MINEBEA CAMBODIA CO., LTD v. ZHAO JIN FANG t/a ANZHAN INDUSTRIAL & COMMERCIAL CO

HCA 204/2020

[2022] HKCFI 3325

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 204 OF 2020

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REASONS FOR JUDGMENT

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APPLICATION

1.  By a summons dated 9 September 2022 (the “Default Summons”), the Plaintiff, a victim of an email fraud, applies for

(a)  judgment in default of defence pursuant to O.19 r.7 seeking monetary judgment in the sum of USD537,171 and declaratory relief; and

(b)  continuation of the injunction order granted by Lisa Wong J on 18 November 2021 (“Injunction Order”)  post-judgment as an aid to enforcement.

MATERIAL FACTS

2.  The Plaintiff is a company incorporated in Cambodia and a manufacturer of machine parts.

3.  The Defendant is a sole proprietor in Hong Kong trading under the name of Anzhan Industrial & Commercial Company with a Hong Kong address in Sai Ying Pun (“D’s Address”). She had 2 accounts with Citibank, one with A/C no.250-390-48481610 (“Business Account”), and the other with A/C no.86749668 (“Personal Account”).

4.  The Plaintiff’s pleaded case is that it is a victim of an email fraud leading to its remittance of USD537,171 (the “Sum”)  to the Business Account of the Defendant on 22 August 2022. The fraud was perpetrated by unknown person(s)  purporting to be the Plaintiff’s supplier and gave payment instructions as such. The email was in fact not sent by the Plaintiff’s supplier. Therefore, the Sum was paid to the Defendant under mistake of fact, being mistake as to the identity of the person giving instructions.

5.  On 21 October 2019, the Plaintiff reported the matter to the Hong Kong Police (the “Police”). The Business Account was frozen latest by 22 October 2019, and the Personal Account (which received traceable proceeds of the Sum, as explained below)  was frozen latest by 29 November 2019.

6.  I accept that the Defendant had sufficient notice and knowledge in respect of the Plaintiff’s mistake because of:

(a)  the fact that there was no genuine dealing between the Plaintiff and the Defendant, and that there was no legitimate basis for the Defendant to receive the Sum;

(b)  the Police’s administrative freezing of the Business Account and the Personal Account due to suspected money laundering; and

(c)  the receipt of the Writ and Statement of Claim (and the contents therein).

7.  Mr Tang for the Plaintiff submitted that based on the documents disclosed by the Defendant:

(a)  After receipt of the Sum in the Business Account, a sum of USD500,000 was transferred from it to the Personal Account on 12.9.2019. The Plaintiff avers that the USD500,000 is traceable proceeds of the Sum.

(b)  The Business Account had an initial balance prior to the receipt of the Sum. There were transfers in and out of the Business Account between the receipt of the Sum and the payment out of the USD500,000.

8.  Mr Tang for the Plaintiff relies on the rule in Re Hallett’s Estate(1880)  13 Ch D 696 which presumes that all money spent in that period was from money paid by the trustee (the Defendant)  into the account, leaving the trust money intact: Lewin on Trusts: Vol.2 (12^th edn)  §44-069. The result, as pleaded, is that the entirety of the USD500,000 is traceable proceeds of the Sum.

9.  The USD500,000 in the Personal Account underwent several exchanges into different currencies and eventually became AUD732,171.62 which has remained in the Personal Account.

PROCEDURAL HISTORY

10.  On 9 March 2020, the Plaintiff issued the writ in this action.

11.  Pleadings closed in March 2022. List of documents and supplemental list of documents were filed and served between 2020 and 2021 and witness statements were exchanged in March 2021.

12.  On 18 November 2021, Lisa Wong J granted the Injunction Order, viz:

(a)  a proprietary injunction restraining the Defendant from disposing of the assets representing the Sum which was transferred to the Business Account on 22 August 2019; and

(b)  a Mareva injunction restraining the Defendant from removing assets up to the value of the Sum.

13.  The application for the Injunction Order was taken out because in late Oct 2021, the Police informed the Plaintiff that they intended to lift the administrative freezing orders and invited the Plaintiff to seek injunctive relief from the Court.

14.  The Defendant did not oppose the application and the Injunction Order was granted by consent.

15.  On 8 December 2021, the administrative freezing orders were lifted.

16.  On 3 May 2022, the Defendant filed a Notice to Act in Person (“Notice”), which was served on 4 May 2022.  Since then, she ceased to be represented by her former solicitors being W.K. To & Co.. In the Notice, she gave D’s Address as her address for service.

17.  Since then, the Defendant has failed to take any steps in these proceedings. In particular, she failed to file a fresh timetabling questionnaire 14 days before the next CMS hearing on 6 July 2022 as required by the case management order of Master Phoebe Man made on 24 January 2022.

18.  On 30 June 2022, the Plaintiff took out a summons (“Unless Order Summons”)  requiring the Defendant to file the said timetabling questionnaire, failing which, her defence should be struck out and the Plaintiff shall be at liberty to enter judgment against her. The Unless Order Summons was returnable before Master KW Wong at the CMS hearing.

19.  Notwithstanding that proper service of the Unless Order Summons on D’s Address, the Defendant failed to attend the CMS hearing.

20.  Master KW Wong therefore made an unless order (the “Unless Order”)  to the effect that unless the Defendant files and serves her timetabling questionnaire by 4pm on 6 September 2022, her defence should be struck out and the Plaintiff shall be at liberty to enter judgment against her with costs. I agree that the clear intention of Master KW Wong must have been that the Plaintiff could apply for judgment in default of defence in the event that the Defendant continues to ignore the orders of the Court.

