DCP LTD v. SOTERIA TRADES LTD

HCA 208/2019

[2019] HKCFI 1319

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 208 OF 2019

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DECISION

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1.  This is the plaintiff’s application for judgment against the defendant in default of notice of intention to defend and defence pursuant to Order 19, rule 7 of the Rules of the High Court.

2.  The plaintiff seeks an order in terms of the summons issued on 3 April 2019 (the “Summons”) which includes a declaration that the defendant has received US$3 million (defined as “Stolen Funds” in the statement of claim) from the plaintiff on trust for the plaintiffs as constructive trustee.

3.  This is another email fraud of which the plaintiff is a victim.  The Stolen Funds destined for one of the plaintiff’s directors was procured to be remitted to the defendant’s account by a fraudster impersonating the director concerned using a fake email in or around January 2019. 

4.  The plaintiff issued a writ on 8 February 2019 and obtained a Mareva injunction on the same day restraining the defendant from dealing with the assets up to US$3 million.  The injunction was continued on 15 February 2019 until further order. 

5.  The defendant also obtained a disclosure order against the defendant’s bank, OCBC, on 8 February 2019.  It was revealed that a significant sum of the Stolen Funds had been remitted out of the defendant’s account, leaving the equivalent of US$2.24 million frozen by the Mareva injunction.

6.  No notice of intention to defend or defence has been filed.  The present Summons was issued on 3 April 2019. 

7.  I have read the affirmations of service confirming the service on the defendant of the writ of summons, the papers relied upon by the plaintiff in obtaining the Mareva injunction and the disclosure order, together with the two orders on 11 February 2019 and the Summons at its registered address on 8 April 2019. 

8.  As the claims in the statement of claim are not provided for in Order 13, rules 1 to 4 and Order 19, rules 2 to 5, the present application is governed by Order 19, rule 7(1) which I do not need to recite.  Suffice it to say that despite the words “the Court shall” are used, “the rule is not mandatory, but discretionary, and the court retains its special power whether to give judgment ….” (see Hong Kong Civil Procedure 2019 Volume 1, paragraph 19/7/13). 

9.  As mentioned earlier, one of the relief sought by the plaintiff is a declaration that the defendant has received and holds the Stolen Funds on trust for the plaintiff as constructive trustee and is liable to return the same to the plaintiff. 

10.  Given that a declaration is sought the following passages from Hong Kong Civil Procedure 2019 are relevant.  Paragraph 15/16/2 provides that:

“ The power to make binding declaration of right is a discretionarypower …. A declaration can only be made after proper argumentand cannot be made merely on admissions by the parties whether in pleadings or otherwise … nor in default of compliance with rules of the court.”

11.  Further, paragraph 19/7/20 provides that: 

“ It is not the normal practice of the court to make a declaration without a trial, particularly where the declaration is that the defendant in default of defence has acted fraudulently.”

which is, of course, the case here.

12.  However, paragraph 15/16/2 of Hong Kong Civil Procedure 2019 Volume 1 says this:

“ … the rule of the court that a declaration will not be granted when giving judgment by consent or in default without a trial is a rule of practice and not of law and will give way to the paramount duty of a court to do the fullest justice to the plaintiff to which he is entitled;”

13.  Hence, such relief has been granted by the court in a number of cases, including, for example, by Lam J (as he then was) in Lai Wai Kuen v Wong Shau Kwong [2004] 4 HKC 528 (see also paragraph 19/7/20 of Hong Kong Civil Procedure 2019 Volume 1). 

14.  It appears that in light of the matters pleaded in the statement of claim, the plaintiff is a victim of fraud.  It is quite clear that it has suffered loss in the amount of the Stolen Funds and is entitled to the relief sought on the basis of its proprietary claim for the Stolen Funds. 

15.  The declaration sought would assist the plaintiff in its proprietary claim for the Stolen Funds, albeit partial, and would do full justice to the plaintiff to which it is entitled, not least because this would prevent other creditors from competing with the plaintiff for the Stolen Funds.   

16.  For the above reasons and the Practice Rules in Hong Kong Civil Procedure, I am satisfied that I should exercise my discretion in granting the declaratory relief sought, namely: 

   (i)   A declaration that the defendant holds US$3 million (or its Hong Kong dollars equivalent at the time of the payment) in the defendant’s account received from the plaintiff’s account or all such assets derived from the sum or any part thereof which rightfully belongs to the plaintiff on trust for the plaintiff as constructive trustee.

   (ii)   The defendant do transfer US$3 million (or its Hong Kong dollars equivalent) to the plaintiff at the plaintiff’s expense.

   (iii)   Interest on the sum of US$3 million at judgment rate until payment. 

   (iv)   Costs of the action and this application be to the plaintiff, to be taxed if not agreed. 

17.  Insofar as the continuation of the Mareva injunction is concerned:

“ … The mere fact that a judgment has been obtained does not byitself 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.” (China CITIC Bank Corporation Limited (Quanzhou Branch) v Li Kwai Chun & Ors [2018] HKCFI 1800, per DHCJ Keith Yeung SC, para 32)

See also his decision in Spruce Australia Pty Ltd v New Senjia Trade Ltd [2019] HKCFI 101 (unreported), paragraph 18, in which he imposed a time limit of three months for the continuation of the injunction.

18.  Having considered all the circumstances, the modus operandi of the fraud, and the clear risk of dissipation in the absence of any Mareva relief, I consider that the continuation of the Mareva injunction post-judgment is justified. 

19.  However, as the learned Deputy Judge Keith Yeung SC said in China CITIC Bank case, the continuation of the Mareva injunction should not be left open-ended, as sought in the draft order or as submitted. 

20.  I am inclined to impose a time limit of 31 July 2019, ie three months from now, after which the Mareva injunction will lapse. That should give the plaintiff sufficient time to issue the necessary enforcement proceedings.  This is, however, without prejudice to any application in future for further continuation, should the circumstances justify it.

21.  It is, therefore, further ordered that without prejudice to any application for further continuation, should the circumstances justify it, the injunction granted by Deputy High Court Judge Field on 8 February 2019 and continued by Anthony Chan J on 15 February 2019 be continued until payment by the defendant of the sum of US$3 million (or its Hong Kong dollars equivalent at the time of payment), or until 31 July 2019 when the injunction will lapse, whichever is earlier.