THE WALSHE GROUP LTD v. HK JX SCIENCE TECHNOLOGY LTD

DCCJ4555/2017

[2018] HKDC 162

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4555 OF 2017

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REASONS FOR DECISION

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Introduction

1.  This is the plaintiff’s application by summons dated 1 December 2017 (the “Summons”) for default judgment pursuant to Order 19, rule 7 of the Rules of District Court (the “RDC”).

2.  The Statement of Claim was issued on 13 October 2017 (the “SOC”).  The plaintiff’s case in essence is that as a result of a fraud committed by the defendant, it transferred a sum of US$76,358.17 (the “Sum”) to the defendant’s account maintained at Hang Seng Bank, account no. 808-123699-838 (the “Hang Seng Account”).  The plaintiff claims the following reliefs in the Summons:-

(1)   A declaration that the Sum transferred by the plaintiff to the Hang Seng Account is held by the defendant under a constructive trust for the plaintiff (paragraph 1).

(2)   The Sum held by the defendant in the Hang Seng Account be returned to the plaintiff forthwith as money had and received by the defendant to the use of the plaintiff[1] together with interest thereon from 13 October 2017 to the date of the order to be made herein at the rate of base rate plus 1 per cent per annum and thereafter at judgment rate until payment (paragraph 2).

(3)   Until execution of the order set out in the preceding paragraph or any further order of the Court, the Sum to remain in the Hang Seng Account (paragraph 3).

Procedural steps taken

3.  By an affirmation of service dated 27 October 2017, the plaintiff’s process server confirmed that it served a sealed copy of the Writ of Summons on the defendant by leaving the same at Unit D, 16^th Floor, One Capital Place, 18 Luard Road, Wan Chai, Hong Kong, being the registered office of the defendant.  

4.  By an affirmation of service dated 30 January 2018, the plaintiff’s process server confirmed that on 1 December 2017 he served a copy of the Summons by leaving the same at the same address referred to above.   

5.  I am satisfied that the Writ endorsed with the Statement of Claim was duly served on the defendant.  The defendant failed to serve a defence, and accordingly the plaintiff is entitled to apply to the Court for judgment against the defendants pursuant to O.19, r.7 RDC.      

Grant of declaration without trial: applicable principles

6.  It is trite that in default judgment applications under Order 19, rule 7 of the RDC, 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 (CA) at 136 per Lindley LJ; Hong Kong Civil Procedure 2018, Vol.1, §19/7/11.      

7.  With respect to the grant of declaration without a trial, the normal practice of the court is stated in §19/7/20 of the Hong Kong Civil Procedure 2018, Vol.1.  The relevant principles may be summarised as follows:

(1)   It is not the normal practice of the court to make a declaration without a trial: Wallersteiner v. Moir (No. 1) [1974] 1 WLR 991 at 1029A-B per Buckley LJ; Top One International (China) Property Group Company Ltd v. Top One Property Group Ltd [2011] 1 HKLRD 606 at §§83 and 85 per Fok J (as he then was); Tsui Ming Sin v. Tsui Chi Ping & Anor., HCA 2550/2014 (2 February 2016, unreported) at §§13-15 per DHCJ Kenneth Kwok SC; Leung Pak Ki v. The Estate of Pang Kau, deceased & Anor., HCA 624/2009 (1 March 2016, unreported) at §6 per DHCJ Paul Lam SC. 

(2)   However, this is only a rule of practice which should not be followed when the plaintiff had a genuine need for the declaratory relief and justice would not be done if such relief were denied: Lam Shing Shou v. Lam Hon Man & Others, HCA 361/2001 (15 January 2002, unreported) at §13 per Chu J (as she then was); Lai Wai Kuen v. Wong Shau Kwong, HCA 3424/2003 (12 November 2004, unreported) at §6 per Lam J (as he then was).

(3)   Where declaratory relief is sought, the court will scrutinize the application for default judgment carefully and does not hastily grant the relief sought: Chau Yan Chi Catherine v. The Incorporated Owners of Fung Wah Factorial Building, DCCJ 1459/2014 (22 July 2014, unreported) at §14 per HH Judge Andrew Li; Chan Wing Go v. The Incorporated Owners of Wing Hong Factory Building, DCCJ 1736/2014 (9 October 2014, unreported) at §20 per DDJ Amy Chan.

