SULTANA DISTRIBUTION SERVICES INC. v. HONGKONG FUHENG TECHNOLOGY CO., LTD

HCA 661/2018

[2018] HKCFI 1480

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 661 OF 2018

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REASONS FOR DECISION

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1.  This is the plaintiff’s application for judgment in default of defence, pursuant to Order 19, rule 7 of the Rules of the High Court.

2.  The plaintiff is a company incorporated in the state of New York, USA, whilst the defendant is a company incorporated in Hong Kong.

3.  The plaintiff’s pleaded case is that it is the victim of email fraud leading to a wire transfer, on 27 November 2017, of US$240,250 from the plaintiff’s account with PNC Bank, NA, to the defendant’s account (“Defendant’s Account”) with The Hongkong and Shanghai Banking Corporation Ltd (“HSBC”) in Hong Kong. The fraud is said to have been perpetrated by unknown person(s) hacking an email account belonging to the plaintiff’s CEO, and using that account to send emails purportedly from the CEO to company personnel, giving instructions for the wire transfer.  The emails were not in fact sent by the CEO.

4.  On 23 March 2018, Deputy High Court Judge Marlene Ng granted a Mareva injunction in respect of the defendant’s assets in Hong Kong, including the Defendant’s Account.  On 6 April 2018, Anthony Chan J granted a proprietary injunction over the US$240,250 which was paid by the plaintiff into the Defendant’s Account.  Further, the learned judge continued the Mareva injunction until trial or further order.

5.  The Statement of Claim states that according to bank statements provided by HSBC, the US$240,250 which was subject of the wire transfer, remains in the Defendant’s Account.

6.  The defendant has not entered an appearance. The plaintiff now seeks: (i) judgment for US$240,250; (ii) a declaration that the said sum transferred to the Defendant’s Account remains the plaintiff’s property and is held on constructive trust; and (iii) continuation of the injunctive relief until payment or further order.

PRINCIPLES

7.  The principles applicable to an application under Order 19, rule 7 have been discussed in several recent cases which concern alleged email frauds [1]. 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 [2].

SERVICE

9.  On the evidence before me, I am satisfied that the plaintiff has duly served on the defendant (amongst other things) the writ, the Statement of Claim, and the summons for this application.

ENTITLEMENT TO THE JUDGMENT AND ORDERS SOUGHT

10.  The plaintiff asserts claims for unjust enrichment, and as the beneficiary of a constructive trust.  The relevant principles of substantive law are canvassed in the authorities referred to above.

11.  This is a straightforward case where the funds were apparently paid to the Defendant’s Account pursuant to a fraud, and presently remain in the Defendant’s Account.  On the basis of the pleaded facts, I am satisfied that plaintiff’s claims are made good, including its proprietary claim to the relevant funds.

12.  Further, for the reasons set out in the other recent authorities concerning email frauds (referred to above), I consider that there is a genuine need for declaratory relief in respect of the proprietary claim, which I grant.  I also continue the injunctive relief as an aid to enforcement. 

DISPOSAL

13.  For the above reasons, at the hearing I made orders including to the following effect (the details of which are contained in the order as drawn up):

(1)   Judgment be entered against the defendant in the sum of US$240,250, with costs.

(2)   It be declared that the sum of US$240,250 transferred by the plaintiff to the Defendant’s Account on 27 November 2017 is and remains the plaintiff’s property and was received by and held by the defendant on constructive trust for the plaintiff.

(3)   The injunctive relief be continued until payment or further order.