CREATIVE IMPACT (HONG KONG) LTD v. LUCKON TRAVEL LTD AND ANOTHER

HCA 310/2021

[2021] HKCFI 1552

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 310 OF 2021

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J U D G M E N T

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1.  This is an email fraud case and the Plaintiff seeks judgment in default of defence.

2.  The Plaintiff is a private company incorporated in Hong Kong and is part of the Zuru Group, a multi-national toy company with its headquarters in Hong Kong.

3.  D1 and D2 were each private companies incorporated in Hong Kong.  Each of them had a single director, who was resident in Mainland China.  Each of the director was appointed some 3 weeks prior to the occurrence of the events set out below.

4.  On 2 February 2021, persons unknown gained unauthorized access to the email system of the Zuru Group and began sending emails in the name of the Chief Financial Officer (“CFO”) of the Zuru Group from his genuine email address, to Ms You in the treasury department of the Zuru Group.

5.  Acting on 2 deceptive emails from the fraudsters, and in reliance on the representations of the fraudsters that (i) services had been provided for international business development; (ii) the invoices were genuine; and (iii) that payment of the 2 invoices had been approved by the COO of Zuru Group, Ms You transferred 2 sums (collectively “the Sums”) from the Plaintiff’s account at HSBC to D1 and D2, purportedly to settle the fake invoices:

Date	Transfer to	Amount
2.2.2021	D1’s account at Bank of China (Hong Kong) Ltd	US$390,000
4.2.2021	D2’s account at OCBC Wing Hang Bank	US$1,610,000

6.  On 8 February, a third deceptive email was sent, asking Ms You to transfer US$2,995,500 to the fraudsters.  This higher value caused Ms You to become suspicious, whereupon the deceit was discovered.

7.  The emails were not sent by the CFO and the payments were not authorized by the Plaintiff.  The Plaintiff had never done business with either D1 or D2. The invoices attached to the emails were not valid.

8.  On 8 February 2021, the Plaintiff reported the matter to the police and HSBC.  HSBC was not able to recall the Sums.

9.  The Plaintiff issued its writ on 25 February 2021 and amended it on 26 February 2021.  The amended writ was served on D1 and D2 on 1 March 2021.  Neither D1 nor D2 have filed a notice of intention to defend.

10.  The Plaintiff filed its statement of claim on 29 March 2021, which was served on D2 on the same day and on D1 on the following day.  The Plaintiff seeks payment of the 2 sums transferred to D1 and D2 respectively; a declaration that each Defendant holds the respective sum received by it and proceeds on constructive trust for the Plaintiff, and an order for accounts and inquiries.

11.  Neither D1 nor D2 have filed a defence by the due date, ie 26 and 27 April 2021 respectively.

12.  The Plaintiff filed its summons for default judgment on 28 April 2021, which was served on D2 on the same day and on D1 on the following day. The Plaintiff seeks (i) money judgment and (ii) declarations of constructive trust, but no longer seeks relief in tracing.

13.  I am satisfied as to service of the amended writ and statement of claim and that I can proceed in the absence of the Defendants.

14.  In considering whether to grant default judgment under Order 19, rule 7(1) of RHC, the Court only considers the statement of claim to see whether the Plaintiff appears to be entitled to judgment.

15.  The Defendants had no business dealings with the Plaintiff.  The transfers to the Defendants would not have been made by the Plaintiff but for the mistake of fact arising out of misrepresentation of the fraudsters.  The Defendants were enriched at the expense of the Plaintiff.  It is unjust for the Defendants to keep the Sums.

16.  Accordingly, in respect of the money claim, the Plaintiff is entitled to return of the Sums or the traceable proceeds.  Pre-judgment interest shall be at prime rate plus 1%.

17.  When property is obtained by fraud, equity imposes a constructive trust on the fraudulent recipient and the property is recoverable and traceable in equity: Meisrow Financial Administrative Corporation v Best Link Industrial Co Ltd [2016] HKCFI 92, Recorder Lisa Wong SC (as she then was), at §33.

18.  In the circumstances of this case, D1 and D2 had received the Sums as a result of fraud.  They thus hold the sum transferred to each of them on constructive trust for the Plaintiff and the Plaintiff has properly asserted a proprietary claim over the Sums.

19.  It is a general proposition that a declaration will not be granted when giving judgment without trial.  However, it is a rule of practice and not of law, and will give way to the paramount duty of the Court to do the fullest justice to the plaintiff to which he is entitled: Hong Kong Civil Procedure 2021, Vol 1, §19/7/14.

20.  In the interests of doing full justice to the Plaintiff, declaratory relief should be granted in this case to safeguard the Plaintiff’s proprietary right in the Sums, and put the Sums out of reach of competing creditors. 

21.  I therefore make an order as follows:

(1)  D1 do pay to the Plaintiff the sum of US$390,000 (or its Hong Kong dollar equivalent at the time of payment) together with interest at 1% above prime rate from 2 February 2021 until the date of judgment and thereafter at judgment rate until full payment;

(2)  D2 do pay to the Plaintiff the sum of US$1,610,000 (or its Hong Kong dollar equivalent at the time of payment) together with interest at 1% above prime rate from 4 February 2021 until the date of judgment and thereafter at judgment rate until full payment;

(3)  There be a declaration that D1 holds the US$390,000 and/or the traceable proceeds thereof on constructive trust for the Plaintiff; and

(4)  There be a declaration that D2 holds the US$1,610,000 and/or the traceable proceeds thereof on constructive trust for the Plaintiff.

22.  On a nisi basis, the Plaintiff shall be entitled to costs of this action, including this summons and costs of the disclosure application reserved by DHCJ Winnie Tsui on 29 March 2021.  Such costs are summarily assessed and allowed in the amount of $250,000. 

23.  I also order that the Defendants do indemnify the Plaintiff for costs paid or payable to BOC and OCBC Wing Hang for complying with the disclosure order made by DHCJ Winnie Tsui which have not been covered by the present costs statement.  Within 28 days from the handing down of this decision, the Plaintiff shall inform this Court and the Defendants, by letter, the quantum of outstanding costs payable to those 2 banks and seek an order from this Court against the Defendants, failing which the indemnity as to costs shall lapse.