WRE INVESTMENTS LLC v. SMW LTD

HCA 1746/2022

[2023] HKCFI 1893

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1746 OF 2022

________________________

BETWEEN

________________________

________________________

J U D G M E N T

________________________

A. Introduction

1.  This is the Plaintiff’s application for summary judgment of a sum defrauded out of it.

2.  The Plaintiff is a company registered in the USA (“Plaintiff’s Account”) with a registered office in Houston, Texas. It holds a bank account no. 5xxx5xx5x at Frost Bank in USA. Mr Webster was its sole director. Ms Romero assisted Mr Webster in handling the banking affairs of the Plaintiff.

3.  An Impersonator sent fictitious emails to Frost Bank from the email address of Ms Romero to Frost Bank and eventually:

(1) Made himself a new authorized signatory in respect of the Plaintiff’s Account;

(2) Used his phone number as the primary contact number of the Plaintiff’s Account; and

(3) Gave False Instructions over a telephone call to deceive Frost Bank to remit US$3,550,000 (“the Sum”) to the Defendant’s Account no. 38xxxx10xxxx301 (“Defendant’s Account”) held with the Bank of Communications (Hong Kong) Ltd (“BOCOMHK”).

4.  Frost Bank remitted the Sum on 28 November 2022 to the Defendant’s Account (“the Remittance”) as instructed.

5.  It would normally take 3 to 5 business days for the remittance of international transfers. The Defendant received the Sum, with part of it automatically applied to bank charges, leading to a final credit of US$3,549,985.

6.  The Remittance was one of 3 fraudulent transfers undertaken by the Impersonator from the Plaintiff’s Account. The other 2 do not form the subject matter of this action.

7.  On or around 30 November 2022, Frost Bank was notified by an investigator from First Citizens Bank, the beneficiary bank of one of the other fraudulent transfers, that they were uncomfortable with that transfer and would return it to Frost Bank/the Plaintiff’s Account. Frost Bank tried to contact the Plaintiff.

8.  On the following day, Ms Romero called Mr Garrett (employee of Frost Bank’s internet fraud operations) and confirmed that Mr Webster and Ms Romero herself were not aware of, amongst others, the False Instructions and the Remittance, did not know who the Impersonator was and that anything said and done by the Impersonator was unauthorized. Ms Romero thus discovered the fraud and reported to Mr Webster.

9.  A report was filed with the Hong Kong police on 2 December 2022 on behalf of the Plaintiff; and on 8 December by Frost Bank.

10.  There had not been any withdrawals from the Defendant’s Account between 2 and 6 December 2022 when that Account had been temporarily frozen by the Hong Kong police.

11.  On 12 December 2022, the Plaintiff obtained an interim proprietary and domestic Mareva injunction from Recorder Eugene Fung SC restraining the Defendant from disposing of assets within Hong Kong up to the value of the Sum. The order was continued by DHCJ H Au-Yeung on 23 December 2022 until trial.

12.  The Defendant has filed a Defence stating that it had entered into a contract for the sale and purchase of prefabricated house containers with the Plaintiff. The Defendant denies knowledge of or participation in the fraud.

13.  The Plaintiff has sought discovery from the Defendant and BOCOMHK.

14.  On 12 May 2023, the Plaintiff took out the present summons for summary judgment, alternatively for interim payment (“the Summons”). I am satisfied from the second affirmation of Suen Hoi Yu filed on 12 June 2023 that the Plaintiff has served the Summons, and supporting affirmations of the Plaintiff on the Defendants, then solicitors on record, Hogan Lovells, in May 2023; and the skeleton submission of the Plaintiff on Hogan Lovells on 7 June 2023.

15.  The Defendant’s solicitors ceased acting from 8 June 2023. The same documents were served by the Plaintiff by insertion into the letter box of the registered address of the Defendant. The Defendant has apparently abandoned this action since. Despite these, the Court still has to be satisfied that the Plaintiff is entitled to judgment.

B. Legal principles for granting summary judgment

16.  It is trite that in an application for summary judgment, if the plaintiff’s application is properly constituted, he is prima facie entitled to judgment unless the defendant is able to raise triable issues or some other reasons for trial.

17.  In assessing whether there are triable issues, the Court would not take the alleged defence at its face value but would test it against the evidence disclosed in the affidavit, including the contemporaneous documents, whether the defence is inconsistent with the defence previously put forward or whether the defence is only recently raised despite opportunity being given to the defendant to respond earlier. The Court will also consider the inherent probability of the defence. The Court will not embark on a mini-trial on affidavits: Hong Kong Civil Procedure 2023, Volume 1, §14/4/9A.

