PETER SHOIKHET AND ANOTHER v. CHEN GUOQIANG

DCCJ 5820/2021

[2022] HKDC 369

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 5820 OF 2021

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BETWEEN

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JUDGMENT

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1.  This is an email fraud case.

2.  The plaintiffs now apply by summons dated 18 February 2022 under Order 19 rule 7 of the Rules of the District Court for default judgment upon the defendant’s default to give Notice of Intention to Defend and to serve a Defence.

3.  On 22 December 2021, the plaintiffs issued the Writ herein. On the same day, they applied ex-parte on notice before HHJ MK Liu and obtained a Mareva Injunction against the defendant.

4.  On the same occasion, the learned judge also made an order for substituted service, namely that the Writ herein may be served by emailing the same to the email address “elsie4732hit@gmail.com” and by advertising a notice once in the South China Morning Post, and further, that other court documents in this action may be served on the defendant by emailing the same to the same email address and that such would be good and sufficient service of the same on the defendant.

5.  The Writ and the other documents have been so served. The defendant has not filed in time, or at all, an Acknowledgment of Service with a Notice of Intention to Defend. The Statement of Claim herein was served by such substituted service on 18 January 2022. The defendant did not file and serve a Defence in time or at all.

6.  I am satisfied that there were such defaults entitling the plaintiffs to apply for default judgment pursuant to O19 r7.

7.  The defendant is absent in this hearing. I am satisfied that the plaintiffs’ summons has also been duly served according to the mode of substituted service on the defendant who therefore had notice of this hearing but has chosen not to appear to contest. I will therefore proceed in his absence.

8.  It is trite that upon such an application for default judgment, the court shall give judgment as the plaintiff appears entitled to on his statement of claim without admitting any evidence; though the court retains its discretionary power whether to give judgment or, say, to extend time when it is just to do so.

The plaintiffs’ pleaded case

9.  The 1^st and 2^nd plaintiffs are a married couple. They reside in San Diego, USA. They hold a joint bank account with Wells Fargo Bank with account number 7167153043 (“Ps’ Joint Account”). The 1^st plaintiff was at the material time 70 years old.

10.  It is pleaded that the following fraud was perpetrated against the plaintiffs, which I will set out only in gist.

11.  On 10 November 2021, the 1^st plaintiff read 2 emails received the day before. They respectively were sent from the email address “elsie4732hit@gmail.com” and “emilyloo8394@gmail.com” (“the Fraudulent Emails”) and respectively said that “Computer Protection” and “Norton Protection” had been successfully renewed and updated, and that respectively US$499.96 for “Norton 360 PC Protection” and US$335.99 for “Norton protection auto-renewal” were invoiced.

12.  Believing that the Fraudulent Emails were sent from the well-known brand of computer protection software of “Norton” and not having subscribed to their software, the 1^st plaintiff made a phone call to the telephone number of “the billing department” given in the Fraudulent Emails and talked to a man who held himself out as “Harry”. Under the pretext of proceeding with the re-crediting/refunding process, Harry persuaded the 1^st plaintiff to input a sum of US$135 into a window Harry had opened in the 1^st plaintiff’s computer screen. Upon such input by the 1^st plaintiff, Harry exclaimed and yelled at the 1^st plaintiff, saying that he had inputted, and thus caused the refund of, US$135,000. Harry then threatened to report the matter to the authorities and to freeze the 1^st plaintiff’s business account unless the 1^st plaintiff wired back US$134,400.

13.  On the same day and following Harry’s instructions, the 1^st plaintiff wired from Ps’ Joint Account US$134,400 (“the Sum”) to the defendant’s account held with CMB Wing Lung Bank numbered 020-620-500-5247-6 (“the Bank” and “D’s Account”).

14.  In fact, the Fraudulent Emails were not sent from the real Norton, the statements therein (save the telephone numbers) were all false and untrue, all the statements made by Harry were false, particularly the statement that US$135,000 was refunded to the 1^st plaintiff, and that such refund was caused by the 1^st plaintiff’s mistake in inputting an incorrect figure. The Fraudulent Emails, Harry’s false statements and conducts were all part of a fraud perpetrated on the 1^st plaintiff (“the Fraud”).

15.  Later that day, the 1^st plaintiff realized that he had been defrauded and tried to, but could not, recall the said wired transfer of the Sum. Within the next 2 days, the 1^st plaintiff reported the Fraud to the San Diego Police Department, the FBI and the Hong Kong Police.

16.  On 6 December 2021, the Hong Kong Police informed the 1^st plaintiff that US$128,000 sitting in D’s Account was temporarily frozen.

17.  The plaintiffs did not know the defendant, never had any dealings of any kind with him, and the defendant did not give any consideration for the receipt of the Sum. The defendant therefore was unjustly enriched to the extent of the Sum and is liable to repay the plaintiffs the same.

18.  Notably, in the Statement of Claim, apart from the usual reliefs for repayment of the Sum by the defendant and a declaration that the defendant holds the same on constructive trust for the plaintiffs, the plaintiffs also expressly seek an order that the defendant executes such documents to instruct the Bank to transfer the Sum to Ps’ Joint Account, and for that purpose, an order under section 38A of the District Court Ordinance.

Entitlement to the orders sought

19.  I have considered the contents of the Statement of Claim. The pleaded facts and matters clearly support the plaintiffs’ case that they fell victims to a fraudulent scheme perpetrated through the Fraudulent Emails and then by the person identifying himself as Harry; and that they have thereby been defrauded of the Sum.

20.  The pleaded facts establish that the Sum was transferred into D’s Account under the Fraud, and therefore was transferred under a mistake of fact, without the plaintiffs ever intending the defendant to have it, and without any consideration given by the defendant. The defendant was thus unjustly enriched and is liable to repay the same to the plaintiffs.

