PROFOOD INTERNATIONAL CORP. v. KAI FAT FOOD CO., LTD

DCCJ 3621/2019

[2020] HKDC 645

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3621 OF 2019

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BETWEEN

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DECISION

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Overview

1.  By summons dated 5 November 2019 (“the Summons”), the plaintiff applies for summary judgment against the defendant for a sum of US$95,040 (“the Sum”) being the price of 8,640 kilograms of dried mangoes (“the Goods”) pursuant to Order 14 rule 1 of the Rules of the District Court.

2.  The Statement of Claim consists of the following principal allegations:

2.1. The plaintiff is a company incorporated in the Philippines. It manufactures and trades in dried food and other food products.

2.2. The defendant is local company dealing in dried food. It had dealt with the plaintiff since September 2013 and the plaintiff had been its supplier.

2.3. On 23 February 2016, the plaintiff and the defendant entered into a written contract by way of email correspondence and a pro-forma invoice (“the P’s Invoice”) whereby the plaintiff agreed with the defendant that it would ship to the defendant in China the Goods at the price of the like amount of the Sum and payment should be made before shipment (“the Agreement”).

2.4. The P’s Invoice is numbered No.16/0309 and was dated 23 February 2016. It was countersigned by the defendant on 24 February 2016.

2.5. In April 2016, Mr Lam of the defendant telephoned Mr Uy of the plaintiff that the defendant had made payment pursuant to the P’s Invoice. On that basis, the plaintiff delivered the Goods to the nominated shipping address of the defendant. 

2.6. Eventually, the defendant accepted the delivery of the Goods on 17 April 2016. Yet, the defendant has failed to pay the Sum to the plaintiff despite repeated demands and requests.

3.  The defendant filed its Defence dated 24 September 2019. In the Defence, it is disclosed that it received by email an invoice dated 23 February 2016 purportedly issued by the plaintiff (“the Questionable Invoice”) asking for payment of the Sum to a bank account in the name of Betita’s Enterprise (“BE”). The number of the bank account of BE is No. 001-11-0132817 (“the BE Account”) and the bank is Tong Yang Savings Bank Inc. located in Makati. The Questionable Invoice bore the signature of Mr Uy which looked identical to those appearing in previous pro-forma invoices. Accordingly, the defendant paid the Sum to the BE Account pursuant to the Questionable Invoice on 31 March 2016 (“the Payment”).

4.  The defendant claims that the failure of the plaintiff to take follow up action including demanding payment of the price of the Goods or liaison (sic) with the defendant on the shipping documents had caused the defendant to engage in a communication with the fraudsters who used an email address deceptively similar to that of the plaintiff, leading to its making of the Payment to the BE Account. It avers that it honestly and genuinely made the Payment and was caused by the omission and/or negligence on the part of the plaintiff and hence it is not liable for payment of the price of the Goods.

5.  Two admissions made by the defendant in the Defence are noteworthy (“the Admissions”). First, the defendant admits the existence of the Agreement and the circumstances under which it was created. Further, the defendant admits that it accepted delivery of the Goods on 17 April 2016.

6.  The plaintiff has filed no reply. The plaintiff took out the Summons and relied on the short affidavit of Mr Uy without any exhibits.  Mr Uy is the President of the plaintiff. He verified the Statement of Claim and pointed out that the admission of the defendant to making the Payment to a party not the plaintiff or anyone associated with the plaintiff affords the defendant no defence.

7.  Ms Ng Mei Ying (“Mandy”) made an affirmation dated 12 February 2020 in opposition on behalf of the defendant. At the material times, Mandy was the personal assistance to the sole director of the defendant and she handled the material transaction on behalf of the defendant and liaised with Ms Jessela Ilosorio Tayo (“Jessela”) who is the Account Executive (International Sales) of the plaintiff.

8.  In her affirmation, Mandy explained how the defendant was hoaxed into making the Payment pursuant to the Questionable Invoice, which was emailed to her purportedly by Jessela from an email account (“the Questionable Email Account”) with an email address (sales@profoodscorp.com) deceptively similar to that of the plaintiff (sales@profoodscorp.com) (“the Genuine Email Account”). It can be seen that the email addresses of the two Email Accounts differ slightly from each other in their domain addresses (profoodscorp v profoodcorp).

9.  In response, the plaintiff filed the Affirmation of Cynthia Mak. Ms Mak is the solicitor in charge of the conduct of the plaintiff’s case. Exhibited to her affirmation are the unnotarized affidavits of Mr Uy and Jessela. Ms Mak explained that both Mr Uy and Jessela reside in the Philippines and have experienced delay in the notarization of their affidavits due to the lockdown in their country necessitated by the Covid-19 pandemic. The defendant raised objections and the plaintiff took out a time summons to file their notarized affidavits out of time. Shortly before the hearing, their notarized affidavits are available. This court granted leave to the plaintiff to withdraw the time summons with fixed costs of HK$700 to the defendant.

10.  With leave, Mandy filed her 2^nd affirmation dated 11 June 2020. Despite leave has been granted, the plaintiff has filed no evidence in reply.

