Cxc Global Japan Kabushiki Kaisha v. Kadima International Ltd and Another
Read the full judgment text of DCCJ 2463/2019 on BabelCite. This District Court judgment was delivered on 9 December 2019.
1. This action arose out of an email fraud. The plaintiff is the victim of the fraud.
Cited by 2 cases · Cites 10 cases
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DCCJ 2463/2019 [2019] HKDC 1659 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO 2463 OF 2019 --------------------------- BETWEEN
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-------------------------- DECISION -------------------------- A. INTRODUCTION 1.This action arose out of an email fraud. The plaintiff is the victim of the fraud. 2.There are 2 summonses for the court to deal with in this decision. 3.On 1 August 2019, the plaintiff took out a summons (“P’s Summons”) to:
4.On 4 June 2019, the amended writ of summons was served on the defendants. The statement of claim was filed on 26 June 2019 and served on the defendants on the same day. P’s Summons was served on OCBC and the defendants on 2 August 2019. 5.On 19 August 2019, the 1st defendant filed an acknowledgement of service indicating its intention to contest the proceedings. The 2nd defendant has not filed an acknowledgement of service or defence. 6.Just 3 days before the hearing of P’s Summons, the 1st defendant took out a summons dated 17 September 2019 seeking leave to file its defence out of time (“D1’s Summons”). 7.A draft defence of the 1st defendant (“the Draft Defence”) was attached to D1’s Summons. No affirmation in support was filed in support of the application at the time of filing of D1’s Summons. A 2nd affirmation of Mr Moshe Mandelawi (“Mr Mandelawi”), the sole director and shareholder of the 1st defendant, was filed on 18 September 2019 in support of the application. The 1st defendant had previously filed the affirmation of Mr Mandelawi on 9 September 2019 for the purpose of resisting the injunction order obtained by the plaintiff against it. B. BACKGROUND B.1 The Parties 8.The plaintiff is a Japanese company in the business of providing contingent workforce and human resources consultancy. It is a member of CXC Global (“CXC Global”), a group of companies providing supplier of contingent workforce solutions. 9.At all material times, Mr Dave Thomas (“Mr Thomas”) is the founder and chairman of CXC Global and Mr Terushi Yamasaki (“Mr Yamasaki”) is employed as the plaintiff’s Country Manager. 10.The 1st defendant is a Hong Kong company. It maintains a bank account with OCBC (“D1’s Account”). 11.The 2nd defendant is a Hong Kong company. It maintains another bank account with OCBC (“D2’s Account”). B.2 The Fraud 12.The plaintiff has never had any kind of business dealing with the defendants. 13.On 7 May 2019, a series of emails (“the Emails”) were purportedly sent on behalf of Mr Thomas. In the Emails:
14.On the same day, a man claiming himself to be Mr Curtin called Mr Yamasaki with the number +44 20 xxxx xxxx and gave him instructions regarding payment of the Sum (“the Phone Call”). 15.Acting on the belief that the Emails were sent by Mr Thomas, and on the information given on the Phone Call by Mr Curtin, Mr Yamasaki, on 7 May 2019, caused the plaintiff to transfer ¥12,937,500 (Japanese Yen) to the plaintiff’s accountant, Links Japan Inc (“Links Japan”). Mr Yamasaki further instructed Links Japan to transfer the Sum to D1’s Account on behalf of the plaintiff (“the Transfer”). Links Japan effected the Transfer for and on behalf of the plaintiff on the same day. B.3 Discovery of the Fraud 16.On 9 May 2019:
17.It then became apparent to the plaintiff that Mr Thomas did not send any of the Emails, nor did he authorise or instruct any persons to do so. The Emails were sent by someone impersonating Mr Thomas. 18.Neither did the real Mr Curtin make the Phone Call. The website of Hogan Lovells shows that:
19.Further, the Purported Address of the 1st defendant is fictitious. There is no 28/F in Tower II of Admiralty Centre. B.4 Injunction orders obtained against the defendants 20.On 17 May 2019, the plaintiff obtained a proprietary and mareva injunction against the 1st defendant (“D1’s Injunction Order”) and a bankers’ books order against the D1’s Account in an ¬ex parte hearing before Her Honour Judge Winnie Tsui. D1’s Injunction Order was continued by His Honour Judge Kent Yee on 24 May 2019. 21.On 3 June 2019, the plaintiff obtained a proprietary and mareva injunction against the 2nd defendant (“D2’s Injunction Order”) and a bankers’ books order against D2’s Account in an ex parte hearing before this court. D2’s Injunction Order was continued by His Honour Judge Ko on 6 June 2019. B.5 Funds discovered in the defendants’ accounts 22.Pursuant to the said bankers’ books orders, the plaintiff obtained account statements and transaction records of D1’s Account and D2’s Account and discovered, inter alia, the following:
