GEORGE DESMOND BACH v. HONGKONG MAIDLONG TRADE LTD

DCCJ 1239/2019

[2019] HKDC 890

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1239 OF 2019

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REASONS FOR DECISION

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INTRODUCTION

1.  There were 2 summonses before me which were taken out by the plaintiff Mr George Desmond Bach (“Mr Bach”) on 7 May 2019:-

(a)  Summons for entering judgment pursuant to Order 19 Rule 7 of the Rules of District Court, Cap 336H of Laws of Hong Kong, (“the 1^st Summons”) and

(b)  Summons for disclosure of banker’s record pursuant to Section 21 of the Evidence Ordinance, Cap 8 of Laws of Hong Kong, (“the 2^nd Summons”).

2.  After hearing the solicitors for Mr Bach, I granted an order in terms of paragraphs 1 to 6 of the 1^st Summons with amendments and an order in terms of paragraphs 1 to 2, and 4 to 9 of the 2^nd Summons with amendments.  Paragraph 3 of the 2^nd Summons was adjourned sine die with liberty to restore.  I said that I would give my reasons for decision at a later stage.  This I do now.

BACKGROUND

3.  In the Statement of Claim filed on 13 March 2019, Mr Bach stated that he was a victim of a conspiracy to defraud to which the defendant HongKong Maidlong Trade Limited (“Maidlong”) was a party.

4.  In or about late 2018, Mr Bach, acting through a Cambodian based agent Ung Savy (“the Agent”), sold a real estate property in Cambodia, following which sale the proceeds of sale in the sum of US$216,450 were to be transferred by the Agent to a bank account in New Zealand nominated by Mr Bach.

5.  Unknown to Mr Bach and the Agent, the email service of the Agent was intercepted and/or interfered with by a person or persons unknown.  By some purported but false transfer instructions given to the Agent through the email service which were not actually given by Mr Bach, the Agent was advised to transfer the proceeds of sale, not to a bank account in New Zealand, but to an account in the name of Maidlong held with the Bank of China (Hong Kong) Limited (“BOC”) in Hong Kong, account number 012-601-2-005441-4 (“the Account”).

6.  The Agent was deceived and made 2 international transfers on 24 January 2019 and 4 February 2019 respectively in the sums of US$155,000 and US$61,450 (“the 2 Sums”) to the Account, thereby remitting the proceeds of sale into the Account.

7.  Before the discovery of the fraud, Mr Bach had no knowledge of the existence of Maidlong and the Account and had no dealings with the same.

8.  In this action, Mr Bach claimed against Maidlong:-

(1)  As damages:

a.  The 2 Sums of US$155,000 and US$61,450;

b.  Pre-judgment interest on the 2 Sums

c.  Post-judgment interest on the 2 Sums;

(2)  Alternatively:

a.  A declaration that Maidlong holds the 2 Sums or any part thereof and/or their traceable proceeds/assets on constructive trust for Mr Bach;

b.  A declaration that Mr Bach is beneficially entitled to ownership and proprietary rights in the 2 Sums or any part thereof and/or their traceable proceeds/assets representing their profits, benefits or traceable proceeds/assets held by Maidlong in any bank account with BOC;

c.  Repayment of the 2 Sums or any part thereof as monies had and received to the use of Mr Bach and by which Maidlong has been unjustly enriched, alternatively, an order for the immediate release, return or repayment to Mr Bach of the 2 Sums or any part thereof and/or their traceable proceeds/assets representing their profits, benefits or traceable proceeds/assets held on constructive trust for Mr Bach;

d.  Pre-judgment interest;

e.  Post-judgment interest;

f.  A permanent injunction restraining Maidlong from dealing with or disposing of the 2 Sums or any part thereof and/or their traceable proceeds/assets representing their profits, benefits or traceable proceeds/assets held in any bank account with BOC, save as ordered by the court;

g.  An order that BOC within 14 days (or by such order time and date as may be agreed in writing between Mr Bach and BOC) provide to Mr Bach through his solicitors and the solicitors be at liberty to take copies of all documents or records (including documents or records that are stored electronically or by any other means) that are in the possession, custody or power of BOC showing or evidencing any dealings with or disposals of the 2 Sums or any part thereof and/or their traceable proceeds/assets representing their profits, benefits or traceable proceeds/assets held in any bank account with BOC;

(3)  Such further or other relief as the court deems fit.

(4)  Costs.

DISCUSSION ABOUT 1^ST SUMMONS

9.  The writ of summons indorsed with the Statement of Claim was issued on 13 March 2019.  It was served on Maidlong by leaving at its registered office and the receptionist acknowledged receipt on the same day.  There was no Acknowledgment of Service after the expiration of the 14-day time limit under Order 12, Rule 5(a) of the Rules of District Court (“RDC”). 

10.  Apart from the 2 Sums, Mr Bach was claiming declaratory reliefs and injunction.  He could proceed with the action as if Maidlong had given notice of intention to defend pursuant to Order 13, Rule 6(1) of RDC. 

