v Best Link Industrial Co, Limited unrep HCMP 1846/2015, 25 January 2016, Recorder Lisa KY Wong SC expressed similar concerns and also considered a declaration to be necessary and appropriate.”

Analysis

17.  The plaintiff relies on the common law cause of action of money had and received, as explained in Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79, 104 at paras 66-67. 

18.  In relation to the constructive trust claim, the plaintiff relies on Guaranty Bank and Trust Company v ZZZIK Inc Limited (supra) at paras.28-33, where DHCJ Nicholas Cooney SC summarised the law as follows:-

“28. Regarding the proprietary constructive trust claim, counsel relied upon Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669, per Lord Browne-Wilkinson obiter at p. 716C for the proposition that when property is obtained by fraud, equity imposes a constructive trust on the fraudulent recipient, so that the money is recoverable and traceable in equity. Lord Browne-Wilkinson’s proposition has been applied in Papamichael v National Westminister Bank plc [2003] 1 Lloyd’s Rep 341, para 241 and Commerzbank AG v IMB Morgan plc [2005] 2 All ER (Comm) 564 at para 36.  It has been applied in Hong Kong in Mesirow Financial Administrative Corporation v Best Link Industrial Co, Limited unrep, HCMP 1846/2015, 25 January 2016, per Recorder Lisa K Y Wong, SC.  In Papamichael, Judge Chambers, QC stated:

“Equity imposes a constructive trust because (in the absence of a supervening barrier such as a contract) that is what justice requires where an asset has been obtained by fraud. The fraudster knows he has no right to the asset. He is in conscience bound to hold the asset for the transferor.”

29. I am aware that Lord Browne-Wilkinson’s proposition has not been applied in some cases in England, eg, Shalson & ors v Russo & ors [2005] Ch 281, per Rimer J at paras 106-110.  This was a point not raised by counsel.  Nevertheless, insofar as the proposition specifically relates to fraud, it has been accepted as representing the law.  See: Armstrong DLW GmbH v Winnington Networks Ltd [2012] 3 WLR 835 at paras 127-129, Goff & Jones, The Law of Unjust Enrichment 8^th Ed, para 8-15-8-16 and Chitty on Contracts, 32^nd Ed, Vol 1, para 29-168.

30. The authors of Goff & Jones state:

“There are, however, cases which suggest that in some situations - and more particularly, in cases of theft - C might acquire new rights, insofar as equity might render D a trustee of the original asset for C. This is so notwithstanding that the victim of the theft, C, retains the superior legal and beneficial title, and D, the thief, acquires at best an inferior possessory title.”

31. The authors of Chitty state:

“Equity has employed the mechanism of a trust in order to compel the 'trustee' to convey property to the 'beneficiary' where, quite apart from the intention of the parties, the rules of Equity decide that property is in the wrong hands. The constructive trust arises by operation of law in a number of circumstances, including ... where property has been obtained by fraud, ... or where the defendant has received property unconscionably, such as where the defendant is aware that money had been paid by mistake, or possibly where the payee was aware that there had already been a total failure of basis.”

32. Even if the recipient was not a party to the fraud, if his state of knowledge is such as to make it unconscionable for him to retain the money, the defrauded claimant has a tracing remedy: Commerzbank AG v IMB Morgan plc [2005] 2 All ER (Comm) 564 at para 36.

33. Knowledge does not have to be acquired at the time of receipt, it can be acquired subsequently while the money is in the recipient's hands: Lewin on Trusts 19^th ed, para 42-083.”

19.  I am satisfied that this is a proper case for the monetary relief and the declaratory relief sought to be granted. 

(1) The plaintiff’s pleaded claim is supported by the 1^st Affirmation of Perichiappan Kannappan (“PK 1^st”) filed for the injunction application.  In particular, the following documents were exhibited:-

(i) Copies of emails exchanges between the CEO and CFO dated 8 May 2020, showing the CEO’s request for the Fund to be remitted to the defendant.

(ii) A copy of the remittance record of the Fund from the plaintiff’s Bank Account to the defendant’s Bank Account.

