DIALOG SERVICES SAUDI ARABIA CO LTD v. YOUTAI INTERNATIONAL TRADING CO LTD

DCMP 1215/2017

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 1215 OF 2017

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REASONS FOR DECISION

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1.  By the Originating Summons filed on 24 April 2017 (“Originating Summons”), the Plaintiff sought:-

(1)  a declaration that the amount of US$70,800 and any and all interest accrued on the amounts transferred to and deposited in account Nos 817-695174-838 and 817-695174-201 held by the Defendant with The Hongkong and Shanghai Banking Corporation Limited (“HSBC”) since 24 October 2016 (“Funds”) were funds held on trust for the Plaintiff; and

(2)  an order for the immediate release and return of the Funds to the Plaintiff by the Defendant and HSBC.

2.  On 23 June 2017, I gave judgment for the Plaintiff in the above terms of the Originating Summons with costs.  I reserved my reasons, which I now give.

Facts and inferences relied upon by the Plaintiff

3.  The Plaintiff filed an Affirmation of Tan Ngee Meng (its Country Manager) on 24 April 2017 in support of its claims.

4.  The Plaintiff is a Saudi Arabia incorporated company and is a subsidiary of Dialog Group Berhad which is listed in Kuala Lumpur Stock Exchange.  The Defendant is a Hong Kong incorporated company, with its sole director and shareholder named Yue Guojin, with a mainland China identity card number and a residential address in PRC.

5.  One of the Plaintiff’s suppliers is a company called Al-Kous International (“AKI”) in Pakistan and its owner is Mr Abdul Waheed.  In July 2016, the Plaintiff ordered 30,000 pairs of gloves from AKI at US$70,800, which were delivered to the Plaintiff’s consignee in Saudi Arabia on or about 29 September 2016.  On 11 October 2016, the Plaintiff’s account manager (a Mr Bauhauddin) received an email from Mr Waheed’s email address requesting the payment to be made to a bank account in Pakistan, which was the usual bank account of AKI.

6.  On 12 October 2016, Mr Bauhauddin received another email from Mr Waheed’s email address requesting the sum of US$70,800 to be paid to the Defendant’s bank account at HSBC in Hong Kong at bank account number 817-695174-838 instead.  The reason given for the change was that the AKI’s bank account in Pakistan was subject to monthly audit and therefore could not receive funds.  In fact, Mr Waheed only sent out the email on 11 October 2016 but not on 12 October 2016.  It is suspected that the fraudster had hacked into Mr Waheed’s email system on 12 October 2016, impersonated himself to be Mr Waheed, and sent the email to instruct Mr Bahauddin to deposit the sum of US$70,800 into the Defendant’s bank account in Hong Kong.

7.  Unaware of the fraud at the time, Mr Bahauddin on 24 October 2016 caused a payment of US$70,800 to be made from the Plaintiff to the Defendant’s HSBC account.

8.  It was not until 30 October 2016 when Mr Tan of the Plaintiff made a personal call to Mr Waheed and found out that Mr Waheed had not received the said payment.  Adding to the suspicion, Mr Waheed told Mr Tan that Mr Waheed had received a few email confirmations, one with what appeared to be bank transfer documents, from Mr Bahauddin that the said sum of US$70,800 had been transferred to AKI’s Pakistan bank account when in fact no such sum had been received.  It was eventually found out that those emails were in fact not sent from Mr Bahauddin’s email address, but from a very similar email address suspected to be used by the fraudster (the real email account of Mr Bahauddin was mzaidi.bahauddin@dialogasia.com; the fake email account used by the fraudster to communicate with Mr Waheed was mzaidi.bahauddin@dialogasia.cf).  Apparently, those emails sent from the fake email account were to keep both the Plaintiff and AKI in the dark with the aim of delaying their discovery of the fraud.

9.  After the said confirmation with Mr Waheed, the Plaintiff made a report of fraud to the Hong Kong Police on 1 November 2016. The Hong Kong Police later confirmed by correspondence that the sum of US$70,800 transferred to the Defendant’s HSBC account number 817-695174-838 by the Plaintiff on 24 October 2016 was subsequently transferred to another HSBC account number 817-695174-201 also held by the Defendant on 25 October 2016, the balance of the Defendant’s HSBC account number 817-695174-201 was about US$70,800, and that both HSBC accounts of the Defendant had been frozen.

Proceeding in absence of the Defendant

10.  The hearing before me on 23 June 2017 was the first hearing of the Originating Summons.  The Defendant was absent.

11.  The Court is empowered by Order 32 rule 5(1) (made applicable to the hearing of an originating summons by Order 28 rule 1) to proceed with a summons at its first or any resumed hearing in the absence of a party thereto if, having regard to the nature of the application, it thinks it expedient so to do.  Under rule 5(2), before proceeding in the absence of any party, the Court may require to be satisfied that the summons or, as the case may be, notice of the time appointed for the resumed hearing, was duly served on that party.

12.  In view of the evidence placed before me by the Plaintiff, I am satisfied that there had been valid service on the Defendant of both the Originating Summons (supported by Affirmation of Tan Ngee Meng) and the Notice of Appointment to hear the Originating Summons – see the 1^st and the 2^nd Affirmations of Lau Siu Yuk filed on 19 May 2017 and 14 June 2017 respectively.  In short, all the said court documents were served by leaving at the address of the registered office of the Defendant and in addition by registered post to the same address which had not been returned.  Further, I was informed by Mr Hau, Solicitor Advocate for the Plaintiff, at the hearing on 23 June 2017, that there had been two telephone conversations between himself and someone holding out to represent the Defendant in late April 2017, subsequent to the service of the Originating Summons.  In the first telephone conversation, a Ms Wong, calling from PRC and claiming to be the representative of the director of the Defendant, admitted receiving the Originating Summons and asked what they should do.  She also claimed that a foreigner had asked for the use of the Defendant’s bank account to receive the fund.  Mr Hau advised her to engage a lawyer and file the acknowledgement of service.  In the second telephone conversation, which took place a day or two thereafter, a Mr Wong or Mr Wan, also calling from PRC and claiming to be the representative of the director of the Defendant, enquired about the possibility of a settlement of the case.  Mr Hau told him that the matter could not be handled like that as there was no proper authorisation from that Mr Wong or Mr Wan to represent the Defendant.  Nothing further was heard from the Defendant or anyone claiming to be its representative.