C. DISCUSSION C.1 Order of dealing with the summonses 23.At the hearing of the summonses before me on 20 September 2019, Mr Leon Ho for the plaintiff and Mr Tasman Tam for the 1st defendant proposed to deal with the matter in the following order:
24.The court agreed to the proposed order of hearing the matter. C.1.1 Default judgment against the 2nd defendant 25.The 2nd defendant being absent from the hearing and OCBC has not sent a representative to attend, I saw no reason why default judgment should not be entered against the 2nd defendant and OCBC to be joined as the 1st respondent in order to give effect to the vesting order. 26.I am satisfied that both the writ and statement of claim together with the P’s Summons have been duly served on the 2nd defendant and the 2nd defendant has proper notice of the plaintiff’s application for default judgment against it. Yet it has chosen not to defend the matter. 27.It is trite that in an application under Order 19, rule 7 of the Rules of the District Court, Cap 336H (“RDC”) the court must give judgment according to the pleadings alone: Hong Kong Civil Procedures 2020 Volume 1, §19/7/11. 28.The plaintiff’s pleaded case against the defendants is one based on unjust enrichment and money had and received, through a claim of proprietary constructive trust. On the plaintiff’s pleaded case, it is clear that the plaintiff paid out the Sum because it was fraudulently induced by the mistaken fact that Mr Thomas instructed the plaintiff to pay the Sum to the 1st Defendant’s Account to make an acquisition. The Sum was transferred from D1’s Account to D2’s Account within a short time on the same day. 29.It has been well established that money paid under mistake of fact is prima facie recoverable provided that the payer did not intend the payee to have the money in any event, the money was not paid for good consideration and the payee has not in good faith changed its position: see Prescient Corporation v Dunse Trading Ltd [2019] HKDC 735 at §17, citing Barclays Bank Limited v W J Simms Son & Cooke (Southern) Ltd & Anor [1980] QB 677, at 692B per Goff J (as his Lordship then was) and Guaranty Bank and Trust Company v Zzzik Inc Limited, HCA 1139/2016, unreported, 18 July 2016 at §27. 30.In the present case, I am satisfied that the plaintiff was cheated out of the money and the 2nd defendant was unjustly enriched for the money had and received by it. I find that the 2nd defendant did not provide any good consideration for the Sum and that it had in good faith changed its position. This case falls within the classic situation of Prescient Corporation, supra and the 2nd defendant should be made accountable for the Sum. 31.I further find that the Sum was held on trust by the 2nd defendant for the plaintiff. When the property is obtained by fraud, equity imposes a constructive trust on the fraudulent recipient, so that money is recoverable and traceable in equity: see Prescient Corporation, supra at §19, citing Mesirow Financial Administrative Corporation v Best Link Industrial Co Limited, HCMP 1846/2015, unreported, 25 January 2016 and Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 at 716C. 32.Even in the very unlikely scenario that the 2nd defendant was not a party to the email fraud, I find its state of knowledge is such as to make it unconscionable for it to retain the Sum. Under such circumstances, the plaintiff still has a tracing remedy against the 2nd defendant: see Prescient Corporation at §20. 33.Lastly, I am of the view that a declaratory relief against the 2nd defendant will give fullest justice to the plaintiff in this case: see Hong Kong Civil Procedures 2020 Vol 1 §15/16/2 and §19/7/20. 34.In order to give effect to the vesting order, I also consider that OCBC should be joined as the 1st respondent in this case. 35.Hence, I made the following orders against the 2nd defendant and OCBC at the hearing on 20 September 2019:
36.At the end of hearing that part of P’s Summons, I also made a summary assessment on the costs incurred by the plaintiff at HK$139,000. The 2nd defendant was ordered to pay the plaintiff such sum to represent its costs as a result of bringing the case against the 2nd defendant. C.2 D1’s Summons to file its defence out of time C.2.1 Legal principles involved 37.Mr Ho for the plaintiff has referred me to the case of General Field Investment Limited v Cha Hoi Lam & Anor [2019] 1 HKLRD 371, where His Honour Judge Kent Yee has set out the relevant steps in dealing with similar situations:
