JESSICA SCHWARTZ PADDOCK v. KUSHAL IMPEX (HK) LTD AND OTHERS

HCA 9/2019

[2019] HKCFI 156

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 9 OF 2019

______________

______________

________________________

DECISION

________________________

1.  This is another of the cases which has come before me as the Summons Judge. I shall only give brief reasons for my rulings.

2.  This is the application by the plaintiff (“P”) on an inter partes basis for a proprietary injunction with a “top-up” Mareva injunction (the “Injunction Order”) against each of the defendants (“Ds”), and for discovery of certain banking documents and information pursuant to section 21 of the Evidence Ordinance against Citibank, DBS Bank, Hang Seng Bank, and Dah Sing Bank (“the Banks”).

3.  I have read the affirmations of Pong Kwun Yin of 8 and 10 January 2019.  I am satisfied that all the relevant documents, and in particular the Summonses and all supporting affirmations for the hearing today, have been validly served upon all the Ds and relevant banks.  Despite the service, D2 to D4 are absent. D1 is represented by counsel.

4.  I have read P’s affidavit sworn on 28 December 2018.  According to her, and in gist, P is the victim of a scam.  She was tricked by an unknown fraudster posing as a US Marshall into believing that she was the victim of identity theft and that her identity was being used by criminal elements.  P was then convinced by the fraudster that the only means of fixing the situation was to engage in a confidential “alternative dispute resolution” process in which she would be assigned a new social security number.  In the meantime she would need to transfer all her assets save for US$5,000 into various accounts provided to her by the fraudster. 

5.  As a result of the scam, P paid funds on the fraudster’s directions to various accounts in Ds’ names held with the Banks.

D1’s stance

6.  D1 is represented by Mr Ng. In his written submissions, Mr Ng only took issue with the granting of the Mareva injunction on the basis that P’s claim does not have a good arguable case against D1, and that there is no real risk of D1 dissipating its assets.  In his oral submissions, Mr Ng explained that when he prepared his written submissions, he had not clearly understood P’s applications.  He said he in fact should have objected also to the granting of the Proprietary Injunction.  He referred to the affirmation of Mr Jain Vardhman filed on behalf of D1.  Mr Vardhman said that the funds received from P were received by D1 in the course of its business of selling jewellery, and that he believed they were prepayments from one of the customers of a person called “Daniel”.  Focusing on the Statement of Claim filed by P, Mr Ng submitted that P’s case could only be as good as her Statement of Claim, that P’s pleaded case relevant to this application was based upon knowing receipt, that no unconscionable conduct on the part of D1 had been pleaded, and that therefore P has failed to demonstrate even any serious issue to be tried in respect of any claim based on constructive trust.

7.  In the course of his submissions, and on the issue of “knowing receipt”, Mr Ng referred me to paragraph 9-43 of Snell’s Equity (13^thed) that:

“ A claim for liability on the basis of knowing receipt or dealing has been described as a restitutionary claim which is the counterpart in equity of the common claim for money had and received. It may arise in at least three ways. First, a person is liable as constructive trustee where he receives trust property knowing that it is trust property and that the transfer to him was in breach of trust. Secondly, a person is liable where he receives the property without knowing it is trust property and, not being a bona fide purchaser, he subsequently acquires knowledge and thereafter deals with the property in a manner inconsistent with the trust.”

8.  Relying on that passage and that passage alone, Mr Ng submitted that the burden is on the claimant to prove that the recipient was not a bona fide purchaser without notice.

9.  I do not accept that submission of Mr Ng’s.  I refer the parties in the course of the hearing to my decision of Grupo Arbulu SL v City Apex Holdings Limited [2018] HKCFI 1351.  A course of action based on restitution can be receipt but not knowledge based.  As I have observed in paragraph 30 of my judgment therein:

“ A restitutionary claim can be proprietary in nature. The claimis to vindicate the property rights of the claimant. As explained in Virgo, The Principles of the Law of Restitution (3^rd ed, 2015) (at pages 559 – 560):

‘ The most important feature of the action to vindicate property rights is that it forms part of the law of property and has nothing to do with the principle of reversing the defendant’s unjust enrichment. Consequently, it is not necessary to show that the defendant has been unjustly enriched at the claimant’s expense.  Once the claimant has shown that the defendant has property, whether it be chattels, land, intellectual property rights or, most importantly, money, in which the claimant had a proprietary interest at the time of receipt, nothing else needs to be proved to establish the claimant’s cause of action.  If the defendant has the claimant’s property, he or she should return it, or its value, to the claimant.’”

