Hyundai Merchant Marine (Hong Kong) Ltd v. Ma Chun Kit and Others

HCA 619/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 619 OF 2016

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JUDGMENT

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The application

1.By its summons dated 17 June 2016 which was filed on 20 June 2016 (“the summons”), the plaintiff (“P”) applies for summary judgment under Order 14, rule 1 of the Rules of the High Court (“RHC”) against the 1^st defendant (“D1”) for restitution of the sum of HK$387,655,303.70 or payment of the said sum on the ground of money had and received and/or unjust enrichment as well as the accounts, inquiries, orders and declaration as set out in the summons.

Background

2.P is and was at all material times a company incorporated in Hong Kong carrying on the business of logistic services.  ‌Its parent company is Hyundai Merchant Marine Company Limited (“the parent company”), a public listed company incorporated in the Republic of Korea.

3.At all material times, D1 was employed by P until he was summarily dismissed by P on 4 March 2016 for the reasons pleaded at para 8 of the amended statement of claim (“the ASC”).

4.D1 first joined P as an accounts clerk in 1992.  ‌He was promoted gradually and by 2002 he was promoted to the post of deputy accounting manager.  He was further promoted to the posts of accounting manager in 2005 and deputy general manager in 2011.  ‌D1 was the deputy general managerof P until he was summarily dismissed on 4 March 2016 (para 2 ASC).

5.In or around 2003, P entrusted D1 with duties and powers to operate online P’s bank accounts for the sole purpose of the business of P.  D1 was given, inter alia, the passwords and safety devices to operate P’s bank accounts online (para 4 ASC).

6.The 2^nd defendant (“D2”) was and is the girlfriend and/or common law wife of D1.  The 3^rd defendant (“D3”) is the father of D1.  The 4^th defendant (“D4”) is the mother of D1 (para 2A ASC).

7.Para 8 of the ASC pleads that on divers dates between 2009 to 2016 D1 had:

“(1) in breach of the said implied employment term of fidelity; and/or

(2) in breach of the said fiduciary duties; and/or

(3) in breach of confidence and converted the said safety device(s) to his own use; and/or

(4) without authority, knowledge, consent, cause and/or consideration,

unlawfully and/or wrongfully transferred online money of [P] from [P’s] Accounts a total sum of HK$387,655,303.70 to [D1’s] Accounts.  Full particulars of the aforesaid transfers in the total number of 262 transactions are shown in Schedule I as appended herewith.”

8.By para 1 of the summons, P seeks to obtain summary judgmentagainst D1 for restitution of the said sum of HK$387,655,303.70 on the ground of money had and received and/or unjust enrichment.

Jurisdiction

9.An application by a plaintiff for summary judgment is governed by Order 14, rule 1 of the RHC.

10.By Order 14, rule 1(2) it is provided that:

“Subject to paragraph (3) this rule applies to every action begun by writ other than–

(a) ...,

(b)   an action which includes a claim by the plaintiff based on an allegation of fraud ...”

11.In Pacific Electric Wire & Cable Co Ltd v Harmutty Ltd [2009] 3 HKLRD 94 the Court of Appeal (Rogers VP and Le Pichon JA) held that Order 14, rule 1(2)(b) excluded from summary judgment proceedings an actionwhere one claim included in the writ was based on an allegation of fraud.  ‌First, Order 14, rule 1(2)(b) applied to exclude summary judgment proceedings where one claim but not another was based on an allegation of fraud.  ‌Second, the rule was not confined to excluding actions in which there was a claim for damages for fraud; what was excluded was any action where there was a claim in respect of which the underlying allegations on which the claim was based constituted an allegation of fraud.

12.As Rogers VP said at para 19:

“It is clear that if r.1(2)(b) applies there is no jurisdiction for the court to entertain an application for summary judgment.”

13.I would also refer to what Rogers VP said at para 31:

“... although the claims made in the case may be framed in respect of constructive trust, resulting trust and money had and received, the claims in the action are based on allegations of fraud that includedeliberate dishonesty. ‌As is pointed out in Bullen & Leake & Jacob’s Precedents of Pleadings (16th ed., 2008) Vol.2, p.841, an action in fraud will usually include one or more of a number of distinct causes of action amongst which are listed ‘money had and received’ and ‘constructive trusts: knowing receipt and dishonest assistance’. Furthermore, as Mr Whitehead SC, who appeared for Mr Hu, pointed out, in paras.18-07 and 18-08 of Clerk & Lindsell on Torts (19th ed., 2006) and the third supplement thereto, it is made quite clear that active non‑verbal conduct can amount to deceit. In this case, the allegations of the concealment of facts from the plaintiff when there was a duty to disclose, and the connivance at the preparation of false financial statements and accounts would be clear allegations of fraud.”

