TAI CHING LING v. CAI GUO CHUAN

HCA 1782/2018

[2019] HKCFI 2251

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1782 OF 2018

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REASONS FOR JUDGMENT

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1.  The plaintiff (“P”) was a retiree living in Taipei, Taiwan. The defendant (“D”) was the holder of bank account no 01xxxxxxxxxx12 (“Account”) with the Bank of China (Hong Kong) Limited (“BOC”) and gave an address in Fukien Province, Mainland China. P claimed she did not know and had no dealings with D, and she was the victim of a telephone scam.

2.  P claimed that on 25 May 2018, P received a telephone call from the alleged fraudster who claimed to be an investigation officer of the Taiwanese authorities and who told her that her bank account at Taoyuan, Taipei was implicated in a commercial fraud which led to the freezing of all her bank accounts. P was asked to provide her personal data and to transfer 80% of the funds in her bank account with Chinatrust Commercial Bank Ltd (“P’s Account”) into a designated bank account to facilitate investigation. Later that day, P received by fax a “summons” with her personal particulars purportedly issued by a Taipei court. Still later that day, P received a telephone call from the alleged fraudster who claimed to be a prosecutor and who provided details of the designated account (ie the Account) including the name of the holder and the account number. P claimed that in the afternoon on the same day and believing what she was told by the alleged fraudster, she transferred US$520,000 from P’s Account to the Account (“Sum”).

3.  Upon liaison with her banker that evening, P realised she was a victim of telephone fraud and made a report to the police in Taiwan. On the following day, P came to Hong Kong to make a report to the local police. On 27 June 2018, the police in Taiwan informed P that the Hong Kong police “blocked” the Sum. On 11 July 2018, P’s solicitors requested BOC to return the Sum. On 17 July 2018, BOC confirmed the Sum remained in the Account but would not return the same to P without court order. On 23 July 2018, P’s solicitors made enquiries with the police to seek D’s particulars to commence legal proceedings.

4.  On 1 August 2018, upon P’s application as supported by P’s affirmation dated 1 August 2018 but filed on 31 October 2018, Yau J granted a Mareva and proprietary injunction restraining D from disposing of or dealing with the Sum (“Ex Parte Order”). On the same day, P obtained leave from Yau J to serve process on D out of jurisdiction in Mainland China. On 6 August 2018, P issued an inte partes summons for continuation of the Ex Parte Order.

5.  On 2 November 2018, DHCJ To continued the Ex Parte Order until 1 February 2019.

6.  On 5 December 2018, P filed her Statement of Claim.

7.  On 1 February 2019, I further continued the Ex Parte Order (as continued by DHCJ To on 2 November 2018) until final judgment or other order of the court.

8.  The Concurrent Writ of Summons, the Ex Parte Order, P’s inter partes summons filed on 6 August 2018, P’s skeleton submissions for the application before Yau J and the Statement of Claim were served on D in Mainland China.

9.  D did not file any acknowledgment of service or any defence.

10.  The reliefs sought in the Statement of Claim was for (a) a declaration that at all material times D held the Sum and any interest accrued and profits earned (if any) thereon on trust for and on behalf of P, (b) an order to restrain D by himself, his servants/agents or otherwise from disposing of or dealing with the Sum, (c) an order that the Registrar of the High Court to execute all necessary documents for transfer of the Sum to a bank account designated by P and to take all necessary steps to effect such transfer, (d) alternatively to (c) above, an order that D do pay or transfer the Sum to P, (e) further alternatively to (c)-(d) above, an order for damages to be assessed, and (f) interest and costs.

11.  On 13 March 2019, P filed a summons (“Summons”), and such Summons was served on D out of jurisdiction. Copies of the Writ of Summons, the Statement of Claim and the Summons were served on BOC. On 3 June 2019, BOC’s solicitors filed Notice to Act.

12.  By the Summons, P applied for (a) default judgment against D under Order 19 rule 7 of the Rules of the High Court, (b) leave to joint BOC as a respondent in these proceedings, and (c) vesting order pursuant to section 52(1)(e) of the Trustee Ordinance Cap 29 in respect of the Sum and consequently an order directing BOC to pay the Sum into an account designated by P.

13.  The hearing of the Summons came before me on 4 September 2019. D did not appear in the action or at the hearing.

14.  The application by the Summons was for judgment in default of defence. In respect of such application, the court cannot receive evidence, but must give judgment according to the pleadings alone (see Hong Kong Civil Procedure 2019 Vol 1 para 19/7/11 at p 514).

