RB HONG KONG LTD v. JIANZHI LTD

DCCJ 3906/2022

[2023] HKDC 161

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3906 OF 2022

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

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

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

REASONS FOR JUDGMENT

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

The Plaintiff’s Summons

1.  This is the plaintiff’s application for judgment in default of Notice of intention to defend as well as of Defence pursuant to Order 19 rule 7 of the Rules of the District Court (Cap 336H) made by summons filed on 21 October 2022 (“the Summons”).

2.  The defendant did not appear in the action and was absent at the hearing.

The Plaintiff’s Case

3.  The plaintiff’s case as pleaded in the Statement of Claim is that on 16 August 2022, a staff member of the plaintiff upon an email scam (impersonating the managing director of the plaintiff) transferred from the plaintiff’s bank account a sum of HK$2,000,000 (“the Sum”) to a bank account no 2570106776 with Dah Sing Bank, Limited (“the Bank”) held in the name of the defendant (“D’s Account”).

4.  The email scam was discovered immediately after the transfer of money on the same day. The plaintiff immediately reported the fraud to the police on that day. Pursuant to the police investigation, the plaintiff was informed by the police that D’s Account was frozen.

5.  Subsequent enquiries made with the police and the Bank confirmed that the Sum still remained in D’s Account as of 14 September 2022.

6.  The plaintiff instituted these proceedings to demand return of the Sum by the Bank from D’s Account, and claims, among other things, for the Sum, a declaration that the Sum was held by the defendant on constructive trust for the plaintiff, and a declaration that the defendant had been unjustly enriched at the expense of the plaintiff.

Procedural Background

7.  On 7 October 2022, the plaintiff issued the Writ of Summons and the Statement of Claim herein.

8.  On the same day, the plaintiff’s solicitors effected service of the Writ of Summons and the Statement of Claim herein by leaving the same at the registered office of the defendant.

9.  No Notice of intention to defend has been given by the defendant, the time for doing so having expired on 20 October 2022.

10.  On 21 October 2022, the plaintiff issued the Summons seeking judgment in default against the defendant.

11.  I am satisfied that due service of proceedings and of the Summons was effected by the plaintiff on the defendant.

12.  However, it is immediately apparent that there was procedural irregularity in that at the time when the plaintiff issued the Summons, the time for the defendant to file a Defence (within 28 days of service of the Statement of Claim) had not expired.

13.  No Defence has been filed as of the date of the hearing, long after the time for the defendant to file the same had expired.

14.  Upon the oral application and submissions of the plaintiff’s solicitor, I am satisfied that it is appropriate and in the interests of justice for this court to exercise the inherent power provided under Order 3 rule 5(1) and grant an order sought for time of service of the Summons be abridged and due service deemed. There is no prejudice on the defendant.

The Legal Principles

15.  It is trite that the court’s power to grant judgment in default under Order 19 rule 7 is discretionary, and that the court has to consider the plaintiff’s case according to the pleadings alone. While the plaintiff must show a case for the order which it seeks to obtain, it is not necessary for it to prove the pleaded case by evidence. (see Hong Kong Civil Procedure 2023 Vol 1 para 19/7/11 at p 567).

16.  As aforesaid, the plaintiff is claiming for, among other things, a declaration. The legal principles in relation to applying for declaratory relief in default of defence have been summarised in Hong Kong Civil Procedure 2023 Vol 1 para 19/7/20 at p 569. Insofar as they are relevant to the application before this court, the principles are summarised as follows:

(1)  “It is not the normal practice of the court to make a declaration without a trial, particularly where the declaration is that the defendant in default of defence has acted fraudulently (Wallersteiner v Moir (No 1) [1974] 1 WLR 991; Top One International (China) Property Group Co Ltd v Top One Property Grp Ltd [2011] 1 HKLRD 606, [83] & [85], per Fok J (as he then was))”;

(2)  “However, this is only a rule of practice which should not be followed when the plaintiff had a genuine need for the declaratory relief and justice would not be done if such relief were denied (Lam Shing Shou v Lam Hon Man [2002] 1 HKLRD D3; Lai Wai Kuen v Wong Shau Kwong, (unrep, HCA 3424/2003, [2004] HKEC 1373); Law Yuk Fong v Man Chung Wai (unrep, HCA 2195/2015, [2017] HKEC 57))”;

