Ng Chung Kwong and Another v. Kim Sunghun and Another

HCA 86/2019

[2019] HKCFI 2406

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 86 OF 2019

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JUDGMENT

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1.The 1^st plaintiff (“Ng”) and the 2^nd plaintiff (“Lee”) are married couple. They commenced this action to claim for loss as a result of a fraudulent investment scheme perpetrated by the 1^st defendant (“Kim”). Judgment was obtained against Kim on 30 July 2019. This is the plaintiffs’ application for default judgment against the 2^nd defendant (“IDSF”) which is said to be holding funds belonging to Kim that is available for the satisfaction of the judgment against Kim.

Background

2.According to the pleading, relying on the representation by Kim, a Korean national, that he operated various investment schemes through a group of companies known as the IDS Group, which includes IDSF, the plaintiffs committed themselves to 6 investment agreements with Kim in 2016.  Pursuant to 4 of those agreements, Ng and Lee parted with total sums of HK$11,500,000 and HK$2,000,000 respectively as instructed by Kim.

3.The representation by Kim is said to be false and fraudulently made in that he had no intention of making the investments as represented and the investments projected were incapable of generating the sort of profit at all and thus the profit bonus promised under the above agreements. The falsity was discovered in about July 2017, when the Securities and Futures Commission in Hong Kong issued a notice prohibiting IDSF from trading and freezing its assets.  This was based on the finding of the court in Korea that Kim operated a fraudulent investment scheme through various corporate bodies in the IDS Group[1]. Kim was convicted of illegal fund raising and fraud, and was sentenced to imprisonment for 15 years in early 2017.

4.The plaintiffs reported the matter to the Hong Kong Police in September 2017, and commenced the present action in January 2019.

5.As mentioned, on 30 July 2019, the plaintiffs obtained judgment in default of defence against Kim, whereby he was ordered to pay Ng and Lee the sums of HK$11,500,000 and HK$2,000,000 respectively with interest and costs.  The plaintiffs proceeded to enforce by way of garnishee proceedings against Kim’s banker with which he keeps an account.  The total amount recovered reached about HK$3,870,000 only.

6.As regards the claim against IDSF, the specific cause of action pleaded[2] is essentially the invoking of the Chabra[3] jurisdiction of the court.  It is alleged that IDSF was a corporation licensed under the Securities and Futures Ordinance.  Kim had been a shareholder of IDSF since June 2015 and the sole shareholder since September 2015.  During the period between September 2015 and April 2017, Kim had injected a total sum of HK$165,000,000 into IDSF’s bank account with the HSBC in Hong Kong (“the Bank Account”).  On this basis, it is contended that IDSF held assets up to such sum in the Bank Account belonging to Kim, and/or Kim has control or access to such assets so that the same could be applied in satisfaction of any judgment that the plaintiffs may obtain against Kim.

7.On the basis of the above pleaded case against IDSF, the plaintiffs seek an injunction prohibiting IDSF from removing or in any way disposing of or diminishing the value of the assets in the Bank Account below an unencumbered value of HK$13,500,000, except for the satisfaction of any judgment by the plaintiffs against Kim or unless it is varied or discharged by further order of the court.

8.IDSF has not entered appearance.  Hence the present application for default judgment against it.

Service

9.On the basis of the affirmations of service, I am satisfied with the due service of these proceedings on IDSF at its registered and last known address.

The injunction

10.As the plaintiffs acknowledge, IDSF was joined as a defendant on the sole basis of the Chabra jurisdiction of the court.  Reference is made to the principles summarized in China Baoli Technologies Holdings Ltd v Orient Equal International Group Ltd & Ors, HCA 1399/2016 (12 June 2017) at §70:

“(1) The applicable principles are those enunciated by Lloyd LJ in SCF Finance Co v Masri [1985] 1 WLR 876 (at 884B-E). For those principles to apply, the court must be satisfied that there is good reason to suppose (to be equated with a good arguable case) that the assets in the hands of the non-party are in truth assets belonging to the defendant; or assets of which the defendant has control, or a right of access or some other right where the Mareva injunction is sought to restrain the disposal/removal of assets.

(2) It is not necessary for the applicant to demonstrate, at the injunction stage, that the assets sought to be frozen belong to the defendant. What has to be shown is good reason to suppose as against the non-party that the assets held by the non-party would be susceptible to a procedure which would lead to a satisfaction of a judgment in the defendant’s favour.

(3) It is not necessary for the plaintiff to have a cause of action against the non-party.”

11.The above principles were explained in the context of an application at the interlocutory stage for a mareva injunction against a party, where (as it is not necessary) no cause of action for substantive relief is alleged by the plaintiff against such party. The present case differs in the sense that IDFS was named as a defendant, and specific allegations, albeit founded on the Chabra jurisdiction of the court, are pleaded against it for the purpose of a similar but final injunction.

