ASPIRE HR, INC. v. HONGKONG HONGCHUANG TRADE LTD

DCCJ 2847/2020

[2021] HKDC 5

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2847 OF 2020

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D E C I S I O N

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Introduction

1.  The plaintiff claims to be the victim of an email fraud and applies for default judgment in respect of the money defrauded and a vesting order, pursuant to O 19 r 7 of the Rules of the District Court (“RDC”) and s 52 of the Trustee Ordinance (Cap 29) respectively.

2.  At the hearing on 29 October 2020, I declined to grant any declaration or declaratory relief and reserved my decision on the monetary claim only.  These are my reasons and further decision.

3.  As the case unfolds, the core issue for discussion in this hearing becomes:-

Whether, in an application for default judgment under O 19 r 7, the court is not allowed to look at any evidence at all?

4.  The rule of procedure is trite but technical, with which I will now deal.

Background of the case

5.  The following is the plaintiff’s pleaded case under the Statement of Claim dated 12 June 2020.

6.  The plaintiff is a company incorporated in Delaware of the United States, with its principal place of business in Dallas, Texas.  It provides human resources consulting services.

7.  The defendant is a company registered in Hong Kong with its registered office in the Kwun Tong district.

8.  The plaintiff is the victim of an email fraud leading to have suffered a loss of US$195,000 to the defendant.

9.  On 21 February 2020, the Finance Controller of the plaintiff (Mr Michael Braun) received an email sent from its CEO (Mr Kevin Chase) directing him to remit a sum of US$89,000 from the plaintiff’s account with Bank of America to an account at Suntrust Bank within the United States.  In the said email, Mr Braun was asked to record the transfer as “miscellaneous” in the plaintiff’s books, and the relevant invoice of the transaction would be provided.  Mr Braun made the wire transfer accordingly.

10.  On 24 February 2020, Mr Braun received another email from Mr Chase, directing him to remit a second sum of US$195,000 overseas to the defendant’s bank account at the Bank of China Hong Kong (“the BOC Account”). In that email, Mr Braun was informed that the US$195,000 was for the settlement of some purchase made, and transaction details and copy of the relevant invoice would be provided.  Mr Braun, therefore, made the transfer as instructed.

11.  The fraud was discovered when Mr Braun had a discussion with Mr Chase about the email exchanges on or around 24 February 2020 after having made the two wire transfers.  It was transpired that Mr Chase did not send the emails.

12.  The plaintiff, therefore, immediately contacted its bank, Bank of America, to halt and cancel the two transfers.  In the event, Bank of America was only able to recover the US$89,000, but not the US$195,000.  It suggested the plaintiff to report to the Federal Bureau of Investigation (FBI).

13.  On 10 March 2020, the plaintiff reported to the FBI and the Hong Kong Police the incident of the fraudulent emails and the transfer of the US$195,000 to the BOC Account.  Subsequently, the FBI and the Hong Kong Police were able to confirm that the US$195,000 is still held in the BOC Account and is now frozen.

14.  The plaintiff alleges that Mr Chase’s email account was hacked by someone unknown or someone who is connected with or known to the defendant.  Hence, the plaintiff claims the US$195,000 was wrongfully remitted without its authority, and the email was a false representation made with knowledge and intention to defraud, thereby causing loss and damages to the plaintiff. 

15.  A Statement of Truth was signed by the CFO of the plaintiff, Mr Joseph Ho, confirming the above particulars of facts stated in the Statement of Claim are true.

16.  The plaintiff claims: (1) a declaration that the US$195,000 in the BOC Account is held by the defendant on constructive trust for the plaintiff; (2) restitution for the sum of US$195,000 with interest; (3) alternatively damages; and (4) orders for tracing and delivery up.

17.  The defendant has not filed an Acknowledgment of Service or a Defence.

18.  On 7 August 2020, the plaintiff took out the Summons for entering judgment in default for: (1) a declaration of constructive trust; (2) the sum of US$195,000 with interest; (3) a vesting order; and (4) an order to join BOC as respondent for the purpose of complying with the vesting order.

19.  I have read the affirmations of services, and I am satisfied that all the services are proved.  BOC has indicated that it would take a neutral stance in relation to the Summons, and I allowed its attendance to be excused.

20.  The defendant does not appear at the hearing, and the court proceeds under RDC O 32 r 5(1) in the defendant’s absence.

