MEDIC FIRST AID INTERNATIONAL INC. v. START EASY DEVELOPMENTS LTD

HCA 935/2019

[2020] HKCFI 1059

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 935 OF 2019

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J U D G M E N T

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Background

1.  The Plaintiff by Summons dated 12 March 2020 (“the Summons”) seeks judgment in default of defence, pursuant to Order 19 rule 7 of the Rules of High Court (Cap 4A), to be heard on the papers.  As such, the Court is required to scrutinise the matters pleaded in the Statement of Claim to determine whether the Plaintiff is entitled to the judgment sought, making its determination on the basis of pleaded facts rather than on evidence.

Outline of the pleaded facts

2.  The Plaintiff is a company incorporated in the United States of America and is wholly owned by Health & Safety Institute (“HSI”), whilst the Defendant is a company incorporated in Hong Kong.

3.  The Plaintiff’s pleaded case is that it is the victim of an email fraud leading to a wire transfer, on or about 28 September 2018, of USD 850,000.00 (“the Subject Sum”) from its bank account held at U.S. Bank Corporation (“the Plaintiff’s Bank Account” and “the USBC” respectively) to the Defendant’s bank account maintained with the Bank of China (Hong Kong) Limited (“the Defendant’s Bank Account” and “the BOCHK”).

4.  The fraud is said to have been perpetrated by unknown person(s) hacking an email account belonging to HSI’s Chief Finance Officer (“the Compromised Email Account”), and using the Compromised Email Account to read and delete emails, and send emails in the name of the HIS’s Chief Finance Officer (“the CFO”).

5.  The Plaintiff has pleaded that:-

(1)  On 26 September 2018, a fraudulent email was sent by the perpetrator(s) from the Compromised Email Account to USBC attaching a wire transfer form stating the amount of the Subject Sum to be transferred to the Defendant’s Bank Account, and containing the forged signature of the vice president of client services, technical support and contract management of HSI (“the Vice President”).  In the reply email to the Comprised Email Account on even date, USBC requested the CFO to sign and resend the wire transfer form, as the Vice President was not an authorised signatory to the account.

(2)  Another fraudulent email was sent by the perpetrator(s) from the Compromised Email Account to USBC on the same day, attaching a wire transfer form stating the amount of the Subject Sum to be transferred to the Defendant’s Bank Account, and containing the forged signature of the CFO.

(3)  A representative of the USBC then called the CFO and left a voice message saying that the bank had received the wire transfer request and asking the CFO to confirm such request.  This voice message was automatically forwarded by the HSI’s telephone system to the Compromised Email Account via email.  It is pleaded that the perpetrator(s) who had access to the Compromised Email Account received this email, listened to the said voice message and fraudulently requested USBC to comply with the forged instructions to confirm the wire transfer of the Subject Sum to the Defendant’s Bank Account.

(4)  The USBC then sent an email to the Compromised Email Account confirming the wire transfer of the Subject Sum had been completed.

(5)  The above emails were not in fact sent by the CFO or the Vice President.  They were deleted from the Compromised Email Account and retrieved subsequent to the discovery of the fraud. 

(6)  The Plaintiff then reported the fraud to the authorities in both Hong Kong and the United States.

(7)  Save for the above matters, the Plaintiff has never had any prior or current dealings, or any contact with the Defendant or its shareholder or director.

6.  Having scrutinised all the matters pleaded in the Statement of Claim, I have concluded that the same establish the fraud alleged by the Plaintiff and the dishonest participation of the Defendant in the same which has caused the loss claimed by the Plaintiff, and that the Plaintiff is entitled to the judgment sought.

Service of process

7.  A Writ of Summons was issued on 29 May 2019 (“the Writ”) and the Statement of Claim was filed on 4 June 2019 (“the SOC”).  The claim is based upon fraud, money had and received and unjust enrichment.  The Plaintiff seeks, inter alia:

(1)  a declaration that the Subject Sum in the Defendant’s Bank Account is held on trust for the Plaintiff;

(2)  an order that the Subject Sum be forthwith released and returned to the Plaintiff; and

(3)  injunctive order as the Court sees fit.

8.  The sealed copy of Writ and a copy of SOC were served on the Defendant’s registered office on 4 June 2019. 

9.  No Acknowledgement of Service, Notice of Intention to Defend or Defence has been filed.  The present Summons for judgment in default was issued on 12 March 2020.  The Summons itself seeks judgment “in terms of the attached draft”. Thereafter, Counsel for the Plaintiff submitted written submissions dated 1 April 2020 seeking “an order in terms of the Draft Order”.  This Draft Order as appended to Counsel’s submissions is more detailed than the earlier “attached draft”.  I have assumed that what is now sought is an order in terms of the “Draft Order”, and have proceeded accordingly.

