CHERRYPICKS LTD AND ANOTHER v. HONG KONG SHOPLEY TRADING CO LTD

DCMP 3330/2016

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 3330 OF 2016

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JUDGMENT

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1.  These proceedings were issued on 4 November 2016 by the plaintiffs, Cherrypicks Limited and Cherrypicks Resources Company Limited, against the defendant, Hong Kong Shopley Trading Company Limited, for the following relief:-

(a) a declaration that the sums, HK$470.00 and US$128,632.47 deposited in the account no 0010598291 held in the name of Hong Kong Shopley Trading Company with China Construction Bank (Asia) Corporation Limited (“CCB”) since 4 August 2016 (“Funds”) were funds held on trust for the plaintiffs;

(b) an order for the immediate release and return of the Funds to the plaintiffs; and

(c) costs.

2.  In support of their claim, the plaintiffs filed an affirmation of Mr Chiu Tsz Kiu Jason (“Mr Chiu”) dated 1 November 2016, and an affirmation of Ms Lam Yim Fan (“Ms Lam”) dated 31 October 2016.

Circumstances leading to the plaintiff’s claim

3.  Mr Chiu is the Chief Executive Officer of the plaintiffs, being companies that run a business of mobile phone application development, mobile marketing, shopping and commerce.  Ms Lam is their Chief Financial Officer who, at all material times, had authority to deal with the finance and accounts of the two companies.  Mr Chiu frequently travelled abroad and typically communicated with Ms Lam by email, Whatsapp, and telephone.

4.  On 3 August 2016, Mr Chiu was due to return to Hong Kong from Toronto.  According to the information on the corresponding electronic ticket, he was scheduled to board flight CX829 at 1:45 am local time, and then to arrive at Hong Kong at 5:00 am the next day on 4 August 2016.  There being a time difference of 13 hours, essentially, Mr Chiu would be in transit between 2:45 pm on 3 August 2016 and 5:00 am on 4 August 2016 Hong Kong time.

5.  At 1:15 pm on 3 August 2016, Ms Lam received an email purportedly sent by Mr Chiu giving instructions to remit a sum of HK$3,000,000.00 to an account no 0010598291 held in the name of Hong Kong Shopley Trading Company with CCB (“Account”).  The transaction was described as confidential for the purpose of taking over a competing company.

6.  At 1:36 pm Ms Lam sent a Whatsapp message to Mr Chiu to confirm the remittance.  Two minutes later, Ms Lam sent a further message to state that the companies only had a total of HK$1,300,000.00 available in their respective accounts.  Having received no response from Mr Chiu, Ms Lam then followed up by email at 1:40 pm, which recorded that she had also attempted to call with no answer.  In the last line of this email, Ms Lam requested Mr Chiu to reach her by telephone so to discuss the matter.

7.  At 1:42 pm, Ms Lam received a reply email with a revised instruction to remit HK$1,000,000.00 to the Account on the same day.  There was then a representation in the email that the sender, whom Ms Lam believed to be Mr Chiu, would provide her with a cheque on the following day.  About half an hour later, at 2:06 pm, Ms Lam received another email to request for a confirmation to be sent upon the remittance which would be forwarded to an accounting team.  The latter email further stated that Ms Lam would receive a cheque in the morning of the next day to meet the balance of the confidential transaction.

8.  Further emails ensued and by 2:42 pm, Ms Lam caused instructions to be sent to Hang Seng Bank to transfer a sum of HK$500,000.00 from the bank account of the 1^st plaintiff and a further sum of HK$500,000.00 from the bank account of the 2^nd plaintiff to the Account.  At 3:57 pm, Ms Lam wrote to report the success of the transfers and requested the receiver of the email to confirm receipt.

