HUANG HAOYU v. KAZEROUN NASIR

DCCJ 5554/2019

[2022] HKDC 50

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 5554 OF 2019

---------------------------------------

---------------------------------------

-----------------------

DECISION

-----------------------

1.  This is the defendant’s application, by Summons dated 3 December 2020, to set aside the Default Judgment entered by this court on 3 September 2020 (the “Summons”).

Background

2.  The plaintiff’s case is that he is the victim of a telephone fraud.

3.  The plaintiff is a PRC national studying in USA and in around September 2018, he received phone calls from persons claiming to be various PRC officials informing him that he was being investigated for bank fraud in the PRC. The plaintiff complied with their request to transfer a sum of US$95,000 to a bank account at Bank of China Hong Kong (“BOCHK account”).

4.  The plaintiff later discovered the fraud and reported to the police in USA and Hong Kong.

5.  The Hong Kong Police arrested the defendant in December 2018 for money laundering in relation to the fraud because investigations showed that a sum of US$77,474.00 was transferred from the BOCHK account to the defendant’s own personal Bank of China Hong Kong account (“D’s account”).

6.  A writ was issued on 16 October 2019 by the plaintiff’s then solicitors and thereafter a Mareva injunction was obtained against the defendant. The Default Judgment was entered on 3 September 2020.

7.  The defendant took out the Summons on 3 December 2020. The call-over hearing was heard on 30 April 2021 with various directions including directions for filing and serving various evidence by way of affidavits.

8.  On 25 May 2021, the plaintiff’s legal aid was discharged.

9.  The plaintiff has informed the court via fax on 4 June 2021 that, amongst other and as translated: “For future legal proceedings, my father shall continue the proceedings in this case without legal representatives, and will attend the hearings of the action…”

10.  Nevertheless, neither the plaintiff, his father nor any representatives of the plaintiff has filed any evidence in opposition to the Summons or, indeed, participated in any legal proceedings since. The plaintiff’s father has indicated that he had been unable to come to Hong Kong due to Covid travel restrictions, but neither the plaintiff, his father nor any representatives of the plaintiff has taken any proper applications to adjourn the proceedings in the Summons.

11.  In the circumstances, having perused the relevant Affirmation of Service, the court is satisfied that notice for the date of the hearing of the Summons, along with all the hearing documents from the defendant, have been properly served to the plaintiff and/or his father. As such, the plaintiff has due notice of the current hearing and there is no reason why it should not proceed.

The defendant’s case

12.  The defendant has filed an Affidavit in support of the application (which is the only evidence before the court).

13.  In short, the defendant is a businessman and his business involves sourcing goods from the PRC for customers overseas. He had incorporated a company in Guangzhou and another in Hong Kong via a consultancy services agent called Noble Consulting Limited (“NCL”) (which is a company incorporated in Hong Kong). NCL also helped the defendant to set up a bank account in the Tai Po branch of Bank of China Hong Kong under his own personal name. This is D’s account.

14.  In around September 2018, the defendant was asked by his business partner to remit US$145,000 to USA. D’s account has insufficient funds but defendant’s PRC bank accounts have. As the defendant was aware of the complications in transferring money from PRC bank accounts to Hong Kong bank accounts, he contacted NCL again for assistance.

15.  The arrangement was that the defendant would pay NCL a sum of RMB equivalent to US$145,000 in PRC and NCL would transfer US$145,000 into D’s account.

16.  On 29 September 2018, the defendant transferred RMB1,004,850 from his PRC bank account to NCL’s designated bank account (an account in Agricultural Bank of China in Guangzhou). On the same date, D’s account received 3 sums of US dollars: US$77,474 (which subsequently transpired and unknown to the defendant at the time, was transferred from BOCHK account), US$19,126 and US$48,000 (totally US$145,000).

17.  The next day, the defendant attempted to transfer the US dollars from D’s account to his business partner in USA but found that D’s account was frozen. He wrote various emails to the Bank of China to seek information but to no avail.

18.  On 21 November 2018, the defendant received an email from the Bank of China asking him to visit their Tai Po branch (where they held D’s account). Accordingly, the defendant came to Hong Kong from Guangzhou on 6 December 2018 but he was arrested by the police at the Tai Po branch.

19.  The defendant was then informed by the police that the sum of US$77,474 transferred to D’s account may be money stolen by fraud. The defendant claimed that he had no notice or knowledge of such until then. He cooperated with the police in an interview in the Central Police Station and was released on bail the next day.

20.  In around July 2019, the bail money was returned to the defendant and he understood that the police investigation has concluded with no criminal charge laid against him.

21.  The defendant has produced in his affidavit various exhibits which appear to show the request for funds from the wife of his business partner, the transactions records of his transfer of RMB in PRC and also the receipt of these 3 sums of US dollars in D’s account.