10.  The Draft Order seeks the following:-

“1. The Defendant having failed to give Notice of Intention to Defend and failure to serve its Defence within the time prescribed, final judgment be entered for the Plaintiff against the Defendant for:

(a) A declaration that the Defendant is holding the sum of USD 850,000.00 (or its Hong Kong Dollars equivalent) as originating from the Plaintiff’s Bank Account held at U.S. Bank Corporation to the Defendant’s Bank Account held at Bank of China (Hong Kong) Limited (or any part thereof) together with the fruits and proceeds thereof on constructive trust for and on behalf of the Plaintiff and that the Plaintiff is the beneficial owner of the same; and

(b) An order directing the Defendant to pay or release or transfer the Subject Sum of USD 850,000 (or its Hong Kong Dollars equivalent) or any part thereof to the Plaintiff.

2. The Plaintiff’s costs in this Action, including all costs reserved and the costs of this application, be payable to the Plaintiff by the Defendant.

3. Liberty to apply for further directions.”

11.  The Summons and the supporting affidavit together with exhibits were served on the Defendant’s registered office by ordinary post on 12 March 2020.

12.  By a letter dated 23 March 2020 to the Plaintiff’s solicitors and the Defendant, Au-Yeung J came to the provisional view that the Summons could be disposed on paper, and invited the parties to express their views in this regard.  In the same letter, Her Ladyship stated that if the Defendant did not reply by 30 March 2020 indicating whether it agrees or objects to the paper disposal, the Court may proceed to dispose of the Plaintiff’s application for default judgement without further notice.

13.  The said letter was served to the Defendant’s registered office by ordinary post on 24 March 2020.  The Defendant has not replied to the letter.

14.  The Hearing Bundle dated 1 April 2020, the Plaintiff’s Skeleton Submissions together with the Draft Order and List of Authorities were also served to the Defendant’s registered office on 1 April 2020.  I am satisfied that the service of documents on the Defendant has been properly complied with.

Declaratory Relief

15.  The approach to be taken by the Court when dealing with applications which seek default judgment for declaratory relief has been succinctly summarised by DHCJ Stock, SC in Sultana Distribution Services Inc v Hongkong Fuheng Technology Co Limited [2018] HKCFI 1480:

“7. The principles applicable to an application under Order 19, rule 7 have been discussed in several recent cases which concern alleged email frauds. The power to grant judgment under rule 7 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.

8. 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.” (emphasis added)

16.  In Spruce Australia Pty Ltd v New Senjia Trade Limited [2019] HKCFI 101, DHCJ Yeung, SC (as he then was) held that:

“16. I have considered the contents of the Statement of Claim. The pleaded facts clearly support the plaintiff’s case that it is the victim of an email fraud, and that it has suffered loss in the amount of the Sum. Constructive trust also attaches—Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669, per Lord Browne-Wilkinson at 716C–D, and 巨展皮具 at paragraph 27. The plaintiff appears entitled to relief based on its proprietary interest in the Sum. I bear in mind the fact that declaratory relief is being sought. I need to bear in mind the rules of practice set out above and decide how I should exercise my discretion. I take into account the fact that fraud is pleaded and deemed established. I take further into account the fact that nothing is known about the defendant, including whether it has any other creditors. The plaintiff has a genuine need for the Declarations sought, so as to avert any need for it to race against other creditors. The Declarations sought are also necessary for the plaintiff to hopefully get to the balance in [the bank account of the defendant] for full or partial satisfaction of the monetary judgment. In all the circumstances, I am satisfied that the facts of the present case are such that I should exercise my discretion in favour of granting the declaratory relief sought.” (emphasis added)

17.  The Plaintiff submits that it has a genuine need for declaratory relief “to earmark the stolen sum keeping it out of reach of the Defendant’s general creditors”. Applying the principles noted above, I accept there is a need to secure the Plaintiff’s proprietary as opposed to merely personal claim, and that I should exercise my discretion in favour of granting the declaratory relief sought. 

Disposition

18.  There be an order in terms of paragraphs 1, 2 and 3 of the Plaintiff’s Draft Order as set out in paragraph 10 of this judgment.