BARCLAY BUTERA, INC. v. TIANXBANG TRADE CO., LTD

HCA 1277/2018

[2018] HKCFI 2258

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1277 OF 2018

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D E C I S I O N

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The application

1.  This is an application by the plaintiff for (1) pursuant to Order 13, rule 6 and Order 19, rule 7 of the Rules of the High Court, a declaratory judgment in default of defence, to the effect that the defendant holds certain Funds (as defined below) together with any interest accrued thereon since 11 April 2018 on trust for the plaintiff; (2) a vesting order pursuant to sections 52(1)(e) and 52(2) of the Trustee Ordinance, Cap 29 in respect of the Funds and the interest accrued; and (3) an order directing the respondent (who the plaintiff includes as a respondent for the purpose of this application) to pay over all sums under the vesting order.

Outline of the pleaded facts

2.  The plaintiff is a company incorporated in the State of California, the United States of America.  Its sole owner is Mr Barclay Butera (“Mr Barclay”).  Mr Barclay has a personal assistant, who is also the controller of the plaintiff’s business (the “PA”).

3.  The defendant is a limited company incorporated in Hong Kong.  It holds an account with the respondent bearing the number 012-924-92-20321-5 (“D’s A/c”).

4.  The plaintiff’s pleaded case is that it is the victim of an email fraud.  On 10 April 2018, an employee of the plaintiff received some emails purportedly from the PA.  Therein it was claimed that Mr Barclay needed to transfer a sum of US$233,000 (the “Sum”) to Hong Kong for a purchase.  The employee was requested to transfer the Sum to D’s A/c.  The employee on 11 April 2018 did as requested.  On the following day, the employee spoke to the PA.  It became known that the PA in fact did not give the instructions.  The fraud was discovered.  Reports were made both to the FBI in the United States and the police in Hong Kong.  Action was undertaken quick enough in Hong Kong for further dealings of the Sums in D’s A/c to be restrained.  The Sum till date remains in D’s A/c.

Writ, Statement of Claim, and their service

5.  A generally indorsed Writ of Summons was issued against the defendant on 1 June 2018.  The plaintiff seeks inter alia a declaration that the Sum and all interest accrued thereon (the “Funds”) were held by the defendant on trust for the plaintiff.

6.  I have read the affirmation of Lam Hok Kin dated 6 August 2018.  I am satisfied that the Writ has been properly and validly served upon the defendant at its latest registered office. No Acknowledgement of Service has been filed on behalf of the defendant.

7.  On 25 June 2018, the plaintiff filed its Statement of Claim.  The facts (as summarized above) are fully pleaded therein. 

8.  I have read the affirmation of Fung Sung Yau dated 8 August 2018.  I am satisfied that the Statement of Claim has been properly and validly served upon the defendant at its latest registered office.  No defence has been filed by the defendant.

Application for default judgment and the hearing

9.  On 6 August 2018, the plaintiff took out the present summons (the “Summons”).  I have read the affirmation of Fung Sung Yau dated 8 August 2018.  I am satisfied that service of the Summons and the evidence in support have been properly and validly effected on the defendant.  The Summons and the evidence in support were on the same day also served upon the respondent’s solicitors.

10.  Despite the service, the defendant was absent during the hearing of the Summons on 14 September 2018.  Pursuant to Order 32, rule 5(1), the court may proceed in the defendant’s absence if “having regard to the nature of the application, it thinks it expedient so to do”. 

11.  This application is for judgment in default of acknowledgementof service and defence.  It belongs to the type of applications which, given their nature, are more often than not proceeded with in the absence of the defendant.  In the present case, I also deem it expedient so to do.

Approach for granting default judgment

12.  As the Writ and the Statement of Claim contain claims not mentioned 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). Under that rule:

“ … the plaintiff may, after the expiration of the period fixed by or under these rules for service of the defence, apply to the Court for judgment, and on the hearing of the application the Court shall give such judgment as the plaintiff appears entitled to on his statement of claim.”

13.  In the present case, when considering what judgment the plaintiff appears entitled to, the court has to take into account the fact that a declaration is being sought.  In Order 19, rule 7(1), although the words “the Court shall” are used, “the rule is not mandatory but discretionary, and the court retains its discretionary power whether to give judgment…” — see Hong Kong Civil Procedure 2018, Volume 1, paragraph 19/7/13.  It is further stated at paragraph 15/16/2 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 court.”

Similarly, it is stated at paragraph 19/7/20 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 the case here).

14.  On the other hand, as has been explained at paragraph 15/16/2 of Hong Kong Civil Procedure 2018, Volume 1:

“ …the rule of the court that a declaration will not be granted whengiving 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 the court to do the fullest justice to the plaintiff to which he is entitled;” (See also to the same effect paragraph 19/7/20.)

Declaratory relief was hence granted by Lam J (as he then was) in Lai Wai Kuen v Wong Shau Kwong [2004] 4 HKC 528 where he was satisfied that the plaintiff had a genuine need for the same, and that the court could properly grant it on the merits of the case (paragraph 6).  In 巨展皮具香港有限公司 v 上海兄弟海運有限公司 [2018] HKCFI 53 which case involved an email fraud, I did the same.  See also Guaranty Bank and Trust Company v Zzzik Inc Ltd, HCA 1139/2016, 18 July 2016, perDeputy High Court Judge Cooney SC.  I refer also to Sultana Distribution Services Inc v Hongkong Fuheng Technology Co Limited [2018] HKCFI 1480 where Deputy Judge Alexander Stock SC adopted the same approach (and see the other cases cited by the learned Deputy Judge at footnote 2 of his Judgment).

Disposal

15.  I have considered the contents of the Statement of Claim.  The pleaded facts clearly support the plaintiff’s case that it is the victim of an email fraud, and that it has suffered loss in the amount of the Sum.  It appears entitled to relief based on its proprietary interest in the Sum.  I bear in mind the fact that declaratory relief is being sought.  I need to bear in mind the rules of practice set out above and decide how I should exercise my discretion.  I take into account the fact that fraud is pleaded and deemed established.  I take further into account the fact that nothing is known about the defendant, including whether it has any other creditors.  The plaintiff has a genuine need for the declaratory relief sought, so as to avert any need for it to race against other creditors.  Fairness justifies it.  I note further that the respondent is neutral to the application.  In all the circumstances, I am satisfied that the facts of the present case are such that I should exercise my discretion in favour of granting the declaratory relief and the vesting order sought.

Conclusion

16.  For the above reasons, I grant the Orders in terms of the Summons, as amended by me, together with costs of the action and this application against the defendant summarized assessed at HK$126,352.00.  In so far as the costs of the respondent is concerned, I order that costs agreed at HK$7,000 be borne by the plaintiff.