JENSONN POWER SYSTEMS PTE LTD v. LISHAN ZHI TRADINGCO., LTD

DCCJ 5986/2019

[2020] HKDC 167

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 5986 OF 2019

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JUDGMENT

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1.  Certain payment destined for the plaintiff has been diverted into the bank account of the defendant in Hong Kong as a result of alleged email fraud. For that, the plaintiff has obtained from the court an injunction freezing the balance of the defendant’s bank account. The plaintiff now applies for judgment in default of defence against the defendant.

Background

2.  Briefly, the plaintiff is incorporated in the Republic of Seychelles.  It has been supplying diesel generators to a New Zealand customer known as Appleby Engineering Limited (“Appleby”) in the course of its business.  Briefly, in August 2019, the plaintiff contacted Appleby by email requesting for payment of US$306,420 for the diesel generators sold to Appleby (“the Sum”).  Subsequently, an impersonator of the contact person in the plaintiff managed to use an almost identical email address to deceive Appleby into transferring the Sum destined for the plaintiff to the defendant’s bank account in Hong Kong.  The plaintiff has no business or dealing with the defendant whatsoever.  The fraud was later discovered, and report was made to the Hong Kong Police in the same month.  The correspondence between the plaintiff and the police ensued in the following two months.  According to the police, a balance of US$306,416.70 remained in the defendant’s bank account, which has since been frozen.

3.  The plaintiff commenced legal proceedings in October 2019, first by DCMP 3511/2019 for what is known as a Norwich Pharmacal order against the bank in respect of the defendant’s account, and then DCMP 3583/2019 for judgment against the defendant for the Sum.  The latter set of proceedings was subsequently discontinued.

4.  On 5 November 2019, the present action was commenced.  At the same time, the plaintiff applied for an injunction against the disposal of assets in Hong Kong up to value of the Sum, including in particular, the balance in the defendant’s bank account.  It also applied for a banker’s disclosure order against the bank in respect of the defendant’s bank account pursuant to section 21 of the Evidence Ordinance, Cap 8.  On 8 November 2019, the plaintiff succeeded in obtaining these interlocutory orders sought.

5.  No notice of intention to defend has been filed.

6.  The statement of claim was then filed.

7.  On 27 December 2019, the plaintiff filed a summons for judgment in default of defence against the defendant.  The hearing of the summons was scheduled to take place on 10 February 2020.  For that, the plaintiff has lodged written submissions[1]. However, the scheduled hearing was overtaken by the general adjournment period, occasioned by the closure of the court in view of the “COVID-19” spread.

8.  By direction dated 26 February 2020, this court proposed to the plaintiff disposal of the above summons on paper without an oral hearing.  Specifically, this court directed that the plaintiff should also serve a copy of the direction on the defendant forthwith.

9.  The affirmations of service so far filed on behalf of the plaintiff show that the defendant has been served with the documents in this action at its registered office last known to the plaintiff. The latest affirmation of service filed on 13 March 2020 confirmed compliance with this court’s direction mentioned above in the like manner.

10.  Nothing whatsoever has been heard from the defendant.  I see no reason why I should not proceed to consider the plaintiff’s application on paper.

Discussion

11.  For the purpose of this application, the court is supposed to consider whether the plaintiff is entitled to its claim on the basis of its pleaded case without reference to evidence.  However, this application followed the previous application for interlocutory injunction when the evidence in support has been considered by the court.  It will be artificial to limit myself to the consideration of the pleading.

12.  In any event, the above factual background was set out in sufficient detail in the statement of claim verified by the responsible personnel of the plaintiff.  Of all, the essential causes of action pleaded are unjust enrichment and constructive trustee in respect of the Sum. The plaintiff claims for:-

(1) Restitution of the Sum;

(2) Account and tracing;

(3) Declaration that so much of the traced amount of the Sum belongs to the plaintiff, which the defendant holds as constructive trustee for the plaintiff;

(4) Order for payment;

(5) Equitable compensation or damages,

(6) Interest;

(7) Costs.

13.  By the summons, the plaintiff seeks judgment essentially for:-

(1) Declaration that the Sum transferred to the defendant’s account is held by the defendant on constructive trust for the plaintiff;

(2) Order for the return of the Sum as money had and received by the defendant to the use of the plaintiff and, for such purpose, lifting (or more properly, variation) of the mareva injunction;

(3) Costs of the action and the summons.

14.  One issue, which the plaintiff has already raised at its initiative when applying for the interlocutory orders, is the locus standi of the plaintiff.  The plaintiff is not suing on the basis that the Sum came from it, but as the intended recipient or beneficiary of the Sum. Referring to巨展皮具香港有限公司and上海兄弟海運有限公司及佛山明盛傢俱有限公司 HCA 2731/2016 (17 January 2018), DHCJ Keith Yeung SC (as he then was) at §§17-25, the following points are made on behalf of the plaintiff:-

(1) The requirement of any direct transfer from the plaintiff to the defendant, whilst sufficient, is not necessary to demonstrate that the defendant was in fact enriched at the plaintiff’s expenses.  The determinative question is whether there is a sufficient causal connection, in the sense of a sufficient nexus or link, between the loss to the claimant and the benefit gained by the defendant: Lee Yuk Shing v Dianoor International Limited (In Liquidation) (unreported, CACV 185/2015, 23 May 2016).

(2) In a three-party case, a “causal inquiry” approach should be taken in determining whether a defendant has been enriched at a claimant’s expense.  There is no need to hold that a benefit can only be gained at one party’s expense, or that a defendant can only be enriched at the expense of a party who “directly” enriched him: Goff & Jones, §§6-12; 6-13.

(3) In Investment Trust Companies v revenue and Customs Commissioners [2017] 2 WLR 1200, Lord Reed explained (at §§47-48) that there are situations in which the parties have not dealt directly with one another, or with one another’s property, but in which the defendant has nevertheless received from the claimant, and the claimant has incurred a loss through the provision of that benefit.  Lord Reed identified five of those situations, namely (i) the interposing of an agent of one of the parties between them; (ii) the assignment of the right to restitution; (iii) an intervening transaction being found to be a sham; (iv) a set of coordinated transactions being treated as forming a single scene or transaction for the purpose of the “at the expense of” enquiry; and (v) situations where the defendant receives property from a third party into which the claimant can trace an interest.  Since the property is, in law, the equivalent of the claimant’s property, the defendant is therefore treated as if he had received the claimant’s property.

15.  In the present case, it is submitted that as Appleby was contractually bound to pay and the plaintiff was contractually entitled to receive the Sum, the diversion of such Sum in the payment process as a result of the fraud to the defendant, which is a stranger, amounted to unjust enrichment on the part of the defendant at the expense of the plaintiff. I agree.  On the basis of the pleaded case and materials before this court, I find that the plaintiff is entitled to its claim as pleaded.

16.  It is not the practice of the court to grant a declaratory relief without a trial.  However, the court has the discretion to do so, and should do so when the fullest justice in respect of what the plaintiff is entitled to cannot be manifested unless with the declaration.  The present case, in my judgment, belongs to that sort of circumstances.  I am therefore satisfied that the relief sought by the summons should be granted.

Order

17.  I therefore give an order in terms of §§1-2 of the summons, save that, for the avoidance of doubt, the reference to the amount should be that to the sum of US$306,420 (or its HK$ equivalent) or such part of it as may be remaining in the defendant’s bank account.  I also make a costs order in terms of §3 of the summons.