38.While Mr Tam for the 1st defendant does not dispute the approach of HH Judge Kent Yee in General Field Investment Ltd, supra, he referred the court to the case of Wong Wai Man (黃暐民) (formerly known as Sik Shui Hoi (釋瑞開)) v Cheung Pak Hing (張伯興) & Anor, unreported, DCCJ 1744/2017, (Deputy District Judge WH Wong; 30 April 2018), where the following principles have been laid down at §§11-13:
39.I have no problem to accept the above principles save perhaps to add the observation of the Court of Appeal in The Decurion which emphasised that neither principle should be rigidly applied and the correct approach is to “consider all the circumstances of the case and not confine the decision to the application of a universally applicable rule of thumb”: See §14 of Wong Wai Man (黃暐民), supra. 40.At the end of the day, it is clear that the court must take into all the circumstances of the case and conduct a balancing exercise in light of the two conflicting principles identified by the Court of Appeal in The Decurion. Delay in filing the defence is one of them but it is not the most important factor. Of course, the longer the delay the more the defendant will be expected to be able to justify it with good reasons. The more important factor in my view is whether the proposed defence contains any merits. If it does not, then the court generally will not give leave to the defendant to defend the case and allow default judgment to be entered. Obviously, the overall circumstances and overall justice of the case must be taken into account also. C.2.2 The 1st defendant’s delay in filing the Draft Defence 41.At an earlier hearing before me on 6 September 2019 when the 1st defendant sought leave to file and serve the affirmation of Mr Mandelawi to resist the Injunction Order against it, Mr Tam for the 1st defendant informed this court that the 1st defendant would be filing its defence in the case as soon as possible. Given the fact that the statement of claim was served on the defendant on 26 June 2019, the 1st defendant already had had almost 2.5 months to consider the plaintiff’s claim and to prepare its defence then. Yet, it was not until 3 days before the hearing of P’s Summons that the 1st defendant took out D1’s Summons to file the defence out of time. The 2nd affirmation of Mr Mandelawi in support was not filed until around 4:30 pm on 18 September 2019, giving the plaintiff and the court only one clear day to read and digest the document. 42.In other words, there was a delay of almost 3 months before the 1st defendant took out D1’s Summons. 43.Mr Tam for the 1st defendant admitted that Mr Mandelawi first had notice of the present proceedings on 27 May 2019, some 10 days after the writ and the D1’s Injunction Order were served on the 1st defendant’s registered address. However, the notice of intention to defend was only filed by the 1st defendant on 19 August 2019. 44.Mr Tam while accepting that the 1st defendant was late in both filing the notice of intention to defend and its defence, he claims the delay in filing defence is primarily caused by the lateness of 1st defendant in entering into these proceedings. 45.As said, this would not be the only factor that the court should look at. The court should look at all the circumstances of the case and carry out a balancing exercise before coming to a conclusion of whether a defendant should allow to file his defence out of time. C.2.3 The Draft Defence 46.The Draft Defence has pleaded, inter alia, the following:
47.The 1st defendant denies that it is obligated to repay the Sum to the plaintiff because the following matters pleaded in the Draft Defence:
C.2.4 The 1st defendant’s explanations 48.Mr Mandelawi in his 2nd affirmation tries to explain the delay. He claims that although he is a Jew originally from Israel, he has been residing in Guangzhou in the Mainland for over 10 years. He would only travel to Hong Kong only once every month or every two months for business purpose and for running errands for his family, etc. He admits that while the writ and other court documents in relation to the Injunction Order were properly served on the 1st defendant’s registered address on 17 May 2019, the matter did not come to his attention until 27 May 2019 when he visited Hong Kong. 49.He claims that after taking the documents back to the Mainland and reading them, he then made a telephone call to the solicitor in charge of the case at Messrs K&L Gates, to see if he could settle the matter with the plaintiff. He claims that he then entered into “genuine attempts” of negotiations with Mr Sacha Cheong (“Mr Cheong”) of the plaintiff’s solicitors. He relies on the exchange of the telephone call made on 28 May 2019 and the subsequent email correspondence between him and Mr Cheong from 28 May 2019 to 31 May 2019 (which was mentioned in §§6 to 14 in Mr Cheong’s 2nd affirmation filed on 3 June 2019) as evidence of “genuine attempts” to settle the matter out of court. 