ONSCALE, INC. v. LIUHUAN TRADE CO., LTD

DCCJ 732/2019

[2019] HKDC 236

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 732 OF 2019

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

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

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

DECISION

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

1.  On 14 February 2019, the plaintiff obtained an ex parte worldwide Mareva injunction against the defendant (“the injunction”).  On 15 February 2019, the plaintiff filed a summons for an order to continue the injunction until trial or a further order made by this court.

2.  Having read the evidence on service produced by the plaintiff, I am satisfied that the documents in these proceedings have been duly served on the defendant.

The facts

3.  The plaintiff claims that it is the victim of an email scam, whereby the email accounts of senior executives of the plaintiff were hijacked by unknown fraudsters to make 4 payments to bank accounts in Peru and Hong Kong between 4to 8February 2019:-

Payment	Date	Amount (US$)	Recipient Bank	Account Holder
1	4 February 2019	136,075	Banco De Credito del Peru	Polam Federal Credit Union
2	6 February 2019	198,200
3	7 February 2019	200,000	Bank of Communications (“the Bank”)	Defendant
4	8 February 2019	200,000	Bank of China (Hong Kong)	Hongkong Suihe Limited

4.  The plaintiff is a US company incorporated in Delaware, USA.  It is a hi-tech start-up firm providing a platform for provision of engineering software solutions.  According to the plaintiff, from no later than the beginning of February 2019, the fraudsters began to hijack the email accounts of senior executives of the plaintiff to give forged payment instructions to the plaintiff’s staff.  The plaintiff’s staff had been induced by these fraudulent emails and made the aforesaid 4 payments. The fraud was only discovered on 8 February 2019.

5.  After discovery of the fraud, the plaintiff reported the matter to FBI and to the Hong Kong Police.  On 12 February 2019, the plaintiff’s solicitors requested the Bank (a) to freeze the account (“the Account”) containing the 3^rd Payment and to return the same to the plaintiff; (b) to confirm whether the 3^rd Payment of US$200,000 is still in the Account.  In its reply letter dated the same date, the Bank insisted that the plaintiff has to obtain a court order by noon on 15 February 2019 in order for the Bank to proceed with the plaintiff’s request.

6.  On 14 February 2019, the plaintiff obtained the aforesaid ex parte injunction and an order requiring the Bank to disclose information concerning the Account.  On 19 February 2019, the Bank told the plaintiff’s solicitors that the balance in the Account as at 14 February 2019 was US$200,322.36.

7.  The plaintiff has never had any dealing with the defendant.

Analysis

8.  In order to obtain a Mareva injunction, the plaintiff has to show^[1]:-

(1)  that it has a good arguable case on a substantive claim over which the court has jurisdiction;

(2)  there are assets within the jurisdiction;

(3)  the balance of convenience is in favour of granting the injunction; and

(4)  there is a real risk of dissipation of assets, or removal of assets from the jurisdiction, which would render the plaintiff’s judgment of no effect.

9.  In order to obtain a worldwide Mareva injunction, apart from showing a good arguable case and a real risk of dissipation of assets, the plaintiff has to show that (a) there are no assets or no sufficient assets within the jurisdiction to satisfy the plaintiff’s claim; and (b) that there are assets outside the jurisdiction^[2].

10.  Based upon the evidence before me, I accept Mr Chow’s submissions that the plaintiff has shown a good arguable case against the defendant on the following causes of actions:-

(1)  Unjust enrichment

No doubt, the defendant has been enriched by the 3^rd Payment.  The defendant has provided no consideration in exchange for the payment.  The payment may well be procured by an email scam.  There is evidence in support of the unjust element.

(2)  Proprietary claim based on knowing receipt

(a)  The principles on proprietary constructive trust are as follows^[3]:

(i) Where property is obtained by fraud, equity imposes a constructive trust on the fraudulent recipient, so that the money is recoverable and traceable in equity.

(ii) Even if the recipient is 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, ie the property is held on constructive trust for the claimant.

(iii) Knowledge does not have to be acquired at the time of the receipt, but can be acquired subsequently while the money is still in the recipient’s hands (eg the recipient may gain knowledge of the fraud from any injunction order, pleadings and other court documents served on such recipient).

(b)  There is evidence showing that the 3^rd Payment by well be procured by an email scam.  The defendant is the recipient of the 3^rd Payment.  The defendant may have participation in this scam.  In these circumstances, I am satisfied that the plaintiff has a good arguable case against the defendant based on proprietary constructive trust.

(3)  Dishonest assistance

(a)  Dishonest assistance in a breach of trust is a kind of accessory liability where a third party has wrongfully participated in or assisted a breach committed by a trustee. Such assistance must have been given dishonestly on an objective standard.  Unlike knowing receipt, liability for dishonest assistance does not depend on the defendant’s receipt of trust property^[4].

(b)  In the present case, it is arguable that the defendant has allowed the fraudsters to make use of the Account to receive the 3^rd Payment being proceeds of the fraud which in equity belongs to the plaintiff, and such assistance is given dishonestly as the defendant is a party participating in the fraud.

(4)  Conspiracy

(a)  The elements of an unlawful conspiracy are as follows^[5]:-

(i) There was an agreement between two or more persons.

(ii) The means of carrying out the agreement were unlawful.

(iii) There is an intention to injure (in the case of an unlawful means conspiracy).

(iv) The acts that were carried out were pursuant to the agreement and the stated intention.

(v) Damage was caused to the plaintiff.

(b)  Looking at the evidence in this case, there may well be an agreement between the fraudsters and the defendant to injure the plaintiff by an email scam, and acts have been carried out pursuant to the agreement, causing damage to the plaintiff.  I am satisfied that there is a good arguable case against the defendant based upon conspiracy. 

11.  There is money in the Account.  Obviously there are assets in Hong Kong which can be frozen by an injunction granted by this court.

12.  The circumstances leading to the 3^rd Payment show that the payment may well be procured by some unlawful activities, and the defendant may have taken part in these activities.  In these circumstances, if no injunction is granted, there would be a real risk that the judgment obtained by the plaintiff would go unsatisfied by reason of the disposal by the defendant of their assets.

13.  In my view, there is a real risk of dissipation of assets if the injunction sought is not granted.  At the same time, there is no evidence showing that the defendant would suffer any irreparable damage if the injunction is granted.  The balance of convenience is in favour of granting the injunction.

14.  I would continue the injunction with a variation, ie I would vary the injunction from a worldwide Mareva injunction to a domestic Mareva injunction.  The Bank has confirmed that there are US$200,322.36 in the account, which would be sufficient to satisfy the plaintiff’s claim.  In these circumstances, the proper injunction granted to the plaintiff should be a domestic Mareva injunction.

Disposition

15.  I order that the injunction be continued until trial or a further order made by this court, with the variation set out in this decision.  Costs of the summons and costs of the ex parte application be the plaintiff’s costs in the cause, with a certificate for counsel.

16.  I thank Mr Chow for the helpful assistance provided to the court.