DCMP 3449/2022
[2023] HKDC 394
IN THE DISTRICT COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
MISCELLANEOUS PROCEEDINGS NO 3449 OF 2022
____________________
IN THE MATTER OF THE SUMS OF HK$329,449.46 (“the 1st Remittance”) and HK$7,537.55 (“the 2nd Remittance”) REMITTED TO THE 1ST DEFENDANT
and
IN THE MATTER OF THE 1ST AND 2ND REMITTANCES WITHHELD BY THE 2ND DEFENDANT
____________________
BETWEEN
FLORA EDUCATION LIMITED
Plaintiff
and
YUET COMPANY LIMITED
1st Defendant
THE HONG KONG AND SHANGHAI BANKING CORPORATION LIMITED
2nd Defendant
____________________
Before: Deputy District Judge Connie Lee in Court
Date of Hearing: 17 March 2023
Date of Judgment: 17 March 2023
Date of Reasons for Judgment: 23 March 2023
--------------------------------------------
REASONS FOR JUDGMENT
--------------------------------------------
Introduction
1. The plaintiff claims to be a victim of an email fraud resulting in 2 respective sums of HK$329,449.46 and HK$7,537.55 (respectively, the “1st Remittance” and “2nd Remittance”) belonging to the plaintiff being transferred to an account no 004-521-056-176-838 held in the name of the 1st defendant with the 2nd defendant (respectively, the “Bank” and “Account”).
2. This is the plaintiff’s application by originating summons dated 13 September 2022 for declaratory relief as well as an order that the sum of HK$336,987.01 (ie the aggregate amount of the 1st Remittance and 2nd Remittance) be forthwith released and returned to the plaintiff.
3. No notice of intention to defend has been given by the 1st and 2nd defendants (ie the Bank). By letter dated 20 September 2022, the Bank confirmed that it takes a neutral position and will comply with any court order which the plaintiff may obtain. It further asked for its attendance at this hearing be excused.
4. Despite the 1st defendant’s absence at the hearing today, I am satisfied on the affidavits of service filed by the plaintiff that proper service has been effected on both defendants. I have therefore proceeded with today’s hearing in their absence.
Factual background and the plaintiff’s case
5. The plaintiff’s case is set out in Mr Chu James Kwok Yin’s 1st Affirmation. The evidence is unchallenged.
6. The plaintiff is a Hong Kong company providing educational services including management of the Stamford American International School – Hong Kong, and has regularly placed orders for textbooks from Ever Profit Enterprise Ltd trading as Elite’s choice (“EC ”).
7. When the plaintiff wished to place order from EC, a Ms Cherry Lam of the plaintiff’s Accounts Department (“Ms Lam”) would correspond with EC’s contact person known as a “Isabella Choy” via the email address of accounts@eliteschoice.com (the “Email Address”).
8. From July to August 2021, the plaintiff had placed orders with EC in the total amount of HK$336,987.01 and payment was to be made via bank transfer to an account under EC’s name held with the Bank being account no 112-259353-838.
9. On or about 15 September 2021, Ms Lam received an email from “Isabella Choy” informing the plaintiff that the HSBC account was still active, but the account number was changed. In the same email, the Account with ancillary details were provided to receive payment for the textbook fees.
10. On or around 30 September 2021, the plaintiff made two remittances in the amounts of HK$329,449.46 and HK$7,537.55 to the Account for settling the textbook fees. Ms Lam of the plaintiff also notified EC of the same by email.
11. On 4 October 2021, the plaintiff received an email from EC stating that no payment for the said textbook fees was received. Following clarification from EC, it was then discovered some unknown fraudster had impersonated Ms Isabella Choy of EC in sending the emails to Ms Lam of the plaintiff. As the 1st Remittance and 2nd Remittance were already completed, it was too late to stop the transactions.
12. Upon discovery of the fraud, the plaintiff reported the same to the police on 5 October 2021. Whilst the plaintiff attempted to liaise with the Bank for a refund, the Bank’s position was that no refund would be made pending investigation by the Police.
13. On 24 June 2022, the plaintiff was informed by the Police that they had frozen the Account. The 1st Remittance and the 2nd Remittance were the last transactions into the Account and its remaining balance exceeded the total amount of the 1st Remittance and the 2nd Remittance.
14. Following further investigation, it was discovered that the Account actually belonged to the 1st defendant, a Hong Kong company incorporated on 23 February 2021, whose sole shareholder and director is a Ms Tse Kwan Yuet (“Ms Tse”).
15. It is the plaintiff’s case that it had no knowledge of, nor any prior relationship with the 1st defendant or this Ms Tse.
16. On 20 October 2022, the plaintiff learnt that a person had been arrested in connection with the fraud but the identity of the arrested person was not disclosed to the plaintiff by the Police.
Whether the plaintiff is entitled to the Declaratory Relief
17. Having considered the plaintiff’s evidence which is not challenged or disputed, I accept that the plaintiff is a victim of the email fraud described and the misappropriated funds being the aggregate amount of the 1st Remittance and the 2nd Remittance are now frozen in the Account.
18. I also accept Ms Yau’s submissions that even if Ms Tse or the 1st defendant are not parties to the fraud, it is still unconscionable for the 1st defendant to retain the 1st Remittance and the 2nd Remittance. Neither of them has put forward any evidence to dispute the plaintiff’s case. Likewise, they have not put forward any evidence to suggest why it is not unconscionable for them to retain the said misappropriated funds. In any case, the 1st defendant would have been put on notice that the 1st Remittance and the 2nd Remittance (being the latest transactions to enter the Account) were suspicious when the Police froze the Account. See: Guaranty Bank and Trust company v Zzzik Inc Ltd [1]
See also: Donald Henry Case v Profitling International Ltd [2]
19. Given that the Account has been frozen with the 1st Remittance and the 2nd Remittance being the last transactions and its remaining balances exceeded the aggregate amount thereof, there is no issue in identifying the same and/or the traceable proceeds of the fraud described herein.