15.  In my view, the Statement of Claim set out a viable claim based on fraud, and it was uncontested by D. As regards the proprietary constructive trust claim, Ms Pang, counsel for P, referred to the well-established principle that when property is obtained by fraud, equity imposes a constructive trust on the fraudulent recipient, so that money is recoverable and traceable in equity.[1]

16.  D must have knowledge of the fraud as the Writ of Summons, the Ex Parte Order and the Summons had been served on him. But to date D had not made any attempt to repay the Sum. I find it was unconscionable for D to retain the Sum since (a) there were no dealings between P and D, and (b) there did not appear to be any legitimate reason for D to receive the Sum from P. In the circumstances, I hold that D held the Sum on trust for P who was entitled to recover the Sum.

17.  As regards P’s claim for declaratory relief by summary determination, the relevant principles are set out in paragraphs 13-20 of my judgment in Law Yuk Fong v Man Chung Wai & anor,[2] which I will adopt but not repeat here. I find there was a genuine need for the declaratory relief sought. As Ms Pang pointed out, a mere order requiring D to return the Sum to P would put the position of P as an unsecured creditor. But in light of my conclusions in the above paragraph, a declaration of trust would recognise P’s proprietary interest in the Sum, so P would not have to face risk of competition by D’s other unsecured creditors. Similar declaration of trust had been granted in the cases cited in footnote 1 above.

18.  Turning to P’s application for a vesting order, section 52 of the Trustee Ordinance Cap 29 provides as follows:

“(1) In the following cases, namely –

......

(e) where stock or a thing in action is vested in a trustee whether by way of mortgage or otherwise and it appears to the court to be expedient,

The court may make an order vesting the right to transfer or call for a transfer of stock, or to receive the dividends or income thereof, or to sue for or recover the thing in action, in any such person as the court may appoint ......

......

(5) the court may make declarations and give directions concerning the manner in which the right to transfer any stock or thing in action vested under the provisions of this Ordinance is to be exercised.

......”

19.  The court may make a vesting order as to trust property where it is impossible or difficult to deal with the property without such an order.[3] Since D’s last known address was outside the Hong Kong jurisdiction, and he had not (a) taken any steps to transfer the Sum to P and/or (b) acknowledged service or appeared in the present proceedings, it would be difficult if not impossible to deal with the property in question, ie the Sum. Further, BOC (given its banker-customer relationship with D) understandably required the protection of a court order to deal with or release the Sum from the Account. I hold there was sufficient basis for grant of a vesting order, and note that vesting orders had been granted in other cases in similar circumstances.[4]

20.  To give effect to such vesting order, it is appropriate to grant P’s application to join BOC as a respondent in the present action. Ms Pang informed the court that P would not seek the reliefs in paragraph 10(c) or 10(d) above if the court were mind to grant a vesting order in her favour.

21.  By a letter dated 21 August 2019 by its solicitors, BOC indicated it would adopt a neutral stance to the Summons, and if so ordered by the court it would comply with the proposed vesting order.

22.  In the circumstances, at the hearing of the Summons, I granted an order in terms of paragraph 1(1)-(2) and (5) and paragraph 2 of the Summons.

23.  As regards paragraph 3 of the Summons, I am not persuaded that I should grant any time limit for BOC to transfer the Sum and interest accrued thereon to P’s designated account. There was no evidence before me that BOC could effect such transfer within 7 days to P’s designated account, especially given the designated account was sited in Taipei, Taiwan and not in Hong Kong. As Recorder Manzoni SC explained in Skandinaviska Enskilda Banken SA v Hongkong Liling Trading Limited & anor,[5] a reputable bank in Hong Kong is expected to comply with a court order, and there is clear avenue for the parties to seek further directions from the court if there is any significant delay. Further, I am not persuaded BOC should be asked to transfer any profits earned in respect of the Sum. For one thing, the Sum was frozen by the Hong Kong police at an early stage. For another, there was no evidence that BOC had any knowledge about any profits earned in respect of the Sum to enable it to properly comply with the vesting order to be made. At the hearing of the Summons, Ms Pang confirmed that P would not seek transfer of such profits (if any). Thus, at the hearing of the Summons, I granted an order in terms of paragraph 3 of the Summons with adjustments to reflect the above 2 points.

24.  As apparent from the letter dated 22 August 2019 by P’s solicitors, P and BOC came to agreement for P to pay BOC’s costs in the sum of $20,000, and I make an order accordingly.

25.  P sought costs of and occasioned by this action against D and asked for summary assessment. However, P had not yet lodged or served any statement of costs. In the end, Ms Pang asked for and I granted an order that D shall pay P’s costs of the action including costs of the Summons (including all costs reserved, if any) to be taxed if not agreed.