MUHAMMAD DEEB ABD ALRAZZAQ AY TOUGHLU v. BUSINESS CENTER TRADE CO., LTD

DCCJ 4225/2020

[2021] HKDC 730

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4225 OF 2020

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

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

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

REASONS FOR DECISION

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

1.  The plaintiff claims that he was defrauded into transferring a total sum of US$174,739 to a bank account held in the defendant’s name. The defendant’s case is that it received the said total sum pursuant to and in performance of a written contract for the supply of certain garments by its associated company to a third party.

2.  Before me for determination were the following 2 summonses:-

(a)  The defendant’s summons dated 4 January 2021 to set aside the judgment entered on 28 October 2020 upon default to file a Notice of Intention to Defend (“D’s Summons”); and

(b)  The plaintiff’s summons dated 26 January 2021 applying for a Mareva injunction to be imposed against the defendant’s assets in Hong Kong to the extent of US$174,739.

3.  I first heard the parties on D’s Summons.  Having done so, I ordered the default judgment be set aside with the defendant paying the plaintiff his costs of and incidental to D’s Summons.  I said written reasons would be given. 

4.  Upon further discussion with the parties, including the Court raising with the parties that the plaintiff’s cross-undertaking as to damages, if a Mareva injunction be imposed, should in the circumstances be fortified, the parties came to an agreement regarding the imposition of a Mareva injunction on narrower terms – just enjoining the defendant from withdrawing the money (HK$256,268.23) presently sitting in the Account (defined below) and upon the plaintiff paying into court HK$60,000 to fortify its undertaking.  By consent, a Mareva injunction on the agreed terms was ordered with the costs of its application be made in the cause.

5.  I now provide the reasons for setting aside the default judgment.

The plaintiff’s case and documents proffered in support

6.  The plaintiff is a Kuwait national.

7.  In or around November 2019, the plaintiff was approached by phone and also through Wechat messages by a person who claimed to be a staff of a company called Sabo Global (“the Fraudster”) which company, according to the Fraudster’s representation, could assist the plaintiff to make investments in stocks and Forex Trade for considerable profits.  Unfortunately, the plaintiff was hoaxed and altogether made 6 transfers from his bank account with Gulf Bank in Kuwait to an account designated by the Fraudster, namely, HSBC account number 848-662144-838 held in the name of the defendant (“the Account” and “the 6 Transfers”).  Apparently, there might have been one or two more transfers in smaller amounts made by the plaintiff as a result of this fraud, but such was not made entirely clear from the plaintiff’s affirmation evidence.

8.  The date and amount of the 6 Transfers were:-

Date of transfer	Amount in US$
21 November 2019	$2,000
4 December 2019	$15,000
12 December 2019	$67,000
19 December 2019	$33,000
15 January 2020	$47,739
26 January 2020	$10,000
Total :	$174,739

9.  Suspected of being defrauded, the plaintiff enlisted the help of his son Sam Toglaw (“Sam”), who was a professor in a college in Kuwait, to handle the matter.  On 2 and 3 February 2020, Sam complained to HSBC through the bank’s website and by phone.  On 3 February 2020, Sam on behalf of his father made a formal report to the Hong Kong Police.

10.  The plaintiff was subsequently informed by the Hong Kong Police on different occasions that the Account was frozen and that a balance of about US$32,000 remained in the Account, but that since police investigation has concluded, the Account was liable to be unfrozen soon.

11.  On 20 July 2020, through his solicitors the plaintiff issued a letter before action to the defendant by post addressed to the defendant’s registered address.  No reply was received.  On 13 August 2020, the plaintiff commenced this action.

12.  In support of his case, the plaintiff exhibited (a) 6 remittance advices issued by the Gulf Bank in Kuwait evidencing the 6 Transfers, (b) 1 page of screen capture of his phone showing apparently the phone number of the Fraudster and 3 pages of “Investment Portfolio”, and (c) 31 pages of print-outs of the Wechat conversation between him and the Fraudster exchanged from early December 2019 to mid-March 2021 (mostly in an Arab language that this Court cannot read).

