NIKKEI AMERICA, INC. AND ANOTHER v. JIALONG TRADE LTD AND OTHERS

HCA 1914/2019

[2020] HKCFI 957

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1914 OF 2019

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J U D G M E N T

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The Application

1.  By summons dated 16 March 2020 (the “Summons”), the 1^st and 2^nd plaintiffs in summary seek the following:‑

(1)  Liberty to enter judgment against the 1^st to 5^th defendants in default of service of defences in this action for:

(a)  A declaration that the plaintiffs are entitled in equity and/ or law to trace the various sums (the “Payments”) remitted to the defendants’ accounts (the “Accounts”) on various dates and/ or the proceeds thereof and/ or any assets upon which the Payments or any part of them have been expended into the hands of the defendants;

(b)  A declaration that the defendants hold the Payments, including the credit balance in the Accounts, and all proceeds and fruits thereof, including all assets acquired thereby, on trust for the plaintiffs;

(c)  An order that the defendants transfer forthwith to the plaintiffs the traceable proceeds of the Payments, including the credit balance in the Accounts, and/ or any assets upon which the Payments or any part thereof have been expended;

(d)  Repayment of the Payments;

(e)  Damages for conspiracy to injure (the plaintiffs no longer pursue this claim);

(f)  Interest; and

(g)  Costs of this action including the costs of this application.

(2)  The injunction granted by Barnes J on 17 October 2019 and continued by DHCJ Leung on 25 October 2019 (“the Injunction Order”) be varied to:‑

(a)  Allow for the transfer of the credit balance in the Accounts to the plaintiffs;

(b)  To permit the plaintiffs to obtain Garnishee Orders for the execution of the judgment so granted and to permit any garnishee to make payment to the plaintiffs pursuant to any such Garnishee Order; and

(c)  The Injunction Order as varied as aforesaid be continued post judgment in aid of execution.

2.  The Court has directed that this matter should be determined on the papers.

Circumstances giving rise to the plaintiffs’ claim to the Funds

3.  The Court is asked to give judgment based on the pleadings alone (Order 19 Rule 7 of the Rules of the High Court).  The Statement of Claim, inter alia, discloses the following.

4.  The 1^st plaintiff is a wholly-owned subsidiary of the 2^nd plaintiff which is a wholly-owned subsidiary of a Japanese corporation, Nikkei Inc.

5.  Between 23 and 26 September 2019, Mr Tokunao Miyazawa, the Vice President of the 1^st plaintiff, received calls from an imposter purporting to be Mr Naotoshi Okada, the President and CEO of Nikkei Inc.  During the call on 23 September 2019, the imposter told Mr Miyazawa that:-

(1)  Nikkei Inc was in the course of finalizing a confidential acquisition (the “Transaction”) which required funds from the 1^st plaintiff for the Transaction;

(2)  The payment instructions for the Transaction would be provided by an attorney;

(3)  The email address of the attorney was contact@gbseu.com.

6.  Upon the instruction of the imposter, Mr Miyazawa sent an email to the attorney’s email address.  The attorney responded to Mr Miyazawa’s email and pretended to be Mr Daniel G Berick from the Merger and Acquisitions department of a US law firm, Squire Patton Boggs.

7.  The attorney also provided to Mr Miyazawa, by email, a copy of a Power of Attorney dated 23 September 2019 purportedly issued by Nikkei Inc and signed by Mr Okada, stating that Mr Miyazawa was given the authority to authorise the payment.

8.  The attorney subsequently emailed Mr Miyazawa the payment instructions for a payment in the sum of US$1,578,000 to account No 57411464016 at Standard Chartered Bank (Hong Kong) Limited (“SCB”) held by the 1^st defendant.

9.  The request was compiled with by a wire payment out of the 1^st plaintiff’s account.

10.  Between 24 to 26 September 2019, Mr Miyazawa received calls from the imposter again.  During the calls, the imposter told Mr Miyazawa that:‑

(1)  Nikkei Inc required additional funds for the Transaction; and

(2)  The relevant payment instructions would be provided by the attorney by email.

(the “24 September Instructions”, “25 September Instructions” and “26 September Instructions” respectively)

11.  As such, Mr Miyazawa made the following transfers:‑

	Recipient’s Bank Account No.	Recipient Bank	Payer	Recipient	Amount (US$)
Upon 24 September Instructions
1	57411464016	SCB	The 1st plaintiff	The 1st defendant	2,993,000
2	57411476286	SCB	The 1st plaintiff	The 2nd defendant	2,694,000
3	0000147960875	China Constructions Bank (Asia) Corporation Limited (“CCB”)	The 1st plaintiff	The 3rd defendant	2,977,000
4	744138711601	China Citic Bank International Limited (“CITIC”)	The 1st plaintiff	The 4th defendant	1,989,000
5	747088862838	The Hongkong and Shanghai Banking Corporation Limited (“HSBC”)	The 1st plaintiff	The 5th defendant	1,995,000
6	57411464016	SCB	The 1st plaintiff	The 1st defendant	2,952,000
Upon 25 September Instructions
7	747088862838	HSBC	The 2nd plaintiff	The 5th defendant	1,695,000
8	747088862838	HSBC	The 1st plaintiff	The 5th defendant	1,791,000
9	57411464016	SCB	The 2nd plaintiff	The 1st defendant	2,526,000
10	57411464016	SCB	The 1st plaintiff	The 1st defendant	2,464,000
Upon 26 September Instructions
11	57411464016	SCB	The 1st plaintiff	The 1st defendant	1,465,000
12	57411464016	SCB	The 1st plaintiff	The 1st defendant	2,695,000