50.The 1st defendant further relies on that fact that Mr Mandelawi had instructed Israeli lawyers to commence a claim in Israel against the whom he claims as the real fraudster Mr Cohen which resulted in a judgment entered in the 1st defendant’s favour: (see §11(iii) to (v) of the Draft Defence). The 1st defendant claims that if Mr Cohen had already made payment pursuant to the Israeli Judgment, then the plaintiff and the 1st defendant might well have successfully settled the present case. Mr Tam submits therefore that it could not be said that the 1st defendant was taking a lax attitude at all. 51.In addition, the 1st defendant says that its delay in fact caused no prejudice to the plaintiff. The 1st defendant claims that the proprietary injunctions against the 1st defendant and the 2nd defendant have caused the freezing of a total bank balance beyond its primary claim of US$108,632.50. Had it been that urgent for the plaintiff to secure judgment in its favour, it says one would expect the application for default judgment to be taken out right on the 24th July 2019 (exactly 28 days after the service of the statement of claim), but this was not the case. Neither was there notice of intention to enter judgment served to the 1st defendant before the P’s Summons was taken out[1]. 52.Lastly, the 1st defendant argues that this is also not a case where there would be further delay caused to the proceedings, as the 1st defendant’s case has been succinctly formulated in the Draft Defence. C.2.5 The court’s findings on the 1st defendant’s delay 53.With respect, I do not find Mr Mandelawi’s explanations on the delay in filing of the Draft Defence convincing at all. 54.First, we all know that the distance between Guangzhou and Hong Kong is relatively short. With different types of modern transport and means of communication, it will be extremely easy for Mr Mandelawi to retain and give instructions to lawyers in Hong Kong. In any event, it will take Mr Mandelawi at most a couple of hours to travel from Guangzhou to Hong Kong to sign any documents. Alternatively, he can send any signed documents by courier. 55.Further, I do not find Mr Mandelawi’s purported attempts to settle the matter with Mr Cheong genuine at all. Having looked through the exchange of emails between him and Mr Cheong, I formed the distinct impression that they are merely attempts to buy time and delay the matter on the part of the 1st defendant. The crunch came after Mr Cheong prepared the draft deed of settlement and sent it by email to Mr Mandelawi for his signature (referred to by the 1st defendant in §11(ii) of the Draft Defence). His reply was that he did not want to bear the plaintiff’s costs and he “needed more time”. He last contacted Mr Cheong by email on 30 May 2019. Needless to say the 1st defendant had never paid anything under the draft deed of settlement. 56.As regards to the 1st defendant’s claim that Mr Mandelawi had instructed lawyers to commence a claim against Mr Cohen in Israel and there was no lax in his attitude, I do not find this genuine neither. When he first contacted Mr Cheong on the telephone on 28 May 2019, he promised to refund the money which he said was “stolen by the staff of one of (1st defendant’s) customers.” The “friendly and gratuitous assistance” to an acquaintance has now been raised in the Draft Defence. Thus, his defence is totally inconsistent with what he had asserted to Mr Cheong in the beginning. In my judgment, the entire proceedings started in Israel is a self-serving act which does not explain the delay in filing the Draft Defence. I shall return to this matter in greater detail when I discuss the merits of the 1st defendant’s Draft Defence below. 