14.Le Pichon JA agreed with the judgment of Rogers VP.

15.In A‑1 Business Ltd v Chau Cham Wong Patrick [2009] 5 HKLRD 579 it was held by the Court of Appeal (Cheung and Yuen JJA) that the plaintiff’s claim was caught by the exclusion rule in Order 14, rule 1(2)(b).  The plaintiff brought an action against its directors for breach of fiduciary dutiesby the misappropriation of assets, including a transfer by the first defendant ofsums of money in sale proceeds from the plaintiff’s account to his own account (“the transfer”) to reduce his indebtedness in respect of a personal loan.  It was held that regarding the plaintiff’s claim, although a claim based on breach of fiduciary duty resulting in a duty to account might not necessarily involve dishonesty, each case depended on its own facts.  In that case, the plaintiff’sclaim based on misappropriation and its response to the defence that the transfer to the first defendant was for a legitimate purpose, involved allegations of dishonesty and fraudulent conduct by the defendants.

16.As Cheung JA said at para 15:

“I agree with the Judge that the plaintiff’s claim based on misappropriationcannot be viewed in isolation and divorced from the plaintiff’s response to the defence that the transfer was for a legitimate purpose. In order to establish that the transfer was a misappropriation of the plaintiff’s assets, the plaintiff clearly has to address the defence and this clearly will involve an allegation of dishonesty on the part of the defendants. In substance, allegations of fraudulent conduct are involved in the plaintiff’s claim and this is caught by the exclusion rule.”

17.Yuen JA agreed with the judgment of Cheung JA.

18.In Zimmer Sweden AB v KPN Hong Kong Ltd [2016] 1 HKLRD 1016 the Court of Appeal (Lam VP, Yuen and Kwan JJA) held that the court should determine whether “the fraud exception” applied at the time when theapplication for summary judgment is heard.  ‌The court should not be restricted to a consideration of the statement of claim only, but should examine all relevant materials existing at the time of the hearing, including subsequent pleadings and affidavits (Yuen JA at para 18(1)).

19.In dealing with the “narrow” meaning and the “wide / liberal” meaning of “the fraud exception” at paras 11.1 to 12.2 of her judgment, Yuen JA said at paras 12.1 and 12.2:

“The ‘wide/liberal’ meaning adopted by the Hong Kong courts

12.1. Unlike the Administration of Justice (Miscellaneous Provisions) Act of 1933 discussed above, in Hong Kong an allegation of fraud does notentitle a party to a trial by jury (see s.33A of the High Court Ordinance (Cap.4)). Accordingly, there was no need to apply a narrow meaning for the sake of consistency with the provision for civil trials by jury.

12.2.   As will be seen later, the courts in Hong Kong have adopted a wide or liberal meaning of the ‘fraud exception’.  In other words, if the action included a claim based on an allegation of fraudulent conduct, the courts have held that O.14 did not apply.  This is consistent with Nicholls LJ’s observation in Newton that ‘as a matter of first impression, [the fraud] exception seems apt to embrace cases where dishonesty is alleged against a defendant’, before he held that in England, the courts were bound by authorities to adopt a narrow meaning.”  

20.And at para 18(6) Yuen JA said:

“... as to what is an allegation of fraud for the purpose of ‘the fraud exception’, this Court is bound by the judgment in Pacific Electric Wire to adopt the wide/liberal meaning. .... To conclude, ‘the fraud exception’ would be engaged where what is alleged is an intentional or reckless dishonest act (or omission) done with the purpose of deceiving.”

21.Lam VP and Kwan JA agreed with the judgment of Yuen JA.

22.As was held in Zimmer, Hong Kong courts have adopted a wide/‌liberal meaning of the fraud exception, namely it would be engaged where what was alleged was an intentional or reckless dishonest act (or omission) done with the purpose of deceiving.

23.Mr Szeto, for P, submitted that by the summons P was seeking to obtain summary judgment for its claim under para 8(4) of the ASC and that there was no allegation of fraud.  Mr Szeto made it plain that P was not abandoning its other claims against D1 under para 8 of the ASC but that for the purposes of the application for summary judgment, P was only relying on the cause of action for money had and received under para 8(4) of the ASC.

24.It is important to see what are the underlying allegations made by P in this action.