9.  As between 3:11 pm and 4:30 pm, a number of emails were sent from the account of Mr Chiu to which Ms Lam made replies.  It is not necessary to set out here in detail the contents of those exchanges, save to say that their purpose was to ascertain from Ms Lam as to whether and how the balance of the HK$4,000,000.00 could be met by the next day.  At one point, Ms Lam was even asked to effect transfers from the personal bank account of Mr Chiu to the Account.  On the face of matters, it is significant to note that these emails took place at a time when Mr Chiu would have already boarded his flight to Hong Kong.

10.  On 4 August 2016, Mr Chiu returned to the office of the plaintiffs at about 9:00 am for a presentation held by him which lasted until 11:00 am.  At 9:56 am, an email was sent from the account of Mr Chiu to Ms Lam to confirm the receipt of the HK$1,000,000.00.  Then at 11:03 am, a further email was sent from the same account to enquire whether Ms Lam had received the earlier email and to state that the sender wanted to transfer HK$4,000,000.00 on that day.

11.  Ms Lam did not reply to either of the two emails but instead spoke directly with Mr Chiu after the presentation. It was only until then Ms Lam discovered that Mr Chiu never gave instructions to make the fund transfers.  Mr Chiu also confirms that he did not send any of the aforementioned emails to Ms Lam.  He was unable to do so as he was out of reach during his flight on 3 August 2016.

12.  According to the affirmation of Ms Lam, the access log for the email account of Mr Chiu was quickly reviewed which showed multiple access within Hong Kong while Mr Chiu himself was out of the jurisdiction.  Such access was not authorised and therefore the HK$1,000,000.00 was transferred without the knowledge of Mr Chiu.

13.  Ms Lam has attended Court today.  She confirms her affirmation filed on 4 November 2016 and also the contents of the affirmation of Mr Chiu which was filed on the same day.  As regards to the discovery of the unauthorised access of Mr Chiu’s email account, Ms Lam further explained that the log for that account showed multiple access from a computer IP address which an IT staff of the plaintiffs, Mr Martin Tai, confirmed to be a local IP address.  This information was passed to the police for follow up investigation.

Identification of the defendant

14.  Promptly thereafter, Ms Lam contacted Hang Seng Bank to stop the remittance of the HK$1,000,000.00 to the Account.  The request came too late because the transfers had already been completed.  At noon on 4 August 2016, Mr Chiu and Ms Lam attended the Tsim Sha Tsui police station to make a report.  Later on the same day, Ms Lam took steps to request CCB to freeze the Account and further gave written instructions to Hang Seng Bank to process a refund of the monies.

15.  On the advice of solicitors, further letters were sent to CCB, and to the Joint Financial Intelligent Unit respectively on 4 and 5 August 2016 as part of the effort to stop possible dissipation of the HK$1,000,000.  On 12 August 2016, the Police found that the entity “Hong Kong Shopley Trading Company” did not exist but instead discovered the defendant which had essentially an identical name.  By virtue of the police investigation, access of the Account was stopped so that the transferred HK$1,000,000.00 and any further balance remained, and still remains, in the Account.

16.  A company search of the defendant, which is exhibited in the affirmation of Ms Lam, showed that the defendant has a Chinese name 香港碩壘貿易有限公司and a registered office at 9/F Tung Lee Building, 9 Lai Yip Street, Kwun Tong.  It appears to be owned and controlled by a single shareholder and director Ms Yang Fei Fei (“Ms Yang”).

17.  Pursuant to an Order for disclosure made on 14 September 2016, CCB produced, amongst other documents, a bank mandate dated 6 January 2014 which revealed Ms Yang to be the sole authorised signatory of the Account as the director of the defendant.  The mandate was supported by an earlier board resolution of the defendant that was also signed by Ms Yang.

18.  There were also bank statements of the Account provided by CCB for the months of August and September 2016, and they show that the holder is 香港碩壘貿易有限公司 with a correspondence address of 1806, Unit 2, Building 2, Zhangshubu Lijingshanse, Nanwan sub-district, Longgang District, Shenzhen.  This is the residential address of Ms Yang.  The detailed account activities confirm that on 3 August 2016 there were two deposits each of HK$499,985.00, out of which a sum of HK$999,500.00 was converted on 4 August 2016 into US$128,632.47.