21.  I am also satisfied that a constructive trust attaches to the Sum in favour of the plaintiffs. It is now well-established that when property is obtained by fraud, equity imposes a constructive trust so that the property is recoverable and traceable in equity (Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669, at 716; Mesirow Financial Administrative Corporation v Best Link Industrial Co, Limited HCMP 1846/2015, 25 January 2016, Recorder Lisa Wong SC (as she then was); Guaranty Bank And Trust Company v Zzzik Inc Limited HCA 1139/2016 unrep., 18 July 2016, DHCJ Cooney SC). The plaintiffs are therefore entitled to relief based on its proprietary interest in the Sum.

22.  Regarding the declaratory relief, it is not a normal practice to grant a declaration without a trial. However, it is only a rule of practice and not a rule of law, and it is now established that the practice would not be followed where the plaintiff has a genuine need for declaratory relief and where full justice would not be done if such relief is denied. In email fraud cases where a proprietary claim was asserted, the court has granted declaratory relief in the default judgment context in order to secure the plaintiff’s proprietary claim (§19/7/20 Hong Kong Civil Procedure 2022). I am satisfied in this case that it is appropriate to exercise my discretion in favour of granting the declaration along with the money judgment.

23.  As have mentioned, the plaintiffs here also claim as a relief an order that the defendant do execute such documents instructing the Bank to return the Sum (or such remaining part) to the plaintiffs and also for an order under section 38A of the District Court Ordinance.

24.  That section provides:-

“38A. Execution of instruments by order of the Court

(1) Subsection (2) applies where—

(a) the Court has given or made a judgment or order directing a person to—

(i) execute any conveyance, contract or other document; or

(ii) endorse any negotiable instrument; and

(b) that person—

(i) neglects or refuses to comply with the judgment or order; or

(ii) cannot, after reasonable inquiry, be found.

(2) The Court may, on such terms and conditions, if any, as may be just, order that the conveyance, contract or other document is to be executed, or that the negotiable instrument is to be endorsed, by such person as the Court may nominate for that purpose.

(3) A conveyance, contract, document or instrument executed or endorsed in accordance with subsection (2) has the same effect as if it had been executed or endorsed by the person originally directed to execute or endorse it.

(4) Nothing in this section abridges the powers of the Court to proceed by attachment against any person neglecting or refusing to execute or endorse any such instrument.”

25.  In Tokic DOO v Hongkong Shui Fat Trading Ltd [2020] 4 HKLRD 189, which also concerned an application for default judgment in an email fraud case, Deputy High Court Judge Douglas Lam SC, after concluding that a vesting order pursuant to section 52 of the Trustee Ordinance was not available, observed that “there is an additional route that may provide a more expedient remedy, especially in cases such as the present where the defendants are unlikely to respond or comply with any order of the court” in that the court could make an order under section 25A of the High Court Ordinance. The learned judge then ordered that there be liberty for the plaintiff to obtain an order under that section if the defendants failed to comply within 7 days with the order to execute such documents as might reasonably be required to instruct the bank to transfer to the plaintiff the sums in question.

26.  Section 38A of the District Court Ordinance is essentially pari materia with section 25A of the High Court Ordinance.

27.  In Quessglobal (Malaysia) SDN. BHD. v Sen Xin Ju Technology Trading Limited (DCCJ 1221/2020, unrep., 30 November 2020), which was also an application for default judgment in an email fraud case, Deputy District Judge Philips Wong followed Tokic DOO and granted an order under section 38A.

28.  Given that the defendant now holds the Sum under a constructive trust and is ordered to pay the same over to the plaintiff beneficiaries, it is in my view appropriate to accede to the plaintiffs’ claim to also order the defendant to execute such documents as might reasonably be required to instruct the Bank to transfer the balance of the Sum now sitting in D’s Account (and such interest as indicated below) back to the plaintiffs (through their Hong Kong solicitors’ clients’ account), and to further order, in the event the defendant fails to execute such documents within 7 days after the service of the sealed judgment to him, that Mr Tse Nicky Sai Hang of the plaintiffs’ solicitors be nominated to execute such documents under the said section 38A to effect the said transfer. I do order.

29.  The plaintiffs seek the continuation of the Mareva Injunction granted by HHJ MK Liu for a period of 4 months up to 25 August 2022. The continuation is amply justified, and I so order.

30.  However, I would not award the plaintiffs interest on the Sum at HSBC prime rate plus 1% from 10 November 2021, as now asked by the plaintiffs. The claim against the defendant is essentially unjust enrichment, for having received the Sum without any justification. There is no specific allegation that the defendant himself has participated in any of the fraudulent acts. As US$128,000 has all along been sitting in D’s Account and there is no allegation that the US$128,000 was earning interests at prime rate plus 1%, and therefore that the defendant was thereby also enriched in the amount of such interests. I would thus only order (a) the defendant to pay over to the plaintiffs such interest that the Sum earned from the Bank while sitting in D’s Account, and (b) interest at prime rate plus 1% on the sum of US$6,400 (or its equivalent sum in Hong Kong dollar) from the date of the Writ until the date of this judgment, and then after at judgment rate until full payment.

31.  The plaintiffs ask that costs be paid by the defendant on an indemnity basis as this is a fraud case. However, as noted, the defendant is alleged to be unjustly enriched and there is no specific allegation that the defendant participated in any of the fraudulent acts. He has not entered appearance in this action, so there is no conduct of his to speak of that might affront this court. In my discretion I will therefore not order indemnity costs.

32.  In the premises, I enter judgment against the defendant in terms of the plaintiffs’ summons as revised as above mentioned. The costs of this action were summarily assessed at the conclusion of the hearing at the total sum of HK$120,000 to be paid by the defendant forthwith.