AXHT CO LTD v. SOE KIN FAI

HCMP 1223/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1223 OF 2017

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JUDGMENT

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Introduction

1.  This is the application of the plaintiff (“P”) by originating summons for, among other things:

(i)   a declaration that the sum of HK$361,444.83 (“the Sum”) and interest accrued thereon in the bank account held by Soe (“D”) with the DBS Bank (“R”) in the name of Wing Wo Lung Co Ltd (“WWL”) were funds held on trust for P; and

(ii)   an order against R for the immediate release and transfer of the Sum to P.

2.  D has been absent through the proceedings and his whereabouts are unknown.  R has expressed that they take a neutral stance in the matter and do not seek to be heard.  The present application is thus uncontested.

3.  Shortly stated, based on the uncontradicted supporting affirmation filed on P’s behalf,^[1] D had committed a fraud against P by means of false documents and induced the latter, a money lender, into believing that D was authorized to obtain mortgage loans over a property owned by WWL.  As a result, D obtained from P a total of $22 million by way of two mortgage loans.  The Sum, which was part of the proceeds of the fraud, has remained in the account opened by Soe with R in the name of WWL.  WWL has confirmed that it has nothing to do with the fraud, the bank account opened in its name and the Sum.  P now seeks declaratory and other reliefs from the court so that they can have the money back.  The Police has been informed and they have no objection to P taking legal action to seek the return of the Sum. 

Issues

4.  There are now three issues before the court, namely:

(1)   whether P has a proprietary interest over the Sum in the bank account;

(2)   whether it is appropriate to deal with the application and grant the declaration and other reliefs in D’s absence; and

(3)   whether a vesting order should be made against R rather than D.

Consideration

5.  I am grateful to Mr Edward Tang, counsel for P, for his very helpful written and oral submissions.

As to (1): proprietary interest

6.  There can be little dispute that, P, as a person who was induced to pay money by a fraudulent misrepresentation, has a sufficient equitable title to trace the loans which it advanced, that D holds the loans on constructive trust for P and that P thereby has a sufficient title to reply on the equitable rules of identification: Westdeutsche Landesbank Girozentrale v Islington London Borough Council,^[2] applied in Armstrong DLW GmbH v Winnington Networks Ltd^[3]and Michael Chen Kang Huang v Peter Lit Ma.^[4]

7.  I find therefore that P has a proprietary interest in the Sum which represents part of the proceeds of the mortgages loans that D had fraudulently obtained from P.

As to (ii): D’s absence

8.  Having considered the affirmations of service filed on P’s behalf,^[5] I am satisfied that the papers have been validly served on D by way of ordinary post to one of his two last known addresses without being returned.  There is nothing to suggest that D has been out of Hong Kong: see Order 10, rule 1(2)(b) & rule 5, Rules of the High Court. 

9.  As regards applications in chambers, the court is generally empowered to proceed with a summons at its first or any resumed hearing in the absence of a party thereto if it, having regard to the nature of the application, thinks that it is expedient to do so: Order 32, rule 5(1), RHC.  As regards an application by way of originating summons in particular, an order can be made against a defendant who does not appear at the hearing, subject to the court’s power to vary or revoke by a subsequent order on such terms as it thinks just: Order 28, rule 4(1), RHC. 

10.  As regards declaratory reliefs, it has been the practice of the court to grant those only after trial.  However, this is just a rule of practice rather than 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: see generally, Hong Kong Civil Procedure 2017, at §15/16/2.  See also Lai Wai Kuen v Wong Shau Kwong,^[6] where Lam J (as he then was) granted an order in favour of a claimant who had a genuine need for the declaratory relief and in circumstances where such relief could properly be granted based on the merits of the case.

11.  In the present case, I am satisfied that the circumstances are such that it is appropriate to proceed with the hearing of the application in D’s absence and that there are substantial merits in P’s case based on which declaratory relief could properly be granted in spite of D’s absence.  I am satisfied that P has a genuine need for the declaratory relief sought.  These conclusions are based on the following considerations:

(a)   D has disappeared for almost two years since October 2015 and given that D’s conduct may attract criminal liability it is totally uncertain as to when he would appear, if ever;

(b)   there can be little dispute that P is a victim of D’s fraud and it has a proprietary claim over the Sum and the interest accrued;

(c)   D on the other hand can have no right to the Sum and the interest;

(d)   both WWL and R have expressed no objection to P’s application; and

(e)   it would be unjust if P cannot not have its money back simply because D has chosen to hide himself. 

12.  I draw comfort from the fact that other judges have also granted declaratory reliefs in similar factual situations, eg, Mesirow Financial Administrative Corporation v Best Link Industrial Co Ltd^[7] and Guaranty Ban and Trust Company v ZZZIK INC Ltd v The Hongkong and Shanghai Banking Corporation Ltd.^[8]

As to (3): vesting order

13.  The relevant parts of section 52, the Trustee Ordinance, Cap 29 provide as follows:

“ (1) In any of the following cases, namely—

…

(e) where … a thing in action is vested in a trustee … and it appears to the court to be expedient,

the court may make an order vesting the right … to sue for or recover the thing in action, in any such person as the court may appoint:

…

(5) The court may make declarations and give directions concerning the manner in which the right to transfer any … thing in action vested under the provisions of this Ordinance is to be exercised.

…”

14.  In the present case, I agree with the submissions of Mr Tang that it is appropriate to make a vesting order against R in favour of P for the following reasons:

(i) WWL is not the real holder of the bank account and it does not have any power, control or authority over the same.  Moreover, it has already disavowed any interest in the money in question;

(ii) R similarly has taken a neutral stance in the matter and has indicated its willingness to abide by any order to be made by the court;

(iii) if P obtains an order solely against D requiring him to remit the Sum back to P, such order is unlikely to be enforceable for obvious reasons; and

(iv) without a vesting order against R, the Sum would likely to be left in “limbo” in the bank account.

Conclusion

15.  Based on the above, I find in P’s favour in relation to all of the three issues.  Mr Tang has reasonably agreed that there be no order as to costs.

16.  Therefore, I make the following orders as requested by Mr Tang in his written submission which, I am given to understand, are agreed to by R, namely:

(1)   a declaration that the sum of HK$361,444.83 and all interest accrued on the amounts transferred to and deposited in the account number 786038294 held by the defendant in the name of Wing Wo Lung Company Limited, with the respondent since 5 November 2015 (“the Sum”) is money held on trust for the plaintiff;

(2)   the respondent is to release the balance of the Sum net of any bank charges payable to the respondent within 7 working days from the date of service of the Order to be made by way of cashier order made payable to AHXT Company Limited; and

(3)   there be no order as to costs.