11.  Under Order 18, Rule 2(1) of RDC,

“a defendant who gives notice of intention to defend an action must, unless the Court gives leave to the contrary, serve a defence on every other party to the action who may be affected thereby before the expiration of 28 days after the time limited for acknowledging service of the writ …”

12.  After expiration of the 28-day time limit, there was no defence served by Maidlong.  As such, Mr Bach could apply for default judgment pursuant to Order 19, Rule 7(1) of RDC:-

“Where the plaintiff makes against a defendant or defendants a claim of description not mentioned in rules 2 to 5, then, if the defendant or all the defendants (where there is more than one) fails or fail to serve a defence on the plaintiff, the plaintiff may, after the expiration of the period fixed by or under these rules for service of defence, apply to the Court for judgment, and on the hearing of the application the Court shall give such judgment as the plaintiff appears entitled to on his statement of claim.”

13.  The 1^st Summons was served on Maidlong by ordinary post to its registered office on 15 May 2019.  I was satisfied with the service process. 

14.  Solicitors for Mr Bach drew my attention to similar cases where applications for default judgment under Order 19, Rule 7 of RDC were considered by the court:  Domtonia International Co Ltd v Tianma Communication Limited, DCCJ 290/2019 and Christ Reaching Asia Mission Worldwide, Inc. v Hanzhongsi Trade Limited, DCCJ 3393/2018.

15.  In Domtonia International Co Ltd v Tianma Communication Limited, Her Honour Judge Winnie Tsui explained the basis on which default judgment could be entered against a defendant at paragraphs 11 to 12:-

“11.  As a matter of principle, default judgment will only be given on a plaintiff’s claim provided that the pleaded facts give rise to the relief sought. This is because the basis for default judgments is that the facts as contained in the statement of claim were true and admitted by the defendant. The court’s task is therefore to look to the pleaded facts alone and no other evidence will be admitted: see, eg, Lam Chi Fat v Liberty International Insurance [2002] 3 HKLRD 480 at paras 26-27 per Ma J; Hong Kong Civil Procedure 2019 at 19/7/11.

12.  Here, I am satisfied that the plaintiff’s pleaded facts give rise to a claim of proprietary constructive trust against the defendant in respect of the sum of US$50,000 now sitting in the defendant’s Account.  When property is obtained by fraud, equity imposes a constructive trust on the fraudulent recipient and the property is recoverable and traceable in equity.  See eg, Michael Chen Kang Huang v Peter Lit Ma HCA 218/2005, 7 September 2009, citing at para 56 Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 667, at 716.  See also the application of the principle in recent email fraud cases: Mesirow Financial Administrative Corporation v Best Link Industrial Co Ltd HCMP 1846/2015, 25 January 2016 at paras 33-34; 巨展皮具香港有限公司 v 上海兄弟海運有限公司 [2018] HKCFI 53 at para 27; and Sultana Distribution Services Inc v Hong Kong Fuheng Technology Co Ltd [2018] HKCFI 1480 at para 10.”

16.  Likewise, I was satisfied, in Mr Bach’s case, the pleaded facts in the Statement of Claim disclosed a case of fraud.  The 2 Sums were transferred to the Account as a result of the fraud and equity imposed a constructive trust on the recipient Maidlong.  The 2 Sums were recoverable and traceable in equity.

17.  Apart from the constructive trust, Mr Bach’s case was also based on unjust enrichment.  In 巨展皮具香港有限公司 v 上海兄弟海運有限公司, Deputy High Court Judge Keith Yeung SC considered 4 questions at paragraph 15 of the judgment:-

(a)  Was the defendant enriched?

(b)  Was the enrichment at the plaintiff’s expense?

(c)  Was the enrichment unjust?

(d)  Are any of the defences applicable?

18.  In the present case, I had no hesitation in answering the first 3 questions in the affirmative and Maidlong had not raised any applicable defence before me.  Mr Bach should also be entitled to relief on the ground of unjust enrichment.

19.  Solicitors for Mr Bach informed me that declaratory reliefs were sought instead of just a monetary judgment because it was expected that efforts needed to be made to trace the 2 Sums.

20.  On whether it was appropriate to grant declaratory reliefs to Mr Bach, I found what was said by Recorder Lisa K Y Wong SC in Mesirow Financial Administrative Corporation, HCMP 1846/2019, and quoted by Her Honour Judge Winnie Tsui in Domtonia International Co Ltd v Tianma Communication Limited, instructive:-

“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.” (at para 38)

21.  While it is not the normal practice of the court to grant a declaration without a trial, one should note that this is a rule of practice and not a rule of law.  This rule of practice should not be followed when a plaintiff has a genuine need for the declaratory relief and justice would not be done if such relief were denied.  (See: paragraph 19/7/20 of Hong Kong Civil Procedure 2019)

22.  I was satisfied that declaratory reliefs were appropriate in the present case.  I looked at the draft order prepared by solicitors for Mr Bach which included declaratory reliefs based on constructive trust, money had and received and an injunction.  Save for some minor amendments, I granted an order in terms of the draft order.