57.As to the without prejudice point, I do not agree with Mr Tam’s submission. The plaintiff’s prejudice is that despite the fact that it has successfully recovered US$90,000 from D2’s Account, it is still some US$18,632.50 short of the Sum it had been cheated out of. I think one must not lose sight of the fact that the plaintiff is the victim of an email fraud and the money was rightfully theirs in the first place. This is not like in a commercial dispute where the parties are dealing in arm’s length and the money has been wrongfully retained by one of the parties. Further, the plaintiff has incurred considerable amount of legal costs to get to this stage so far. Any further delay for it to recover the money which are rightfully theirs in the first place should in my view be avoided. While such prejudice may be compensated by costs, this is not the most important consideration in a filing a defence out of time application in my view. 58.As to the 1st defendant’s last point that there will be no further delay if the court allows the 1st defendant to file the Draft Defence, I do not consider that this is one of the factors that the court needs to take much notice of in the context of an email fraud case. 59.In the aforestated circumstances, I am of the opinion that there was inexcusable delay on the part of the 1st defendant in filing the Draft Defence in this case. C.3 Merits of the 1st defendant’s defence 60.Despite the very forceful submissions made by Mr Tam on its behalf, I do not find the 1st defendant’s Draft Defence credible at all. 61.First, I agree with the plaintiff that, although Mr Mandelawi claims that he and the 1st defendant had nothing to do with the Emails and the Phone Call, he clearly had a close connection with Mr Cohen, whom on Mr Mandelawi now says is the fraudster: (see §10(i) & (iii) of the Draft Defence). Given the speed the money was transferred out from D1’s Account to D2’s Account, I would go further to say that there must be a much closer relationship between the two than Mr Mandelawi prepares to admit. 62.Second, while the 1st defendant asserts that its participation in the transfer of the Sum was on a “friendly and gratuitous basis”, I find that this “service” involved at least the following steps highlighted by Mr Ho in his submission:
63.Seeing in such light, I find Mr Mandelawi could not be as innocent as he claims to be. 64.Third, as a matter of law, the 1st defendant can be found as a constructive trustee of the Sum as a knowing recipient where it wilfully and recklessly failed to make the inquiries an honest and reasonable man would make: JS Microelectronics Limited v Achhada Dilip G [2013] 1 HKLRD 334, at §19, citing Baden v Société Générale pour Favoriser le Developpement du Commerce et de l’Industrie en France SA (Note) [1993] 1 WLR 509, 575 to 576, category (iii). 65.In this connection, I agree with Mr Ho for the plaintiff that there are a number of steps that the 1st defendant could have, but failed to take, even on its own case:
66.Instead of making the above what I would consider as reasonable enquiries for anyone who suddenly found a large sum of unexplained funds in his account, Mr Mandelawi caused the funds to be transferred out of D1’s Account within a day. There is no explanation why the money transfer had to be done in such hurried manner. There was simply no convincing and credible explanation from the 1st defendant at all. 67.Mr Tam for the 1st defendant in reply submits that the court must not lose sight of the fact the statement of claim contained only a general averment of knowledge without any particulars from which the 1st defendant is alleged to have categories (ii) and/or (iii) of Baden knowledge. Thus, the 1st defendant could have had simply pleaded a bare denial and still safely brought itself within the general position at Wong Wai Man (黃暐民), supra. 68.With respect, I do not agree. I think one must not lose sight of the fact that this is a classic email fraud case where the modus operandi is to make use of one account to quickly transfer the money obtained by fraud to another account (or more than one account) in order to make it difficult for the victim to trace the cheated fund. I do not consider it is necessary for the plaintiff to rely on the “further particulars” of circumstances out of which the 1st defendant is alleged to have the requisite knowledge as submitted by Mr Tam. In other words, I do not think it is necessary for the plaintiff to complete its cause of action against the 1st defendant without referring to the Draft Defence. Of course, the “particulars” provided in the Draft Defence help to confirm the fallacy and hollowness of the 1st defendant’s defence. It does not “complete” the knowledge of the plaintiff as alleged. 