Legal principles for declaratory relief under O 19 r 7

21.  The principles applicable to an application for default judgment are well established.  It is not the normal practice of the court to make a declaration without trial, particularly where the declaration is that the defendant in default of defence has acted fraudulently (Wallersteiner v Moir [1974] 1 WLR 991).  However, it is 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 (Patten v Burke Publishing Co Ltd [1991] 1 WLR 541).  The practice will give way where the plaintiff has a genuine need for declaratory relief which the court can properly grant on the merits of the case: Hong Kong Civil Procedure 2020 Notes 15/16/2 & 19/7/20.

22.  Where declaratory relief is sought, the court will scrutinize the application for default carefully and will not hastily grant the relief sought.  The court should not be expected to simply rubber-stamp the uncontested application.  See Note 19/7/20.

23.  It is at the court’s discretion in deciding whether the plaintiff appears to be entitled to judgment on his statement of claim.  See Note 19/7/14.

24.  I bear in mind the above principles in considering the plaintiff’s application.

The hearing

25.  Ms Ng, counsel for the plaintiff, submits that this is a typical email fraud case where a fraudster hacked into the email address of the CEO of the company.  The plaintiff would ask for a proprietary claim, ie declaration of constructive trust, and a personal claim, ie unjust enrichment.  It is submitted that the court should grant both because the plaintiff needs a declaration of trust to secure creditor’s priority in order to protect the plaintiff’s interest.

26.  At the outset, I raise my concerns as to the high prevalence of email fraud cases in recent years.  I suppose the trickery of which should have been known to the general public already.

27.  Ms Ng says that she has encountered five cases of the same type recently.  In each and every one of those cases, the court granted relief and declaration.  She urges upon this court to follow.

28.  Coincidentally, I have a total of three similar email fraud cases scheduled to be heard within the same week.  This case is one of them.

29.  What made me uncomfortable to see is that from the cases I have read, they all show a significant delay (in terms of weeks or months) in reporting the incident to their local police or any other investigating authorities on the part of the victim.

30.  More surprisingly, the misappropriated funds in all these cases would sit in the designated recipient’s account long enough for the victim to report to the police in such a delay.  I would have thought that if the hackers were so sophisticated, they would have withdrawn the misappropriated funds right away.

31.  The Court is therefore alerted to pay extra caution to this kind of cases.  At any rate, I will consider the facts provided in this case only.

32.  In the instant case, the plaintiff had discovered the fraud on 24 February 2020.  It was pleaded that the plaintiff had immediately informed its bank to stop the wire transfers, but it only reported to the FBI and the Hong Kong Police on 10 March 2020.  The plaintiff had not given any explanation for the said two weeks delay, nor was it the plaintiff’s case that they had immediately informed the recipient bank (BOC HK) about the incident to ask them to put a hold on the fund.     

33.  I do not consider that the money not being withdrawn from the defendant’s account was a pure run of luck.  As revealed from the solicitors’ correspondence provided in the hearing bundle, the freezing of the BOC Account by the police or by the bank could have been as late as the end of April.  That means the delay could have been more than two months (and up to the present moment), and the plaintiff had not applied for any injunction. That is inexplicable.

34.  Further, I am not satisfied with another matter here.  The defendant’s last known address was given as the beneficiary address on the wiring instruction, and it can be seen from the Payment Details Report of the plaintiff’s bank.  This last known address in Sheung Wan is different to the defendant’s registered office address in Kwun Tong as shown in the Companies Registry record.  It is submitted for the plaintiff that services to a defendant are invariably effected upon serving to the defendant’s registered office or its company secretary, even though, as in the present case, the defendant could not be located at the registered office address. However, in my view, one would expect that the very next thing the plaintiff (or anyone on its behalf) would do, is to try to locate the defendant at its last known address, other than mere reporting to the bank and the police.  No such effort had been made.  Perhaps, I shall say no more on this as I have accepted the services are good.

The emails

35.  The plaintiff has filed two affirmations in support of the application.  Both were made by its CFO, Mr Joseph Ho.  In his first Affirmation filed on 12 August 2020, the plaintiff provided the email correspondence received by Mr. Braun which is the purported fraudster email.

36.  I set out the email correspondence here:-

“(Monday, February 24, 2020 12:40 PM)

Michael,

I want you to look out the $89,000 wire you sent to SBC Carpentry on Friday, the fund should be coming back to our account and also their [sic] is incoming fund on $340,000 coming in to the account on Thursday. Please kindly keep me updated once they come in.

Please kindly process a wire transfer of $195,000 to the attached wiring instructions and send me the confirmation once completed. I believe if you process the wire as soon as possible now it should still go through today. Record it under Misc pending the time I will send you the necessary documentation.

Best regards,

Kevin Chase

CEO and President

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[Include original message text]

(Monday, February 24, 2020 12:32 PM)

We have already hit the cutoff for international transfers for today. We need to transfer by 4:00 PM today for wire to be made tomorrow. I believe the fee is $40.