Legal principles for setting aside

22.  The defendant does not dispute that the Default Judgment is regular.

23.  Under such circumstances, the legal principles are:-

(1)  The power to set aside is discretionary (Hong Kong Civil Procedure 2021 paragraph 13/9/12);

(2)  The major consideration or dominant factor is the merits of the defendant’s defence, although the reason for the default and the defendant’s conduct are also relevant (Hong Kong Civil Procedure 2021 paragraph 13/9/13);

(3)  In general, the defendant should show “a real prospect of success”, ie his case is “potentially credible and carries some degree of conviction” (Hong Kong Civil Procedure 2021 paragraph 13/9/14);

(4)  However, where the court cannot come to a provisional view on the probable outcome of the action, usually because the evidence is incomplete or witness credibility is very much in issue, the court will simply consider whether the defence “could well be established” at trial (El Vince v Wu Wen Sheng [2001] 3 HKLRD 445 at paragraph 25).

Merit of the defence

24.  I am of the view that the evidence raised by the defendant at this stage supports a valid defence in being a bona fide purchaser for value without notice, or alternatively, that there was a change of position.

25.  As for the defence of bona fide purchaser, I agree with Mr Lau, counsel for the defendant, that there is evidence to show that, by paying the equivalent amount of RMB to NCL, the defendant did purchase for value the legal title to the funds in question. There is no evidence to suggest that the defendant has knowledge of the alleged fraud on the plaintiff or whether the said funds was the proceeds of crime.

26.  I accept that this may be a valid defence against claims of knowing receipt and claims based on unjust enrichment.

27.  As to the defence of change of position, I also agree with Mr Lau that there is evidence to show that the defendant has changed his position by paying the equivalent sum in RMB and his position would be worst off if he was ordered to make restitution.

28.  As such, it must be said that, at the very least, the defendant has “clear prospect of success” with regard to these two defences.

29.  I also note that the plaintiff bears the burden of proof to trace the funds through into the D’s account and the fact that the police did not pursue any criminal charge against the defendant.

Conduct of the defendant

30.  In the current action, the defendant has provided the following explanation: he was in UK initially and encountered difficulties in finding and instructing a Hong Kong law firm. In January 2020, he was able to come to Hong Kong to attend a hearing acting in person to try to explain his situation. He was directed by court that he should submit evidence to explain such. However, he subsequently left Hong Kong for his family in Iran after the Iran aircraft tragedy on 8 January 2020 (in the midst of rising US-Iran tension). Due to the Covid travel restrictions, he found himself stuck in Iran. He did attempt to send the evidence to court with a self-prepared statement which he thought was sufficient. His plan to return to Hong Kong for the 30 September 2020 hearing was delayed due to cessation of air travel between Iran and Hong Kong and also the fact that he had himself contracted Covid. His plans to instruct lawyers remotely from Iran were hampered by the fact that the court papers were left in Hong Kong and Guangzhou. At the end, he sent a representative to attend court but this was not allowed by the court.

31.  I have considered Alan Chung Wah Tang and Kan Lap Kee (Joint and Several Liquidators of Wan Hin and Co Ltd (in liq)) v Chung Chun Keung [2021] HKCFI 369. Here, similarly, I note that the defendant has attended a hearing in person and sent a representative to another. This showed that the defendant was far from wholly ignoring the proceedings. I also take into account matters outside the control of the defendant like the international crisis, Covid travel restrictions and the defendant’s illness which must have created huge and unexpected problems for the defendant.

32.  Further, I also note that the defendant, now in Hong Kong, has taken prompt action to apply to set aside the Default Judgment.

Conclusion

33.  In the circumstances, I am minded to set aside the Default Judgment but under appropriate terms to provide security for the plaintiff.

34.  I note that there is already a Mareva Injunction in place so the plaintiff is protected in any case. However, Mr Lau proposed that a better protection would be for an order for the Mareva Injunction to be varied to allow the defendant to pay a sum of US$77,474 out of D’s account into court afterwhich the Mareva Injunction be discharged.

35.  I agree that this would be a just solution which would provide an appropriate protection for the plaintiff whilst allowing the defendant assess to his banking facilities again. (See In re Peak Hotels and Resorts Ltd (in liq) Crumpler and another v Candey Ltd [2018] EWCA Civ 2256)

36.  I would therefore grant the following orders:-

(i)  The defendant do pay the sum of US$77,474 (or its equivalent amount in Hong Kong dollars) into court;

(ii)  The Mareva Injunction granted by HHJ Harold Leong on 16 October 2019 (“the Mareva Injunction”) and continued until further order of the court by HHJ Harold Leong on 30 September 2020 be varied to the extent so as to allow the payment in paragraph (i) above to be made from the defendant’s account maintained with the Bank of China (account no. 012-591-2-005660-6);

(iii)  Upon compliance with paragraphs (i) and (ii) above as certified by the defendant’s solicitors:-

(a)  The Order made and the Judgment handed down by HHJ Harold Leong both dated 30 September 2020 be set aside;

(b)  The Mareva Injunction be discharged;

(c)  Leave be granted to the defendant to defend this action by acknowledging service and giving notice of intention to defend with 14 days of compliance being certified; and

(d)  Leave be granted to the defendant to file and serve his Defence within 28 days thereafter.

(iv)  Costs of the hearing be to the plaintiff to be taxed if not agreed. The Plaintiff’s own costs until 25 May 2021 be taxed in accordance with the Legal Aid Regulations.