11.  The general principles relating to summary judgment applications are trite and need no elaboration here. Suffice it to say, this court should not embark upon a mini-trial based on affidavit and except in the most clear and blatant cases, it is impossible for a court to put itself in the position of having to making findings of fact: per Roger VP in Pacific Electric Wire & Cable Co Ltd v Harmutty Ltd [2009] 3 HKLRD 94 at §4. Certainly, I shall bear in mind that Order 14 is for clear cases only.

The parties’ respective cases

12.  Mr Liu, together with Ms Tsang, raises a number of triable issues including the fraud perpetuated on the defendant. He submits that on the documentary evidence available thus far, whether the plaintiff and/or Jessela was involved in the fraud is a live issue. He makes it clear that the defendant does not rely on the fraud exception though. He also abandons certain pleas in the Defence of which he is not the author.

13.  In his skillful submission, Mr Brown makes the plaintiff’s claim sound like a simple and straightforward one. The nub of his submission is that given the Admissions, which the defendant accepts without reservation, that it has taken delivery of the Goods pursuant to the Agreement, the plaintiff is naturally entitled to the price of the Goods.  He does not dispute the fact that the defendant made the Payment. His submission is that whilst it is a mishap for the defendant to have been defrauded, it has no defence in law.

14.  Mr Brown also points out that the fraud issue, among many other issues, is not pleaded in the Defence. Nevertheless, he accepts that the Defence is no straitjacket and the defendant should be entitled to rely on genuine unpleaded issues if there is cogent evidence lending support to such contentions. 

15.  The material transaction involved the communications between Jessela and Mandy only and they were all done via emails. All the material documents were exchanged by way of emails. The crux of the dispute between the parties concerns who emailed what to whom. Despite her heavy involvement in this matter, surprisingly, Jessela only made a very brief affidavit comprising 6 short paragraphs. They contain an emphatic denial of the allegation that she had stolen the Sum and that she had ever operated the Questionable Email Account.  Jessela did not find it necessary to explain the transaction from start to finish in her own words and is content with verifying the 2^nd Affidavit of Mr Uy.

Analysis

16.  Now I turn to the evidence. The Agreement as pleaded consists of email correspondence and the P’s Invoice. They were exhibited to the 2^nd Affidavit of Mr Uy. For the email correspondence, they covered the exchanges between 18 February 2016 to 23 February 2016. There is a copy of the P’s Invoice signed by the plaintiff only. It was attached to the email from Jessela to Mandy dated 23 February 2016 at 7:05 p.m. sent from the Genuine Email Account (“the 7:05 Email”).

17.  The bank information of the plaintiff was printed at the bottom of this copy. The account name was the plaintiff’s name and its bank was Metropolitan Bank Trust Company with an address in Cebu City, where the plaintiff is situated.

18.  Purportedly Jessela sent the Questionable Invoice with her email to Mandy on 23 February 2016 at 8:06 p.m. from the Questionable Email Account (“the 8:06 Email”) about an hour after the defendant’s receipt of the P’s Invoice.  The contents of the 8:06 Email are identical to that of the 7:05 Email.

19.  Mr Uy avers that the defendant emailed to the plaintiff the countersigned copy of the P’s Invoice on 24 February 2016. He exhibited a copy of the P’s Invoice with a covering email purportedly sent by the defendant (“the Covering Email”).  Mandy categorically denies having stamped the chop of the defendant on the P’s Invoice and sent it back to the plaintiff with the Covering Email. The defendant takes issue with the authenticity of the countersigned P’s Invoice.

20.  Mandy says that she received both the 7:05 Email and the 8:06 Email. She replied to the latter only. By an email dated 24 February 2016 (10:36 a.m.), Mandy replied the latter by returning the countersigned Questionable Invoice by clicking the reply button with the following message (“the 10:36 Message”):

“Dear Jessela,

Thank you for your rev Pl

Please find the attached.

Thanks & Best regards,

Mandy

Kai Fat Food Co., Ltd.”

21.  In other words, Mandy sent the countersigned Questionable Invoice to the Questionable Email Account. The plaintiff denies having received the same.

22.  In my view, the defendant cannot be debarred by the Admissions from raising objection to the authenticity of the P’s Invoice and hence the payment term contained therein. All the descriptions of the P’s Invoice pleaded in the Statement of Claim and admitted in the Defence are equally applicable to the Questionable Invoice and they are in fact identical except the bank information. The defendant’s primary stance is that it had settled the Questionable Invoice it received from Jessela in accordance with the Agreement.

23.  This authenticity issue cannot be resolved on affidavit. It is open to debate as to whether the countersigned P’s Invoice was in fact emailed to the plaintiff by the defendant as alleged. The Covering Email is no conclusive proof. It shows no information of the sender and the sending date and time in the first place. Actually, such information can always be edited and may not be genuine too.

24.  It is certainly not incapable of belief that the defendant did not send the Covering Email with the countersigned P’s Invoice to the plaintiff. There is no apparent reason why it would do so after sending the countersigned Questionable Invoice to the Questionable Email Account.