19.  It is clear from the evidence that at the material time the defendant owned and controlled the Account, and I am satisfied that to be the case.

Service of proceedings on the defendant

20.  By a number of affirmations filed on behalf of the plaintiffs, service was effected as follows:-

(a) by leaving a sealed copy of the Originating Summons in the action together with the requisite forms for acknowledgement of service and notes for guidance at the registered office of the defendant on 11 November 2016;

(b) by leaving a sealed copy of notice of appointment to hear the Originating Summons on 12 January 2017 at the registered office of the defendant on 16 December 2016;

(c) by leaving a sealed copy of the Order of this court dated 12 January 2017 at the registered office of the defendant on 24 January 2017;

(d) by leaving a letter from the plaintiffs’ solicitors dated 1 February 2017 to inform the defendant of this hearing at the registered office of the defendant on 1 February 2017.

21.  This is the substantive hearing of the plaintiffs’ originating summons.  No acknowledgment of service has been filed by the defendant.  An updated company search of the defendant showed that there has been a change of secretary and director in July 2016, however no annual return was filed by this company for the year ending 2016.

22.  Be that as it may, counsel for the plaintiffs, Ms Chan, confirms with this court that the defendant’s office continued to subsist when each of the aforesaid mentioned documents, including the letter dated 1 February 2017, were served by Ms Fang Chen at the address as shown in the 2015 annual return.  Ms Fang Chen is also present in court today as the handling instructing solicitor confirming those instructions.

23.  As indicated by Ms Chan, solicitors for the plaintiffs undertake to file a short affirmation within today to verify that to be the case.  Against that undertaking, I am satisfied that these proceedings have been brought to the attention of the defendant, and which can be proceeded in its absence.  The defendant is also absent today.

The plaintiffs’ claim

24.  A number of causes of action are referred to by Ms Chan, but Ms Chan proceeds with her case primarily on mistake of fact.

25.  It is the evidence of Mr Chiu and Ms Lam that they do not know the defendant, or Ms Yang for that matter, and neither there has been any previous business dealing between the plaintiffs and the defendant.  Clearly, Ms Lam caused a transfer of the two sums of HK$500,000.00 to the Account on 3 August 2016 under a mistake of fact as the instructions had not come from Mr Chiu but from someone else instead.  The fact that emails were sent from the account of Mr Chiu with a local IP address while Mr Chiu himself was out of the jurisdiction most of the afternoon of 3 August 2016, or that the imposter sent further email requests to obtain more funds in the morning of 4 August 2016 while Mr Chiu was away from his desk but at the plaintiffs’ office attending a presentation is telling.

26.  I am satisfied that there is ample evidence in this case to support the relief sought by the plaintiffs.  In any event, the plaintiffs’ case is not challenged as the defendant has not shown any interest in participating in these proceedings.  There is no evidence to show that the plaintiffs were liable to make payment to the defendant.  For completeness sake, by letter dated 11 January 2017, CCB indicated that it would take a neutral stance to the Notice of Action to Non-parties that was served on 9 January 2017.

27.  This will be sufficient to dispose the matter.  It is unnecessary to deal with the other causes of action, especially for fraud which Ms Chan does not seek to rely on.  Accordingly, the plaintiffs are entitled to recover the two sums each of HK$500,000.00 deposited into the Account on 3 August 2016.  Since HK$999,500.00 was converted into US Dollars on the next day, the defendant and CCB are thereby also holding the Funds on trust for the plaintiffs.

Order

28.  I make an order in the following terms:-

(1) There be a declaration that the sum of HK$470.00 and US$128,632.47 in the Account with CCB are funds held on trust for the plaintiffs;

(2) The Funds be forthwith released and returned by CCB to the plaintiffs;

(3) Save the costs of the hearing on 12 January 2017, costs of and incidental to the plaintiffs’ application be to the plaintiffs, to be taxed if not agreed.