HEUFT LTD v. YUN TONGDA ELECTRONIC COMMERCE LTD

HCA 1066/2019

[2019] HKCFI 2798

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1066 OF 2019

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DECISION

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Introduction

1.  By a summons filed on 26 August 2019 (“the Summons”), the Defendant (“D”) applied for an order setting aside the default judgment dated 22 July 2019 (“the Judgment”) in favour of the Plaintiff (“P”), and for costs to be provided for. 

2.  I heard the Summons substantively today.  My decision is to (1) dismiss the Summons; and (2) order D to pay the costs of the Summons including all costs reserved, summarily assessed by me with Certificate for Counsel at HKD 300,000 to P, forthwith (“the Decision”). 

3.  My reasons for the Decision are as follows. 

Background Facts

4.  P was a victim of email fraud.  Its loss was EUR 195,300 (ie approximately HKD 1,684,640) (“the Sum”).  Relying upon information provided by Hang Seng Bank pursuant to a court order granted in a related action, P traced the Sum to a Bank of China account in the name of D. 

5.  On the basis of the above, P commenced this action against D, alleging, inter alia, constructive trust, unjust enrichment and/or money had and received.  P effected regular service of the Writ on D.  D never filed any acknowledgment of service.  P entered the Judgment against D on 22 July 2019 accordingly. 

6.  On 26 August 2019, D filed the Affirmation of Zhai Shiwei (“D’s Affirmation in Support”) which said, inter alia, the following: -

(1)  Shortly before 20 February 2019, one Mr Attarian (no given name) just walked into D’s office in Mainland China and gave D his name card.  The name card bore the name and address of P.  D had never met or dealt with this Mr Attarian before but started doing business with him anyways.  Apparently, D asked no question. 

(2)  After “some face-to-face discussions and negotiations” (no particulars whatsoever) D agreed to sell some “hoverboards” (“the Goods”) worth EUR 651,000 (ie approximately HKD 5,622,787) to P via this Mr Attarian. 

(3)  The sale of the Goods was evidenced by a 2-page agreement (“the 2-Page Agreement”) dated 20 February 2019 where the “buyer” was stated to be P (but it did not state any billing or delivery address, telephone or fax number, email address, or even any contact person’s name).  A deposit – the Sum – was demanded by D. 

(4)  On 27 February 2019, D received a sum of EUR 195,273.27 in its bank account.  D believed the same to be the aforesaid deposit. 

(5)  Upon the above, D placed an order for the production of the Goods with a Mainland Chinese factory (“the Factory”). 

(6)  The above was evidenced by a 9-page contract (“the Factory Contract”). 

(7)  D lost contact with “Mr Attarian” completely but honoured the Factory Contract.  D had paid the Factory around RMB 3,491,125.90 (ie approximately HKD 3,897,310). 

(8)  D was “a bona fide purchaser for value without notice”, was not in any way involved in the fraud against P, had no actual or constructive notice of P’s claim, could not have been liable to P, and had a real prospect of succeeding in its defence. 

D’s Submissions

7.  Mr Ken T C Lee, Counsel for D, submits, inter alia, that: -

(1)  On the authority of BCCI v Akindele [2001] Ch 437, P could only establish liability in knowing receipt if it could establish that D’s receipt of money was “unconscionable”, and there is no such evidence in our present case; and

(2)  On the authority of Lewin on Trusts (19^th Edition, 2015), if it can be shown D was a bona fide purchaser for value without notice, D would have a defence.  Since D was plainly a bona fide purchaser for value without notice, the Judgment should be set aside. 

P’s Submissions

8.  Mr Ernest Ng, Counsel for P, submits, inter alia, that: -

(1)  The contents of D’s Affirmation in Support are so inherently improbable and incapable of being believed there is no factual or evidential basis for D to establish any arguable defence. 

(2)  On the recent authority of Galleria (Hong Kong) Ltd v DBS Bank Ltd, Hong Kong Branch [2019] HKCFI 2877, even if D had no “actual knowledge” of the fraud, it would have “blind-eye knowledge” of the fraud, so D’s arguments are wrong. 

My View

9.  I agree with P’s submissions in their entirety.

10.  First of all, the entire story put forward by D is so obviously moonshine it should be summarily rejected as incapable of being believed.  Why, one may ask, would any lawful business sell HKD 5.6 million worth of goods to a complete stranger with just a surname (and no given name) and then document this HKD 5.6 million sale without stating the buyer’s billing or delivery address, telephone or fax number, and/or email address?  Why would this complete stranger have walked into D’s Mainland Chinese office (instead of over a billion other offices in the world) with a HKD 5.6 million deal completely out of the blue in the first place?  To which corner of the world were the Goods supposed to be sent, and what was the agreed mode of shipment?  D had a full opportunity to explain these (amongst numerous other) oddities by affidavit but chose not to do so.  The alleged transactions appear to me to be obviously false.  On this ground alone, the Summons must be dismissed. 

11.  Secondly, even if “Mr Attarian” existedand D’s factual story had some truth in it (which I do not accept), D would not in law be a bona fide purchaser for value without notice.  For a start, both the possibility and the probability of impropriety and fraud would be so obvious to D or a reasonable person in D’s position D would in law be fixed with notice and/or knowledge of fraud and/or P’s proprietary claim, as D would have willfully shut his eyes to the obvious, or recklessly failed to make all such inquiries as would have been made by an honest and reasonable man which would in turn have revealed the probable existence of P’s propriety rights.  See, eg, Loandepot.com LLC v Yingcai Tech Ltd & Others [2018] HKCFI 2172 paragraphs 183 to 186 per L Chan J, or BR CAT International Co Ltd v Hongkong Proof Import and Expert Trading Co Ltd & Others (unrep., HCA 1023/2014, 22 September 2017, paragraphs 23 to 26, per B Chu J). 

12.  Thirdly, even if “Mr Attarian” existedand D’s factual story had some truth in it (which I do not accept), I would still have held there was knowing receipt on the part of D for all of the other reasons submitted by Mr Ng, which I gratefully adopt.  With respect, D’s arguments simply have no prospect of success. 

13.  For all of the above reasons, the Summons must be dismissed.  

14.  For the avoidance of doubt, as the Summons is dismissed, the related stay of execution summons (sensibly and expressly abandoned by Mr Lee on behalf of D) must also be dismissed, and the Garnishee Order in this action should be made absolute. 

Costs

15.  Costs should follow the event.  P was the winner.  Costs of the Summons should be paid by D to P forthwith. 

16.  On the question of Certificate for Counsel, in my judgment it was reasonable, necessary and proper for both sides to engage Counsel to argue the Summons.  Both Counsel had been helpful to this Court.  I do certify their attendance as necessary. 

17.  On the quantum of costs, P claims a total of HKD 318,900.50.  Pursuant to paragraphs 13 & 14 of Practice Direction 14.3, I examined each item in P’s Statement of Costs, and also the final figure. 

18.  I should only allow HKD 1,700 for Item D10, as this hearing did not last 3 hours as originally anticipated.  Items C3, C5 and D1 to D9 are slightly excessive.  I would disallow HKD 15,500.50 for these. All other sums claimed are reasonable, necessary and proper. 

19.  Taking a broad-brush approach in assessing quantum of costs, I consider a total figure of HKD 300,000 to be fair and reasonable. 

Final Remarks

20.  I do thank both Counsel for their most able assistance.