C. Legal principles applicable to the causes of action

18.  The Plaintiff’s causes of action are in constructive trust, unjust enrichment, knowing receipt and dishonest assistance.

19.  A thief or fraudulent recipient holds the stolen property on constructive trust for the true owner: RPB SA v Xinwangyi Trade Ltd [2022] HKCFI 2541, §12(1), DHCJ Chang SC.

20.  To establish unjust enrichment, the plaintiff must show that the defendant was enriched, at the plaintiff’s expense, that the enrichment was unjust and that the defendant has no defence.

21.  The causes of action in knowing receipt and dishonest assistance are irrelevant as this is not a case involving more than one tier of fraudulent recipients.

D. Analyses

22.  The Plaintiff denies knowing the Defendant until the fraud was discovered. Given the fraud as set out above, the Defendant is a thief who holds the Sum on constructive trust for the Plaintiff.

23.  The Defendant was enriched at the expense of the Plaintiff who was the source of the Sum. The enrichment was unjust as the Defendant had no entitlement to the Sum.

24.  As for the pleaded defence, the broad outline is as follows:

(1) In or around August 2022, the Defendant allegedly entered into a contractual arrangement with the Plaintiff for the supply and delivery of prefabricated houses containers to the Plaintiff (“P-D Contract”). Those houses were purchased by the Defendant from Shanghai Star House Co. Ltd (“D-Star House Contract”).

(2) 3 months later, on 28 November 2022, the Defendant purportedly issued an invoice to the Plaintiff (“P-D Invoice”) in respect of the Defendant’s supply and delivery of 100 quantities of the purported prefabricated houses at US$35,500 each, totaling US$3,550,000.

(3) By a series of email between Mr Sze Ming Wai (“Mr Sze”), the sole director of the Defendant, and an alleged Mr David Walker of the Plaintiff and upon Mr Walker’s confirmation to Mr Sze for payments made, the Defendant arranged a purported Bill of Lading to be issued. However, the Defendant has not pleaded the details of the alleged series of emails between Mr Sze and Mr Walker.

(4) On 2 December 2022, pursuant to the overseas remittance details received from BOCOMHK on the same date, the Defendant received US$3,549,985, which were purportedly the sales proceeds from the Plaintiff in respect of the Defendant’s supply and delivery of 100 prefabricated houses.

(5) These prefabricated houses were allegedly contained in a 20” container with gross weight of 14,178.291 kg and delivered from Humen, China to Los Angeles, the USA by way of the Bill of Lading shipped on board on 6 December 2022.

(6) In this transaction with the Plaintiff, the Defendant allegedly made a profit of US$350,000.

(7) The Defendant denied knowledge of the fraud or participation in it.

25.  The Plaintiff was a privately-owned investment company with Mr Webster as its sole director and Ms Romero as his assistant. The Plaintiff says that there were no other employees, and certainly not someone by the name of Mr Walker. The Defendant has not filed any affirmation in rebuttal.

26.  The Plaintiff denies the P-D Contract as it had had no dealings with the Defendant at all. Limited documents were produced by the Defendant whilst it was represented. What were produced hardly answered the Plaintiff’s queries raised in the Reply. I just highlight a few:

(1) There were no pre-contract emails or correspondence produced by the Defendant showing negotiations.

(2) The P-D Contract was pre-dated 26 August 2022 and yet it was purportedly only signed on 10 November 2022. The Defendant has never given any explanation why it took 3 months to conclude the Contract.

(3) Similar to §(2) above, the D-Star House Contract was also pre-dated 26 August 2022 but executed on 30 November 2022.

(4) The purported invoice issued by Shanghai Star House was dated 21 November 2022, pre-dating the execution of the Purported D-Star House Contract.

(5) Both the P-D Contract and the D-Star House contained nearly identical terms. There are no contemporaneous documents adduced by the Defendant (such as those on pre-contractual negotiations) proving the existence of either contractual arrangement.

(6) Despite the Plaintiff’s express denial of ever receiving the P-D Invoice, the Defendant has not produced proof of delivery of that Invoice.

(7) Public records show that the alleged shipment by the Bill of Lading was false:

(a) Pursuant to the record of Saga Beija Flor’s port calls maintained by Vessel Tracker, the vessel, Saga Beija Flor, was not docked at any port between 30 November 2022 and 12 January 2023.

(b) Further, the check digit, ie GESU6452943, set out in the Bill of Lading does not correspond with any of the check digits maintained by the Bureau International des Containers et du Transport Intermodal (“BIC”). BIC does not have any record of the container purportedly shipped aboard Saga Beija Flor.

(8) The Defendant’s documents do not show how and when payment was made to Shanghai Star House and how the Defendant made a profit of HK$350,000.