21.  On 14 July 2022, the Unless Order was properly served on D’s Address.

22.  On 26 July 2022, the originals of various letters to the Defendant (including those enclosing the Unless Order Summons and the Unless Order)  were returned to the Plaintiff’s solicitors. On the face of one of the letters, it was marked with the words “看不明英文”.

23.  I agree with Mr Tang for the Plaintiff that this makes it clear that the Defendant must have received these letters, and consequently the Unless Order Summons and the Unless Order which were enclosed. The person who purportedly cannot read English must have been a reference to the Defendant herself.

24.  On 27 July 2022, the Plaintiff’s solicitors served a letter in Chinese on D’s Address. This letter has not been returned to date.

25.  I accept that the Unless Order must have been brought to the Defendant’s attention.

26.  Yet, the Defendant still failed to file any timetabling questionnaire by 6 September 2022.  As a result of the Defendant’s non-compliance with the Unless Order, her defence has been struck out, and she has defaulted in serving her defence.

27.  In my view, an application under O.19 r.7 is apposite in these circumstances: Hong Kong Civil Procedure 2022 §19/7/3.

APPLICABLE LEGAL PRINICIPLES

28.  The principles applicable to an application under O.19 r.7 have been discussed in several cases concerning alleged email frauds. The power to grant judgment under the provision is discretionary. The court is required to scrutinise whether the matters pleaded in the Statement of Claim entitle the plaintiff to the judgment sought. The court’s decision is made on the basis of the pleaded facts, rather than on evidence. See: 巨展皮具香港有限公司 v 上海兄弟海運有限公司 [2018] HKCFI 53 §§11-13 (DHCJ Keith Yeung SC); Sultana Distribution Services Inc v HongKong Fuheng Technology Co., Ltd [2018] HKCFI 1480 AT §7 (DHCJ Alex Stock SC); Wells Fargo Securities, LLC v Tian Ruida Industrial Co., Ltd[2018] HKCFI 2495 at §1 (DHCJ Bernard Man SC).

29.  As to declaratory relief, it is not the normal practice of the court to grant a declaration without going to trial. This is, however, only a rule of practice, rather than a rule of law, and gives way to the paramount duty of the court to do the fullest justice to the plaintiff to which he is entitled. In a number of cases involving email fraud, declaratory relief has been granted on the basis that there is a genuine need for such relief to secure the plaintiff’s proprietary as opposed to merely personal claim, particularly given that the defendant may have other creditors. See:巨展皮具 at §28;Sultana Distribution at §8; Wells Fargo at §9; Mesirow Financial Administrative Corporation v Best Link Industrial Company Limited (HCMP 1846/2015, 25 January 2016)  at §§35-38 (Recorder Lisa Wong SC, as she then was); Guaranty Bank and Trust Company v Zzzik Inc Ltd (HCA 1139/2016, 18 July 2016)  at §§37-37 (DHCJ Cooney SC).

30.  Insofar as post-judgment injunction is concerned, it will be granted applying the established considerations for pre-judgment injunctions with the fact that it is a post-judgment application factored in: Spruce Australia Pty Ltd v New Senjia Trade Ltd[2018] HKCFI 101 at §17.

31.  In cases on email fraud for which a default judgment is granted, injunctions obtained would tend to be continued post-judgment in aid of enforcement: Sultana Distribution at §12; I3 International Inc v Imperial Global Trading Ltd [2018] HKCFI 1478 at §15; Spruce Australia at §§17-18; Wells Fargo at §14.  I am also satisfied that the Defendant has been properly served.  The Defendant chooses not to attend the present hearing.

ANALYSIS

32.  It is well established that when property is obtained by fraud, equity imposes a constructive trust on the fraudulent recipient, so that the money is recoverable and traceable in equity: Guaranty Bank at §28; Mesirow Financial at §33; 巨展皮具at §27.

33.  Further:

(a)  Even if the recipient was not a party to the fraud, if his state of knowledge is such as to make it unconscionable for him to retain the money, the defrauded claimant has a tracing remedy: Guaranty Bank at §32.

(b)  Knowledge does not have to be acquired at the time of receipt, it can be acquired subsequently while the money is in the recipient's hands: Guaranty Bank at §33.

34.  On the facts of the present case, I agree that a constructive trust should be imposed over the Sum as it was received by the Defendant in circumstances where she was aware of the Plaintiff’s mistake, such that it is unconscionable for her to retain the Sum and its traceable proceeds.

35.  I also agree that the Plaintiff has a personal claim for restitution for unjust enrichment against the Defendant as the Defendant was enriched by the value of the Sum at the expense of the Plaintiff. This is because the Sum plainly came from the Plaintiff, with the unjust factor being mistake.

36.  Fairness and justice dictate that a declaratory relief should be granted in respect of the proprietary claim, given that a large part of the Sum remains in the Defendant’s bank accounts (specifically the Personal Account), and the Defendant may have other creditors.

37.  Given the nature of this case and the conduct of the Defendant, I am satisfied that the Injunction order should also be continued as an aid to enforcement. None of the circumstances which justified the grant of the Injunction Order on 18 November 2021 have materially changed to date.

DISPOSITION

38.  For all the reasons stated above, I make an order in terms of the draft order as submitted to this Court.

39.  As far as costs in concerned, I will make a cost order nisi that the Plaintiff is entitled to the costs of and occasioned by this application to be paid by the Defendant, on a party to party basis.

40.  Finally, I thank Mr Tang for his very helpful written submissions.