DISCUSSION ABOUT 2^ND SUMMONS

23.  The 2^nd Summons was Mr Bach’s application for disclosure of BOC’s record in relation to the Account under section 21 of the Evidence Ordinance (Cap 8):-

“(1) On the application of any party to any proceedings, the court or a judge may order that such party be at liberty to inspect and take copies of any entries in a banker’s record for any of the purposes of such proceedings.”

24.  On discovery of the fraud, Mr Bach’s solicitors Messrs YTL LLP wrote to BOC on 1 March 2019 outlining Mr Bach’s story and asked BOC, among other things, to place a temporary stop on Maidlong’s Account.  This letter was copied to the Joint Financial Intelligence Unit and the Cyber Security Technology Crime Bureau of the Hong Kong Police.

25.  On 8 March 2019, BOC wrote back to Mr Bach’s solicitors confirming that 2 sums of US$154,703.67 and US$61,293.99 (after deduction of bank charges) had been credited to the Account.  I noted that these 2 figures were very close to the 2 Sums remitted by the Agent on 24 January 2019 and 4 February 2019 respectively.

26.  Relying on the representations of Mr Bach’s solicitors, BOC put in place a temporary measure to prevent the disposal from the Account funds up to the sums credited.  But BOC pointed out that part of the sums had already been debited from the Account by the time the temporary measure was put in place.  BOC stated that it could not disclose further details of the Account without Maidlong’s consent or a Hong Kong court order.  BOC further stated that it would give full cooperation when it received instructions from Hong Kong law enforcement authorities and would comply with a Hong Kong court order that was binding on it.

27.  In the 2^nd Summons, Mr Bach was seeking an order for disclosure of information in relation to the Account such as the account holder’s name, amount of credit balance, account opening documents, transaction history since 20 January 2019 and particulars of outward and inward remittances.  This summons was served on Maidlong by ordinary post to its registered office on 15 May 2019.

28.  Solicitors firm Messrs K W Ng & Co filed a Notice to Act for BOC on 3 June 2019.  In their letter to Mr Bach’s solicitors, they indicated BOC would take a neutral stance and agree to abide by the order of the court.  The firm asked the court to excuse their attendance so as to avoid additional costs.  From the letter, there apparently was an agreement between the 2 sides that paragraph 3 of the 2^nd Summons should be adjourned.  This was confirmed by Mr Bach’s solicitors at the hearing before me.  Paragraph 3 of the 2^nd Summons was about disclosure of account information in relation to 8 companies.  Mr Bach’s side discovered that the sole director of Maidlong was Armen Virabyan, an Armenian citizen with an address in the United Kingdom.  This Armen Virabyan was also a director of the 8 companies.  Mr Bach’s side suspected that Armen Virabyan might have used these 8 companies as vehicles of fraud and they might have assets which Mr Bach might look to when tracing the proceeds of the fraud.  As Mr Bach and BOC agreed that the disclosure of account information in relation to the 8 companies should be adjourned.  There was no need for me to consider this part in depth.

29.  In the absence of any objection by BOC, there remained the question as to whether the court should order BOC to disclose information relating to Maidlong’s Account.  In this connection, I found guidance in the case of Chan Wai Sun & Anor v Law Shiu Kai [2003] 3 HKLRD 954 where Madam Justice Chu considered an application for banker’s record under section 21 of Evidence Ordinance.  Her Ladyship gave the following views:-

“10.  In Assets Investment PT Ltd v United Islamic Investments Foundation (unrep., HCA No 4392 of 1993), Barnett J held that in a section 21 application, it must be shown that there is a probability that the account will contain materials germane to an issue to be tried between the parties. In short, the test is one of relevance. This in fact echoed what Lord Esher, MR said in South Straffordshire Tramsways Co v Ebbsmith [1895] 2 QB 669 at p. 685, namely, “the party asking for the inspection ought to be able to show the court very strong grounds for suspicion, almost amounting to certainty that there are items in the account which would be material evidence against the defendant upon the matters in issue.

…

14.  In the normal course of events, a company search of the account-holder would have been the proper thing to do and the information reviewed will be most relevant.  What takes the present case out of the ordinary is that General Profits is not a Hong Kong company and is not registered under the Companies Ordinance (Cap. 32) so that the usual modes of inquiry cannot be undertaken and that alternative modes of inquiry have to be undertaken.  The inspection sought if viewed from this perspective must be a proper train of inquiry that the plaintiffs should be permitted to pursue.”

30.  In the present case, I was satisfied that the information relating to the Account would be material evidence against Maidlong upon the matters in issue and that Mr Bach should be permitted to pursue a train of inquiry which might enable him to trace the proceeds of the 2 Sums remitted into the Account.  Save for some minor amendments, I granted an order in terms of the draft order prepared by Mr Bach’s solicitors.