WOODCRAFT CORPORATION AND OTHERS v. YANG HSIU LI AND ANOTHER

HCA 887/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 887 OF 2005

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J U D G M E N T

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1. The plaintiffs commenced the present action against the defendants to recover the part of company funds that had been stolen by the 1^st defendant in Taiwan, transferred out of Taiwan and ended up in 1^st and the 2^nd defendants’ bank accounts in Hong Kong.

BACKGROUND

2. The plaintiffs were respectively incorporated in Taiwan, British Virgin Islands and Canada.  Together with one Texim Associates Inc (“Texim”), which ceased business in July 2001, the plaintiffs belong to the same group in the timber business.  The group was at all material times owned and controlled by Madam Chen Li Yun (“Chen”) and her husband, and carried on business at their offices in Taipei, Taiwan.

3. The 1^st defendant (“Yang”) was employed by the 1^st plaintiff as a trade assistant during the periods between May 1996 and July 1998 as well as April 2000 and June 2004.  As part of her duties, Yang handled the company account transfers and remittance of the group.  The 2^nd defendant (“Ho”) is her husband.

4. In mid-2004, Chen discovered that Yang had during her employment, without the knowledge and consent of Chen, operated the bank accounts by forging Chen’s signatures and documents, and then transferring company funds out of the 2^nd plaintiff’s account to herself, her husband and her other designates in Taiwan.  Upon confronting Yang, Yang confessed in writing having stolen US$1,560,000 (subject to audit) from the 2^nd plaintiff.  Chen and Yang entered into a written settlement agreement dated 14 June 2004 whereby Yang undertook to repay the amount.  Yang did so.

5. However, unbeknown to Chen, the extent of the misappropriation by Yang far exceeded that to which Yang had confessed as mentioned above.  The targets injured included the other plaintiffs and the amount misappropriated exceeded US$5,000,000 and DM46,000.

6. Most of the misappropriated funds were found to have been transferred to the Taiwanese account of a Chuang Li Chen (“Chuang”), who is a friend of Yang; and the Taiwanese account of a Fortress International Ltd (“Fortress”), a BVI company owned and controlled by Yang.  The plaintiffs’ group had no business dealings with these parties, and there was no reason for the plaintiffs to transfer such or any money to these parties.

7. From the accounts of Chuang and Fortress, substantial sums of the misappropriated funds had been channelled to the Citbank accounts of Yang and Ho both in Taiwan and Hong Kong as well as the Taiwanese account opened in the name of Ho Zou Ying, who was their daughter and then merely an infant of tender age (“the Daughter”).  In question in the present action is the money that had been transferred out of Taiwan to Hong Kong.

8. During the period between September 2003 and early June 2004, transfers were made out of the accounts of Chuang and Fortress into the bank accounts of Yang and Ho in Hong Kong.  The amounts identified were US$220,750 and US$15,100 standing in the accounts of Yang and Ho respectively maintained with the Citibank in Hong Kong[1].

9. On 1 July 2004, which was after the arrest of Yang and Ho in Taiwan, Ho caused 2 further sums to be transferred out of Taiwan into Ho’s Citibank account in Hong Kong, namely, a sum of US$150,000 out of Ho’s account in Taiwan, and a sum of US$100,000 out of the Daughter’s account in Taiwan.

10. Hence the sums of US$220,750 and US$265,100 (US$15,100 + 150,000 + 100,000) now in the Citibank accounts of Yang and Ho respectively in Hong Kong.

11. Report was made through solicitors to the Hong Kong Police.

12. In May 2005, the plaintiffs commenced the present action, claiming for declaration that Yang and Ho respectively hold such sums in their respective Citibank accounts in Hong Kong as constructive trustees of the plaintiffs; and injunction restraining them from dealing with in any manner any part of such sums in the accounts.  They also seek payment of those sums.

13. At the same time, the plaintiffs applied for and were granted an ex parte injunction restraining Yang and Ho from disposing of their assets up to the value of the abovementioned sums, including such sums in their respective Citibank accounts.