25.The writ in this action was issued on 10 March 2016.  On the same day, on the ex parte application of P, supported by the 1^st affidavit of Park Sung Chul (“Park”), the general manager and a director of P, Anthony Chan J granted a Mareva injunction to P against D1 prohibiting the disposal of the assets of D1 up to the value of HK$322,345,743.00 which included monies in the bank accounts and the landed properties as set out in the order of Anthony Chan J. Orders were also made at the same time for disclosure of information by D1 and by his banks as set out in the order of Anthony Chan J.

26.The evidence of Park in his 1^st affidavit is that in about late 2015, the parent company received complaints from one of its service providers, Hong Kong International Terminal Ltd, that there were apparent discrepanciesbetween their accounts and that some of the invoices were unsettled for years.  This led to a review of the account books of the parent company against thoseof the service provider as a result of which Park noticed that there was a hugediscrepancy on the amount of payables of the parent company and the amount of receivables of its service providers.  Park, however, was unable to find the reason for the discrepancies.

27.This led to Mr B S Kim, the general manager of the parent company, and Park coming to Hong Kong to investigate the matter in February 2016.  On 29 February 2016 they discovered that some suspicious transactions were not supported by documents.  ‌They were shocked to discover that D1’s name was shown on the bank statements of P’s accounts as the recipient or beneficiary for a number of transactions.

28.According to Park, he immediately summoned D1 and asked for an explanation at which time D1 confessed that he had been misappropriatingthe funds of P.  There was another meeting on the same day in Mr B S Kim’s hotel room when D1 again confessed that over the years he had beenmisappropriating P’s funds in the total sum of HK$76 million by transferring the same to his personal bank accounts.

29.At the time of the 1^st affidavit, P had ascertained that during the period between September 2011 and February 2016 there were altogether 211 unauthorised/unlawful and wrongful transfers made by D1 from P’s bank account to D1’s bank accounts. Park in his 1^st affidavit said that the 211 unauthorised transfers amounted to a total sum of about HK$322,345,743.00.  He referred to the unauthorized transfers as the misappropriated funds (para 15).

30.Park went on to explain the manner in which upon P receiving remittances from the parent company, D1 would select a specific bill/invoice and unlawfully transfer the exact amount to his own bank accounts whilst making a false entry in the computerized payment system of the parent company, its branches and group.

31.P’s allegation is that D1 had covered up his unlawful acts over the years and that it was not until after Hong Kong International Terminal Ltd complained of outstanding invoices that P became aware of such matters.

32.On 4 March 2016 a report was made to the police of the crime alleged to have been committed by D1.  D1 was arrested by the police on the same day.  He was subsequently charged with the offence of theft and is currently awaiting trial.

33.When dealing with the question of a real risk of dissipation of assets and the urgency for the grant of the Mareva injunction, Park in his 1^st affidavit said at para 21:

“Misappropriation of funds by an employee is a serious crime. The conduct of [D1] has demonstrated a lack of probity, honesty and integrity over a long period of time with multiple acts of infringements. As disposed [sic] hereinabove, [D1] could have already dissipated part of the Misappropriated Funds by transferring the same to his girlfriend and friend(s). It is clear that [D1] had and has intention to dissipate the Misappropriated Funds beyond the trace.”

There can be no doubt that P is alleging fraudulent conduct and dishonesty on the part of D1 which led to D1 being charged with the offence of theft.

34.On 18 March 2016 the ex parte order of Anthony Chan J was amended and continued until trial or further order by G Lam J as set out in the order of G Lam J. The amendments included increasing the value of assets restrained to HK$334,686,208.00 and included moneys in further bank accounts and further landed properties.

35.On 26 August 2016 Deputy High Court Judge R Pang SC made an order re‑amending the Mareva injunction in the terms as set out therein.  The value of assets restrained was further increased to HK$387,655,303.70,being the sum claimed against D1 in the ASC, and included moneys in furtherbank accounts in Hong Kong and also out of the jurisdiction in Shenzhen and Macau.

36.The summons is supported by the 3^rd affidavit of Park where he refers to and relies on his 1^st affidavit and 2^nd affidavits.  In his 6^th affidavit filed in reply to the 4^th affirmation of D1, Park also refers to and relies on his 4^th and 5^th affidavits.