12.On the basis of the pleaded case and submissions before me, I am prepared to accept that the plaintiffs have established their entitlement to such relief claimed.

The declaration

13.By way of their summons, the plaintiffs also claim for a declaratory relief which does not feature in their pleading, namely, a declaration that IDSF held in the Bank Account assets up to HK$165,000,000 that belong to Kim.

14.It is argued on behalf of the plaintiffs that whilst such declaratory relief was never prayed for in the pleading, such relief merely reflects the state of affairs pleaded and somehow implied in the injunctive relief that they have prayed for in the pleading.  It is also argued that no prejudice would be caused to IDSF, as it has had all the opportunity to dispute such state of affairs as pleaded.

15.The starting point is that the claimant must plead his case and state the relief sought.  O18, r15(1), Rules of the High Court provides that the statement of claim must state specifically the relief or remedy which the plaintiff claims: see also Hong Kong Civil Procedure 2019, Vol 1 at §18/15/1.  Further, unlike the prayer for relief against Kim, there is no prayer for “further or other relief” insofar as the claim against IDSF is concerned.

16.There were decisions which might appear to suggest that the court has jurisdiction to grant declaratory relief, notwithstanding that it has not been pleaded: see Hong Kong Civil Procedure 2019 (above) at §18/15/4.  Amongst them, I brought the case of Lau Wing Hong & Ors v Wong Wor Hung & Anor, HCA 1454/2003 (20 September 2006), per Recorder McCoy SC (at §§140-148) to the attention of counsel appearing for the plaintiffs.  However, before the court in that case was actually not whether the court has jurisdiction to grant declaratory relief, notwithstanding that it has not been pleaded at all.  The issue was whether the court could only grant specifically the declaration claimed and therefore precluding any declaration as to a lesser extent, even if the findings of fact would support such a conclusion[4].  As such, I would, with respect, be slow in applying that case as an authority for the proposition that so long as the court finds it just to do so, it should exercise the power to grant declaratory relief notwithstanding the complete absence of claim for such relief in compliance with O18, r15(1).

17.Even assuming that the court has a general power to grant a declaratory relief notwithstanding the absence of prayer for such relief in the pleading, I find no compelling reason for exercising such power in the present case.  It is argued that the declaration is necessary to assist the execution of the monetary judgment against Kim.  However, for the purpose of obtaining judgment on the claim against IDSF for the injunction in default of defence, the court must be satisfied that the state of affairs alleged in the statement of claim in support of such claim[5] entitle the plaintiffs to such claim.  This very judgment makes this clear.  A declaration of such state of affairs in addition to the relief granted on the basis of such state of affairs is not necessary.

18.Reliance is also placed on Mesirow Financial Administrative Corporation v Best Link Industrial Co Limited, HCMP 1846/2015 (25 January 2016), per Hon Lisa Wong J.  However, there the plaintiff commenced the originating proceedings indeed for a declaration, namely that certain funds transferred (as a result of fraud) to the bank account of the defendant were funds held on (constructive) trust for the plaintiff, and the consequential order that such funds be released and returned to the plaintiff.  The court acknowledged the rule of practice that the court normally would not grant a declaration by default without a trial. However, the court may still do so, if the fullest justice would be done to the plaintiff to which he is entitled to.  It was in such context that the court considered whether the plaintiff showed a genuine need for such relief[6].  That is not an authority for the proposition that the court may do justice by granting declaratory relief notwithstanding the absence of such claim.

19.In Mesirow Financial Administrative Corporation, the court answered[7] the above question in the affirmative because the right asserted by the plaintiff was one of title to the property now with the defendant.  The funds in the defendant’s bank account were in equity the plaintiff’s money.  A mere order against the defendant for the return of the sum, without more, would have put the plaintiff in a position of an unsecured judgment creditor of the defendant.  The court considered that it would have been grossly unfair and potentially prejudicial to the plaintiff if it had had to race against the other creditors of the defendant for the funds in execution of a monetary judgment.  A declaration that the funds were the plaintiff’s property would serve to put the same out of reach of the other creditors of the defendant.

20.In the present case, the plaintiffs do not allege that the funds in the Bank Account were their property.  They say that the funds were the property of Kim so that they could be available for satisfaction of the monetary judgment.  The state of affairs pleaded in the statement of claim against IDSF serves the purpose of substantiating the basis for invoking the Chabra jurisdiction of the court to grant the injunctive relief sought.  This fundamentally differs from the declaratory relief sought on the basis of tracing the plaintiff’s property into the hands of the defendant as in Mesirow Financial Corporation.

21.For the above reason, I do not accede to the request for the declaration.

Disposition

22.On the basis of the matters pleaded, I grant the injunction sought with costs of the plaintiffs’ action against IDSF to be taxed, if not agreed, with certificate for counsel.

Mr Brian Lo, instructed by YT Chan & Co, for the Plaintiffs

The 2^nd defendant was absent