69.I also reject the 1st defendant’s claim that the plaintiff has failed to appreciate the overall context, namely, the nature of the 1st defendant’s business and the nature of the transfer of the US$108,632.50: (see §4(ii) of the Draft Defence). I find the whole defence put up by the 1st defendant is a self-serving exercise trying to present the 1st defendant as an innocent party. However, I find the whole story is so much against common sense and inherent probabilities that it is practically no more than moonshine. I find that it is a sham and simply does not hold any truth at all. 70.In the aforesaid premises, I find the 1st defendant’s conduct fell short of what an honest and reasonable man would have done in the circumstances. I find the 1st defendant is a constructive trustee of the Sum. 71.Last but not the least, on the 1st defendant’s own case, the plaintiff submits since the 1st defendant has already obtained judgment against Mr Cohen and he has undertook to repay inter alia the Sum to the 1st defendant: (§11(v) of the Draft Defence), the following passages in Goff & Jones: The Law of Unjust Enrichment (9th Edition) (“Goff & Jones”) become relevant:
72.The plaintiff submits that as the 1st defendant did not suffer from any change of positon, the 1st defendant has no defence against the plaintiff’s claim of unjust enrichment. 73.The law on change of positon has been succinctly summarized by Deputy District Judge Gary CC Lam in Globenet Droid Ltd v Hong Kong Hang Lung Electronic Company (A Firm) [2016] 2 HKLRD 863, at §59:
74.Mr Tam submits that since there are no decided cases in Hong Kong on the particular issue of whether the change of position is reversible if the intermediate recipient has a right of recovery against the wrongdoer, this is a legal issue which has to be resolved at trial after extensive submissions from parties. Mr Tam did however refer me to 2 local judgments where the issue of reversibility has been mentioned. They included Globenet Droid Ltd v Hong Kong Hang Lung Electronic Company (A Firm) referred to in the preceding paragraph at §§58 & 59(9); and Grupo Pacifica Incorporada v Worldwide Marine Product Ltd & Ors, unreported, HCA 2640 of 2014 (Recorder Houghton SC; 24 September 2018). 75.Further, Mr Tam submits that even if the case of K&S Corporation, supra, is to be read as establishing a principle that a right of recovery means the lack of disenrichment (as a matter of Australian law), its difference with the English position is very significant because:-
76.With respect to Mr Tam, all the above so called “factual difference” is more technical than real. As said, I find the entire Draft Defence as a self-serving act which tries to justify the role played by the 1st defendant in this email scam, without which the fraud could not be perpetuated. I find the entire Israel proceedings and the judgment obtained has been created as a smoke screen by the 1st defendant in order to try to justify its so called “innocent” role played in the scam. It does not carry any ring of truth to it. 77.I accept the plaintiff’s submissions that, whether the Australian standard or the English standard is adopted, the 1st defendant clearly did not suffer from any change of position:
78.For the above reasons, I find the 1st defendant did not suffer from any bone fide change of position and has no defence against the plaintiff’s claim of unjust enrichment. C.4 What does the overall circumstances and justice require? 79.Summing up the above, I come to the conclusion that the overall circumstances and justice in this case should not permit the 1st defendant to file the Draft Defence out of time. I therefore will dismiss D1’s Summons with costs in favour of the plaintiff, such costs to be summarily assessed by the court. D. P’s Summons to enter default judgment 80.Based on the above discussed matters, I am satisfied that on the plaintiff’s pleaded case, the plaintiff has made out a case based on unjust enrichment and money had and received, through a proprietary constructive trust, against the 1st defendant in this case. 81.Therefore, I make an order in terms of P’s Summons with costs against the 1st defendant, such costs to be summarily assessed by the court. 82.For the purpose of assessing the costs of D1’s Summons and P’s Summons, the plaintiff is directed to lodge its statement of costs with the clerk of this court within 7 days with copy to the 1st defendant and the 1st defendant do lodge any statement of objection within 7 days thereafter with copy to the plaintiff. 83.Lastly, I would like to thank counsel on both sides for their helpful assistance.
Mr Leon Ho, instructed by K & L Gates, for the plaintiff Mr Tasman Tam, instructed by Chin & Associates, for the 1st defendant The 2nd defendant acting in person, absent [1] A notice of intention to enter judgment was only served to the 1st defendant on 16th September 2019 | ||||||||||||||||||||||||||||
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