(iii) A copy of the witness statement made to the Hong Kong Police reporting the scam.

(iv) The IP address log of the CEO’s email, showing attempts to login from locations other than the usual login location.

(2) According to PK 1^st:-

(i) On 31 October 2020, the plaintiff’s solicitors made enquiries with the Hong Kong Police.  On the same day, Mr Chong of the Hong Kong Police (Yau Tsim Mong Police Station CID Team 4, Police Reference No: YMT RN 20012885), officer-in-charge of this matter, informed the plaintiff’s solicitors that they had successfully directed BoC to freeze the movement of the Funds in the defendant’s Bank Account temporarily.  This was followed by the injunction application, which resulted in the Injunction Order made on 6 November 2020.

(ii) There was a lack of connection between the parties, and the defendant only received the Fund as a consequence of the scam perpetrated against the plaintiff.

(3) According to the 1^st Affirmation of Yum Chun Wing filed on 4 November 2020, the Writ was served on the defendant by leaving the same at the defendant’s registered office on 3 November 2020.

(4) According to the 3^rd Affirmation of Yam Chun Wing filed on 1 February 2021:-

(i) On 9 November 2020, the Injunction Order was served on the defendant by affixing it to the door of the premises at the defendant’s registered office (Room 502, New City Centre, 2 Lei Yue Mun Road, Kwun Tong, Kowloon, Hong Kong).

(ii) The SoC was served on the defendant by leaving the same at the defendant’s registered office on 4 December 2020.

(iii) The Summons was served on the defendant by leaving the same at the defendant’s registered office on 29 January 2021.

(5) According to the Affirmation of Au Tsz Sing filed on 1 March 2021, copies of the plaintiff’s Skeleton Submissions and List of Authorities in support of the Summons were served on the defendant by leaving the same at the registered of the defendant.

(6) Despite the service of the aforesaid documents at the registered office of the defendant, and despite the restriction on the defendant’s ability to operate the defendant’s Bank Account, the defendant has not entered any appearance in these proceedings. 

(7) There is therefore nothing from the defendant to contradict the plaintiff’s case and the documentary evidence adduced by the plaintiff.

(8) I am also satisfied that the plaintiff has a genuine need for the declaratory reliefs in these proceedings, and justice might not be done if such reliefs were denied.  As observed by Recorder Eugene Fung SC in 800 Columbia Project Company LLC v Chengfang Trade Limited and Anor (supra), there are well-established reasons as to why a proprietary remedy may have certain advantages over a personal remedy.  Where a plaintiff is entitled to bring a personal restitutionary claim and a proprietary restitutionary claim, one such advantage of a proprietary remedy is that the plaintiff may gain priority over the defendant’s general creditors in the event of the defendant’s insolvency if the plaintiff can identify his original property (or its traceable proceeds) in the hands of the defendant.  There may be other advantages where (a) the product of the original property may now be worth more in value than the original property itself, and (b) the limitation period governing the proprietary claim may be longer than that governing the personal claim. 

Conclusion

34.  I therefore made the following orders:-

(1) Judgment be entered that the defendant do pay to the plaintiff US$115,000 or the HK Dollar equivalent at the time of payment.

(2) A declaration be made that the defendant holds the US$115,000 remitted by the plaintiff into the defendant’s Bank Account no: 012-878-2-00090-9 with Bank of China (Hong Kong) Limited on 8 May 2020 (the “Funds”), and/or any assets representing all or part of it, on constructive trust for the plaintiff.

(3) An account of all monies and/or assets held by the defendant on constructive trust for the plaintiff and an order for payment out of such monies and/or transfer of such assets to the plaintiff.

(4) Interest on the Funds and any sum found due at HSBC prime rate(s) plus 1% from 8 May 2020 to the date of Judgment, and at Judgment Rate thereafter until payment.

(5) Costs of the action, including all costs reserved (if any) be to the plaintiff, summarily assessed at HK$90,000.

35.  I thank counsel for her assistance rendered to the court.