HORIZON BANK v. GLOBAL NETWORK INVESTMENTS LTD

HCA1838/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1838 OF 2009

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BETWEEN

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REASONS   FOR  DECISION

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A.  INTRODUCTION

1.  On 24 August 2009, the plaintiff obtained a worldwide Mareva injunction against the defendant, restraining it from disposing its assets up to the value of US$380,000. The defendant now applied to discharge the injunction.

2.  After hearing the parties on 20 October 2009, I varied the Mareva injunction by reducing the value of the defendant’s assets to be restrained to US$120,596.70 and ordered it be continued until trial or further order on the condition that the plaintiff do fortify its undertaking as to damages by paying into court US$120,600 within 14 days, failing which the injunction be discharged forthwith.

3.  These are the reasons for the decision.

B.  BACKGROUND

4.  The plaintiff is a bank based in Bellingham, Washington, USA. Mr Monte L Collins is one of its customers. Since 13 August 2009, the plaintiff received calls and instructions from a person claiming to be Mr Collins, which cumulated in a fax instruction dated 17 August 2009 directing the plaintiff to transfer a sum of US$380,000 to an account held by the defendantwith Standard Chartered Bank (“SCB”) in Hong Kong. On the same day, the plaintiff sent the sum to the designated account with SCB.

5.  On 18 August 2009, the plaintiff discovered that Mr Collins never gave instruction for the said transfer. The purported signature of his on the fax instruction was in fact forged.

6.  On 19 August 2009 at 10:45 hours, (US Pacific standard time, which is 15 hours behind Hong Kong), the plaintiff sent a service message to SCB alerting them of the fraud and requested SCB to return the said sum of US$380,000. The plaintiff sent similar messages to SCB on 20 and 21 August 2009. On 21 August 2009 at 13:46 hours (US Pacific standard time), SCB replied by a service message informing the plaintiff that SCB had already paid the sum into the beneficiary’s account and would only act on court’s order in Hong Kong or instructions from the account holder; and that SCB had contacted the defendant by letter and would advise further.

7.  On 24 August 2009, the plaintiff moved for the Mareva injunction.

8.  The plaintiff has since refunded Mr Collins US$380,000.

C.  DISCUSSION

9.  It is trite that to obtain the Mareva injunction, the plaintiff needs to establish a good arguable case on its claims and a real risk of dissipation of assets by the defendant.

C.1.  The plaintiff’s case

10.  The plaintiff’s claims are based on unjust enrichment by virtue of the payment of US$380,000 by mistake arising from the fraudulent scheme perpetuated against them and Mr Collins.

C.2.  The defendant’s case

11.  The defendant’s case is briefly this.

12.  The defendant was incorporated in May 2009 by Mr Mamadou Ralph Chidiac, who is a national of and based in Lebanon. It engaged in the international trade in electronic equipment with customers mainly from Africa. Typically, when a customer placed order with the defendant, it would first issue a pro forma invoice to the customer and then a pro forma order with the supplier. The supplier would then issue a pro forma invoice. After confirmation of payment by the customer, the defendant would inform the supplier to deliver the goods for onward forwarding to the customer. Many of the defendant’s customers acted through sales agents.

13.  On 10 August 2009, a Mr George Damilola purported to place an order for electric equipments for US$380,000 on behalf of Mr Collins with the defendant’s office at Lagos, Nigeria. The defendant then issued a pro forma purchase order with the supplier Interlink Trading Limited (“ITL”) on 17 August 2009 (Nigeria time, which is 7 hours behind Hong Kong). That pro forma order, which included two other orders placed by another customer, totalled US$302,310. ITL then issued a pro forma invoice on the same day (“the Invoice”).

14.  On 18 August 2009 at about 7:00 hours (Nigeria time), Mr Chidiac received confirmation from SCB that the defendant’s account had been credited with US$380,000 transferred by Mr Collins. Between 10:00 and 11:00 hours the same day, the defendant’s office in Lagos received from Mr Damilola’s assistant a copy Wire Transfer Request purportedly confirming that Mr Collins had authorised the remittance of the said sum of US$380,000. On 19 August 2009, the defendant remitted US$182,770 from its account to ITL for payment of the Invoice. The defendant also asked ITL to release the equipments from the bonded warehouse and deliver them to the defendant. As to when the defendant made that request, it is not clear on the evidence. It is the defendant’s case that it had then become irrevocably liable to accept delivery of, and make payment for all the equipments thus delivered. The delivery of the equipments was received by the defendant at about 14:00 hours on 20 August 2009 (Nigeria time).