Michael Braun

Controller

---------------------------------

(Monday, February 24, 2020 12:20 PM)

Michael,

Please I need you to process international wire transfer, what is the charges for sending international wire today? Can you still send payment out today from our account ending 9216. Let me know so I can go ahead and send you the necessary wiring instructions.

Thanks,

Regards,

Kevin Chase

CEO and President”

37.  The email correspondence appears to be a complete record of what was being said to Mr Braun in respect of the US$195,000 wire transfer.  For convenience, I refer the email marked ‘(Monday, February 24, 2020 12:40 PM)’ as ‘the email’.  I consciously note that the email was a fraudulent one and the content of which might not be true.  However, my focus falls on how Mr Braun acted or reacted upon such email leading to the transfer of the US$195,000. 

38.  I drew the plaintiff’s counsel to a number of issues found suspicious or unsatisfactory to me at the hearing:-

(1)  The plaintiff pleaded that it contacted its bank to cancel both transfers at the same time upon discovery of the fraud on or about 24 February 2020.  However, the plaintiff was able to stop the earlier domestic transfer of US$89,000, but not the subsequent international transfer of US$195,000, which was, supposedly, to be processed the day after the instruction of transfer was sent on 24 February 2020.

(2)  According to the email, the fraudster wrote that the US$89,000 was returning into the plaintiff’s account and another sum of US$340,000 would be coming in as well. This brings out the question of whether or not the US$89,000 was in fact returned to the plaintiff’s account as what the fraudster said.  If so, this is entirely inconsistent with the pleaded fact that it was recovered by the plaintiff’s calling back of the two transfers at the same time upon the discovery of fraud.

(3)  The email did not explain why the US$89,000 transferred by Mr Braun a few days ago was returning and what this US$340,000 was about.  Mr Braun as the Financial Controller of the company asked no question in this regard.  Yet, the email further asked Mr Braun to process another transfer of US$195,000, which he followed heedlessly.  I would have thought that any company executives would adhere very strictly to its internal control and compliance procedure for routine and non-routine payments, both local and international wirings, and payments over any threshold amount that override authorities are required.  The unquestioning on the part of Mr Braun appears to me that there were some intended money movements in which the plaintiff was knowingly involved making the source and the transfer of these monies suspicious.  These unusual features revealed from the email are incapable of reconciliation with the victimized situation claimed by the plaintiff.

(4)  It was further pleaded in the Statement of Claim that Mr Braun was asked to record the US$195,000 transfer as ‘settlement for some purchase’ with transaction details and invoice to be provided.  However, the email received by Mr Braun only asked him to record the US$195,000 transfer as ‘Misc’ pending for the necessary documentation.  Nothing was said about any ‘purchase’ in the email.

(5)  The Affirmations in support were made by Mr Joseph Ho, the CFO, instead of Mr Braun or Mr Chase who have direct personal knowledge of the incident.

39.  Counsel for the plaintiff, and those instructing her, could not give any explanation.

The FBI email

40.  The plaintiff had also sought confirmation from the FBI for any additional information that can show the funds in the BOC Account was indeed the fund they have remitted, and the movement of funds in the said account between the time they made the wire transfers and the time the account was being frozen.  There is email correspondence provided by the plaintiff through Mr Ho’s second Affirmation filed into court on 27 October 2020.

41.  The FBI email sent from the FBI Agent to Mr Ho states as follows:-

“(October 18, 2020 at 9:01:34 PM CDT)

Hi, I have been in communication with our ALAT [assistant legal attachés] in Hong Kong.  They were able to confirm that according to the Bank of China, there were no outgoing transactions after the transaction was made by AspireHR.  The Bank of China is claiming that only $150K USD was sent by AspireHR however.”

42.  It is surprising to note from the above email that the amount of US$150,000 BOC claimed to have received from the plaintiff’s remittance was very different from the plaintiff’s pleaded claim of US$195,000.  This is a matter of grave concern.  Mr Ho said he did not understand why BOC would have said so.  To support his pleaded claim of US$195,000, he referred to the Payment Details Report for showing the transfer the plaintiff made and to the fact that BOC through solicitors’ correspondence took a neutral stance not objecting to the amount stated in the draft order.

43.  However, I do not find that the report or BOC’s neutral stance can assist the plaintiff in salvaging its claimed amount.  I note from the Payment Details Report which states “Status: Processing by Bank” only.  The report merely shows that the wiring of the US$195,000 was under processing.  Whether it was successfully completed, the court does not have further information.  On the other hand, the said US$150,000 could be another wire transfer.  It is no doubt that this issue remains to be resolved.  But, in so far as the present application is concerned, the FBI email clearly contradicts the pleaded amount of US$195,000.

