SENSIO INC. v. KOABY TRADING LIMITED

DCCJ 6951/2019

[2020] HKDC 295

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 6951 OF 2019

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DECISION

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1.  The plaintiff is a company incorporated in Delaware of the United States whose main business is the sale of kitchen appliances and accessories. It unfortunately fell victim to email fraud.

2.  By its summons dated 24 December 2019 naming therein China Citic Bank International Limited (“the Bank”) as the “non-party”, the plaintiff applied for an order against the Bank under Section 21 of the Evidence Ordinance to inspect and take copies of entries in its record, and if need be, also for a Norwich Pharmacal order under the court’s inherent jurisdiction.

3.  This summons was originally scheduled to be heard on 30 January 2020 which was adjourned due to the announcement of the General Adjournment Period (“GAP”) owing to the Covid-19 pandemic.  As the defendant did not respond to indicate agreement to have the matter disposed of on paper which was strongly advocated by the plaintiff, the hearing was re-fixed to an early date of 1 April 2020.  That hearing was again adjourned due to the further extension of the GAP.  In the circumstance, I directed this matter be disposed of on paper without an oral hearing and gave directions for the defendant and the Bank to lodge written submissions in opposition, the plaintiff having lodged its on 23 January 2020.  Both of them have not lodged any to contest within time or at all.  On the part of the Bank, this is not surprising as it has by letters dated 3 and 20 January 2020 indicated that it did not intend to appear at the hearing and would comply with the order the court may make and served on them.

The facts deposed to by the plaintiff

4.  This application is supported by the affirmation of Mr Ian Turenne (“Turenne”), the Head of the Accounts Payable Team of the plaintiff, filed on 24 December 2019.  In it, the events, succinctly set out below, were deposed to and true copies of documents substantiating the same were exhibited.

5.  The plaintiff has since 2003 engaged one Ningbo Golden Age Electric Co., Ltd (“the Supplier”) to manufacture for it kitchen appliances.

6.  At all material times, the plaintiff through Turenne liaised with one Rita Chen of the Supplier by email through her business email address sale10@chinazhonghao.com (“Real RC Email Address”) over matters relating to the payment of the Supplier’s invoices.  From time to time, the Supplier through Rita Chen would request the plaintiff to make payment to different bank accounts to settle its invoices.  It was the usual practice that such requests would be confirmed by an official letter from the Supplier.

7.  On 27 August 2019, Turenne received an email from one purported to be Rita Chen (“the Fraudster”) through the Real RC Email Address requesting payment to be made to the Supplier’s “subsidiary HK account” and attaching an “official letter” instructing the plaintiff to pay to the bank account held with the Bank in the name of the defendant numbered 694194046801 (“the Subject Bank Account”).  Turenne replied by email that payment could only be made next Tuesday.  The email address of the recipient of that reply email in fact appeared as “sale10@chinazhunghao.com” rather than “sale10@chinazhonghao.com”, the Real RC Email Address.  The very slight difference in the two email addresses however was not noticed by Turenne at the time and was only discovered later.

8.  There were further email communications between Turenne and the Fraudster and also a short telephone call made by the Fraudster to Turenne claiming herself to be Rita Chen of the Supplier.

9.  Believing the above communications and the official letter were genuinely from the Supplier and made on its behalf and on 3 September 2019, Turenne caused the plaintiff to transfer US$162,316.94 (“the Sum”) to the Subject Bank Account in the belief that the Sum was for the settlement of invoices of the Supplier.

10.  There were other email communications and another telephone call between Turenne and the Fraudster from 4 to 10 September 2019 inducing Turenne to cause the plaintiff to transfer another sum of US$118,770.30 on 11 September 2019 to another bank account.  The plaintiff fortunately was successful in recalling that transfer.  I would not need to say more about this further incident.

11.  Later that day on 11 September 2019, Turenne was informed by the real Rita Chen that the Supplier had not received the Sum.  After further communications and discussions with the Supplier, the plaintiff discovered the above communications were not from the real Rita Chen and the purported official letter was not genuine, and that it was thereby defrauded.  Communications with the plaintiff’s bank only resulted in the successful recall of the said US$118,770.30 on 23 September 2019, but not the recall of the Sum.

12.  On 25 September 2019, the fraud was reported to the Internet Crime Complaint Centre of the Federal Bureau of Investigation of the United States.  A report was also filed with the Hong Kong Police in early October 2019.  On 8 November 2019, the plaintiff was informed that the Subject Bank Account was frozen by the Hong Kong Police.