25.  Mr Liu submits that if the defendant did not send the countersigned P’s Invoice to the plaintiff, then there was no contract between the plaintiff and the defendant. I cannot agree with this submission. But he is right in that the Agreement as pleaded cannot be proved and summary judgment cannot be granted on the pleaded case.

26.  Curiously enough, the 10:36 Message was incorporated in the Covering Email. If the 10:36 Message was sent to the Questionable Email Account only, it follows that those people who created the Covering Email and sent the same together with the countersigned P’s Invoice to the plaintiff must have access to the 10:36 Message received in the Questionable Email Account.

27.  When the email exchanges between the parties leading to the creation of the P’s Invoice are examined, similar incidents could be discerned.  

28.  Mandy gave an account with the relevant emails exhibited. On 22 February 2016, at 6:01 p.m., Jessela purportedly sent an email to Mandy with an invoice attached for the signature of the defendant (“the Draft Invoice”) dated 22 February 2016 from the Questionable Email Account. The Draft Invoice was purportedly signed by Mr Uy already. The banker information was the same as those appearing in the Questionable Invoice, i.e. those of BE.

29.  Mandy suggested several amendments to the Draft Invoice by writing such amendments on the same. She returned the same to Jessela as an attachment to her email by clicking the reply button (“the Return Email”). In the Return Email, Mandy explained her proposed amendments. The Return Email with the Draft Invoice attached thereto were, thus, sent to the Questionable Email Account.

30.  There came the 7:05 Email with the P’s Invoice from the Genuine Email Account.  In the 7:05 Email, the message of Mandy in the Return Mail was reproduced. In the P’s Invoice, the plaintiff managed to incorporate all the proposed amendments of Mandy in the Return Mail and the date was revised to 23 February 2016. Alarmingly, the bank information was changed from that of BE to that of the plaintiff.

31.  It shows that the plaintiff had access to the contents of the Return Email and the Draft Invoice with Mandy’s handwritten amendments even though they had been sent to the Questionable Email Account. Otherwise, the plaintiff could not have worked on the proposed amendments and produced the P’s Invoice with the plaintiff’s bank information.

32.  The plaintiff has not said a word in reply.

33.  I can think of one possibility. There was a third party in control of the Questionable Email Account. When it received the Return Mail from Mandy, it produced another draft invoice with Mandy’s proposed amendments and the plaintiff’s bank information. It then sent an email with Mandy’s message and its draft invoice to the plaintiff in the name of Mandy. In this way, the plaintiff was unaware of the existence of the Draft Invoice with the bank information of BE.

34.  The third party could be a hacker having unauthorised access to all the emails exchanged between the plaintiff and the defendant. It could also be the plaintiff or Jessela having authorised access to the emails. I believe that the latter suggestion is not far-fetched on the evidence.

35.  Mr Liu is right in his submission that an employer can be vicariously liable for the fraud committed by its employee in the course of his employment: see §6-52 of Clerk & Lindsell on Torts (22^nd Edition, 2018).

36.  I should refrain from putting on a detective cap and surmising here. I cannot accept the submission of Mr Brown that all the evidence points to the conclusion that it was the email account of the defendant which had been hacked. I am not convinced by his argument that if the Genuine Email Account was hacked, there was no need for the hacker to use the Questionable Email Amount to send emails to the defendant and the hacker might simply use the Genuine Email Account to communicate with the defendant. In my view, the advantages of using the Questionable email account by the fraudsters are obvious.

37.  Nor can I accept Mr Liu’s submission that it should be the Genuine Email Account which was hacked. At this stage, I am unable to reach any conclusion as to whether there was any hacker and, if there was, which account was hacked in the absence of expert evidence.

38.  Suffice it to say, the evidence presently available to this court amply justifies a thorough investigation into the relationship between the fraudster(s) in control of the Questionable Email Account and the plaintiff and Jessela. This exercise cannot be undertaken on affidavit only. The sender recipient information appearing in the emails is not conclusive proof. Computer expert should be required to examine the servers, and at least the records, of both the Genuine Email Account and the email account of the defendant and if necessary undertake recovery works in respect of any deleted emails so that the true and complete picture can be revealed.

39.  I have also considered the evidence of the defendant to the effect that in a previous completed transaction between the parties (PI#15/1735), the Questionable Email Account was apparently used by Jessela in the process. I have considered the explanations given by Mr Uy and Mandy. I will not be able to make any factual conclusion and this matter reinforces my belief that further investigation is warranted.

40.  Having reached the conclusion that this is far from a clear case for summary judgment, I do not intend to deal with all other contentions of the defendant, in particular, the alleged negligence and/or breach of contract on the part of the plaintiff.

Conclusion

41.  For the reasons given, in my judgment, there are triable issues arising from the Questionable Email Account and the alleged receipt of the P’s Invoice from the defendant. The relationship between the fraudster(s) in charge of the Questionable Email Account and the plaintiff including Jessela should be investigated. Summary judgment is plainly inappropriate and the defendant should be given unconditional leave to defend.

42.  I further make an order nisi that costs of and occasioned by the Summons be in the cause, with certificate for one counsel.

43.  It remains for me to thank all counsel on both sides for their assistance rendered to this court.