SBM BANK (MAURITIUS) LTD v. WARNER TRADING LTD AND OTHERS

HCA 2416/2018

[2019] HKCFI 2956

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2416 OF 2018

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JUDGMENT

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1.  The plaintiff seeks judgment against the defendants which are the recipients of the money originated from it as a result of an email fraud. All the defendants are corporate bodies registered in Hong Kong.

Background

2.  In early October 2018, forged SWIFT messages were sent from the plaintiff upon unauthorized access to its system, as a result of which the plaintiff’s banker in the United States was purportedly instructed to remit huge sums of money to various international locations. The 1^st, 6^th and 7^th defendants were the designated recipients of the money.  The other defendants were their indirect recipients who received the money respectively through the bank account of another company in Singapore.  The sums respectively received by the defendants were:

The 1st defendant	US$800,000
The 2nd defendant	US$220,500
The 3rd defendant	US$443,175
The 4th defendant	US$797,495
The 5th defendant	US$510,865
The 6th defendant	US$550,000
The 7th defendant	US$435,080

3.  Upon discovery of the fraud, the plaintiff applied and obtain from Hon Wilson Chan J on 12 October 2018 ex parte mareva and proprietary injunctions against the first five defendants as well as mareva injunctions against the other two defendants.  Banker disclosure order was also obtained in respect of the accounts held by the first five defendants.  The ex parte orders were continued inter partes by Hon Madam Bebe Chu J on 19 October 2018.

4.  The writ, original and amended, and the statement of claim have been served on the defendants at their respective registered office addresses last known to the plaintiff by early December 2018.

5.  None of the defendants has entered appearance.

6.  By summonses filed on 8 November and 11 November 2019, the plaintiff seeks against the first five defendants and the other two defendants respectively the following relief:

(1)  default judgment in terms of the relief claimed in the statement of claim;

(2)  vesting orders in respect of the sums in the defendants’ accounts held by the defendants respectively with the various banks pursuant to section 52 of the Trustee Ordinance, Cap 29 (“TO”);

(3)  the joinder of the various banks mentioned in (2) for the purpose of the vesting orders; and

(4)  the continuation of the injunctions, save for the purpose of enabling the banks to comply with the vesting orders.

7.  Satisfied with the affirmations of service, I saw no reason why the plaintiff might not proceed in the defendants’ absence.

8.  The application came before this court yesterday, when it was obvious that the court was still asked to consider on the spot matters like amendment of the summons and various outstanding and new matters that took counsel more than the time fixed for the hearing to introduce.  That was unexpected for an application of this nature.  This court first allowed the plaintiff to amend the summons to essentially correct a few minor mistakes, which did not come near to affecting the substance of the claim at all.  The amended summons was to be filed by the end of the same day.  The application was adjourned to this morning to enable the plaintiff to sort out the other outstanding matters and come up with the edited draft judgment and order.

9.  Counsel reported this morning that the above has been done, and that the amended summons has been served.  Further, the plaintiff has also filed and served a further affirmation exhibiting the up to date correspondence between the plaintiff and the various banks concerning the vesting orders.  Upon the plaintiff’s undertaking to file an affirmation of service verifying the above forthwith after this hearing, I allowed the plaintiff this morning to proceed with the application pursuant to its summons as amended.

Default judgment

10.  The plaintiff claims against each of the defendant for the following orders:

(1)  the sum held by the defendant;

(2)  declaration that the defendant is holding the sum on constructive trust for and on behalf of the plaintiff being the beneficial owner of the same;

(3)  order directing the defendant to pay or release or transfer the sum or any part thereof to the plaintiff;

(4)  order that the plaintiff is entitled to trace any property or sums and to claim equitable title to any traceable proceeds of the sum or any part thereof and assets acquired with such proceeds which the defendant holds on constructive trust for the plaintiff; and all necessary accounts and inquiries to enable the plaintiff to so trace and recover such sum.

11.  For the purpose of default judgment, this court is supposed to consider if the matters pleaded afford the plaintiff the right to the relief claim.  However, this does not prevent the plaintiff from inviting the court to consider the evidence for the purpose of the other parts of its application.  The distinction in the application of the rules of evidence for different parts of the present application is thus technical.

