ZHAN AN WEI v. SDKJ LTD AND OTHERS

HCA 716/2022

[2023] HKCFI 965

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 716 OF 2022

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D E C I S I O N

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Introduction

1.  This is the adjourned hearing of the plaintiff’s summons filed on 28 December 2022.  The summons concerns the 3^rd defendant only.  The plaintiff seeks to enter default judgment against her for the sum of HK$10,000,000.  The plaintiff also seeks declaratory relief.

2.  The summons was returned before me on 23 February 2023. The 3^rd defendant, acting in person, was present at that hearing. As the plaintiff had not served the hearing bundle and the skeleton submissions on her in accordance with Practice Direction 5.4, I granted a short adjournment of the summons to today.  At that hearing, the 3^rd defendant indicated that she wanted to find a solicitor.  I told her that she should seek legal advice in time for the adjourned hearing and the court would proceed to deal with the plaintiff’s summons today.

3.  The 3^rd defendant is present today.  She continues to act in person.

Procedural history

4.  The plaintiff commenced the present action by writ on 15 June 2022.  On the same day, the writ, which is endorsed with the statement of claim, was sent to the 3^rd defendant by registered post.

5.  On 5 July 2022, the 3^rd defendant lodged her acknowledgment of service indicating that she would contest the proceedings.

6.  No defence was served by her by the deadline of 2 September 2022. 

7.  At a hearing on 22 September 2022, in which the 3^rd defendant was present, Master Phoebe Man granted a time extension to her on an unless basis.  The order read:

“除非第三被告人在2022年10月20日下午4時或之前將其抗辯書存檔及送達，否則第三被告人將不能存檔及送達任何抗辯書。而原告人可就申索向第三被告人申請判決”

8.  The 3^rd defendant did not file or serve any defence by the new deadline.  Pursuant to the unless order, the plaintiff took out the present summons to enter judgment against her in default of defence.

The plaintiff’s pleaded case

9.  The plaintiff is a businessman in mainland China and an investor in cryptocurrency.  He was due to receive a sum of US$2,977,000 from his business venture in cryptocurrencies in October 2021.

10.  The 2^nd defendant represented to the plaintiff that he was able to remit US dollars from Hong Kong in Renminbi equivalent to the plaintiff’s designated account in Shenzhen.

11.  On 21 October 2021, the plaintiff agreed with the 2^nd defendant for the 1^st defendant to act as a receiving agent on behalf of the plaintiff to receive the US dollar sum and remit the same in accordance with the instructions of the plaintiff.  The 2^nd defendant is the 1^st defendant’s sole director and shareholder.

12.  Accordingly, the plaintiff arranged for the sum of US$2,977,000 to be transferred to the 1^st defendant’s bank account in the morning of 21 October 2021.  However, instead of remitting the sum to the plaintiff, the 1^st defendant dissipated it by transferring it to various recipients in breach of its fiduciary duties.

13.  One of the recipients was the 3^rd defendant.

14.  Upon receipt of the sum by the 1^st defendant, the sum was mixed with other funds in its account.  Immediately after that, the 2^nd defendant procured the 1^st defendant to transfer a sum of US$3,732,318.49 from the 1^st defendant’s account to the 2^nd defendant’s bank account leaving a zero balance in the former account.  As a result, a total sum of HK$28,915,764.27, inclusive of the entire traceable proceeds of the original sum from the plaintiff, was credited into the 2^nd defendant’s account.

15.  On 21 and 22 October 2021, out of that sum, a sum of HK$2,000,000 and a sum of HK$3,000,000 were transferred to the 3^rd defendant’s account with Bank of China and another sum of HK$5,000,000 was transferred to the 3^rd defendant’s account with HSBC.

16.  On 22 October 2021, the plaintiff reported the matter to the police.  The 3^rd defendant’s bank accounts were frozen by the police.

17.  The plaintiff avers that the 3^rd defendant knew that (1) there was no legitimate reason or entitlement to receive the sums amounting to HK$10,000,000 in total, and that (2) the receipt of the sums was for the purpose of shielding them beyond the plaintiff’s reach.

18.  Based on the above pleaded facts, the plaintiff makes a number of claims against the 3^rd defendant for HK$10,000,000: (1) proprietary claim, (2) dishonest assistance, and (3) knowing receipt.  

