HU YANGZHAO v. YANG JIAN AND OTHERS

DCCJ 1318/2022

[2023] HKDC 1477

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1318 OF 2022

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JUDGMENT

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Introduction

1.  This is an application by the Plaintiff (“P”) by Summons filed on 20 September 2023 (“the Summons”) for judgment in default of defence against the 3^rd Defendant (“D3”) under O 19, r 7 Rules of the District Court, Cap 336H (“RDC”). 

2.  The orders sought by P are:-

(1)  Judgment be entered against D3 for the sum of HK$782,929.93 (or equivalent sum in USD) (“the Sum”);

(2)  A declaration that D3 is liable to account to P for the Sum as constructive trustee;

(3)  A declaration that the Sum in D3’s account (together with any interest accrued thereon from 25 August 2020 to the date of release of the said sum) are funds held on constructive trust by D3 for P;

(4)  D3 do within 7 days from the date of service of this order execute such documents as may be reasonably required to instruct The Hong Kong and Shanghai Banking Corporation Limited to return the Sum (together with any interest accrued thereon from 25 August 2020 to the date of release of the Sum) to P;

(5)  In the event D3 fails to execute such documents within 7 days after service of the sealed judgment to him, that Ms Chan Kin Chi of P’s solicitors be nominated to execute such documents under section 38A of the District Court Ordinance to effect the said transfer;

(6)  Interests at 1% above prime rate from 25 August 2020 (or alternatively, from the date of writ) to the date of this judgment, and after that at judgment rate until payment; and

(7)  Costs.

Background

3.  P claims he is a victim of telephone fraud. 

4.  According to P, he received a telephone call on or around 15 August 2020 from an unknown male who introduced himself as Mr Lu and claimed to be a Mainland Police.  Mr Lu alleged that P was involved in a multi-national money laundering case and further asked P to provide his personal details including particulars of his debit card issued by the Bank of China (Hong Kong) Limited (“BOCHK”) and his residential address. As P honestly believed Mr Lu to be a Mainland Police, he cooperated and provided the details as requested. 

5.  Mr Lu later introduced P to Mr Tao, who claimed to be an officer from the Supreme People’s Procuratorate, and Mr Yang, who claimed to be the Captain of Investigation Bureau of the Mainland Police.

6.  On around 18 August 2020, a Mandarin speaking female who introduced herself as Madam Lai visited P at his residential address and claimed to be a Mainland Police and showed P purported identification card.  She claimed the money laundering case was still under investigation and requested inter alia P to provide the banking passwords of both P’s USD and HKD accounts maintained with BOCHK which P did as he believed Madam Lai was a Mainland Police.

7.  Later Mr Yang requested P to transfer all his assets to P’s USD Account with BOCHK in order to facilitate the purported money laundering case.  P therefore made transfers totalling US$821,116.21 and US$110,000.00 into P’s USD account with BOCHK on 20 August 2020 and 2 and 3 September 2020 respectively.

8.  It was only later that P realized that he had been defrauded and he discovered he could not login to his online banking. After seeking the assistance of BOCHK, he discovered that all of his money in his USD account  with BOCHK were transferred to different accounts unbeknown to P.

9.  After obtaining bank documents through HCMP 451/2021 and HCMP 1340/2021, P has identified that on 25 August 2020, a sum of HK$390,000.00 and a sum of HK$393,600.00 were fraudulently transferred from P’s account to a bank account held by a person named “Wong Yuk Tong” (account no: 004-139872733-833), who then transferred the sum of HK$390,000.00 and a sum of HK$393,600.00 to a bank account held by “Cheung Yim Ching” (account no: 012-35410060302), who then transferred a sum of HK$782,929.93 to a bank account held by “Cheung Yim Ching” (account no: 012-56392091316), who then transferred the sum of US$100,843.00 to D3’s account.

10.  In this action, P claims that D3, who was unknown to P and with whom he never has any dealings, holds the Sum on constructive trust for P based on proprietary constructive trust and based on restitution for money had and received and unjust enrichment.

Discussion

11.  I am satisfied from the evidence filed before me that the Amended Writ with the Statement of Claim indorsed was deemed to have been served on D3 upon the advertisement of a notice of these proceedings in Wen Wei Po on 6 September 2023 pursuant to the Order made by Master TK Lam on 14 August 2023. 

12.  Under O 32, r 5(1) RDC, where any party to a summons fails to attend on the first hearing or any resumed hearing, the court may proceed in his absence if, having regard to the nature of the application, it thinks it expedient to do so.  I am also satisfied the Summons and notice of today’s hearing were served on D3 and it is expedient to proceed to hear the Summons notwithstanding the absence of D3.

13.  Since no Acknowledgement of Service, Notice of Intention to Defend or Defence has been filed by D3 passed their deadlines, P is entitled to apply for default judgment pursuant to O 19, r 7 of RDC.

14.  The applicable principles for default judgment are well-settled.  In such an application, the court cannot receive evidence but must consider whether to give judgment according to the pleadings alone.  The statement of claim must show a proper case for the order which the plaintiff seeks to obtain and the court shall give such judgment as the plaintiff appears to be entitled on the statement of claim only and only if the pleaded facts give rise to the relief sought: see Cheung Sai Lon v Cheung Sai Ha [2020] HKCFI 2551 at §30.