44.  Further, the FBI said BOC only confirmed there were no outgoing transactions.  It made no mention as to any incoming transactions, nor the actual account balance at the material times in respect of the BOC Account.  None of these has been pleaded in the Statement of Claim, failing which the plaintiff’s US$195,000 cannot be identified as it could have already mixed with other funds in the BOC Account.

45.  According to the correspondence between the solicitors of BOC and the plaintiff’s solicitors, BOC refused to disclose any information (as to any transactions or account balance) in respect of the defendant’s account unless there is a disclosure order.  It also refused to sign any consent summons.  Despite that the solicitors of BOC rightly pointed out that it was the plaintiff’s duty to prove its case before court, the plaintiff has never sought any disclosure order.  I am unpersuaded that the plaintiff can take BOC’s neutral stance as any confirmation as to the transferred sum or the account balance.

Discussion

46.  Counsel for the plaintiff urges the court to ignore all the contradictory evidence and to proceed to grant declarations. She submits that in an application for default judgment, the court can only look at the pleading alone and cannot receive any evidence.  She refers to Hong Kong Civil Procedure 2020 Note 19/7/11:-

“The court cannot receive any evidence in cases hereunder, but must give judgment according to the pleadings alone (Smith v Buchan (1888) 58 L.T. 710).”

47.  With respect, I cannot accept Ms Ng’s submissions. Judgment in default under O 19 r 7 remains at the court’s discretion.  When the court scrutinizes the plaintiff’s case, it will not shut its eyes to the true state of facts or any available evidence.  This is especially so where the evidence provided in the plaintiff’s own affidavit contradicted the pleaded facts.

48.  To take an example, if a plaintiff purportedly produced a transaction record but it bears a recipient name different from the defendant’s, or the transaction amount shown in the bank statement does not match with the sum claimed by the plaintiff, shall the court ignore the discrepancies and enter judgment for the plaintiff?  I do not think it is right for the court to do so.  It is, in fact, economical for the court to verify that information.

49.  If I may adopt in here what Bowen LJ said in Phonographic Performance Ltd v Maitra [1997] 3 All ER 673, 680 (endorsed as a correct view by Lord Woolf MR, as he then was, in the Court of Appeal [1998] 1 WLR 870, 876C):-

“I reject any suggestion that the function of the judge in these cases [of O 19 r 7(1)] is confined to checking that there is an affidavit of due service and that the time periods prescribed by the rules have elapsed; and that, subject to those checks he is required to act as a judicial rubber stamp in granting the injunction in the terms sought.”

50.  Ms Ng then submits that although it was stated in the Affirmations of Joseph Ho that the affirmations were filed in support of the Summons for all the reliefs sought, it shall not be taken to mean that the court can read them any time before reaching the stage of considering whether to grant a vesting order.  She submits that the court cannot read the email exhibits or look at any evidence at all when considering the application for default judgment.  She says the evidence is for the other part of the application, namely the vesting order.  She relies on SBM Bank (Mauritius) Ltd v Warner Trading Limited [2019] HKCFI 2956 where Deputy High Court Judge Leung, at para 11, said,

“11. For the purpose of default judgment, this court is supposed to consider if the matters pleaded afford the plaintiff the right to the relief claim. However, this does not prevent the plaintiff from inviting the court to consider the evidence for the purpose of the other parts of its application. The distinction in the application of the rules of evidence for different parts of the present application is thus technical.”

51.  However, I draw Ms Ng’s attention to paragraph 12 continued in the said Judgment, which shows the Deputy High Court Judge did refer to evidence for granting judgment:-

“12. On the basis of the pleaded case and the evidence adduced, the plaintiff builds its case that the defendants respectively hold the sums that originated from the plaintiff as a result of a fraudulent scheme. Either the defendants, or evidently some of them, were part of the scheme or they are in any event in the position as constructive trustees of the money received, which it is unconscionable and unjust for any of them to retain. The plaintiff’s entitlement to the return of money is established. …” (my emphasis)

52.  Therefore, I do not accept Ms Ng’s suggestion that SBM Bank was an authority that the court is not allowed to look at any evidence in the hearing of an application for default judgment. Other cases where the courts have considered evidence are such as: Wu Chi Kwong v Estate of Cheung Man Yau [2008] 3 HKLRD 503; Fung Shek Wa v Chang Lai Yue (unrep, HCA 2258/2013, 18 September 2014); Milestones Electric, Inc v Meihoukang Trading Co Ltd ([2020] HKCFI 2542, 30 September 2020).