(4)   Where declaratory relief is sought, the court expects maximum assistance to be provided in order for the relief to be granted.  However straightforward this kind of applications may seem, the court cannot be expected to deal with the matter on a do-it-yourself basis and rubber- stamp the uncontested application without further ado: Ho Kwai Chun v. Lai Yu, DCCJ 916/2013 (3 July 2014, unreported) at §25 per HH Judge Kent Yee; Shue Huei Yue v. Tan Chung Meng, DCCJ 2294/2013 (1 August 2014, unreported) at §24 per DDJ J. Chow.

(5)   The declaratory reliefs to be granted should not be in terms wider than what the plaintiffs are entitled to and what is necessary to do justice between them: Lee Kwok Leung v. Li Foa Shang, DCCJ 2165/2014 (10 April 2015, unreported) at §16 per HH Judge Alex Lee.          

8.  It is with these principles in mind that I now turn to deal with the application for default judgment. 

Discussion

9.  In my judgment, looking at the SOC alone, the plaintiff has proved that it transferred the Sum to the Hang Seng Account as a result of a fraud committed by the defendant.  It is the plaintiff’s pleaded case that:-

(1)   The plaintiff is the Hong Kong branch of its parent company, which is a company based in Sydney, Australia (the “Parent Company”).  (SOC, §1)

(2)   On 29 May 2017, the Financial Controller of the Parent Company received an email sent by a person purporting to be the Managing Director of the Parent Company.  The email directed the said Financial Controller to transfer the Sum to the Hang Seng Account.  The Hang Seng Account is and was at all material times held by the defendant.  (SOC, §§2 and 4)

(3)   Upon receipt of the email, the Financial Controller immediately arranged transfer of the Sum from the plaintiff’s HSBC bank account (account no. 808-123699-838) to the defendant’s Hang Seng Account.  The transfer was completed at or around 8:50 a.m. (Hong Kong time) on 29 May 2017.  (SOC, §5)

(4)   It was later discovered by the plaintiff that the email had not been sent by the Managing Director of the Parent Company.  The plaintiff then filed a report with the Hong Kong Police Force on 24 May 2017.  The police was and is carrying out an investigation in this matter, the plaintiff has been informed by the police that the Sum in the Hang Seng Account has been held by the Hang Seng Bank upon the police’s request.  (SOC, §§6-8)

10.  Therefore, the plaintiff has shown that it transferred the Sum to the Hang Seng Account as a result of a fraud committed by the defendant.  In Westdeutsche Landesbank Girozentrale v. Islington London Borough Council [1996] AC 667 Lord Browne-Wilkinson said at p.716:

“I agree that the stolen moneys are traceable in equity. But the proprietary interest which equity is enforcing in such circumstances arises under a constructive trust, not a resulting trust. Although it is difficult to find clear authority for the proposition, when property is obtained by fraud equity imposes a constructive trust on the fraudulent recipient: the property is recoverable and traceable in equity …”

11.  In Michael Chen Kang Huang & Another v. Peter Lit Ma, HCA 218/2005 (unreported, 10 July 2009), Sakhrani J applied this principle and held (at §56) that where a sum of money was obtained by fraud, a constructive trust is imposed on the defendant and the property is recoverable and can be traced.

12.  In the present case it is my view that the plaintiff has a genuine need for the declaratory relief and justice would not be done if such relief were denied because without the declaration Hang Seng Bank would not be in a position to know to whom the Sum belongs.  

Order

13.  By reason of the matters aforesaid, I make a declaration in terms of paragraph 1 of the Summons, i.e. a declaration that the money transferred by the plaintiff to the defendant’s Hang Seng Account (account no. 808-123699-838) in the sum of US$76,358.17 is held by the defendant under a constructive trust for the plaintiff.  I also make the following order:-

(1)   The sum of US$76,358.17 held by the defendant in the Hang Seng Account be returned to the plaintiff forthwith as money had and received by the defendant to the use of the plaintiff;

(2)   Until execution of the order set out in the preceding paragraph or any further order of the Court, the sum of US$76,358.17 to remain in the Hang Seng Account; and

(3)   Interest pursuant to sections 49 and 50 of the District Court Ordinance (Cap 336).

14.  Costs of the action and of the application be summarily assessed at HK$21,000.00.