CNC FAR EAST MACHINERY CO. LTD. v. INTELLIGENT TECH TRADING LTD

DCCJ 3801/2022

[2023] HKDC 824

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3801 OF 2022

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JUDGMENT

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1.  The plaintiff by a summons dated 11 April 2023 (the “Summons”) seeks judgment in default of defence, pursuant to Order 19 rule 7 of the Rules of District Court (Cap 336H).

2.  The plaintiff’s pleaded case is, in gist:-

(1)  The plaintiff had an on-going relationship with Mr Lenzotti, the President and CEO of Euromac SPA (“Euromac”), and was induced by emails (the “Emails”) sent by an unknown person (the “Fraudster”) between 27 September 2021 and 1 November 2021 purportedly on behalf of Mr Lenzotti/Euromac to deposit funds in a total of US$251,700 (the “Sum”) from 4 to 28 October 2021 into the two bank accounts in Defendant’s name, in the belief that the funds were required by Euromac for the purpose of acquiring machines from China. It was represented to the plaintiff that machines were to be delivered to the plaintiff in Thailand within 40 days of confirmation of full payment, and then re-exported to Euromac in Italy.

(2)  The defendant is a company incorporated in Hong Kong, with which the plaintiff had no prior relationship.

(3)  On 29 October 2021, the plaintiff upon communication with Mr Lenzotti discovered that the Emails did not originate from Mr Lenzotti or Euromac and immediately reported the case to the Hong Kong Police. The plaintiff was informed that both accounts of the defendant were frozen by the Hong Kong Police under the letter of no consent regime.

(4)  The plaintiff never received any machines or anything of value from the defendant, and the Sum was never returned to the plaintiff.

3.  The plaintiff claims against the defendant for the Sum inter alia on the basis of unjust enrichment. It also seeks a declaration that the defendant holds the Sum and/or its traceable fruits as the plaintiff’s constructive trustee.

Service of process

4.  The sealed copy of the Amended Writ of Summons endorsed with the Statement of Claim dated 23 February 2023 was served by leaving at the defendant’s registered office on 23 February 2023. The Notice of Intention to Enter Judgment dated 13 March 2023 was served by ordinary post to the defendant’s registered office on 13 March 2023.

5.  No Acknowledgement of Service, Notice of Intention to Defend or Defence has been filed. The Summons together with the supporting affirmation were served by by ordinary post to the defendant’s registered office on 3 May 2023.

6.  Having read the 3^rd Affirmation of Wong Wing Yee dated 22 May 2023, I am satisfied that service of the Amended Writ of Summons endorsed with the Statement of Claim and the Summons pursuant to section 827 of the Companies Ordinance (Cap 622) is effective.

Declaratory Relief

7.  The approach to be taken by the court when dealing with applications which seek default judgment for declaratory relief is trite. As succinctly summarised by DHCJ 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)

8.  In Spruce Australia Pty Ltd v New Senjia Trade Limited [2019] HKCFI 101, DHCJ Yeung, SC (as he then was) held that:-

“16. I have considered the contents of the Statement of Claim. The pleaded facts clearly support the plaintiff’s case that it is the victim of an email fraud, and that it has suffered loss in the amount of the Sum. Constructive trust also attaches—Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669, per Lord Browne-Wilkinson at 716C–D, and 巨展皮具 at paragraph 27. The plaintiff appears entitled to relief based on its proprietary interest in the Sum. I bear in mind the fact that declaratory relief is being sought. I need to bear in mind the rules of practice set out above and decide how I should exercise my discretion. I take into account the fact that fraud is pleaded and deemed established. I take further into account the fact that nothing is known about the defendant, including whether it has any other creditors. The plaintiff has a genuine need for the Declarations sought, so as to avert any need for it to race against other creditors. The Declarations sought are also necessary for the plaintiff to hopefully get to the balance in [the bank account of the defendant] for full or partial satisfaction of the monetary judgment. In all the circumstances, I am satisfied that the facts of the present case are such that I should exercise my discretion in favour of granting the declaratory relief sought.” (emphasis added)

9.  I am satisfied that the plaintiff’s pleaded case supports that it has suffered loss in the amount of the Sum and that constructive trust attaches by virtue of fraud. Applying the above principles, I accept that the plaintiff has a genuine need for declaratory relief to earmark the Sum and keeping it out of reach of the defendant’s general creditors, and to obtain the balance in the defendant’s accounts for full or partial satisfaction of the monetary judgment. In these circumstances, it is appropriate to exercise my discretion in favour of granting the declaratory relief along with the monetary judgment sought.

Post-judgment Mareva

10.  In the Summons, the plaintiff also seeks a post-judgment Mareva Injunction.

11.  As Deputy High Court Judge K Yeung (as he then was) held in China Citic Bank Corporation Limited (Quanzhou Branch) v Li Kwai Chun & others [2018] HKCFI 1800 at paragraph 32:-

“ … The mere fact that a judgment has been obtained does not by itself justify [a Mareva injunction]. But if a Mareva injunction is otherwise justified (applying the established considerations and with the fact that it is a post-judgment application factored in), a Mareva injunction may be granted (subject to the rider that it should normally be of limited and specific duration). It acts in personam on the defendant and works in tandem with the usual execution mechanism.” (emphasis added)

12.  It may be that a plaintiff in an email fraud case such as this assumes that the nature of the case readily implies a degree of dishonesty and hence risk of dissipation. However, it does not follow that the court would grant post-judgment injunctive relief as a matter of course without any evidence in support of the relief sought.

13.  In the present case, I am not satisfied that a post-judgment Mareva injunction should be granted:-

(1)  The plaintiff filed two short affirmations which do not exhibit the Emails (even though they are supposed to be the crux of the fraud) or any evidence of risk of dissipation;

(2)  The plaintiff’s pleaded case is that the Fraudster made false representations to the plaintiff inducing the plaintiff to pay the Sum to the defendant. However, it is not the plaintiff’s pleaded case that the Fraudster made such false representations on behalf of the defendant or that the defendant was somehow involved in the Fraudster’s misrepresentation;

(3)  It appears that the plaintiff had not applied for any interim injunctive relief. There is no explanation why or how a post-judgment injunction has now become necessary.

14.  At the hearing, Ms Ho, counsel for the plaintiff, confirmed that the plaintiff would no longer seek the post-judgment injunction. Accordingly, no such relief would be granted.

Disposition

15.  In the premises, I make the following orders:-

(1)  A declaration that the defendant is liable to account to the plaintiff for the Sum of US$251,700 together with interest at the rate of HSBC prime rate +1% from 29 October 2021 to the date of judgment, and thereafter at judgment rate until full payment;

(2)  A declaration that the defendant holds the US$251,700 or any part thereof in the defendant’s accounts as constructive trustee for the plaintiff;

(3)  The defendant shall pay and return the US$251,700 or its Hong Kong dollar equivalent together with interest accrued thereon to the plaintiff forthwith;

(4)  The defendant does pay the plaintiff’s costs of this action, to be taxed if not agreed, with certificate for counsel.

16.  I thank Ms Ho for her assistance.