15.  Mr Chidiac went on to say :

“If the Plaintiff Bank had informed me, or my office that the bank transfer had been obtained by fraud (as alleged) at any time on or before 21 August 2009, I could have refused to allow the deliveries of the generators to go ahead, and possibly cancelled the order with ITL.”

16.  The bank statements showed that on 20 August 2009, the defendant debited a further sum of US$119,980 form its account, leaving a balance of US$120,596.70 (“the Balance”).

C.3.  Defence of change of position

17.  The principal defence relied on by the defendant is one of change of position. Briefly, that defence is available to a person who had so changed his position that it would be inequitable in all the circumstances to require him to make restitution or alternatively to make restitution in full : Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548, per Lord Goff at p. 580, quoted by the Privy Council in Dextra Bank & Trust Company Limited v Bank of Jamaica, unreported, 26 November 2001, at para. 36. The person must of course have acted in good faith.

18.  Mr Lo, for the plaintiff, submitted that defendant did not act in good faith by taking two main points.

19.  He first queried the setting up of the defendant as a genuine business vehicle and the veracity of the transactions in question. On the evidence before me, there is nothing to support Mr Lo’s queries. I am quite prepared to accept at least for present purposes that the defendant, like the plaintiff, is an innocent victim of the fraud.

20.  Mr Lo’s second point is based on notice of the fraud. Initially, there was some discussion as to when the defendant first received the notice of fraud and whether SCB was its agent when it received the first notice of fraud on 20 August 2009 at 1:45 hours (Hong Kong time). But in the latter part of his submissions, Mr Lo said that the plaintiff is content to limit the Mareva injunction to the Balance. He said the defendant must have notice of the fraud after the Mareva injunction. It can no longer deal with the Balance in good faith.

21.  Given Mr Lo’s concession, I only need to deal with the defence based on change of position for the Balance.

22.  The defendant’s contention is that its position changed when it irrevocably assumed the liability to pay ITL under the Invoice. That gave rise to a complete defence to the plaintiff’s claim, Mr Pirie, for the defendant, argued. The defendant is therefore entitled to utilise the Balance to pay ITL the outstanding sum under the Invoice.

23.  While it is no doubt arguable, I do not think it is a complete defence as to the Balance. I agree with Mr Lo that now that the defendant has actual notice of the fraud, it is questionable if the defendant can still avail itself to the defence of change of position insofar as the Balance is concerned.

24.  I am satisfied that the plaintiff has shown a good arguable case on its claims.

25.  For completeness, I just need to mention that the defendant also relied on two additional points of defence, namely estoppel and negligence on the part of the plaintiff in handling the transfer. I need not dwell on details. I agree with Mr Lo that they do not afford any good defence to the plaintiff’s claims.

26.  I turn to the risk of dissipation of assets by the defendant.

C.4.  Risk of dissipation

27.  The risk of dissipation is real. For the defendant has indicated that it wanted to utilise the Balance to pay ITL the outstanding sum under the Invoice. In fact, it is the very reason why the defendant applied for the discharge of the injunction.

C.5.  Balance of convenience

28.  Mr Pirie argued that the balance of convenience tilted in favour of the defendant, whose only assets, that is the Balance, having been frozen under the Mareva injunction, has been unable to carry on with its business. What counsel meant is that the defendant should be allowed to use the Balance to pay ITL. This is effectively asking the court to completely ignore the risk of dissipation of the defendant’s assets. That cannot be right.

29.  I also have doubt about the defendant’s inability to carry on with its business without the Balance. It is a firm engaging in international trade. It has an office in Lagos, Nigeria, where Mr Chidiac is based. It is quite inconceivable in such circumstances that the defendant does not have any resources other than the Balance to enable it to carry on with its business.

C.6.  Fortification of damages

30.  The plaintiff is a foreign plaintiff with no presence or assets within jurisdiction. I think it is right to ask the plaintiff to fortify its undertaking as to damages. Viewing the matter in the round, I think the security should be equal to the sum restrained by the Mareva injunction, which is slightly more than the sum the defendant allegedly owed to ITL under the Invoice.

D.  CONCLUSION

31.  For the above reasons, I varied the Mareva injunction and made the order as I did.