Claim for restitution

15.  In Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79, the Court of Final Appeal approved a useful framework for approaching claims for restitution based on the principles of unjust enrichment as involving asking four questions: (1) was the defendant enriched?  (2) was the enrichment at the plaintiff's expense?  (3) was the enrichment unjust? and (4) are any defences applicable?

16.  In the present case, D3 was not the direct recipient of the Sum from P.  Whilst D3 could be said to be enriched by the Sum, it may be questioned whether the enrichment was at P’s expense. 

17.  In JSP International SRO v Alacrity Limited & Others [2022] HKCFI 977, §§§20-21 Cheng J held:-

“[20] It was recognised in Investment Trust Companies v Revenue & Customs Commissioners [2018] AC 275 at [46] to [50] that there may be situations in which, whilst the parties have not dealt directly with one another, or with one another’s property, the defendant has nevertheless received a benefit from the claimant, and the claimant has incurred a loss through the provision of that benefit. These are generally situations in which the difference from the direct provision of a benefit by the claimant to the defendant is more apparent than real. At [48], Lord Reed referred to various such situations, one of which he described as follows.

‘There are also situations where the defendant receives property from a third party into which the claimant can trace an interest. Since the property is, in law, the equivalent of the claimant’s property, the defendant is therefore treated as if he had received the claimant’s property.’

[21]     This being an application under O.19 r.7, I have considered whether the ASOC properly pleads a case that the Second Tier Defendants received the Sums from the First Tier Defendants, being funds originally transferred by the Plaintiff to the First Tier Defendants.  I am satisfied that this has been done.”

18.  I would gratefully adopt that approach.  On the face of the averments in the Statement of Claim, I am satisfied that P has pleaded that monies belonging to P were transferred out from P’s bank account to “Wong Yuk Tong” who then transferred the monies to a bank account of “Cheung Yim Ching” who then transferred the monies to the bank account of D3.  Given the transfers were effected within the same day and the amounts involved were about the same as the Sum, I am satisfied D3’s enrichment came from P’s account with BOCHK and was thus at P’s expense. 

19.  Money paid under a mistake of fact is prima facie recoverable provided that the payer did not intend the payee to have the money in any event, the money was not paid for good consideration and the payee has not in good faith changed his position: see Guaranty Bank and Trust Company v Zzzik Inc Ltd (unreported) HCA 1139/2016, 18 July 2016, §27. 

20.  In the present case, the transfer of the Sum to D3 was never intended or authorized by P.  Furthermore, the Sum were not paid for any good consideration.  Nor is there any evidence that D3 has in good faith changed her position.  In the premises, D3 was unjustly enriched at the expense of P. There being no Defence filed by D3, plainly there are no applicable defences.

21.  I am therefore satisfied P is entitled to have monetary judgment entered against D3 based on the restitutionary claim.  I am also satisfied that interest should be granted on the Sum owing to P.

Claim based on constructive trust

22.  However, in  respect of the claim for proprietary constructive trust, whilst I accept the submissions of Mr Chiu, who appears for P, that equity imposes a constructive trust on the fraudulent recipient when property is obtained by fraud so that the money is recoverable and traceable in equity (by citing Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 at 716C-D and Mesirow Financial Administrative Corporation v Best Link Industrial Co Ltd (unrep) HCMP 1846/2015, 25 January 2016, §35), there is no plea in the Statement of Claim that D3 is a fraudulent recipient.  At most it is pleaded that money from both P’s USD and HKD Accounts were “fraudulently transferred” or the transactions were “fraudulently made” (see paragraphs 19 and 20 of the Statement of Claim).

23.  Furthermore, whilst I accept the defrauded claimant would still have a tracing remedy even if the recipient is not a party to fraud, as long as his state of knowledge is such as to make it unconscionable for him to retain the money and knowledge does not have to be acquired at the time of receipt but it can be acquired subsequently while the money is in the recipient’s hands (see Guaranty Bank and Trust Co, §§32-33), mere receipt of property is not sufficient without retention by that defendant: see Milestone Electric Inc v Meihoukang Trading Co Ltd [2020] HKCFI 2542, §§14-15 and JSP International SRO, §43.  There is no plea that the Sum is still in D3’s hand and that it would be unconscionable for D3 to retain the Sum.

24.  Given that I am not satisfied the proprietary claim of P is established on the basis of the pleadings, which Mr Chiu fairly accepts, I would not impose a constructive trust against D3.  It follows that the declaratory relief and other consequential relief sought ought not be granted.

Orders and Costs

25.  In view of the above, I would make the following orders:-

(1)  Judgment be entered against D3 for the sum HK$782,929.93 or USD equivalent of US$100,843.00 together with interest at 1% above the prime rate from 25 August 2020 to the date hereof, and thereafter at judgment rate until full payment;

(2)  The remainder of the Summons be dismissed; and

(3)  Costs of and occasioned by the Summons be to P and will be summarily assessed.

26.  P is to submit P’s Statement of Costs to me within 7 days hereof for summary assessment on paper and in due course, parties will be notified of my assessment.