(3)  “Where declaratory relief is sought, the court will scrutinize the application for default judgment carefully and does not hastily grant the relief sought: Chau Yan Chi Catherine v The Incorporated Owners of Fung Wah Factorial Building (unrep, DCCJ 1459/2014, [2014] HKEC 1211) [14]; Chan Wing Go v The Incorporated Owners of Wing Hong Factory Building (unrep, DCCJ 1736/2014, [2014] HKEC 1649) [20]”;

(4)  “… the court expects maximum assistance to be provided in order for the relief to be granted. However straightforward this kind of applications may seem, the court should not be expected to deal with the matter on a do-it-yourself basis and rubber-stamp the uncontested application without further ado; Ho Kwai Chun v Lai Yu (unrep, DCCJ 916/2013, [2014] HKEC 1106) [25]; Shue Huei Yue v Tan Chung Meng (unrep, DCCJ 2294/2013, [2014] HKEC 1558) [24] - [25]”;

(5)  “The declaratory reliefs to be granted should not be in terms wider than what the plaintiffs are entitled to and what is necessary to do justice to them (Lee Kwok Leung v Li Foa Shang (unrep, DCCJ 2165/2014, [2015] HKEC 569) [16])”.

Discussion

17.  I am satisfied that the Statement of Claim sets out a viable claim against the defendant based on fraud, and it was uncontested.

18.  As regards the proprietary constructive trust claim, well-established principle is that when property is obtained by fraud, equity imposes a constructive trust on the fraudulent recipient, so that money is recoverable and traceable in equity. See Guaranty Bank and Trust Company v ZZZIK Inc Limited (defendant) and The Hongkong and Shanghai Banking Corporation Limited (1^st respondent) HCA 1139/2016, DHCJ Cooney SC (unreported, 18 July 2016) paras 28 - 31.

19.  The Writ of Summons, the Summons and related documents had been duly served on the defendant who must have knowledge of the fraud. To date the defendant had not made any attempt to repay the Sum. It was unconscionable for the defendant to retain the Sum given there were no dealings between the plaintiff and the defendant, and the lack of any legitimate reason for the defendant to receive the Sum from the plaintiff in the first place.

20.  In the circumstances, I hold that the defendant held the Sum on trust for the plaintiff who was entitled to recover the Sum.

21.  As set out in the legal principles cited above, the plaintiff’s claim for declaratory relief by summary determination is justified. A mere order requiring the defendant to return the Sum to the plaintiff would put the position of the plaintiff as an unsecured creditor. There is thus a genuine need for the declaratory relief sought as a declaration of trust would recognise the plaintiff’s proprietary interest in the Sum, so that it would not have to face the risks of competition by the defendant’s other unsecured creditors.

22.  I accept and hold that, in order to achieve full justice, this court should grant the declarations as requested.

Costs

23.  On costs, apart from the costs of the present action, the plaintiff’s solicitor raised the concern re recovery of costs and expenses incurred and paid by the plaintiff to the Bank in the separate pre-action disclosure proceedings instituted by the plaintiff against the Bank (as the defendant therein) in HCMP 1198/2022 per the Order of Mr Justice Anthony Chan made on 14 September 2022. Those costs and expenses paid and to be paid by the plaintiff to the Bank should be added to the costs of this action.

24.  In this action, costs should follow the event. The plaintiff is to have costs against the defendant.

Order

25.  I therefore enter judgment for the plaintiff against the defendant for the following:

(1)  The sum of HK$2,000,000.

(2)  Interest on the said sum of HK$2,000,000 at prime rate plus 1% per annum from 16 August 2022 to the date hereof, and thereafter at judgment rate until payment.

(3)  A declaration that the said sum of HK$2,000,000 received by the defendant from the plaintiff was at all times and remains the property of the plaintiff and was held by the defendant on constructive trust for the plaintiff.

(4)  The defendant shall pay and return to the plaintiff the said sum of HK$2,000,000 (together with interest adjudged herein) forthwith.

(5)  The expenses and costs ordered to be paid by the plaintiff to the defendant (ie Dah Sing Bank, Limited) in HCMP 1198 of 2022 pursuant to the Order dated 14 September 2022 be added to the costs of the present action.

(6)  The plaintiff shall have costs of this action to be paid by the defendant (subject to and without prejudice to the order on costs provided in paragraph (5) herein), including the costs of this application, summarily assessed at HK$35,000.