Whether the court is not allowed to look at evidence?

53.  Counsel for the plaintiff insists that the court cannot look at any evidence when hearing an application for default judgment.  In support, she relies on the passage in Note 19/7/11 quoted above. I find that it is necessary to examine the original case authorities again.

54.  As I found some of the original authorities have been omitted from the said Note 19/7/11, I would refer to the original commentary in The Supreme Court Practice 1997 (UK), Note 19/7/10, which reads as follows:-

“Proof of plaintiff's case—At a meeting of the judges, a majority decided that the court cannot receive any evidence in cases hereunder, but must give judgment according to the pleadings alone (Smith v. Buchan (1888) 58 L.T. 710; Young v. Thomas [1892] 2 Ch. 134, C.A.) It is therefore not necessary on the hearing of the summons or motion for judgment to prove the case by evidence (Webster v. Vincent (1898) 77 L.T. 167). The costs of any affidavits in support of the case will be disallowed (Jones v. Harris (1887) 15 L.T. 884).”

55.  In Smith v Buchan (1888) 58 L.T. 710, that was a short-cause hearing on motion for judgment in default of defence before Kay J (as he then was) at the Chancery Division of the High Court in England.  In that case, the plaintiff sought specific performance of an agreement.  It was pleaded in the statement of claim that, by an agreement in writing, the defendant agreed to purchase from the plaintiff certain hereditaments, situate in the parish of St. Peter-the-Great in the city of Chichester, and described in the schedule to the said agreement.  However, the schedule was not set out in the statement of claim.  The plaintiff craved leave to refer to the schedule to the agreement for particulars of the properties for judgment.

56.  Kay J declined to give judgment by saying:-

“I cannot give judgment, in default of defence, for specific performance, as the property is not described sufficiently in the statement of claim. There was a difference of opinion among the judges, but at a meeting the majority of the judges decided that in such cases the court could not look at an agreement or receive any evidence, but must give judgment according to the pleadings alone. The statement of claim must be amended by making it contain a more specific description of the property, and must be served afresh.”

57.  The headnote of the case stated as follows:-

“….

Held, that the evidence was admissible as to the agreement.

Held also, that the property not being sufficiently described in the statement of claim, the statement of claim must be amended setting out the property sufficiently to enable the court to give judgment in accordance with the pleadings, and the amended statement of claim must be re-served.”

58.  It is clear from the above decision that evidence is admissible as to the agreement.  Further support can be seen from Kay J’s earlier judgment in Holmes v Shaw (1885) 52 L.T. 797 where it was held that evidence of the agreement was required. 

59.  What I understand from Smith v Buchan is that whilst evidence is admissible as to the agreement, the plaintiff cannot rely on such evidence to make good its pleadings if the particulars were not sufficiently pleaded.  The court will not and cannot rely on the schedule to the agreement to enter judgment for the plaintiff.  In an application for default judgment, it is those facts stated in the pleadings (the statement of claim) which are taken to be admitted, not the written agreement itself.  Kay J’s pronouncement must be understood in the light of the circumstances of the case – ie the plaintiff was seeking to refer to evidence in making good of the statement of claim, that is, trying to ask the court to admit evidence as to the pleaded facts in order to cure the deficiency in the statement of claim.  That was not allowed.  Therefore, I do not find it how Smith v Buchan can be extended so far as to decide that the court should disregard any evidence pointing to the contrary to the pleaded case.

60.  In Young v Thomas [1892] 2 Ch. 134, the Court of Appeal in England heard an appeal on costs of an application for judgment.  In that case, Bowen LJ referred to the rule in granting default judgment while he was dealing with an appeal on costs.  He explained the rationale for that rule by saying, “there is no doubt that, in determining the rights of the parties in the action, the statement of claim alone is to be looked to, and the reason of that rule is obvious, namely, that the facts stated therein are taken to be admitted by the defendant.”  He referred to Smith v Buchan that it was decided by Lord Justice Kay that no evidence could be admitted as to those facts.  He found that the learned Judge (Kekewich J, who heard the case below) was there only referring to evidence relating to ‘the issues in the action’ and to ‘the matters alleged in the statement of claim’. 

61.  In the end, Bowen LJ concluded that the court had the power of looking at any facts outside the statement of claim (such as the conduct of proceedings of the plaintiff in that case) when considering the question on costs.  But that part of costs consideration is not relevant to our present case.  What is important to note is that the court could refer to evidence relating to the issues in the action when considering the application for default judgment.

62.  Again, I do not find that Young v Thomas has laid down any principle that the court shall ignore any contradictory evidence when examining the matters alleged ‘in’ the statement of claim.  In any event, I do not find that there is a proposition that the court is not allowed to look at any evidence, especially where the evidence is in contradiction to the pleaded facts and goes into the issues of the case.