14. The statement of claim was filed in June 2005.

15. Yang and Ho entered appearance in person.  By their defence[2] filed in July 2005, they contend that all the money in their Citibank accounts in Hong Kong came from their income from work in Taiwan.

16. The ex parte injunction had since been continued, and was last continued by the court on 29 July 2005 until the trial of the action or further order of the court.

17. Since July 2004, the Taiwanese authority had investigated into the fraud, which led to the criminal prosecution of Yang and Ho.  Yang was eventually convicted of committing repeated fraud and Ho was convicted of accepting stolen money, contrary to the Criminal Code of the Republic of China and the Money Laundry Control Act in Taiwan.  Upon appeal, the Taiwan High Court in 2006 confirmed their convictions and Yang’s sentence to 3 years and 6 months’ imprisonment and Ho’s sentence to 5 months’ imprisonment commutable by fine (Criminal Appeal No 485/2006).

18. Meanwhile, the plaintiffs’ group instituted civil proceedings in Taiwan to recover the stolen funds.  This resulted in the following monetary judgments:

(1)   Judgment dated 9 March 2007 in the Taiwan Taipei District Court (Case No 229 of 2006):

(a)   against Yang for the sums of US$3,419,093.99 and DM46,220 with interest; and

(b)   against Chuang for the sums of NT$1,082,562 and US$59,679 with interest;

(2)   Judgment dated 14 April 2009 in the Taiwan High Court (Appeal Case No 398 of 2007):

(a)   against Ho for the sum of US$137,651.09 with interest; and

(b)   against the Daughter for the sums of NT$63,610, US$80.40 and €10,302.39 with interest.

19. Ho appealed against the judgment dated 14 April 2009 but was dismissed by the Taiwan Supreme Court on 27 August 2009 (Appeal Case No 1566 of 2009).

20. In March 2012, the writ and statement of claim in the present case were amended to incorporate the abovementioned development in Taiwan since the commencement of action.  The plaintiffs also specifically plead the right to trace the amounts in the accounts as proceeds of the theft.

21. Leave to serve the amended pleading out of jurisdiction was given.  All subsequent court documents were directed to be served accordingly, including my specific order to do so at the pre-trial review in February 2014.  Save and except the hearing before the master in December 2011, Yang and Ho have been absent from these proceedings.  Satisfied with the service of the notice of this trial as affirmed by the plaintiffs’ legal representatives, I allowed the plaintiffs to proceed with the trial in the absence of Yang and Ho.

DISCUSSION

22. The primary case of the plaintiffs is that Yang and Ho holds the sums in question in their Citibank accounts in Hong Kong as constructive trustee of the plaintiffs; and that the plaintiffs are entitled to trace into such sums as the proceeds of the theft by Yang.

23. The secondary case of the plaintiffs is that in the event that they may not trace the sums, they seek the enforcement of the Taiwan civil judgments to the extent unsatisfied; and that the sums in the accounts of Yang and Ho in Hong Kong should remain until further order of the court.

24. I would start by considering the secondary case first.  And this is because of section 5 of the Foreign Judgments (Restriction on Recognition and Enforcement) Ordinance, Cap 46.  It says:

“No proceedings may be brought by a person in Hong Kong on a cause of action in respect of which a judgment has been given in his favour in proceedings between the same parties, or their privies, in a court of an overseas country, unless that judgment is not enforceable or entitled to recognition in Hong Kong.”

25. Section 10 of the Foreign Judgments (Reciprocal Enforcement) Ordinance, Cap 310 provides the basis for the enforcement of a foreign judgment as a judgment debt under the common law.  Notwithstanding the consideration of sovereignty, it has been held that an order or judgment made by the Taiwan court is recognised by the Hong Kong court for the purpose of the enforcement under common law, if such order or judgment concerns the private rights of the parties privy to it: see CEF New Asia Co Ltd v Wong Kwong Yiu [1999] 3 HKLRD 697, applying Ting Lei Miao v Chen Li Hung & Ors [1999] 1 HKLRD 123 (CA).  Ting Lei Miao was subsequently affirmed on appeal to the Court of Final Appeal: see [2001] 1 HKLRD 252.