10.  Mr Brown for P submitted that the proprietary nature of P’s claim can clearly be established even at this stage.  Mr Vardhman did not dispute in his affirmation that the relevant funds came from P’s account.  Indeed, according to paragraph 3 of Mr Ng’s written submissions, that the relevant funds received by D1 came from P was not in dispute.  There is in my view a serious issue to be tried, and indeed a good arguable case, that P has a proprietary claim against D1 in respect of those funds.

11.  Mr Brown pointed to the paucity of documentary and financial evidence to show any legitimate business on D1’s part.  He also points to the strange conduct of D1 doing business worth tens of thousands of dollars with “Daniel” without even knowing his full name or contacts.  I accept his submissions.  The evidence is at best patchy if not dubious as to whether the relevant funds were received in the course of D1’s course of business.  In any event, I am not trying the case now.  At this stage, while D1 might have raised the possible defences of bona fide purchaser without knowledge or even change of position, I am not satisfied that the merits of P’s case have been rendered thereby to be below one of serious issue to be tried.  Indeed, having considered the evidence adduced by D1, but not simply dwelling on the pleadings, I remain of the view that P has demonstrated a good arguable case against D1.

12.  D1 then asks that the undertaking as to damages be fortified with payment into court of an appropriate amount.  P is a foreign national.  Mr Ng submitted further that as a result of the injunction D1 “clearly will face significant loss”.  There is no evidence from D1 in this regard.  Mr Brown submits, and I agree, that D1 has other bank accounts to carry on its business.  The Injunction sought is up to the amount that was paid by P to D1. In all the circumstances, taking a broad view of the evidence, and notwithstanding the fact that P is a foreign national, I am not prepared to order any fortification.

13.  On the question of risk of dissipation, it is trite that in support of the application for the proprietary injunction, it is not necessary to show risk of dissipation.  In respect of the application for Mareva injunction, I take into account the allegation of fraud and dishonesty raised.  I note that the funds were money, and can easily been dissipated as opposed to, for example, real properties.  I take into account the fact that little is known about D1, and in particular about the nature and financial standing of D1’s business. In all the circumstances, I am of the view that the evidence and facts justify the inference that there is real risk of dissipation.

14.  On the issue of balance of convenience, I note the proprietary nature of the claim.  I also repeat what I have observed above in paragraph 12, that D1 has other accounts to carrying on its business with.  I repeat also my view that P has demonstrated a good arguable case against D1.  In all the circumstances, I am of the view that balance of convenience favours the granting of the Injunction sought.

15.  On the disclosure order in aid, I am of the view that they are important for P to have so as to trace her monies and to police the Mareva injunction. I so order

16.  In the circumstances, and save some minor amendments, I grant the injunction sought against D1.

Other Ds

17.  D2 and D4 do not appear.  Having considered the evidence, I am satisfied that there is prima facie evidence of fraud.  A serious issue to be tried, and indeed a good arguable case, have been shown.  From the facts of the case, risk of dissipation can clearly be inferred.  Balance of convenience is strongly in favour of the grant of the Injunction Order.  I so order.

18.  D3 does not appear.  According the evidence, the transfer to D3’s account might have been stopped in time.  But I have been told that P still has not been given the refund.  Given the confusion, and to be fair to D3, Mr Brown invites me to adjourn the part of the application against D3 by 14 days so that the matter can go back before the Summons Judge in two weeks’ time.  I so order.  Costs reserved.

19.  In respect of the balance of the application for injunction, having heard the parties, I also order that costs be reserved.

The Section 21 applications

20.  In respect of the applications under section 21 of the Evidence Ordinance, I have said in previous cases that applications of such nature have to be approached with great caution.  Privacy and the maintenance of banker/customer confidence are important.  On the other hand, I note the proprietary nature of P’s claims.  The information being sought is clearly relevant and may lead to the location or preservation of assets to which she is making a proprietary claim.  I have said on previous occasions that when considering such applications, the Court is entitled to put in the balance also the important policy consideration that, Hong Kong being an international city, the law should be facilitative but not obstructive when a victim of a cybercrime comes to our courts for lawful redresses against the true culprits.  I note further that the Banks do not oppose the orders sought, save making some suggestions on amendments here and there.  In principle, I am prepared to grant all those applications.  I will hear Mr Brown on the suggested changes and costs.