63.  In my view, due regard should be paid to the words ‘the cases hereunder’ in Note 19/7/11 and the words ‘in such cases’ in the judgment of Smith v Buchan.  Otherwise, it would be quoting out of context to suggest as a general proposition that the court is not allowed to look at any evidence at all.

64.  In Phonographic Performance Ltd v Maitra [1998] 1 WLR 870 (CA), at 876F, Lord Woolf MR stated the general rule as follows:-

“It is clear from the terms of Ord. 19, r. 7 and note [19/7/11] that judgment in default is given upon the facts pleaded in the statement of claim and that affidavit evidence to supplement or support those facts is not appropriate as the pleaded facts are deemed to be admitted.”

65.  Therefore, as regards the general approach in dealing with evidence in an application for default judgment, I would summarize the authorities as follows:-

(1)  In the cases where the particulars are not sufficiently provided in the statement of claim, the court cannot receive any evidence, but must give judgment according to the pleadings alone (Smith v Buchan (1888) 58 L.T. 710; Young v Thomas [1892] 2 Ch. 135).

(2)  Every allegation of fact in a pleading, if not denied, must be taken to be admitted (Cribb v Freyberger [1919] W.N. 22).  It is therefore not necessary on the hearing of the application to prove the case by evidence (Webster v Vincent (1898) 77 L.T. 167).

(3)  As such facts are deemed to be admitted, judgment will only be given on the plaintiff’s claim provided the pleaded facts give rise to the relief sought.  Where, however, the facts do not give rise to the relief sought, then unless the writ or statement of claim is amended, no judgment will be given (Lam Chi Fat v Liberty International Insurance [2002] 3 HKLRD 480).

(4)  Where evidence is, nonetheless, not admissible to supplement or support those facts in the pleading, it is admissible as to any agreement as alleged or in relation to the issues in the action (Smith v Buchan; Young v Thomas; Holmes v Shaw (1885) 52 L.T. 797).

(5)  On the true construction of the rule (O 19 r 7), the court is not bound to give judgment for the plaintiff, even though the statement of claim may on the face of it look perfectly clear, if it should see any reason to doubt whether injustice may not be done by giving judgment; it has a discretion to refuse to make the order asked for, and it may refuse judgment at this stage (Charles v Shepherd [1982] 2 QB 622, 624 per Lord Esher MR; Wallersteiner v Moir [1974] 1 WLR 991).

(6)  Such a construction placed upon the rule includes where the application is not limited to Other Claims under rule 7, but also covers claims for liquidated demands and, indeed, claims under rule 2 to rule 6 (Charles v Shepherd per Bowen LJ). 

(7)  It is the duty of a judge, when an action comes before him by summons for judgment in default of pleading, to look at everything the knowledge of which may enable him to do justice between the parties (Gibbings v Strong (1884) 26 Ch.D. 61).

(8)  Accordingly, the general rule cannot be rigidly applied where the judge has to exercise a discretion whether to grant the relief sought.  Further, if the judge is aware of matters relevant to the exercise of his discretion, he can seek an appropriate explanation before coming to any decision.  The appropriate costs of such an exercise would, if reasonably incurred, be accepted as allowable (Phonographic Performance Ltd v Maitra [1998] 1 WLR 870 per Lord Woolf MR).

(9)  The general approach given by the general rule may need modification in an appropriate case, if there is any feature that might require the court to consider evidence, rather than the plaintiff’s pleaded case, verified by a statement of claim and uncontradicted by the defendants.  The instances of circumstances which might require departure from the general rule are not exhaustive (Brett Wilson LLP v Person(s) Unknown [2016] 4 WLR 69).

66.  Hence, I do not find the approach to look at evidence as to ‘the issues in the action’ would be in any way inconsistent to the general principle (a rule of procedure) that the court shall look at the statement of claim alone to see whether the pleaded facts give rise to the relief sought.  If contradictory evidence is placed before the court, the court is not bound to shut its eyes to the material facts and enter judgment which it would afterwards set aside on proper grounds being shown (Gibbings v Strong). It remains at the court’s discretion to decide whether to give judgment as the plaintiff appears entitled to on his statement of claim (Charles v Shepherd). The court may depart from the general rule if there is any feature that might require the court to consider evidence (Brett Wilson LLP v Person(s) Unknown).

Proprietary claim

67.  The plaintiff asks for a declaration of trust in respect of the US$195,000, which they allegedly remitted by reason of the email fraud (namely, a constructive trust arising as the result of the fraud).