26. It is trite that to be recognised, the foreign judgment has to be final and conclusive.  Liu Hui Chun (“Liu”) was the lawyer acting for the plaintiffs in the Tawian civil proceedings.  She testified and confirmed, with reference to the Taiwan criminal and civil court documents, written judgments, and the relevant code of procedures, the following:

(1)   Yang and Ho have exhausted the venue of appeal available in their case; and the verdicts of the criminal courts against them were final.

(2)   The monetary judgments of the Taiwan courts against Yang and Ho are for definite monetary sums, and have become final and conclusive.

(3)   Giving credit to the execution yield and additional payments received from Yang, the balance outstanding under the civil judgment against Yang was calculated[3] to be NT$87,478,069 as at 1 August 2012 with interest accruing at 5% p.a. from 4 May 2010[4].

(4)   Giving credit to the execution yield, the balance outstanding under the civil judgment against Ho was calculated to be NT4,441,312 as at 1 August 2012 with interest accruing at 5% p.a. from 17 August 2010[5].

27. The civil judgments obtained by the plaintiffs in the Taiwan courts would therefore be recognised for the purpose of common law enforcement.  This also triggers the restriction on commencing proceedings in Hong Kong court under section 5 of Cap 46 but only to the extent of the same cause of action.

28. Considering the civil judgments given by the Taiwan courts, albeit in respect of the same set of facts and money stolen by Yang from the plaintiffs’ group, I do not think the presently pleaded claim in respect of the 2 sums in the Citibank accounts of Yang and Ho in Hong Kong is a cause of action advanced for the purpose of the judgments in the Taiwan civil proceedings.  It is particularly obvious in the case of the judgment against Ho.

29. In the circumstances, I take the view that section 5 of Cap 46 does not stand in the way of the plaintiffs’ primary case.

30. As pleaded, it was the implied term of Yang’s employment contract(s) or alternatively Yang’s duty of loyalty and good faith to the plaintiffs’ group; and that she would only deal with the group’s funds for legitimate purposes of the group.  In breach, Yang misappropriated the group’s funds by forging the signatures of Chen in bank transfer, cheques and other instruments.

31. Yang and Ho, it is contended, must have knowledge about the misappropriation of the group’s funds; and the plaintiffs claim that the couple were and still are the constructive trustees of such money coming into their possession and control, including those in their Citibank accounts in Hong Kong.

32. Further or alternatively, such funds constitute money had and received by them to the use of the plaintiffs.

33. The plaintiffs claim to be entitled to trace the misappropriated funds, as they do, into the money in question now standing to the credit of Yang and Ho in their Citibank accounts in Hong Kong.

34. Chen testified and adopted her statement.  She confirmed the abovementioned factual background, and explained with reference to the documentary evidence of the money stolen from the various bank accounts of the plaintiffs and the movement of the money as thereafter discovered.  Summaries were given.

35. Yang’s confession of her fraud in the written settlement agreement entered into with Chen dated 14 June 2004 was referred to.  Yang and Ho made further confessions in their respective statements to the Bureau of Investigation, Ministry of Justice in July 2004.  Yang admitted the way in which she misappropriated the company funds and then transferred them away, part of which eventually to Hong Kong.  Likewise Ho confessed that he had knowledge about the misappropriation when he received and subsequently caused the money to be transferred away.

36. In the judgments by the various levels of courts in Taiwan in convicting the couple and dismissing the appeals, there were express findings in respect of the manner in which Yang had transferred away the plaintiffs’ money, part of which eventually to Hong Kong, as well as the intent and knowledge on the part of Ho who accepted and caused the money to be transferred, again partly to Hong Kong.  Of them, the sums of US$100,000 and US$150,000 transferred from the accounts of Ho and the Daughter in Taiwan on 1 July 2004 to Ho’s Citibank account in Hong Kong were specifically identified.