12.  Mr Okada had never made any calls to Mr Miyazawa between 23 and 26 September 2019, although Mr Miyazawa genuinely believed he was speaking with Mr Okada, and Nikki Inc and that the instructions he received were genuine.  The purported transactions did not exist.

13.  In my view, having scrutinised all the matters pleaded in the Statement of Claim, I conclude that the same establish the fraud alleged by the plaintiffs, and the participation of the defendants in the same, and that the plaintiffs are entitled to the judgment sought.  Furthermore, I find that the credit balances of the Accounts are traceable proceeds of the Payments, that the money withdrawn from the Accounts form part of the Payments, and that the Payments were made by the plaintiffs under a mistake of fact.  Furthermore that each of the defendants acted dishonestly in relation to the Payments and their receipt of the same.

Procedural History

14.  As noted on 17 October 2019, the plaintiffs applied for and obtained the Injunction Order granted by Barnes J on an ex parte basis.  The Injunction Order was continued at the return date hearing on 25 October 2019 by DHCJ Leung.

15.  On 25 October 2019, the plaintiffs applied for disclosure orders against SCB, CCB, CITIC and HSBC in respect of the Accounts aforementioned under section 21 of the Evidence Ordinance (Cap 8) by way of summons dated 18 October 2019.  The disclosure orders were granted by DHCJ Leung on 25 October 2019.

16.  The Writ of Summons and the Injunction Order were served on the defendants on 18 October 2019, and the Statement of Claim was served on the defendants at their respective registered addresses on 20 January 2020.  In my view, the evidence establishes proper service.  The defendants have not participated or appeared in these proceedings.

Declaratory Relief

17.  The approach to be taken by Court where declaratory relief is sought in the present circumstances has been succinctly summarized by DHCJ Alexander Stock SC in Sultana Distribution Services Inc v Hongkong Fuheng Technology Co Limited [2018] HKCFI 1480:

“7. The principles applicable to an application under Order 19, rule 7 have been discussed in several recent cases which concern alleged email frauds. The power to grant judgment under rule 7 is discretionary. The court is required to scrutinise whether the matters pleaded in the Statement of Claim entitle the plaintiff to the judgment sought. The court’s decision is made on the basis of the pleaded facts, rather than on evidence.

8. As to declaratory relief, it is not the normal practice of the court to grant a declaration without going to trial. This is, however, only a rule of practice, rather than a rule of law, and gives way to the paramount duty of the court to do the fullest justice to the plaintiff to which he is entitled. In a number of cases involving email fraud, declaratory relief has been granted on the basis that there is a genuine need for such relief to secure the plaintiff’s proprietary as opposed to merely personal claim, particularly given that the defendant may have other creditors.” (emphasis added)

18.  The plaintiffs have referred the Court to Mesirow Financial Administrative Corporation v Best Link Industrial Co Ltd., unreported, HCMP 1846/2015, 25 January 2016.  In that case, the plaintiff fell prey to an email fraud and transferred a sum of US$139,270 to the defendant’s account.  The plaintiff then, by way of originating summons, sought (1) a declaration that the funds and all interest accrued be held on trust for the plaintiff; and (2) an order for the immediate release and return of the funds.

19.  Recorder Lisa Wong, SC (as she then was) found (§38) that the plaintiff had established a genuine need for declaratory relief:-

“… 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.”

20.  The plaintiffs submit that they have a genuine need for relief because without the declarations sought, the plaintiffs are but unsecured judgment creditors with all the associated problems and inherent injustice highlighted in the Mesirow case.  I agree.

The Injunction

21.  The variations sought to the Injunction Order in paragraphs 5(i) and (ii) of the Summons to allow repayment are in my view part of the necessary relief that the plaintiffs are entitled to.  The plaintiffs submit that the Injunction Order (as varied) do continue as a post‑judgment order in aid of execution of judgment.  The Court has an inherent jurisdiction to so order, and considering the circumstances and nature of this case, such an order, in my view, is appropriate.

Disposition

22.  There will be an order in terms of the 1^st and 2^nd plaintiffs’ Summons dated 16 March 2020, save that paragraph 4(i) thereof be deleted.

23.  The defendants shall pay the costs of the action including costs of the Summons (including all costs reserved, if any) to be taxed if not agreed.