68.  I bear in mind what Hon Fok J (as he then was) said in Top One International (China) Property Group Company Ltd v Top One Property Group Ltd [2011] 1 HKLRD 606, at para 83,

“In the absence of a judgment reached after hearing evidence, a declaration could be based only on unproved allegations and the Court ought not to declare as fact that which might not have proved to be such, had the facts been investigated: Wallersteiner v Moir [1974] 1 WLR 991, p.1029 (Buckley LJ) and Patten v Burke Publishing Co Ltd [1991] 1 WLR 541, 544A (Millett J (as he then was)).”

69.  I find that it is not appropriate for the court to decide on this case without hearing evidence.  As pleaded by the plaintiff, the sum of money is the proceeds of fraud.  There is no sufficient information for the court to find fraud here.  It is not an ordinary type of monetary debt or mistake of payment without fraud.

70.  As I see it, this is a case which the court ought not to declare as fact that which might not have proved to be such, had the facts been investigated.  I am not satisfied that I should exercise my discretion in granting default judgment of the declaration sought.  The plaintiff shall prove its case with cogent evidence in the usual way at trial, not by way of default judgment.

71.  Further, notwithstanding the discrepancies I find on the background and the amount of the case, I have already mentioned that in the light of the possibility of mixing of funds in the BOC Account, the plaintiff cannot identify the US$195,000 in the account.  The plaintiff therefore fails on tracing.

72.  To obtain proprietary relief in relation to the fund transferred to the defendant’s account, the plaintiff must establish that fund can be identified by the tracing process as representing the original trust property (Milestones Electric, Inc v Meihoukang Trading Co Ltd).

73.  In the premises, at the hearing, I declined to make a declaration that the sum of US$195,000 was held by the defendant in the defendant’s account on a constructive trust for the plaintiff.  Hence, it was unnecessary for me to consider the plaintiff’s application for a vesting order. 

Monetary judgment

74.  The plaintiff contends that even if the court is not minded to grant any declaratory relief, there is no reason why the monetary judgment should not be entered for the instant case.  She says that the Statement of Claim itself looks fine (which I have reservations), default judgment has been applied for and services are good; thus, the plaintiff is entitled to the liquidated sum.

75.  I reserved my decision for money judgment at the hearing.  It was because I found that it might not be right to give money judgment when I had just refused to make any declaration that the sum beneficially belongs to the plaintiff.  The purpose of granting a declaration of trust in favour of the plaintiff was to put the plaintiff in a better position than other general creditors of the defendant and make it available for a vesting order.   But we have not reached that stage yet.  As I said, I have doubt as to the legitimate provenance of the money and whether the present case was indeed a genuine email fraud.  Although the plaintiff’s claims are framed in respect of constructive trust and money had and received, the claims are based on allegations of fraud (see: Pacific Electric Wire & Cable Co Ltd v Harmutty Ltd [2009] 3 HKLRD 94). 

76.  This is not a case like Wallersteiner v Moir where the declaration of fraud was sought against Dr Wallersteiner in respect of his conduct, and money judgment was sought for the benefit of Mr Moir and the minority shareholders of the company.  Those two heads of claim in that case were different and separate matters.  But in our present case, the declaration of trust and the money judgment are in respect of the same tranche of money.  The two claims are interlinked with one and the other.

77.  I consider (and the plaintiff’s counsel accepts) that if I were to give a proprietary judgment – namely a declaration of trust with a vesting order (which I collectively declined); or a money judgment with a subsequent garnishee order (if I were to allow distinctively) – then the end result would be the same in reality that the plaintiff would be able to withdraw the money from the defendant’s account without the burden of proving fraud.  This would render my decision in refusing the proprietary claim (declaration of trust) in vain.

78.  It seems to me that the question boils down to whether the court remains with any discretion when facing the claim for a liquidated sum.

79.  In fact, a similar contention had been made in Charles v Shepherd (English Court of Appeal) concerning the court’s power in considering money judgment.  In the case, the plaintiff claimed an account, and payment by the defendant of 4,462l.  There was a further claim for a sum of 194l., balance due from the defendant to the plaintiff for goods sold and delivered, and for money had and received.  The defendant made default in delivering his defence, and the plaintiff moved for judgment.  The court refused to give final judgment upon either branch of the claim, and made an order referring the whole claim to an official referee to ascertain the amount due.  The plaintiff appealed.