(a) The undisputed fact is that the Defendant received the Sum on 2 December 2022. Even on the Defendant’s own case, it had only one business day to make payment to Shanghai Star House before the prefabricated houses could be shipped on board the vessel. The Defendant’s Account was frozen by the Hong Kong police. Based on the consolidated statements of the Defendant’s Account, there were no withdrawals from the Defendant’s Account between 2 and 6 December 2022 and the Sum (less bank charges) remained intact.

(b) Based on disclosure by Mr Sze pursuant to Recorder Eugene Fung SC’s disclosure order, apart from the balance in the Defendant’s Account, the Defendant did not have any other assets of an individual value of HK$20,000 or more.

(c) Accordingly, the inference is that the Defendant did not have financial means to pay Shanghai Star House before the prefabricated houses were shipped on board.

(d) The Defendant has not shown how Shanghai Star House had otherwise been paid.

(e) It was unbelievable that without payment Shanghai Star House would have shipped the prefabricated houses.

27.  The Defendant has also produced some emails that were fraught with inaccuracies and inconsistencies. By way of example,

(1) In a purported email from Mr Sze to the Alleged Mr Walker’s Gmail address dated 1 October 2022, Mr Sze allegedly referred to a phone conversation “today the 3^rd of August”.

(2) In the same email, Mr Sze purportedly attached copies of the P-D Contract. However, the purported emails suggested that the terms of the P-D Contract could not have been agreed prior to 15 November 2022 (at the earliest).

(3) In a purported email from Mr Walker to Mr Sze dated 1 August 2022, Mr Walker states that “[he] checked [the Defendant’s] website”. However, at all material times, there was and is no publicly available website belonging or appearing to belong to the Defendant.

(4) In purported emails from Mr Walker to Mr Sze dated 24 August and 24 October 2022, Mr Walker referred to William Walker and “Samual” respectively, both allegedly employees of the Plaintiff, which the Plaintiff confirmed to be fictitious.

(5) The date formats differed across the purported emails disclosed by the Defendant. For example, August has been displayed as “August” and “AUG”.

(6) The Plaintiff’s address appearing at the bottom of Mr Walker’s signature block, in each of the emails was 4521 Westside Dr, Dallas, Texas, 75209, United States. It differed from and is inconsistent with the Plaintiff’s purported address appearing in the Purported P-D Invoice, Bill of Lading, and P-D Contract, ie 1 Hidden Valley Airpark, Shady Shores, 76208-7331, TX, USA (“Hidden Valley Address”). At all material times, the Plaintiff had not used the Hidden Valley Address at all.

28.  For the reasons given, the Defendant’s case lacked commercial sensed, was contradicted by public records. The Defendant fails in showing a defence capable of belief or any triable issues.

E. Reliefs

29.  The Plaintiff is entitled to return of the Sum and an account of the profits.

30.  The Plaintiff seeks a declaration that:

(1) The Defendant wrongfully obtained and holds the sum of US$3,550,000 (the “Sum”) that it received from the Plaintiff as constructive trustee;

(2) The Plaintiff is the beneficial owner of the Sum; and/or

(3) The Defendant is liable to return the Sum to the Plaintiff together with all profits generated therefrom;

31.  It is not the normal practice of the court to grant a declaration without going through trial. However, it is a rule of practice and not of law, and will give way to the paramount duty of the court to do the fullest justice to the plaintiff to which he is entitled and put the money out of reach of competing creditors. In a number of cases, the court has granted declaratory relief on the basis that there was a genuine need for such relief to secure the plaintiff’s proprietary as opposed to mere personal claim: Creative Impact (Hong Kong) Ltd v Luckon Travel Ltd and Another [2021] HKCFI 1552, §§19-20, Au-Yeung J. This is one of those instances where the Plaintiff is clearly entitled to a proprietion claim over the Sum. I will grant the declaratory sought to the Plaintiff.

32.  Given the grant of judgment, it is not necessary to order interim payment.

F. Conclusion

33.  I give judgment to the Plaintiff as follows:

(1) A declaration as per §30 above;

(2) An order that the Defendant shall repay the Sum to the Plaintiff within 7 days from the date of this Order;

(3) Interests on the Summons at judgment rate from the date of judgment to the date of payment;

(4) An order that the Defendant shall account for all profits generated therefrom to the Plaintiff within 7 days from today; and

(5) On a nisi basis, costs of this action, including costs of the application for and continuation of the injunction, the disclosure summons against BOCOMHK and this Order 14 Summons be paid by the Defendant to the Plaintiff, summarily assessed at $1,000,000.

34.  I thank counsel for his assistance.