13.  On 24 December 2019, the plaintiff commenced this action.

Discussion

14.  The plaintiff seeks the present order to ascertain the whereabouts of and trace the Sum.

15.  Section 21 of the Evidence Ordinance provides inter alia that:-

“On the application of any party to any proceedings, the court or a judge may order that such party be at liberty to inspect and take copies of any entries in a banker’s record for any of the purposes of such proceedings.”

16.  In considering discovery applications of this type, especially when an innocent third party is asked to provide discovery, the court draws a distinction between cases involving a proprietary claim and those that do not.  For those involving a proprietary claim, the court is more disposed towards exercising its discretion allowing discovery (Pacific King Shipping Holdings Pte Ltd v Huang Ziqiang [2015] 1 HKLRD 830, particularly at §28, and more recently AKbank T.A.S. v Mainford Ltd [2018] HKCFI 363, Deputy High Court Judge Keith Yeung SC (as he then was) at §12).

17.  In Pacific King Shipping Holdings Pte Ltd, Poon J (as the Chief Judge then was) sitting as a judge in the Court of Appeal had these to say:-

“If the case involves a proprietary claim where the plaintiff seeks to trace property which in equity belongs to him, the court not only has jurisdiction to grant an injunction restraining the disposal of that property, it may in addition make orders designed to ascertain the whereabouts of that property. In particular, it may order a third party bank to give discovery of documents in relation to the bank account of a defendant who is alleged to have defrauded the plaintiff of his assets.

Where the case falls within these well established principles, the court will not hesitate in ordering disclosure against a thirty party bank.” (§§29 & 30)

18.  Regarding the plaintiff’s present claim, it is 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 C-D, Michael Chen Kang Huang v Peter Lit Ma HCA 218/2005, 10 July 2009, Sakhrani J and Mesirow Financial Administrative Corporation v Best Link Industrial Co, Limited HCMP 1846/2015, 25 January 2016, Recorder Lisa Wong SC (as she then was)).  The plaintiff’s claim therefore is clearly a proprietary one.

19.  On the materials before me, I am satisfied that the plaintiff has a strong prima facie claim that it has been defrauded and for the return of the Sum and that the bank records sought will help ascertain the whereabouts of and trace the Sum.  I have no hesitation in granting the order sought, save two aspects over its terms.

20.  First, the bank records sought in the proposed order relate to “D Accounts” which is there defined to include the Subject Bank Account and “all the accounts of the defendant maintained with the Bank”.  It is in my view wider than is justified for the purpose of ascertaining the whereabouts of and tracing the Sum.  I would narrow the definition to “the defendant’s account number 694194046801 and all other accounts in the name of the defendant maintained with the Bank into which money has been transferred from the said account number 694194046801 since (and including) 4 September 2019”.

21.  Second, paragraph 1 of the summons requires the Bank to provide in writing information such as the account numbers of D Accounts, the amount of balance remaining in each of D Accounts, and the identity and address of the persons giving the instructions for all the transactions in D Accounts.  Firstly, the information sought is not confined to the time period of “between 4 September 2019 to the date of the service of this Order” as in paragraph 2 of the summons.  It therefore is too wide.  Moreover, it seems to me that the requested information, if the Bank has it at all, would have been contained in the bank records the inspection and provision of copies of which are ordered under paragraph 2 of the summons.  Paragraph 1 therefore is too wide and also a duplication of paragraph 2.  It is an extra but unnecessary burden on the Bank.  In exercising my discretion I am not granting it.

22.  As only the provision of information sought in paragraph 1 of the summons is applied for under Norwich Pharmacal, which I would not grant for the reasons stated above, I have not found it necessary to lengthen this Decision by discussing the alternative limb under Norwich Pharmacal.

Disposal

23.  In the premises, I make an order in terms of paragraph 2 of the summons as narrowed down per paragraph 20 above, and enlarging the time for compliance from 7 days to 15 days, as requested by the Bank and not objected to by the plaintiff.

24.  Paragraph 3 of the summons lists the bank records, while paragraphs 4 and 5 thereof provide that written consent by the plaintiff would negate any breach on the part of the Bank and for the leave for the plaintiff to use what is obtained in the usually allowed manner.  They are not controversial.  I order them in terms.

25.  Instead of liberty to apply in the specific terms of paragraphs 6 and 7 of the summons, I give the Bank and the plaintiff general liberty to apply.

26.  Paragraphs 8 and 9 ask that the reasonable costs incurred by the Bank for compliance be borne by the plaintiff, and the costs between the plaintiff and the defendant be reserved.  I so order in terms adding only that there be certificate for counsel.

27.  Lastly, I thank Ms Yuen for her assistance.