37. Though absent, Yang and Ho have filed their jointly signed statement dated 22 December 2011 together with supporting documents.  Not appearing to testify, the statement should strictly be disregarded.  Even assuming that the statement is considered, all it asserts is that the money in question in their Citibank accounts was savings from their income from work. As to the documents attached to the statement of Yang and Ho, including the bank statements, they are not self-explanatory and in any event do not come close to rebutting the case of the plaintiffs.

38. As to that, Chen actually gave evidence in respect of the job and income that Yang and Ho had (that she was able to say), and was adamant that neither of the couple could possibly be telling the truth.  In its judgment on the criminal appeal lodged by Yang and Ho in June 2006, the Taiwan High Court Criminal Court made similar observation and specifically rejected such defence.

39. By their statement, Yang and Ho also raise objection to the jurisdiction of the Hong Kong court over this action.  This has no merits.

40. I accept the evidence adduced on behalf of the plaintiffs.  I see no basis for coming to findings of fact different from the factual basis of the criminal convictions and civil judgments against, among others, Yang and Ho.  Yang and Ho are very much estopped from asserting to the contrary.  On these facts, I find Yang was in breach of her duties owed to the 1^st plaintiff, as her employer, and the group, which she had been entrusted with the duty to handle their accounts.

41. In Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 96, Lord Brown-Wilkinson made the the following observation (at 716):

“I agree that the stolen moneys are traceable in equity. But the proprietary interest which the equity is enforcing in the circumstances arises under a constructive trust, not a resulting trust. Although it is difficult to find clear authority for the proposition, when the property is obtained by fraud, equity imposes a constructive trust on the fraudulent recipient: the property is recoverable and traceable in equity..…Moneys stolen from a bank account can be traced in equity: Bankers Trust Co v Shapira [1980] 1 WLR 1274, 1282C-E: see also McCormick v Grogan (1869) LR 4 HL 82, 97.”

42. His lordship’s above observation has not been free from controversy.  But there are authorities to the effect that the legal proposition should be accepted as representing the law insofar as it relates specifically to the case of theft or bare transfer: see Armstrong GmbH v Willington Networks Ltd [2010] 3 WLR 835 (at §§127-129); Goff & Jones, the Law of Restitution (at §4-040). In an interlocutory context, Deputy Judge Woo in JS Microelectronics Limited v Achhada Dilip G & Anor, HCA 1202/2012 (23 November 2012) also proposed (at §§28-32) a pragmatic approach to the issue by looking at the facts of the case, which I would adopt with respect.

43. In the circumstances of the present case, which, in a nutshell, was a case of theft, I see no reason for doubting the applicability of the above legal proposition with the effect of imposing a constructive trust in respect of the money identified to have been stolen, transferred and ended up in the bank accounts of Yang and Ho in Hong Kong.  I am satisfied that the plaintiffs have proved their joint and several claims against Yang and Ho.

44. During the trial, the plaintiffs produced a schedule of the up to date total outstanding indebtedness under the Taiwan monetary judgments, after taking into account the execution yield and repayment from Yang and Ho as well as interest which is still accruing until full payment.  Suffice it to say that it far exceeds the 2 sums in question in the present case[6].

45. For the above reasons, I would grant the relief as sought by the plaintiffs.

46. In the circumstances, there is no need to say further about the secondary case of the plaintiffs.

ORDER

47. I give the declarations against Yang and Ho in respect of the 2 sums in question now in their respective bank accounts with the Citibank in Hong Kong as pleaded and sought.  I also order that the 2 sums in the accounts be paid to the plaintiffs; and until execution of such order or further order of the court, the 2 sums do remain in the accounts.

48. Following this event, Yang and Ho shall pay the costs of this action, to be taxed, if not agreed.  In the absence of application for variation within 14 days from the service of this order, the costs order shall become absolute.