Uni Trans Illinois Consolidated, Inc v. Joyful High Co. Ltd

DCCJ 4731/2019

[2019] HKDC 1665

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4731 OF 2019

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DECISION

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1.Before me this morning is the plaintiff’s summons applying for default judgment under Order 19, rule 7 of the Rules of the District Court.

2.The plaintiff claims that it is the victim of an email fraud perpetrated by the defendant.

Procedural history

3.The writ, indorsed with the statement of claim, was left at the registered address of the defendant in Wanchai on 2 September 2019.  It was therefore served on the defendant on the same day.  The deadline for the lodging of the acknowledgment of service fell on 16 September 2019 (15 September being a Sunday).  No acknowledgment having been served, the deadline for the filing of the defence fell on 14 October 2019.  No defence was filed. On 31 October 2019, the plaintiff took out the present summons.  Based on the above chronology, I am satisfied that the plaintiff’s application comes within the rules as a matter of procedure.

The plaintiff’s pleaded case

4.The plaintiff is a company incorporated in Illinois, USA and is engaged in the business of freight forwarding.  A Hong Kong company called Wider Logistics Ltd (“Wider”) has been acting as its freight forwarding agent since 1991.

5.Each month, a Ms Joyce Chan, an employee of Wider, would email a Mr Robyn Tau, financial controller of the plaintiff, to inform the plaintiff of the accrued freight forwarding fees with the relevant statement of accounts and request for payment by wire transfer.

6.On 21 September 2017, Robyn Tau received an email from the email address [email protected], which was Joyce Chan’s address.  The sender requested the plaintiff to settle the accrued freight forwarding fees of US$36,207.50 for November 2016.

7.On 26 September 2017, Robyn Tau received a number of emails from the email address [email protected].  The sender identified herself as Joyce Chan and informed the plaintiff to transfer the amount of US$36,207.50 (“the Sum”) to a bank account no 951530007062 held with Industrial and Commercial Bank of China (Asia) Limited.  This is an account of the defendant (“the defendant’s Bank Account”).

8.Upon receipt of the latter emails, the plaintiff arranged and completed the transfer of the Sum from the plaintiff’s bank account held with JP Morgan Chase Bank, NA to the defendant’s Bank Account through wire transfer on 26 September 2017.

9.Upon reporting the transfer to Wider, it was found out that the emails received on 26 September 2017 were not sent by Wider and therefore was a fraud.

10.As soon as the plaintiff realised the fraud, it contacted its bank to withhold the wire transfer but was unsuccessful as the transfer had already been made.

11.The plaintiff reported the matter to Bensenville Police on 28 September 2017.  Wider filed a report on behalf of the plaintiff with the Hong Kong Police on the same day.  The plaintiff was later informed by the police that they are still investigating the matter and the money in the defendant’s Bank Account has been withheld by ICBC upon the police’s request. 

12.The plaintiff had never been engaged in any business transaction with the defendant, which would entitle the defendant to receive any money from the plaintiff.

13.Based on the above pleaded case, the plaintiff now seeks:

(a)  A declaration that the Sum in the defendant’s Bank Account is held by the defendant under a constructive trust for the plaintiff;

(b) The Sum be returned to the plaintiff forthwith as money had and received by the defendant to the use of the plaintiff;

(c)  Until execution of this order or any further order of the court, the Sum do remain in the defendant’s Bank Account; and

(d)  The defendant do pay the plaintiff interest on the Sum at 1% above prime rate per annum from 26 September 2017 to the date of judgment and thereafter at judgment rate until payment.

Discussion

14.As a matter of principle, default judgment will only be given on a plaintiff's claim provided that the pleaded facts give rise to the relief sought.  This is because the basis for default judgments is that the facts as contained in the statement of claim were true and admitted by the defendant.  The court's task is therefore to look to the pleaded facts alone and no other evidence will be admitted: see, eg, Lam Chi Fat v Liberty International Insurance [2002] 3 HKLRD 480 at paras 26-27 per Ma J; Hong Kong Civil Procedure 2020 at 19/7/11.

15.Here, I am satisfied that the plaintiff's pleaded facts give rise to a valid claim of proprietary constructive trust against the defendant in respect of the Sum now sitting in the defendant's Bank Account.  When property is obtained by fraud, equity imposes a constructive trust on the fraudulent recipient and the property is recoverable and traceable in equity.  See eg, Michael Chen Kang Huang v Peter Lit Ma HCA 218/2005, 7 September 2009, citing at para 56 Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 667, at 716.  See also the application of the principle in recent email fraud cases: Mesirow Financial Administrative Corporation v Best Link Industrial Co Ltd HCMP 1846/2015, 25 January 2016 at 33-34; and 巨展皮具香港有限公司 v 上海兄弟海運有限公司 [2018] HKCFI 53 at para 27.

16.The next question is whether the court should exercise its discretion to grant the declaratory relief now or should require the plaintiff to prove its case at trial.  It is not the normal practice of the court to grant a declaration without going to trial.  However, it is only a rule of practice and not a rule of law.  This rule of practice should not be followed when the plaintiff has a genuine need for the declaratory relief and justice would not be done if the relief were denied: Hong Kong Civil Procedure 2020 at 19/7/20.

17.As in the recent email fraud cases, I am satisfied that the plaintiff has a genuine need for the relief now.  It has established a strong and obvious case for proprietary relief on the face of its pleading.  In Mesirow Financial Administrative Corporation, another email fraud case in which the victim sought declaratory relief by default judgment, Recorder Lisa K Y Wong SC explained why there was a genuine need to grant such relief.  That explanation applies with equal force in the present case and I quote below:-

“The right asserted by the Plaintiff was one of title to property. The Funds were in equity the Plaintiffs money. A mere order against the Defendant for the return of the sum that it had deprived the Plaintiff of, without more, would have put the Plaintiff in the position of an unsecured judgment creditor of the Defendant. Such an order would not per se have given the Plaintiff any prior or specific right over the Funds. Very little was known about the Defendant. In particular, it was not known if the Defendant had any other creditors and, if so, whether it had sufficient assets (other than the Funds in the Account standing to its name) to satisfy its debts and liabilities to those other creditors. It would have been grossly unfair and potentially prejudicial to the Plaintiff if it had had to race against other creditors of the Defendant for the Funds in execution of a monetary judgment. A declaration by the Court that the Funds were held on trust for the Plaintiff was necessary to earmark the Funds as the Plaintiff’s property and put the same out of the reach of other creditors of the Defendant.” (at para 38)

18.For the above reasons, I would exercise my discretion in favour of the plaintiff.

Conclusion

19.I make an order in terms of paras 13(a) to (d) above as sought by the plaintiff.  I also order that the defendant do pay the plaintiff’s costs of this action and this application, summarily assessed in the sum of $30,000.

Mr Matthew HH Lai, instructed by Paul C W Tse & Co, for the plaintiff

The defendant was not represented and did not appear