13.  As aforesaid, I am satisfied that the Plaintiff had effected valid service on the Defendant of the relevant court documents in due compliance with the requirements of service on a body corporate under Order 10 rule 1(2) and Order 65 rule 3(2).

14.  The Defendant, though having been served with the Originating Summons and the affirmation in support as aforesaid, failed to file any acknowledgment of service within the time limited for so doing under Order 12 rules 5 and 9 or at all.

15.  In the circumstance, I considered it expedient to proceed with the hearing of the Originating Summons in the absence of the Defendant.

Making a declaration in absence of the Defendant

16.  Order 28 rule 4(1) allows the Court to make such order in favour of the plaintiff as the nature of the case may require if the liability of the defendant to the plaintiff in respect of any claim made by the plaintiff is established.  This rule empowers the Court to dispose of the action by originating summons summarily if there are no triable issues: see Hong Kong Civil Procedure 2017, Volume 1, paragraph 28/4/1.  And it is clear from the second half of rule 4(1) that such power of summary disposal can be exercised against an absent defendant though the order may subsequently be varied or revoked on such terms as it thinks just.

17.  The facts and inferences relied upon by the Plaintiff, which were summarised in paragraphs 3 to 9 herein, were not only uncontested but also looked credible.  I am satisfied that those were the facts and the proper inferences to be drawn.

18.  Mr Hau for the Plaintiff helpfully submitted an authority,Mesirow Financial Administrative Corporation v Best Link Industrial Co Ltd, HCMP 1846/2015 (25 January 2016, unreported), where Recorder Lisa K Y Wong SC (as she then was) usefully summarised the relevant legal principles at paragraphs 33 to 39 of her Decision:-

“33. When property is obtained by fraud, equity imposes a constructive trust on the fraudulent recipient so that the property is recoverable and traceable in equity: Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669, per Lord Browne-Wilkinson at 716C-D, applied by Sakhrani J in Michael Chen Kang Huang v Peter Lit Ma [2009] 6 HKC 191 at 199I-200C.

34. Had the Defendant appeared and defended these proceedings and the Court found the facts asserted by the Plaintiff after trial, there could have been no doubt as to the Plaintiff’s entitlement to have declared that the Funds were held on trust for it.

35. As stated in Hong Kong Civil Procedure 2016, Volume 1, paragraph 15/16/2, the rule that the Court will not make a declaration by consent or in default without a trial is a rule of practice and not of law. It is not inflexible. The paramount duty of the Court is to do the fullest justice to the plaintiff to which he is entitled. The practice will thus give way where the plaintiff has a genuine need for declaratory relief which the Court can properly grant on the merits of the case: see Lai Wai Kuen v Wong Shau Kwong [2004] 4 HKC 528, per Lam J (as he then was) at paragraph 6.

36. My attention was also drawn to instances in which the courts in Hong Kong declared, in the absence of defendant, the existence of a constructive trust in respect of funds the payment of which was procured by deceptive emails: Europium World (UK) Limited v D’G Biocare Group Hong Kong Limited, DCMP 1456/2014, unreported, Deputy District Judge Jason Wan (31 July 2014) and Chan Chi Tong trading as Tong Long Transportation Co v Metro Imp and Exp Co Limited, DCMP 2308/2014, unreported, HH Judge Levy (3 November 2013).

37. I have already explained in paragraphs 32 to 34 above that the facts and evidence placed before me by the Plaintiff justified the declaratory relief sought by it.

38. So the only question left was whether the Plaintiff showed a genuine need for such relief. I believe it did. The right asserted by the Plaintiff was one of title to property. The Funds were in equity the Plaintiff’s money. A mere order against the Defendant for the return of the sum that it had deprived the Plaintiff of, without more, would have put the Plaintiff in the position of an unsecured judgment creditor of the Defendant. Such an order would not per se have given the Plaintiff any prior or specific right over the Funds. Very little was known about the Defendant. In particular, it was not known if the Defendant had any other creditors and, if so, whether it had sufficient assets (other than the Funds in the Account standing to its name) to satisfy its debts and liabilities to those other creditors. It would have been grossly unfair and potentially prejudicial to the Plaintiff if it had had to race against other creditors of the Defendant for the Funds in execution of a monetary judgment. A declaration by the Court that the Funds were held on trust for the Plaintiff was necessary to earmark the Funds as the Plaintiff’s property and put the same out of the reach of other creditors of the Defendant.

39. For these reasons, I made the declaration sought.”

19.  I accept from the unchallenged evidence that the Plaintiff had been fraudulently deceived to make the payment of US$70,800 into the Defendant’s HSBC account.  As the said sum of money was obtained by fraud, equity imposes a constructive trust on the fraudulent recipient, ie the Defendant, so that the money is recoverable and traceable in equity.  The Plaintiff here is in a similar position as the plaintiff in the above case Mesirow Financial Administrative Corporation v Best Link Industrial Co Ltd, and is therefore having a genuine need for declaratory relief.  For these reasons, I granted the declaration and the order sought with costs summarily assessed at $35,000.