CHRIST REACHING ASIA MISSION WORLDWIDE, INC. v. HANZHONGSI TRADE LTD

DCCJ 3393/2018

[2018] HKDC 1340

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3393 OF 2018

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REASONS FOR DECISION

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Introduction

1.  By summons dated 8 October 2018, the plaintiff applied for judgment in default of defence pursuant to O 19 r 7 of the Rules of the District Court.

2.  The plaintiff is a company incorporated in the state of Indiana in the United States.  The defendant is a company incorporated in Hong Kong whose registered office is situated at Unit D, 16/F, One Capital Place, 18 Luard Road, Wanchai, Hong Kong.

3.  The Writ of Summons endorsed with a Statement of Claim was issued on 1 August 2018.  On 2 August 2018, the Writ of Summons and the Statement of Claim was served on the defendant at the address of its registered office.  The summons for the present application was served on the defendant again at the address of its registered office on 15 October 2018.

The plaintiff’s case

4.  The plaintiff claims that it is the victim of an email scam.  According to the plaintiff, on 9 February 2018, one of its employees’ email account was compromised by a fraudster.  The fraudster, using the compromised account, fraudulently sent an internal email to the plaintiff’s another employee who was responsible for handling wire transfers for the plaintiff (“Handling Staff Member”).  In the email, the fraudster requested the Handling Staff Member to make a wire transfer of US$80,000 to the defendant’s bank account no. 390-734-192-883 maintained with Hang Seng Bank Limited (“defendant’s account”). The Handling Staff replied to the email to confirm the particulars of the transfer.  The fraudster confirmed the same using the compromised account.  On the same day, the Handling Staff Member made a wire transfer of US$80,000 (“the Sum”) from the plaintiff’s bank account to the defendant’s account as instructed in the emails.

5.  On 10 February 2018, the plaintiff discovered the fraud and reported the same to the Internet Crime Complaint Centre in Bedford, United States.  The plaintiff further contacted Hang Seng Bank Limited and the Hong Kong Police by phone notifying them of the fraud on 11 February 2018.  On 13 February 2018, the US Federal Bureau of Investigation informed the plaintiff that the defendant’s account was frozen, and the plaintiff filed a formal complaint of the fraud with the Hong Kong Police. 

6.  On 18 February 2018, the Hong Kong Police confirmed that the amount withheld and frozen in the defendant’s account stood at about US$80,000.

7.  In the Statement of Claim, the plaintiff seeks, inter alia, (i) a declaration that the Sum is held by the defendant on trust for the plaintiff; and (ii) an order that the Sum be forthwith released and returned to the plaintiff.

8.  The defendant did not file a notice of intention to defend or any defence. The defendant did not appear at the hearing of the summons.

Analysis

9.  It is well established that the court’s power to grant judgment under O 19 r 7 is discretionary.  The court is required to scrutinize 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: Sultana Distribution Services Inc v Hong Kong Fuheng Technology Co Limited [2018] HKCFI 1480 per DHCJ Alexander Stock SC at §7.

10.  Here, the plaintiff’s claim is based on proprietary constructive trust and unjust enrichment.

11.  With regard to the claim based on proprietary constructive trust, when property is obtained by fraud, equity imposes a constructive trust on the fraudulent recipient and the property is recoverable and traceable in equity. This principle has been applied by the court in a number of recent cases concerning email fraud: Guaranty Bank and Trust Company v Zzzik Inc Ltd (unreported, HCA 1139/2016, 18 July 2016) per DHCJ Nicholas Cooney SC at §28; International Automotive Components Group s r o v Xuke Trading Limited (unreported, HCMP 546/2017, 19 April 2017) per DHCJ Paul Lam SC at §13; 巨展皮具香港有限公司v上海兄弟海運有限公司 [2018] HKCFI 53 per DHCJ Keith Yeung SC at §27; and Sultana Distribution Services (supra) at §10.

12.  As for the claim based on unjust enrichment, the relevant questions are (i) was the defendant enriched? (ii) was the enrichment at the plaintiff’s expense? (iii) was the enrichment unjust? and (iv) are there any defences? -- 巨展皮具 (supra) at §15.

13.  Having considered the Statement of Claim, I accept the plaintiff’s case that the plaintiff transferred the Sum into the defendant’s account as a result of a fraud.  The plaintiff has never had any dealing with the defendant and there was no legitimate reason for the defendant to receive or retain the Sum. I am satisfied that the defendant holds the Sum on trust for the plaintiff and the funds are recoverable and traceable in equity. 

14.  For the same reasons, I am also satisfied that the defendant has been enriched at the expense of the plaintiff, and such enrichment is unjust as it was procured by fraud.  There is no evidence of any defence being available to the defendant.

15.  With regard to the plaintiff’s claim for declaratory relief, it is not the normal practice of the court to grant a declaration without going to trial.  However, this is only a rule of practice and not a rule of law.  The paramount duty of the court is to do the fullest justice to the plaintiff to which he is entitled: Hong Kong Civil Procedure 2019 Volume 1, para 19/7/20.

16.  In the cases cited in paragraph 11 above, the courts granted declaratory relief on the ground that there was a genuine need for such relief to secure the plaintiff’s proprietary claim (as opposed to merely personal claim) so that the plaintiff would not need to face the risk of having to pursue its claim in competition with other creditors. 

17.  In the present case, little is known about the defendant, including whether they have any other creditors.  I am persuaded that there is a genuine need for the plaintiff to obtain the declaration sought so that it would not need to compete with other creditors.

Conclusion

18.  For the above reasons, I order that judgment in terms of the plaintiff’s summons be entered against the defendant.  The defendant do pay the plaintiff’s costs of the action, including costs of this application, summarily assessed at $28,000.