13.  Various written communications with HSBC and the Hong Kong Police were also exhibited; so was Sam’s written statement made to the Hong Kong Police.

The defendant’s case and documents proffered in support

14.  The defendant’s case in gist is this.

15.  It was one of the many companies in the Ahmet Yebrudi Group (“AYG”) which consisted of companies in Turkey, Poland, Hong Kong and the PRC.  AYG’s was involved in investment, trading and the fashion industry.  AYG was owned by Mr Yebrudi Ahmet (“Ahmet”).  It has traded for over 15 years.  AYG’s activities in Hong Kong and PRC consisted of sourcing textile and raw materials for garments and sending them overseas for production into garments or direct wholesale.

16.  The role and purpose of the defendant in AYG was to set up and operate a bank account in Hong Kong, namely the Account, to handle fund flow of foreign currencies of AYG’s business in relation to deals made in the PRC, the nearby countries and the Middle East.  The defendant had no employees, and apparently no office, in Hong Kong.  It was managed by AYG’s personnel in Guangzhou.

17.  In support of this part of its narrative, the defendant’s financial and merchandizing manager Su Qian Yi (“Su”) exhibited, among others, the business registration certificates of the various companies in AYG.

18.  Importantly, she also exhibited the monthly bank statements of the Account covering October 2019 to March 2020.  It can be seen from the bank statements that, in addition to the 6 Transfers, there were many deposits and withdrawals, which were consistent with those of an actively trading company.

19.  In November 2019, Ahmet acquainted one Macid Namir Elmuslat (“Elmuslat”), who said he had a business partner, who was the plaintiff, who was the financial provider of the business.

20.  Eventually on 20 November 2019, a Commercial Sale-Purchase Agreement (“the SPA”) was signed in Turkey between Sava International Group Tekstil Sanayi Ic Ve Dis Tic Ltd Sirketi (“Sava”), which was one of the companies in AYG and situated in Turkey, as “Seller”, Elmuslat as “Buyer” and the plaintiff as “Payer”, whereby and among other terms, Sava would supply garments to Elmuslat in Turkey and would receive payment in USD in Hong Kong via the defendant.  Apparently, Ahmet asked Elmuslat to present the passport or the “civil identity proof” of the plaintiff, which Elmuslat did.

21.  A copy of the SPA was exhibited.  It is a 19-page document, including the annexures.  It was apparently a formal document.  A copy of Ahmet’s passport, Elmuslat’s passport and the plaintiff’s State of Kuwait Civil ID Card were attached.  Attached also was a “Sales Contract” listing out the description of garments to be supplied, their quantities and unit prices.  The contract sum totalled to US$175,000. 

22.  Clause 4.6 of the SPA provided the following payment terms:-

(a)   US$2,000 upon signing the SPA;

(b)   US$113,000 “during December 2019”; and

(c)   US$60,000 “Until January 31,2020”.

23.  The defendant’s case is that the 6 Transfers from the plaintiff matched the 3 tranches of payment, in terms of the amounts and timing, stipulated to be paid by the plaintiff under the SPA, save short by a total of US$261, which was understood to be bank charges.  Su said that the deal went through uneventfully and the defendant had received no complaints.  She exhibited an invoice and a packing list dated 5 February 2020.

24.  The defence case is that in the circumstances, it did not suspect any foul play.

25.  Moreover, in her 2^nd affirmation, Su also provided the details of the payment-out of the money received by the 6 Transfers by listing 13 payments made from the Account to various suppliers of AYG in January 2020 totalling UD$212,472 and exhibited all the corresponding e-Advices of remittance/payment issued by HSBC.  The defendant’s point was that such fund flow bore no resemblance to the typical fund flow of bank accounts manipulated by fraudsters.

26.  Su said that in early 2020, she was informed by Ahmet that the defendant was unable to operate the Account.  She then made enquiries with HSBC but was told that HSBC was conducting an internal data security check.  In July 2020, she was informed that the Account was frozen by the Hong Kong Police.  She then made a number of phone calls with, and sent emails to, the Hong Kong Police to enquire.  At the time not being aware that the plaintiff has issued proceedings against the defendant, Ahmet instructed his lawyer in Turkey who sent a letter dated 1 October 2020 to the Hong Kong Police.  This letter, the emails and certain phone records were produced by the defendant.