20. In the circumstances, I am satisfied that this is an appropriate case for summary determination pursuant to Order 28 rule 4 of the Rules of District Court. Further, I am also satisfied that final judgment should be entered into in the plaintiff’s favour: Bank of China (Hong Kong) Ltd v Twin Profit Ltd [3] .
21. It is thus appropriate to grant the declaratory relief as sought by the plaintiff.
Whether the plaintiff is entitled to the Vesting Order
22. Insofar as the vesting order under section 52(1)(e) of the Trustee Ordinance Cap 29 is concerned, there are two conflicting lines of first instance decisions.
23. In 800 Columbia Project Company LLC v Chengfang Trade Ltd and Ors [4] , Recorder Eugene Fung SC was not satisfied that the court’s jurisdiction under section 52(1)(e) of the Trustee Ordinance Cap 29 is engaged upon the making of a declaration that a defendant holds certain sums of money in a bank account on a constructive trust for a plaintiff on the basis that the person cannot be said to have been “appointed” by the court to be a trustee for the purpose of section 52 of the Trustee Ordinance. Furthermore, before the declarations were granted, the defendants were absolute owners of the right to call upon the beneficiary to repay. After granting the declarations, they continued to hold the legal title in the said right, but the equitable title therein would have been divested from the defendants who would hold the same on trust for the plaintiff. In the circumstances, the learned Recorder did not consider that the said right to call for repayment from the bank was vested in the defendants by virtue of the granting of the declarations.
24. On the other hand, Deputy High Court Judge Paul Lam SC reviewed an extensive list of authorities including the learned Recorder’s decision referred to above in Wismettac Asian Food, Inc v United Top Properties Ltd & Ors [5] . The learned Judge came to the view that section 52(1)(e) of the Trustee Ordinance is wide enough to accommodate the situation of a constructive trustee arising by operation of law, such as a proprietary claim by the victim of fraud to recover property that is traced into the hands of the trustee. If it appears to the court to be expedient to do so, the court may make an order vesting in the victim of the fraud the right to recover the money that is traced into the account of the constructive trustee kept with the bank, which is a chose in action. In enforcement, section 52(5) empowers the court to direct the bank to release the amount to the victim.
25. Subsequently, having considered both decisions referred to above, Deputy High Court Judge Douglas Lam SC echoed the views of the learned Recorder, and held in Tokic DOO v Hongkong Shui Fat Trading Ltd [6] that the court has no jurisdiction to make a vesting order in this type of situation.
26. However, it is fair to say that the analysis in Wismettac Asian Food was agreed or preferred in most subsequent and recent cases. See for example: Hypertic System Inc v Yifim Ltd [7] ; Compagnie FiancieRe MeDITERRANeE Cofime SA v Bank of China (Hong Kong) Ltd [8] ; Star Therapeutics, Inc v LeaBon Technology (HK) Ltd [9] ; and Luk Wing Sze v Hong Kong Xin Yu International Industrial Ltd [10] .
27. Deputy District Judge Queenie Ng in Donald Henry Case v Profitling International Ltd [11] also considered the conflicting decisions in detail. The learned Deputy District Judge agreed with Deputy High Court Judge Paul Lam SC’s reasoning and determination. In particular, the learned Deputy District Judge agreed that:-
(1) Constructive trust comes into existence at the moment the fraudster or the subsequent recipient receives the victim’s money or its traceable proceeds by operation of law. When the court grants a declaration in this respect upon the victim’s application for default judgment, it is merely affirming the legal position but is not creating any trust by such order.
(2) The phrase “or otherwise” in Section 52(1)(e) is wide enough to include this type of vesting of thing in action in a constructive trustee by operation of law.
28. Whether the court’s jurisdiction under Section 52(1)(e) of the Trustee Ordinance Cap 29 is engaged is certainly an issue which would benefit from appellate guidance or clarification.
29. In the absence of such guidance or clarification from the Court of Appeal, I am also inclined to follow Wismettac Asian Food, Inc. I am thus persuaded that there is jurisdiction to grant a vesting order in a situation like the present case.
30. Furthermore, it appears to me to be expedient to make a vesting order. Indeed, the court will consider making a vesting order as to trust property where it is impossible or difficult to deal with the property without such an order and may make declaration and to give direction concerning the manner in which the right to transfer the property vested under the provisions of the Trustee Ordinance is to be exercised: The Henri Stern Watch Agency Inc v HK Huasheng Technology Develop Co Ltd [12] .
31. In the present case, I agree with Ms Yau’s submissions that it would be unrealistic to expect the 1st defendant or Ms Tse, who has not appeared, to comply with any order to return the misappropriated funds ie being the 1st Remittance and the 2nd Remittance, to the plaintiff.
32. Therefore, I am satisfied that it is appropriate and necessary to grant the vesting order sought by the plaintiff.
Conclusion
33. Based on the above reasons, I made the order in the terms of the plaintiff’s Draft Order save as revised at the hearing.
34. Insofar as costs is concerned, I also made an order that the 1st defendant do pay the plaintiff’s costs of this action, with certificate for Counsel, to be taxed if not agreed. There be no order as to costs as between the plaintiff and the Bank ie the 2nd defendant.
35. I thank Ms Yau for her assistance.
( Connie Lee )
Ms Tiffany Yau, instructed by C W Chan & Co, for the plaintiff
The 1st and 2nd defendants were not represented and did not appear