12.  On the basis of the pleaded case and the evidence adduced, the plaintiff builds its case that the defendants respectively hold the sums that originated from the plaintiff as a result of a fraudulent scheme.  Either the defendants, or evidently some of them, were part of the scheme or they are in any event in the position as constructive trustees of the money received, which it is unconscionable and unjust for any of them to retain.  The plaintiff’s entitlement to the return of the money is established.  See for instance, Comtel Solutions PTE Ltd v Yi Li Trade (HK) Co Limited & Anor, HCA 1142/2019 (23 September 2019); Tai Ching Ling v Cai Guo Chuan & Anor, HCA 1782/2018 (11 September 2019); and Clerk & Lindsell on Torts (22^nd ed) at §§24-98; 24-101.

13.  Whilst it is not the practice of the court to grant declaratory relief in default, the court may nevertheless do so if the fullest justice of the case requires.  This will be the case if the plaintiff has a genuine need for the declaratory relief so as to do full justice to what he is entitled to: see Comtel Solutions PTE Ltd; Tai Ching Ling (above).  In a case like the present one, a monetary judgment without the declaratory relief could render the plaintiff as an unsecured creditor with the result that its proprietary entitlement to the money in question and tracing would not be effectively recognized.

14.  I am satisfied that judgment in terms of the claim should be granted against each of the defendants.  I accordingly grant the judgment in terms of the edited draft to that effect submitted this morning.

Vesting order

15.  The vesting order is sought in connection with the claim for the release and transfer of the money mentioned above.  Section 52(1)(e) of the TO provides that where the 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.  Subsection (5) provides that the court may grant declaration or give direction 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.

16.  The court will consider making a vesting order as to trust property where it is impossible or difficult to deal with the property without such an order.  This includes where an order for the transfer of the money, even if granted in favour of the plaintiff, will receive no response from the defendant.  In such circumstances, the court may consider granting a vesting order in respect of such money standing to the credit of the defendant.  See Comtel Solutions PTE Ltd; Tai Ching Ling (above).

17.  The circumstances of the present case fall into the category mentioned above.

18.  For the purpose of the vesting order being sought that would bind the banks with which the defendants held their accounts holding the plaintiff’s money, the banks should be joined as respondents. Hence this part of the plaintiff’s application.

19.  Correspondence between the plaintiff’s solicitors and the various banks since November 2019 are produced.  All of them indicated neutral stance to the application.  Amongst them, Heng Sang Bank (“HSB”) pointed out that the current balances in the accounts of the first five defendants respectively with the bank differ from and actually less than the amounts pleaded by the plaintiff.  The inference could well be that there have been transactions in these accounts since the injection of the funds said to have originated from the plaintiff.  It would be for the plaintiff to establish that such current balances are indeed attributable to the plaintiff as the source of the money over which it asserts a proprietary claim and should be covered by a vesting order compelling the bank to transfer the same to the plaintiff.  As to that, Counsel for the plaintiff acknowledged the observation of HSB and its inability at this stage to say for sure, when it is yet to be equipped with all the necessary transaction information about these bank accounts.

20.  Notwithstanding the above observation, counsel for the plaintiff suggested that the vesting order may still be made, as its terms are so framed that either the balances in these bank accounts or any part thereof shall be transferred by HSB.  The exact amounts, if at all, to be transferred could in due course be ascertained and, if necessary, further application to the court may be made in exercise of the general liberty also provided in the then proposed order.  Counsel also suggested the alternative of adjourning this part of the application concerning the first five defendants’ accounts with HSB sine dine, so that further liaison may be made with the bank to sort out the uncertainty before any disposal by consent or application to restore.  The latter of these two suggestions, in my judgment, is preferable.  Hence the edited draft order to reflect that as submitted this morning.

21.  I am satisfied that the joinder of the various banks should be granted, and do grant them.  I further make the vesting order in respect of the accounts of the 6^th and the 7^th defendants held with their respective banks.  The application for the vesting order in respect of the first five defendants and their accounts held with HSB is adjourned sine dine with liberty to restore.  I accordingly grant the order in terms of the edited draft to that effect.

Theinjunction

22.  As a matter of consequential logistics in enforcement of the orders being made, the injunction will continue save as varied to enable the compliance of the orders by the banks as per the terms of the draft order.

Costs

23.  I order that the plaintiff shall have its costs of the action and the present application, including any costs reserved, against the defendants. The statement of costs considered, the costs are summarily assessed at HK$870,000, which the defendant shall pay forthwith.