Setting aside the default judgment

27.  The defendant did not contend that the default judgment was otherwise then regularly entered.

28.  The principles regarding the application to set aside a regularly entered default judgment are well established and not disputed, and need only to be succinctly stated.  The power to set aside a default judgment regularly entered is discretionary.  Relevant factors to consider may include (a) why the default occurred, (b) the defendant’s conduct after he had notice of the proceedings, (c) whether there was any delay in applying for the setting aside and the explanation for such delay, if any, and (d) any prejudice that would be caused to the plaintiff or to third parties if the default judgment were to be set aside.  The major consideration, however, is whether the defendant has shown a defence on the merits.  In that regard, the defendant must show, not merely an arguable defence, but one that has a real prospect of success.  To do so, he must satisfy the court that his case and the evidence that he adduces in support of it is potentially credible and carries some degree of conviction (§§13/9/12 & 13/9/13 Hong Kong Civil Procedure).

29.  Here, the only reason given for the default was that the defendant did not actually receive the Writ, and that Su was informed by the company secretary sometime in November 2020 about the default judgment.  Evidently, it is not much of an explanation.

30.  However, I note from the Annual Return that the defendant was using the address of the company secretary, which was a secretariat company, as its registered office, and as Su said, the defendant essentially had no presence in Hong Kong.  Considering the fact that the defendant had been communicating with HSBC since early 2020 and since July 2020 also had been communicating with the Hong Kong Police and the fact that it had sent some of the documents it now relies on to the Hong Kong Police to put forth its side of the story, I accept that the default was inadvertent.

31.  After the defendant had notice of the default judgment sometime in November 2020, it took action leading to the issuance of D’s Summons on 4 January 2021.  That being the case, I do not regard there was delay in its action.

32.  I have outlined above the defendant’s case and the documents it produced in support.  On the face of those documents, it seems that the defendant was an active company conducting lawful business in the manner Su described in relation to the defendant’s role in AYG.  Apparently credible documentation was also proffered in relation to the existence and structure of AYG.  The SPA on its face seems legitimate and credible.  The 6 Transfers also were apparently made as payments pursuant to the SPA.

33.  In my view, the defendant has shown that it has a reasonable prospect of success in its defence that it received the 6 Transfers on behalf of Sava and Sava and/or the defendant was a bona fide purchaser for value without notice. That defence, if established, would defeat the plaintiff’s claim.

34.  I take note of the many forensic criticisms made by Mr Chau in his written submissions against the merits of the defence case, including that the SPA lacked commercial sense in that payment were made in tranches before delivery of garments and there was provided therein no due date for delivery, that there was no pre-contractual communication exhibited, that there should have been more documents produced regarding delivery of the garments, and so on.  In my view, some of these may or may not be valid criticisms on the merits of the defence case, but clearly none of them is depository as would readily show that the defendant’s case is incredible or that it does not have a real prospect of success.  These matters should be left to be appropriately ventilated in discovery, if not at trial.

35.  He also submitted that the Court should and could find here and now on present materials that Ahmet was not bona fide when he signed the SPA on behalf of Sava as the plaintiff was not present at the time, and that therefore the defence of bona fide purchaser for value without notice had to fail.  Obviously, whether Ahmet was bona fide would be a much-disputed and fact-sensitive issue and would depend on many matters and the surrounding circumstances.  The issue clearly could not and should not be summarily decided against the defendant now in the manner suggested.

36.  In the premises, I came to the conclusion that in the exercise of my discretion the default judgment should be set aside, and I so ordered.  I also made certain directions to ensure the timely filing of pleadings to move this action forward.

37.  As it was an indulgence sought by the defendant to relief itself from its own default, costs of and incidental to D’s Summons should be paid by the defendant.  Ms Kwong did not contest otherwise and I so ordered with certificate for counsel.  Directions for the summary assessment of such costs on papers were also given.

38.  I thank both counsel for their assistance.