37.D1 in his 4^th affirmation made in opposition to the summons denies that the transfers he made to his bank accounts over the years in the total sum of over HK$380,000,000 were made by him as alleged at para 8(4) of the ASC “without authority, knowledge, consent, cause and/or consideration”.  He says that all the transfers were made with the knowledge and consent on thepart of his then superiors and were authorized.  He says that after the funds were transferred to his accounts, they were eventually applied by him to settlebills and invoices from the relevant business counterparts of the parent company or P in accordance with payment instructions from them (para 6).

38.D1 has also denied that he made admissions to Park and Mr B S Kim of having misappropriated the funds of P.

39.In his 6^th affidavit, filed in reply to D1’s 4^th affirmation, Park denied that the transfers made by D1 to his bank accounts were authorized.  It is clear from para 6 that P discovered, on an analysis of the bank statements of D1’s bank accounts supplied by the relevant banks, that the misappropriated funds had been primarily applied by D1 in the following manner:

(1)   As to 26.31% in the sum of HK$102,005,941.30, there were transfers to third parties whose identities are unknown to P;

(2)   As to 25.49% in the sum of HK$98,832,084.44, there were credit card purchases and investments; and

(3)   As to 15.63% in the sum of HK$60,609,534, there were purchases of landed properties.

40.P’s case is that none of the recipients of the transfers made by the parent company to P over the years was a business counterpart of the parent company or P.

41.Park said at para 6 of his 5^th affidavit:

“It is the case of [P] that [D1] had, on diver [sic] dates between 2009 to 2016, unlawfully and/or wrongfully transferred online money of [P] from [P’s] Accounts a total sum of HK$387,655,303.70 to [D1’s] Accounts by way of 262 transactions.”

42.It seems to me that the underlying allegation made by P in this action is that D1 has stolen the misappropriated funds from P over the years.  That is clearly an allegation of fraudulent conduct and dishonesty on the part of D1.

43.I would also observe that in this action P also claims, inter alia, restitution of the sum of HK$25,173,817.88 on the ground of money had and received and/or unjust enrichment against D2.

44.In his 5^th affidavit at para 8 Park says that on a perusal of the statements of D1’s bank accounts with HSBC and Hang Seng Bank, P discovered that on divers dates from 2011 to 2016, D1 transferred part of the misappropriated funds to accounts held by D2 to D4 as particularized therein.

45.At para 11 of his 5^th affidavit, Park says:

“There was never any legitimate purpose for [D2 to D4] to receive such sums. Given the frequency, intervals and/or amounts of the transfers involved, [D2 to D4] were clealey [sic] dishonest and had no litigitimate [sic] reason in receiving such sums. It is no doubt that the sums transferred by [D1] to [D2 to D4] by way of the Suspicious Transfers were part of the money unlawfully and/or wrongfully transferred to [D1’s] Accounts from [P’s] Accounts. ...”

46.P also discovered that landed properties in Australia and Macau were purchased in the name of D2 as set out at paras 12 to 15 of Park’s 5^th affidavit.  As to the purchase of these properties in the name of D2, Park said that he verily believes that D2 has:

“... knowingly and dishonestly assisted [D1] to dissipate and/or laundering the misappropriated funds out of jurisdiction ....”

47.It seems to me that in this action the claim against, inter alia, D2 is also based on an allegation of fraudulent conduct and dishonesty on her part         .  

48.I would also refer to what is pleaded at para 11A of the ASC where it is alleged that on divers dates between 2011 and 2016, D1 had wrongfully and unlawfully transferred part of the said sum of HK$387,655,303.70 from D1’s bank accounts to the bank accounts of D2 to D4 on multiple occasions asparticularized therein whereby D2 to D4 had:

“... knowingly in receipt of and/or had dishonestly assisted in dealing with the said sum of part of the same.”

Particulars of the knowledge and/or the dishonesty of D2 to D4 are also provided at para 11A of the ASC.

49.I am unable to accept Mr Szeto’s submissions.

50.Mr Szeto also relied on Universal Capital Bank v Hongkong Heya Co Ltd [2016] 2 HKLRD 757 where Deputy Judge Burrell held that the fraud exception was not engaged.  That case is clearly distinguishable and provides no assistance to P.  There was no allegation of fraud or dishonesty against the defendant in that case.

51.In my judgment, the fraud exception under Order 14, rule 1(2)(b) of the RHC applies and the court has no jurisdiction to grant P summary judgment as claimed in the summons.

52.I dismiss the summons.

53.I make an order nisi that P should pay D1 his costs of the summons,such costs to be taxed if not agreed.

Mr Patrick Szeto, instructed by W K To & Co, for the plaintiff

Mr Bernard Mak, instructed by Tung, Ng, Tse & Heung, for the 1^st defendant