80.  At the appeal hearing, counsel for the plaintiff submitted that the court had no jurisdiction to send the whole claim to the official referee for inquiry and report, for the plaintiff was, at any rate, entitled to final judgment at least for the 194l., for which the defendant was liable had and received.  It was submitted that under rule 2 of Order XXVII [now O 19 r 2], if the claim was only for a liquidated demand, a plaintiff may enter final judgment if the defendant delivered no defence; under rule 6, he could enter final judgment for the liquidated sum and interlocutory judgment for the value of goods or for the damages.  And, under rule 11 [now O 19 r 7], there would be no reason why he should not be entitled to get final judgment for his liquidated sum because it happened to be joined to a claim for any account arising out of other matters.

81.  However, the English Court of Appeal (per Lord Esher MR) rejected such argument and held that the court was not bound to give judgment for the plaintiff if it should see any injustice might be caused.  I have quoted the relevant passage in my general approach (5) above and it is not necessary for me to repeat it here.

82.  Accordingly, I find that the court has discretion to refuse to give judgment even when facing a monetary claim.

83.  In view of all the discrepancies between the pleaded facts and the evidence, I consider that injustice would be caused to the defendant if I allow them to be taken as admitted.  Further, it is not an ordinary monetary claim where the defendant’s identity was clear with previous dealings between the plaintiff and the defendant.  In the present case, the defendant is a mere recipient account holder of the defrauded proceeds.  Purportedly, the plaintiff knows little or nothing about the defendant.  It appears to me that, in the special circumstances of this case and with regard to the unusual features elicited, the court is required to depart from the general rule to consider evidence.  Therefore, I am not going to give money judgment either.

84.  In addition to the above, for the very same reason I declined to grant declaration of trust for proprietary relief, I would also decline to give money judgment: As the amount pleaded in the Statement of Claim does not appear to be correct, the plaintiff has failed to establish that the defendant was enriched at the plaintiff’s expense.

85.  Further, whether the enrichment was unjust would depend on whether the plaintiff can prove its case of fraud against the defendant.

86.  In the circumstances, I am not satisfied that the plaintiff is entitled to the monetary judgment for the sum of US$195,000 on the basis of unjust enrichment.

87.  Perhaps I should add here, if I were to look at the pleading alone without referring to the evidence, I would also find that there is a deficiency in the pleading itself.  The plaintiff has never pleaded the Bank of China had received the fund at the BOC Account.  It was only pleaded that the plaintiff was subsequently informed by the FBI and the Hong Kong Police that the sum was still being held in the BOC Account.  Deemed admission of fact as to what the FBI and the police said in respect of the sum held in the BOC Account is irrelevant for the present purposes.  There was still no plea of BOC’s confirmation that the US$195,000 was received in the BOC Account.  Therefore, on the face of the Statement of Claim, it does not appear that the plaintiff is entitled to the relief sought.

Procedural fairness

88.  Originally, the plaintiff could have applied to enter judgment for the liquidated sum by means of the administrative process (subject to the Registrar’s power to raise requisitions) under O 13 r 1.  The monetary claim happened to join with other relief claimed and came before this court.  Incidentally, contradictory evidence has been placed before the court.  I doubt that the plaintiff can simply go back to the Registrar to pursue money judgment under the administrative process, given my decision handed down today.

89.  I have carefully considered the procedural fairness initially available to the plaintiff under the regime of default judgment.  I have considered that where justice would not be undermined, the court should give effect to the underlying objectives of the RDC to ensure the case can be dealt with as expeditiously as is reasonably practicable (see Order 1A rules 1 & 2).  I also take into account that the contradictory evidence was provided by the plaintiff voluntarily in support of its application.

90.  Having considered all the circumstances of this case, I think a second attempt by the plaintiff for default judgment application for the money judgment should be allowed, in dispense with their need to go for a trial for a money judgment, if the plaintiff can amend its Statement of Claim to clear its deficiencies or any ambiguities, and provide the following evidence in relation to the issues in the action:-

(1)  The correct Payment Details Report, which shows the remittance of the US$195,000 had been completed, or a bank statement showing the amount of US$195,000 had been successfully remitted; and

(2)  A technical report (prepared by its Chief Technical Officer or any technical support services) in identifying when and how the company’s computer system was being hacked.

91.  I think it is fair to dispose of the matter in this way.

Conclusion

92.  For the aforesaid reasons, I am not satisfied that it is appropriate for the plaintiff to obtain default judgment for declarations at this stage.  The plaintiff needs to prove its case in the usual way by evidence at trial.  Paragraphs 1a, 2, 3 of the Summons for declarations and a vesting order are dismissed. 

93.  As to paragraphs 1b and 1c for the monetary sum and interest, I order the application to stand over for 30 days for the plaintiff to file a further affidavit in support with liberty to apply; failing which the Summons be dismissed with no order as to costs. 

94.  Lastly, it remains for me to thank Ms Ng for her assistance.