Discussion

19.  As a matter of principle, default judgment will only be given on a plaintiff’s claim provided that the pleaded facts give rise to the relief sought.  This is because the basis for default judgments is that the facts as contained in the statement of claim were true and admitted by the defendant.  The court’s task is therefore to look to the pleaded facts alone and no other evidence will be admitted: see, eg, Lam Chi Fat v Liberty International Insurance [2002] 3 HKLRD 480 at paras 26 to 27; Hong Kong Civil Procedure 2023 at 19/7/11.

20.  Here, I am satisfied that the plaintiff’s pleaded facts give rise to a valid proprietary claim against the 3^rd defendant in respect of the sums now sitting in her accounts at Bank of China and HSBC.

21.  Those sums represent the traceable assets of the plaintiff and the 3^rd defendant is by no account a bona fide purchaser for value without notice of the sums.

22.  I am also satisfied that based on the pleaded facts, including the pleaded state of mind of the 3^rd defendant, the claims based on dishonest assistance and knowing receipt are also made out.

23.  In her oral submissions, the 3^rd defendant says that the 2^nd defendant is her husband and he gave her the sums totalling HK$10,000,000 to pay family expenses (家用).  She tells the court that she has tried to find a solicitor to help her with the case but the legal fees are too high and she cannot afford them.

24.  The court will not accept what the 3^rd defendant says by way of submissions as evidence.  As things stand, there is no application by the 3^rd defendant before me to seek relief from the sanction set out in the unless order pursuant to Order 2, rule 5.  There is no application before me to seek a further time extension for the 3^rd defendant to file her defence.  Accordingly, the sanction stays.  The 3^rd defendant is barred from filing any defence.  The plaintiff is entitled to take out the present application which I have found to be meritorious on its pleaded case.

25.  The next question is whether the court should exercise its discretion to grant the declaratory relief now or should require the plaintiff to prove its case at trial.  It is not the normal practice of the court to grant a declaration without going to trial.  However, it is only a rule of practice and not a rule of law.  This rule of practice should not be followed when the plaintiff has a genuine need for the declaratory relief and justice would not be done if the relief were denied: Hong Kong Civil Procedure 2023 at 19/7/20.

26.  I am satisfied that the plaintiff has a genuine need for the relief now.  It has established a strong and obvious case for proprietary relief on the face of its pleading.  In Mesirow Financial Administrative Corporation v Best Link Industrial Co Ltd HCMP 1846/2015, 25 January 2016, in the context of a fraud claim in which the victim sought declaratory relief by default judgment, Recorder Lisa Wong SC explained why there was a genuine need to grant such relief.  That explanation applies with equal force in the present case and I quote below:

“The right asserted by the Plaintiff was one of title to property. The Funds were in equity the Plaintiffs money. A mere order against the Defendant for the return of the sum that it had deprived the Plaintiff of, without more, would have put the Plaintiff in the position of an unsecured judgment creditor of the Defendant. Such an order would not per se have given the Plaintiff any prior or specific right over the Funds. Very little was known about the Defendant. In particular, it was not known if the Defendant had any other creditors and, if so, whether it had sufficient assets (other than the Funds in the Account standing to its name) to satisfy its debts and liabilities to those other creditors. It would have been grossly unfair and potentially prejudicial to the Plaintiff if it had had to race against other creditors of the Defendant for the Funds in execution of a monetary judgment. A declaration by the Court that the Funds were held on trust for the Plaintiff was necessary to earmark the Funds as the Plaintiff’s property and put the same out of the reach of other creditors of the Defendant.” (at para 38)

27.  For the above reasons, I would exercise my discretion in favour of the plaintiff.

Orders

28.  For the above reasons, I order that judgment be entered against the 3^rd defendant in the sum of HK$10,000,000, and for:

(1)  A declaration that the 3^rd defendant held and continues to hold (i) the balance of HK$4,801,007.85 in her bank account with Bank of China (account no: [deleted]), and (ii) HK$5,000,000 out of the remaining balance of her bank account with The Hongkong and Shanghai Banking Corporation (account no: [deleted]) on trust for the plaintiff; and

(2)  An order that the 3^rd defendant do pay the sums referred to in para (1) above, including all interests accrued thereon, to the plaintiff.

29.  Costs of this action as against the 3^rd defendant (including this application and all reserved costs) be paid by the 3^rd defendant to the plaintiff to be taxed if not agreed, save that there be no order made in respect of the hearing on 23 February 2023.